Latest / Exit Algorithms / Ecommerce Cash Flow, Profit Leaks & Fundraising Strategy with Nate Littlewood (#33)
Transcript
- speaker-0: Welcome to Exit Algorithms, the podcast where we decode what it really takes to unlock growth, streamline operations, and prepare your business for a high value exit. I'm your host, Pete Vera. And today I'm joined by Nate Littlewood, founder of Future Ready and host of the podcast Profits on Purpose. Nate helps e-commerce and CPG business owners master cashflow, profitability, and fundraising decisions so they can scale with clarity. Nate, excited to have you on the show. Welcome to the podcast. speaker-1: Likewise, excited to be here. Thanks so much for having me. I really appreciate it. speaker-0: Absolutely. Yeah, I'm excited ⁓ to dive in here. listeners that haven't heard of you before, you mind sharing a bit about your background? Yeah, maybe where you're from and then how you got into business. speaker-1: Yeah, absolutely. yeah, Obviously, I run a business called Future Ready CFO, which is a fractional CFO consulting business, basically specializing in e-commerce ⁓ ⁓ products companies. So what all of my clients have ⁓ common is that they're all investing in and figuring out how to finance ⁓ efficiently deliver inventory to customers, right? They're all physical goods type companies. Basically I do is, is work with them to take them from a state of chaos and confusion when it comes to numbers and finance to one of clarity and confidence. And I work with these founders to really help them understand how to use their financials as a strategic ally empower growth. ⁓ at the end of the day, Peter, just help them sleep better at night ⁓ be less stressed about the company. Unlike a lot of other CFOs in this space, I've actually had firsthand experience running my own e-commerce business. And in fact, that's what I was doing for six or seven years before getting into this. So it was ⁓ ⁓ company, but we started with a small Kickstarter campaign, ⁓ it into a seven figure business. Along way, I also ⁓ did mentoring and was in fact, the lead mentor at a New York City based accelerator program. called Food Future Co. before getting into the world of startups and entrepreneurships, which, ⁓ geez, for me was about a decade ago now. Before that, I spent about the first half of my career working Wall Street at a global investment bank. And that's actually what took me from Australia originally Canada for a couple of years and obviously now down here in New York. ⁓ basically my mission is to support purpose led founders and try to, eliminate or at least reduce what is currently the number one reason ⁓ these businesses fail, which is them running out of cash or not understanding some aspect of the finances. Like, ⁓ know, there's a whole lot of surveys and polls on this. People have cut and sliced the data different ways, but at end of the day, like The number one reason startup businesses fail is usually money related. And my mission is to try to help that no longer be the case. I wanna put an end to finance and money problems being the reason that these businesses fail. speaker-0: I love it. And it's great. have like, you have the financial background, operator background, you and you use those experience to give more practical, realistic advice. think that's, that's awesome. speaker-1: Yeah, I think having been an owner operator before it really helps when dealing with other founders because you know, I have a string extreme amount of empathy for their position and situations that they're in. Right. Like I know what it's like to be stressed about making payroll next month. I've had to deal with, you know, high cost MCA lenders to try to finance, you know, a purchase order last minute. Like I've done, I've, I've made a lot of the finance mistakes that, you know, founders make myself. And, know, through that firsthand experience, I think it really helps me in terms of, you know, communicating with and engaging with, with people now. ⁓ speaker-0: Definitely. Yeah, let's talk a little bit about those days. It's at Urban Leaf, right? It was the business. Yeah. Could you walk us through you ⁓ that business? were some of the growth levers that mattered most to Urban Leaf? speaker-1: Yeah. So we, I should tell you a little bit about what the business actually did. We were ⁓ ⁓ urban gardening company focusing specifically ⁓ ⁓ plants and crops. think mushrooms, think microgreens. We some mini ⁓ fruit veggie stuff, ⁓ hydroponics, lights, that sort of stuff. So ⁓ the of the company was really all about trying to get more people growing food in ⁓ urban spaces. In terms of how we grew that, I would say our main growth levers were through content, which spills over into SEO, education. We built a pretty solid YouTube channel with all sorts of, you know, instructional videos and tutorials. We had a whole lot of, you ⁓ know, lead type resources like ebooks and guides and ⁓ also built a pretty big Facebook community along the way. like a private Facebook group where people would come in and get tips