Latest / Scalability School / Building a Bulletproof Plan for Growth in 2026

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Building a Bulletproof Plan for Growth in 2026 · Scalability School

0:00
But brands that have very high fixed
0:02
expenses, especially ones that like do
0:04
their own manufacturing
0:04
and stuff like that, like those are the
0:06
ones where it's like
0:06
you need to make sure that
0:07
your worst case can cover
0:09
all of your fixed expenses.
0:10
So that's not going to
0:11
destroy your business.
0:12
The second big chunk is the relationship
0:13
between new customer
0:15
revenue and advertising spend.
0:17
So being able to kind of see, okay, what
0:18
was spent on different channels?
0:19
How much was that kind
0:20
of increasing over time?
0:21
What sort of caks were you able to see?
0:23
What sort of volatility
0:24
did you see in your cak?
0:24
How much of a degradation did
0:26
you see in your cak over time?
0:27
Whether or not the projections you have
0:29
for increased spend and
0:30
a certain amount of cak
0:32
degradation, like are you making the
0:33
investments on the creative side?
0:33
Most business owners do not spend enough
0:35
time scrutinizing the
0:36
ROI on full-time hires.
0:38
I think when it comes to personnel, for
0:39
some reason, they
0:39
just fly under the radar.
0:40
And so far as like what sort of value
0:41
they're driving and what they're
0:42
contributing to the business,
0:43
where if I were to go to them and be
0:45
like, okay, what did
0:45
this person do last month?
0:46
Like, well, they did
0:47
XYZ. I'm like, okay, cool.
0:48
That cost you in
0:49
salary, let's say $8,000.
0:50
If somebody came to you with an RFP and
0:52
said, I will do these things for $8,000,
0:53
would you assign that contract?
0:55
Absolutely not.
1:02
And now let's take a listen to the
1:04
Scalability School podcast.
1:06
Welcome to another episode of the
1:07
Scalability School podcast.
1:09
Your best friend for running your
1:11
e-commerce business the
1:13
best way that you possibly can.
1:15
Glad to have you today. Special guest,
1:18
Abir, who is one of the
1:21
financial gurus really that
1:22
we have in the Fox Hill Founders
1:23
membership, somebody that we
1:25
all look to, to think about
1:27
planning and forecasting and all of that
1:32
as it relates to running a business.
1:34
So Abir, welcome. Glad to have you.
1:37
Thanks so much. I
1:37
appreciate you guys inviting me.
1:39
Are you guaranteeing everybody's going to
1:41
have a 50% increase in ROAS and
1:43
contribution margin this year
1:45
by your presence on the podcast?
1:47
If they don't, I'm
1:48
willing to give up my CPA title.
1:51
Perfect. Perfect.
1:53
Yeah. So Abir, I don't, if you don't
1:56
know a beer, I'll just give like a quick
1:58
bit of background on my own.
2:00
Abir's organization is like an
2:02
outsourced CMO for a bunch of different
2:04
e-commerce businesses.
2:06
It's also done presentations in the Fox
2:07
Hill community about running your agency
2:10
better and thinking about
2:12
just how to think about, you know, how
2:15
you're making money and you're thinking
2:16
about expenses and everything else.
2:19
Brad was trying to figure out how to do
2:22
forecasting and was digging around
2:23
YouTube and found a beer's old
2:25
YouTube's about running things. And so
2:30
Brad, do you want to give
2:31
your background on a beer
2:32
in case people don't know who he is?
2:35
Yeah, I know we've chatted a few times
2:37
just like through the Fox Hill group and
2:38
that's where we met.
2:39
And it's one of my favorite things about
2:40
the group, not to make
2:42
this a pitch for the group,
2:43
but you get to meet people who have
2:46
similar and differing opinions.
2:47
But we've interacted over shared and
2:51
differing spreadsheets primarily.
2:53
So yeah, now I've just kind of seen the
2:55
work that you do and the resources you
2:56
put together for the folks in the group
2:58
and just always admire and take
3:00
inspiration from those. So yeah.