and ask questions. in terms of the ⁓ numbers one of, if not the biggest driver was really ⁓ Amazon. we, had a portion of our catalog that we considered kind of, you know, entry. ⁓ products, which were admittedly more, you know, commodity in nature, but we were promoting them on Amazon and using them as kind of our starting point to establish a relationship with these customers and trying to meet demand for existing search queries that people are already running. I'm trying to put things in people's hands and say, Hey, you know, you were looking for seeds or hydroponic supplies, whatever here we are. We're open life. is what we're about. ⁓ and by the way, we've got a lot more way more interesting stuff on the website if you'd like to come check that out as well. speaker-0: That's awesome. Very unique. So not necessarily using it to sell on Amazon, but also to prospect. speaker-1: Right. So we were primarily thinking about it as a customer acquisition tool. Quite frankly, when a lot of the product categories that were in the margins were not fantastic. So, you know, I'm not going to lie and tell you that there was oodles and oodles of profit to be made selling, you know, fairly commodity light products on Amazon because it's not, it's a brutally tough game. But, you know, if you can get some small percentage of them, curious enough and interested enough in the product and brand and spark enough curiosity for them to jump on Google and do a search for you, then you're in action, right? That's where the real money making starts. speaker-0: Yeah, ⁓ that's awesome. Is there anything you would do differently if you had to restart again today? speaker-1: Oh my God, everything I would do definitely. mean, I, uh, yeah. I mean, looking back, it was one of the most valuable learning and educational experiences I've had in my life. mean, you can read a gazillion books and I mean, I did a fricking MBA before that. Like going to university and learning this stuff is absolutely nothing compared to actually having had the firsthand experience. But to answer your question on what I would do differently, mean, quite truthfully, I wouldn't have done it at all. let me clarify what I mean by that. When I first became interested in entrepreneurship, it was like, you know, a year or two after having moved to York, I'd really not thought about the world of entrepreneurship much before that. But I kind of got to New York, I was still working on Wall Street at the time. And I thought, there's all these freaking founders and entrepreneurs around here. What's this all about? And I ⁓ was curious, I more about it. And I, the more I learned about entrepreneurship, was like, wow, you mean there's a job where you can build cool stuff. You get to solve interesting problems. There's always variety. And I was like, damn, let's sign me up. should have been doing this all along. I was, you know, almost kicking myself for not discovering it earlier. And I like a lot of people that stumble across entrepreneurship, my initial response was to say, Hey, I want to be the CEO and founder. I want to start my own thing. I want my own business. I want my own product and brand. And that's what I did. What I realized over the course of doing that is that my place in this ecosystem where I can add the most value is actually not as the brand founder and CEO. were parts of that role that I really liked ⁓ enjoyed and was good at. And, ⁓ surprises. It was kind of the data analytics operation, like anything to do with numbers and forecasting. Like I love that stuff, but. Especially for a consumer products founder, there's a huge side of branding, marketing, acquisition, meta, Google, blah, blah. That quite frankly, I didn't really care for that much ⁓ it just didn't excite me ⁓ get up in the morning. ⁓ And think as a result of that, it was ⁓ part of the business that I ⁓ neglected. I should have done more in that area, ⁓ or least had a co-founder who was really, really good at it, which Mine, mine wasn't, ⁓ he was more, more an engineering technical type. So anyway, guess ⁓ back, ⁓ now realize that my role in this ecosystem and where I'm going to add the most value is not being the founder and CEO, but the guy sitting right next to him. I'm his wingman. I'm his right hand man. I'm the guy who's crunching the numbers for him, telling him what the data says ⁓ you know, feeding him suggestions about how to navigate the next big decision that we have on the. speaker-0: Gotcha. Yeah, okay. So maybe it took that experience for you to realize where you wanted to focus, right? speaker-1: Yeah, it did. It did. speaker-0: Yeah, that's awesome. Yeah. So what are you, mentioned some numbers, what are some metrics that you think are the most crucial that a business owners track on a daily or weekly basis? speaker-1: well, I can really talk to my space, which is, you know, physical products, obviously. ⁓ I guess some of the ⁓ important metrics, I mean, if you were to give me a short list and say, Hey, like you can only have a handful of numbers to look at. I would be looking at the ongoing relationship between CAC and lifetime gross profit, not lifetime value, which is linked to revenue. I want to take lifetime value, multiply it by gross profit to get lifetime gross profit, which is essentially the ⁓ cumulative or sum of all of the profit that we can generate over the duration of a customer relationship. And then compare that to CAC, which is how much is it costing us to buy that profit stream. Right. So that really tells me about the profit generating engine. of a business and how scalable that engine is. that your business necessarily has to grow or acquire customers by paying Meta and Google, but it's very, very helpful if a business like this can do that economically and profitably. And long as that ⁓ profit engine is making sense, like if the business is unprofitable, then it's really just a matter of kind of growing the engine, right? If we're not profitable today, but we have positive unit economics, then maybe we can double or triple the size of the engine. And then we're a chance to cover the overheads that we're currently carrying, right? We can kind of scale into profitability if you will. So that would be a super important one. especially for bootstrapped businesses and ones where they're operating in an environment of cash scarcity and resource ⁓ I want to see ⁓ cash conversion cycle. in other words, you know, days of inventory plus days of receivables, less days payable cash cycle basically is telling us how quickly cash is moving through the business. And that's giving me insights into how efficiently that founder or that team is managing their scarcest resource, i.e. cash, right? Cause the quicker we can use that cash, the more efficiently we can have it spinning through the business, the more ⁓ you know, opportunities we have to reinvest it in growth. And, ⁓ a very, very common mistake I see founders making is prolonged cash conversion cycles, usually from way too much stuff held in inventory and they're, you know, unintentionally just putting a throttle on their own growth by doing that. I also, I mean, from a CFO angle, ⁓ really like the current ratio, which is current assets divided by current liabilities. reason I like that is because it gives me a very, very accurate read on what the founder's world is like. you have a ⁓ current ratio, which means you've got small amount of assets and inventory compared to debt and ⁓ payable, then there's a good chance that that founder is spending a huge amount of time looking at the bank balance, figuring out which vendors to pay and essentially, you know, playing a short-term juggling act with cash. And if a founder is doing that, it tells me that they are not spending a lot of time on bigger picture strategic growth issues, i.e. doing what they're really supposed to be doing. So if I see a low current ratio, then I know that I, if I can solve that cash situation or cash problem for that founder, it's going to be a huge burden relief from them. And their headspace can then be dedicated to, you know, the things that they really should be focusing on. And the business is a whole benefits from that, right? So yeah, there's a short list of metrics I like. speaker-0: I love it. gross profit at CAC, customer cycle ⁓ and ratio. Okay. speaker-1: Yeah, the second one was cash conversion cycle, but yes, yes. Yep. speaker-0: Okay, yeah. Basically you're trying to figure out how much cash you need in the business to keep it running, right? Working capital. speaker-1: Yes. Yeah, it's linked to working capital. Exactly. speaker-0: How do you plan, as a business is trying to grow and expand, do you have any recommendations for scheduling some expenses that are involved in that? Inventory, marketing, or hiring new people? speaker-1: Well, I mean, that is really all the work of a CFO, right? It's like forecasting this and kind of predicting and looking into the future. The thing with forecasting and projections ⁓ there is a 100 % probability that you're going to get it wrong. No ⁓ no forecasts are ever spot on, but that's really not the point. really what we're trying to do with financial forecasting and projecting is just make out some shapes of things that might be on the horizon, right? We might not know precisely how deep it is or, you know, how many feet it is off the side of the road, but we want to be able to see a pothole before we get there. Okay. We want to see a tree hanging over, you know, the right-hand lane or whatever it is. So what we're trying to do with forecast, financial forecasts and projections is just get a clearer ⁓ ⁓ into the future. And the reason for that is the more time that we have to prepare it, the better prepared we can be as founders and operators. you know, for example, you suddenly discover there's a pothole. ⁓ damn, like I'm going to have a cash two days from now. Right. You don't have a lot of options to deal with that. Right. You're going to be a very desperate borrower. You're going to have to go to the highest cost lenders out there because you don't have time for a lengthy underwriting