3:02
I appreciate it. I know you do some great
3:04
work on the margin side
3:06
in the models as well.
3:07
So a big kind of your work too.
3:10
Appreciate that. Appreciate that.
3:11
The goal of today's episode is to walk
3:12
through, you know, look,
3:13
you're looking at 2025,
3:15
you're looking at what happened in the
3:16
previous year, and then
3:17
you're looking into a new year.
3:19
Just right out of the gates, a beer like,
3:21
what do you, do you start reviewing the
3:23
prior year before planning the next one?
3:26
A hundred percent. The historical is
3:28
always the best place
3:28
to start because it's,
3:31
forecasting is a very challenging
3:33
exercise because it
3:34
obviously requires a lot of
3:36
dreaming and assumptions and
3:38
imagination and what have you.
3:39
And as much as possible, you want to be
3:40
able to ground it in
3:41
some amount of reality.
3:42
And the arguably most honest data that
3:45
you could work with is
3:45
what has happened in the past.
3:46
Not to say that that's necessarily a
3:48
perfect reflection of how
3:50
the future is going to go,
3:51
but nevertheless, it is something that
3:52
can be a very strong starting point.
3:54
So usually the whole forecasting game is
3:56
kind of broken into, to
3:58
simplify it like the three pieces.
3:59
So one is that you kind of pull up the
4:01
historical data, make sure that you're
4:02
able to analyze it in a
4:03
way that allows you to,
4:05
as much as possible, understand a story
4:07
of how the business has been doing.
4:09
And it gives you a lot of indications,
4:10
not only as to what sort
4:12
of trends you're seeing,
4:13
but also kind of like fundamentally what
4:15
the company is capable of,
4:16
like what their market looks like, how
4:17
their product stacks up against things,
4:19
like what they've
4:19
actually been able to accomplish.
4:21
The second piece of it is then having
4:23
that conversation with the brand in,
4:25
to one extent, to be able to kind of
4:27
understand a little bit more
4:28
depth beyond just what you're
4:29
going to see from the financial side.
4:30
So like, what are the
4:31
things that you tried?
4:31
Why do these things work or not work?
4:34
What sort of challenges do you have that
4:36
may not necessarily be
4:37
reflected purely in the
4:38
financial data?
4:40
And then also then kind of speaking
4:42
towards what the plans are,
4:43
like what do they want
4:44
to be able to accomplish?
4:45
You know, what the goals are to some
4:47
degree, but also like,
4:48
what are the things that they think
4:50
they'll be able to do or
4:51
what sort of tactical plans
4:52
that they have in place that will be able
4:53
to kind of allow them to see improvements
4:57
over the historical data?
4:58
Then that's obviously tempered by some
4:59
amount of conservatism
5:01
and judgment on my part,
5:02
because some people are especially
5:04
ambitious with the plans that they have.
5:07
And then it's a question of being able
5:08
to, okay, now say, let's take
5:10
that story and then build it
5:11
out as to an extent extrapolation of the
5:14
historical data so that there
5:15
is at least a little bit of a
5:16
consistent story between kind of the last
5:19
12 months and the next 12
5:20
months to be able to kind
5:20
of show how that can, you know,
5:23
realistically be the same company, you
5:25
know, run by the same people
5:26
and with the same product in the same
5:27
market, and then see how what
5:29
would have to actually happen
5:31
fundamentally to be able to kind of
5:33
achieve those goals to be
5:34
able to say if it's realistic.
5:35
So if you say you want to be able to, I
5:37
don't know, increase
5:38
revenue by 150%, then at the very
5:41
least, we can say, okay, well,
5:42
historically, this is what the profile of
5:43
revenues look like in terms
5:44
of new customers, returning customers,
5:45
the ad spend that you had
5:46
in the CAC that you had.