and review and, even a ⁓ search process for a competitive lender. and so you're probably going to get ripped off. Contrast that if we can see that pothole or cash shortage three months out, we got plenty of time to do a review. Like we can look at dozens of options. We can even probably get a couple of these lenders to enter into a bidding war against each other ⁓ compete for your business. And we have time to go through lengthy underwriting processes. Heck, we can potentially even do something to our overheads or maybe delay a purchase order, something to maybe avoid avoid the pothole altogether. Right. ⁓ if we can see it far enough out, we might be able to course correct a little bit swerve to one side, and maybe we don't have a need for the debt or the borrowing at all, for example. So really it's, it's about giving you more time to react and respond. to obstacles that you might see on the road ahead of you. speaker-0: Yeah, ⁓ I love that forecasting out. that seems, that's really the name of the game I feel like in terms of planning and trying to grow without running out of cash. speaker-1: Yeah, yeah, exactly. speaker-0: How should business owners think about debt? Do you think of it as kind of a necessary evil sometimes to grow or are you the opinion it should just be bootstrapped ⁓ we can? speaker-1: no clean answer to that. And like a lot of questions, it kind of depends. mean, it depends ⁓ this case, what you're going to do with the debt. the way that I would encourage people to think about it is that you are the owner and operator ⁓ of a you're in a way ⁓ behaving a bit like an investor. Okay. Your job is to source capital. from a number of different sources, one of which is debt, but you could also source capital from investors. A great way to source capital is by selling stuff to customers, Selling your inventory, that's a source of capital. You could pull money of grants or accounts receivable, accounts payable. There's a lot of places that a founder and operator can potentially get capital from. Then we have to decisions about how we're gonna invest that capital. And some common applications could be people. It could be buying ads. It could be buying inventory. It could be, you know, opening up a new sales channel or developing a new product, whatever. Like there's all different things that we could put that capital into. So really what I care about is whether or not the returns that we're going to generate are greater than whatever we had to pay for that capital. Right. If you're paying 20 % interest on a loan, but you can generate a 50 or a hundred percent return on that money. Great. Go you good thing. Keep going. Like you've just netted the difference, you know, whatever the difference is between your return and what the is costing you is your profit that you get to keep. The problem is obviously when we get into situations where those ⁓ are skewed the other way ⁓ what we're paying for capital is more than the economic profit or rent that we're generating from investing the capital. other words, we're money for inventory. It's a high cost loan. But then when we actually sell that inventory, we're not making a very big margin on it. And so the margin is not enough to pay the interest bill. That's where you ⁓ into trouble. So it's tough for me to say whether or not debt is a bad thing. I would say it's a tool. It's an instrument. If used carefully and in the right way, yes, it can have great advantages. But if you're an idiot with it and you don't know how to use it properly, it's also very easy to hurt yourself. speaker-0: Yeah. Oh, I love that. Yeah. I, um, I appreciate that very kind of simple explanation. You know, if the, you get an ROI from taking out a loan, then then a green light, right? Yeah. So it's not, I was going to ask, you know, do you have a preference of a type of, of capital or a loan to pursue? Um, but it's from that lens, it sounds like not necessarily just whatever the interest rate is and weighing those that cost benefit analysis where you'd be able to return, you know, how much revenue you'd able to generate with it. speaker-1: Yeah. think what you just described is most of it. I would add some, ⁓ nuances there. it's a little bit more complicated than just looking at the interest rate or APR. you know, of these facilities and loans are a little bit different in terms of their maturity profiles. you know, the security that they might take, you know, discounts for early repayment, you know, ⁓ what the maturity profile looks like. Like, so ⁓ really what we need to do is kind of a risk return analysis. And what I'm trying to help people with is basically make bets or make decisions where the odds are stacked in their favor, right? Things can always go wrong, right? Like we, Facebook might block us or the, the warehouse might burn down. Like there's always things that could potentially go wrong. But what I'm trying to do is minimize downright downside risk and the severity or magnitude or likelihood that something goes wrong. And at the same time, increase our chances for