5:48
So mathematically, what would those
5:50
numbers have to look like? And what
5:51
configuration of numbers
5:52
would actually let you hit that 150%
5:54
revenue growth? And, you
5:56
know, if your CAC would have to
5:57
go down by 50%, but you'd have to double
5:59
an ad spend for that to
6:00
be hittable, then we say,
6:01
okay, it's probably not a realistic goal.
6:03
So let's go back to the drawing board.
6:05
Yeah, can I can I lay out like a very
6:07
specific example of how
6:09
somebody could do this? And you
6:10
tell me like, that makes sense. But I
6:12
would change it and do
6:13
it differently this way,
6:13
just to give people an idea. Sweet. So
6:16
the way that I the way that
6:18
is a very like light version
6:19
of looking at last year could be, let's
6:22
start at the top, like let's look at
6:23
revenue and ad spend
6:24
trend by month. And let's just export
6:26
those for like the last
6:27
three years and put them side by
6:28
side. The way that we do it is like a
6:30
simple version is like you
6:31
can just wait the last three
6:32
years and say, cool, if if the last three
6:35
years are similar to what
6:36
we can expect this year,
6:37
now you can understand where revenue
6:39
occurs throughout the
6:40
course of the year on a monthly
6:41
basis. So before you think about 2026,
6:44
and whatever, it's like,
6:44
okay, I can see how revenue
6:45
flowed throughout the course of the year
6:47
seasonally. And I can see how
6:48
spend kind of went along with
6:49
that. And then you start to look at those
6:50
those peaks and valleys.
6:51
And to your point, what you're
6:52
saying is you start to plot, well, okay,
6:54
what are we doing this month? What are
6:55
you doing this month?
6:56
Where could you know, maybe we have some
6:58
ideas as we're doing this is
6:59
like start to plot this out
7:00
and literally see, okay, this is the this
7:03
is the quantitative power to the
7:06
marketing calendar that
7:07
becomes the qualitative stuff that goes
7:09
along with it. So we just
7:10
kind of export look at the last
7:11
and call it you know, you can do two,
7:13
three years, see when those
7:14
revenue peaks and valleys occur,
7:15
and then start to like map it out side by
7:17
side. Is that was that
7:18
similar to what how you do that?
7:20
Yeah, I like that approach. Because
7:21
essentially, you're
7:22
incorporating not only the month over
7:24
month aspect of it, but the year over
7:25
year aspect. So you have the seasonality
7:27
component. And so far
7:28
as like how does revenue peaks and
7:30
valleys occur during the year, but then
7:32
also making sure that
7:33
the trend from a year to year to year
7:34
basis makes sense. So if you're one to
7:37
two to three, you only
7:37
grew by 15% each year, and now you're
7:39
predicting 80%. It's like, cool, maybe,
7:42
but you've got to give
7:42
me some sort of convincing story as to
7:44
why that might be possible.
7:46
So you're incorporating both
7:47
sides. The only other thing that I would
7:49
probably add to that, which
7:50
is, to some degree already
7:52
factored in what you're describing is
7:53
that for high retention
7:54
brands, I think the breakdown
7:56
between the returning customer and the
7:57
new customer revenue
7:58
is extremely important,
7:59
because the way that those cohorts kind
8:01
of affect what sort of
8:02
growth you can get from a
8:03
compounding basis, like that can be one
8:05
of those things where it's a very
8:06
different profile of how
8:08
that analysis is done for like a higher
8:09
retention brand versus
8:10
kind of a mostly first order
8:12
profitable brand. Right? Because you
8:14
might see the concept
8:15
applies. Because the new customers
8:16
might flow with seasonality. But if your
8:18
retention has been crazy,
8:19
like that might smooth it out.
8:20
And it's kind of misleading and
8:21
confusing. Right? Yeah. And
8:23
there's a compounding effect,
8:25
because you could grow from like, say 15%
8:28
to 25% to 35% to 50% 60%.
8:31
That can happen if you have,
8:32
you know, really good retention, and
8:34
you're able to kind of
8:35
make that that play work,
8:36
especially for subscription brands, like
8:38
it's a much more
8:39
different approach. So that aspect
8:41
does it's almost like having two
8:42
different versions of how
8:43
you approach forecasting. It's
8:45
like if you're below a certain amount of
8:46
returning customer
8:47
revenue, and if you're above, and
8:48
especially if you're on a subscription
8:50
heavy brand. Yeah. And
8:52
would you say that doing that
8:53
kind of like top level, like starting
8:54
with revenue, maybe
8:55
splitting it by new and returning
8:56
customer looking at ad spend? Is that
8:58
enough depth for like
9:01
most brands, if they've never
9:02
done this before, is like a starting
9:03
point, just like, hey, like
9:04
zooming out and looking at this
9:05
is going to get you a long way. Or when
9:07
do you start to layer in
9:08
like, okay, I want now I want
9:09
to pull up meta and see how that
9:10
fluctuated throughout the
9:11
year, I want to pull up Google
9:11
and see how that fluctuated throughout
9:12
the year, I want to look at
9:13
my creative trends and see how
9:14
that fluctuated throughout throughout the
9:15
year. What is what is like,
9:17
how do you how do you take it
9:18
and add depth to it? I mean, I think if a
9:21
brand isn't doing
9:22
anything, then certainly kind of
9:23
starting with the revenue side of it is
9:25
the easiest place to go.
9:26
I think if they have a lot
9:28
of ambitious growth plans and kind of
9:30
maybe going to a little bit
9:31
more of the creative or the
9:33
channel level side of things can help a
9:34
lot. But then you'll also
9:36
you get into a little bit of
9:37
the whole issue around kind of
9:38
attribution, incrementality
9:39
and all that stuff. And it comes
9:40
down to the sophistication of the person
9:42
analyzing the data. I think
9:43
doing this split on a channel
9:45
by channel basis and kind of attributing
9:47
things to different things
9:48
like if you're mostly meta
9:49
Google, like I think maybe that breakdown
9:50
is maybe somewhat worth
9:51
it because Google again,
9:53
depending on the product and whether
9:54
you're going heavily branded or non
9:55
branded, whatever the case
9:56
might be, then like that can often be a
9:58
little bit more stable to
9:59
some degree. So I think where the
10:01
analysis will probably get you the most
10:03
bang for your buck for people
10:05
who have ambitious growth is
10:08
when they're looking at their meta spend
10:09
and kind of whatever they
10:10
can make any assumptions they
10:11
want about their CAC and how much that
10:13
degradation they're going to
10:13
see as they increase spend.
10:15
I think the key part that a lot of people
10:16
neglect is their
10:17
investment on the creative side
10:19
because fundamentally for you to be able
10:21
to double your spend and
10:23
only see maybe say a 20%
10:25
increase in CAC, you probably are
10:27
investing a lot more in creative. That
10:29
doesn't happen unless you're
10:30
giving a very substantial investment to
10:32
that side. And I think that's
10:33
a part that people oftentimes
10:34
just gloss over. Yeah, I think it's
10:37
easier with people that are
10:38
marketers that became brand
10:40
owners versus people that are brand
10:41
owners that are trying to
10:42
figure out how to do marketing.
10:43
Right. So let's say that you're starting
10:47
to build a forecast for the
10:49
next year. You're thinking
10:50
about, so what are you taking from there
10:52
to inform, to make a great
10:53
forecast? Yeah, it's a good
10:55
question. So I'm probably tackling them
10:57
maybe like three pieces.
10:58
So the first one would be
10:59
kind of what we discussed with Brad, the
11:02
breakdown of kind of what
11:03
your overall revenue performance
11:05
looks like. So especially if you want to
11:07
be able to forecast
11:08
effectively and you do have good
11:09
retention, then like being able to pull
11:10
all the cohort data to be able to
11:12
understand like how does
11:13
how do newly acquired customers perform?
11:16
Like that's one very big aspect of it.