something going right. And the more often we can do that, the better the bets become skewed in our favor. And if we're placing bets regularly that are consistently skewed in our favor, a recipe for economic growth. Like that's how you grow profit in a business. Okay. Does that make sense? speaker-0: Yeah, no, I appreciate that insight. Yeah, do you use any tools to help you do that analysis? speaker-1: So ⁓ really. mean, I do a lot of it ⁓ spreadsheets, you know, ⁓ ⁓ calculations and that sort of thing. I, whenever I am running one of these processes for my clients, I'm usually building out spreadsheets to, you know, calculate the various metrics and numbers that I need to look at. I'm sure there's probably some tools out there for doing it, but I kind of do it the old fashioned way, to be honest. speaker-0: Yeah. Yeah. Well, you've been comfortable doing it that way for, for years and years. is it vibrating? It's not fixed, right? Or why fix it? It's not broken. speaker-1: Yeah. speaker-0: Do you use any AI in your business? speaker-1: I do. So I use AI a lot already on surprise ⁓ on a lot, a lot of the, marketing content creation stuff. A lot of that is AI, AI with human intervention kind of sprinkled on top. know, you always have to humanize the stuff that they come up with. But I use it for certainly thinking about strategy. I use it for reviewing a lot of our marketing data and figuring out what is or isn't working. in the process ⁓ figuring out how to do more of it in the operational side of my business. And I that within 12 months, CFOs aren't to be building models and doing projections like do today with spreadsheets anymore. really just a matter of time before financial model building kind of disappears as a profession and industry. you know, I'm working on that building AI agents to, you know, do the month on month analysis and look at, know, what happened compared to what was our budget and what went wrong and break down, you know, do the monthly reviews. I also offer a entry, kind of an entry slash lead magnet product called a hidden profit audit where costs about a thousand bucks and takes a week. And essentially I will guarantee you that I can find at least $10,000 of profit leaks in your business. The last couple I've done, I've actually found more like $300,000 of profit leaks for the founders. And this is for, you know, a product that costs a thousand bucks upfront. like, The ROI on this thing is insane. But anyway, I'm, eventually going to figure out how to do ⁓ lot of that with AI, which is basically ingesting all of a brands like Shopify data, their financial data, their inventory data, running all the analysis for them. ⁓ you know, ⁓ out the benchmarks and reports and basically diagnosing their business. It's kind of like, you know, taking your business to the doctor, if you will, and getting your health tests like. I just have to tell the doctor what healthy looks like, what's problematic and what are some common reasons that people get unhealthy. And then I figure the AI should be able to do a lot of this for me. speaker-0: Yeah. Oh, I love that. It's exciting to see, where it's going. Uh, that's like a lot of, I've a lot of feedback from, uh, people I've interviewed is it's really good at analyzing data, um, doing certain tasks, but most of the time, especially with like the marketing play, right? It's about, it maybe gets like, it can get almost maybe 90%, but you absolutely need to sprinkle, sprinkle that human element on top or else it's. It's very obvious. Yeah, no, I love that. Um, you know, you have some direct applications with, with modeling and, uh, so forth. Where do you, it, I think it's really important, especially people in your industry to start using it and adapt with it or else there could become extinct. Like you were, you were mentioning earlier. Do you see, where do you see it going in the future? speaker-1: embarrassing otherwise. Uh, that's an interesting question. Um, I mean, I'm by no stretch of the imagination and AI expert here, but let me throw out some things that I think would be cool to see happen and which I think AI can probably do in the not too distant future. I mean, all of the, listen, let me take a step back here. We're in 2026, right? No one in the year 2026 is suffering from a lack of data. Right? We're all drowning with it. Our problem is not that we don't have enough data. Our problem is figuring out what are the signal, how to differentiate the signals from the noise and what is the 99 % of the data that we should ignoring and the one or 2 % that we actually need to pay attention to. So ⁓ think ⁓ we're probably not too far away from ⁓ fully integrated systems that are sucking in You Google analytics, ⁓ your GA four data, your, all the data from your ad buying accounts, your metal, your Google, all of your Shopify data, all of your inventory management system data, all of your accounting data. And basically, you know, a co-pilot for your entire business and. ⁓ noticing like, Hey, there's been a ⁓ spike in this search query. All of a sudden more people are coming to your site with this specific query. ⁓ that must mean that our sales forecast for this skew is probably conservative. ⁓ we should place a new purchase order. because we've just reached 5,000 units. Let me look at the last correspondence I had with that supplier. We're now hit, you know, a higher MOQ or whatever. Therefore we can negotiate a better rate ⁓ you know, bang, we need to bang, you know, connect all those dots going from a search query to renegotiating with a, with a supplier or vendor and you know, getting the product wherever it needs to be. I mean, it's, it's, it's scary to think where this could all take us. think what of the big themes of the next year or two in ⁓ consumer space ⁓ is that is also to commoditize customer acquisition. Once upon a time whether it was written or, you know, visuals and images. Creative was a little bit of a moat for a lot of brands. And you could clearly tell the difference between a brand who's good with creative and visual storytelling and copywriting and one who wasn't, right? AI ⁓ now enabling and empowering is all the people who aren't good at that stuff. And was previously ⁓ a ⁓ or barrier to for them when it came to branding, marketing, customer acquisition, ad copy and so forth. is rapidly disappearing as a barrier. So what's going to happen that there'll be more competition for clicks ⁓ impressions and eyeballs. The cost of these impressions is going to go up because there's a finite amount of tension and eyeballs on screens. When there's more competition, the price has to rise. So everyone's going to be paying more to acquire these customers. you know, Zuckerberg and co, we're only going to sell this to the highest bidder. And what is going to become the differentiator between the brands that make it and those that don't, I think is really going to be about, you know, product and customer experience. brand that has the best product in a world where customer acquisition is commoditized is going to be the one that drives customers back. And ⁓ for reason, I'm really bullish on brands that are optimizing for product and know, customer experience. speaker-0: Hmm. Yeah, I love that answer. First, you said you don't think about AI much, but you were very eloquent in that response. I appreciate it. speaker-1: problems. speaker-0: Yeah, the signal versus noise ⁓ I that ⁓ concept. It to a lot of areas in life. I think it was Jeff Bezos that I've heard that from initially. But ⁓ the more can help with that. What'd say? speaker-1: Someone much smarter than me came up with it. was certainly not my expression. speaker-0: Yeah, that's brilliant. The more AI can help with that, I think that's a brilliant, that's a great thing. yeah, ⁓ been a great conversation today, Nate. I always leave the last question as one practical tip business owners can implement this week. speaker-1: One practical tip. trying to think through something that's as broadly applicable as possible ⁓ that almost every business owner could do. Here's what I got for you. I, I this with a of my clients, ⁓ use a tracking app for a month and categorize how you're spending time based on marketing, sales, operations, HR, finance, know, team meetings, emails, whatever it is. There's free tools. You can use this. like one called toggle T O G G L. ⁓ they have a free, a free plan after a month, take that data on how you're spending time and put it into AI and ask it to diagnose it for you and tell you what you might be doing well and what were you doing efficiently. ⁓ you kind of follow on with a few prompts about like, Hey, what does this imply for my efficiency as a business operator? Who should I be hiring to help me? Who could make my life easier? I think get some really, really interesting insights from doing an exercise like that. speaker-0: That's a great one. That's good way to end it. You got to manage yourself before you can manage your business, right? speaker-1: Yep, absolutely, absolutely. speaker-0: Awesome. Yeah, well, I want to give you the floor if you have any last words, plugs for your business and where can listeners find you the easiest? speaker-1: Yeah, sure. I appreciate it. So I'm pretty active on LinkedIn posting their most days. My name again is Nate, N-A-T-E, ⁓ Littlewood. Should pretty easy to find. It's a fairly unique name. The website futurereadycfo.com. ⁓ And if go to the service section or services section, you'll find that hidden profit I was talking about. You know, I'm obviously a little bit biased, but I legit think it is. one of the best deals going around at the moment in the e-comm slash finance space. You know, the ROI that I've been delivering on that from, you know, the people that are taking it is just mind boggling. And you know, what people are doing with the information is really cool as well. So feel free to check that out. Otherwise, I'm happy to chat about whatever else you may have on your mind. speaker-0: Sounds good, Nate. I'll leave that in the show notes. Thank you for coming on today. speaker-1: Of course, thanks for having me.