11:18
The second big chunk is the relationship
11:20
between new customer revenue and
11:23
advertising spend. So
11:24
being able to kind of see, okay, what was
11:25
spent on different
11:26
channels? How much was that kind of
11:28
increasing over time? What sort of CACs
11:29
were you able to see? What sort of
11:32
volatility did you see
11:32
in your CAC? How much of a degradation
11:34
did you see in your CAC
11:35
over time? And whether or not
11:37
the projections you have for increased
11:39
spending, a certain amount of CAC
11:41
degradation, like are you making the
11:42
investments on the creative side? And
11:44
then the third piece is
11:46
everything essentially operational. So
11:48
that covers a lot, but I just kind of
11:51
lump it all together
11:51
because philosophically you're kind of
11:52
approaching it the same
11:53
way, but it's a question of,
11:55
okay, for a given level of activity, what
11:56
are you seeing in terms of
11:57
kind of agency expenses for
11:59
personnel? What do you need to invest in
12:01
development cost or
12:02
product expansion or product
12:05
research or launches or whatever? And
12:07
then also that has to tie
12:08
into everything from a cashflow
12:09
and inventory perspective too. That's the
12:11
very big chunk on the
12:12
balance sheet because
12:14
you can kind of predict whatever sort of
12:15
growth that you want, but
12:16
that has to be fundable.
12:18
So depending on the cash resources that
12:20
you have available, can you
12:22
actually fund that sort of
12:22
growth? Can you purchase the inventory at
12:24
the rate that you need to be able to
12:25
scale up into it? So
12:26
that part is the... That's difficult from
12:29
a mathematical
12:30
perspective, but it is very
12:32
logical. If you can get the first two
12:33
things right, then
12:34
everything else technically just
12:36
flows mathematically from that, but
12:37
people still struggle with
12:38
it because it's hard math.
12:40
But the first two or the second one in
12:42
particular is the especially
12:43
difficult one because that's
12:44
the one where you're kind of just
12:45
guessing and it's essentially
12:47
impossible to know for sure.
12:49
Yeah. So let's say there's two scenarios.
12:51
It's either what...
12:52
Particularly in your case,
12:53
it's like you're saying, "Okay, we've
12:55
looked at last year client.
12:58
What would you want to do in
12:59
2026?" And you either get, "Okay, that's
13:03
realistic," or "It's probably not
13:04
realistic." And I've been
13:05
telling our team lately, it's like we're
13:06
not really in the camp of
13:08
it's not possible. We're
13:09
just like, "Likely to happen, unlikely to
13:11
happen. What needs to
13:12
happen in order to make it more
13:13
likely to happen?" But those are the two
13:16
scenarios. Let's assume that
13:17
they've been growing 20% year
13:19
over the year, the last couple of years,
13:20
and they want to push for
13:21
40%. When they give you the 40%
13:24
number, are you asking for, "Hey, what's
13:26
your profit goal?" Or are
13:27
you breaking it down into
13:29
revenue and spend? What is the specific
13:31
metric that you're starting
13:32
with? Are you going bottoms
13:33
up, top down? How do you usually do that?
13:35
It usually starts with a
13:37
little bit of a conversation
13:38
as to what the brand has insofar as their
13:41
aspirations for the company and what they
13:43
have available in terms of funding. For
13:46
example, if their aspiration is like,
13:48
"Oh, I want to be able
13:48
to build a cash flowing business or a
13:51
lifestyle brand," whatever
13:51
it is, that's going to be one
13:52
approach versus like, "No, I'm
13:53
specifically trying to target
13:54
an exit in X amount of years."
13:56
That inevitably, to some degree, just
13:58
lays out what the sorts of
14:00
goals are and whether or not
14:01
what they're saying for this particular
14:03
year is in line with what would be
14:05
necessary several years from now to be
14:07
able to accomplish that overarching goal.
14:09
The second piece of it is like, "Okay,
14:10
with the resources
14:11
that you have available,
14:12
is that possible?" If you're
14:13
bootstrapped, then that's a very
14:14
different game versus like if you
14:16
plan on raising funds or if you're going
14:17
to be taking on a lot of
14:18
debt or whatever the case might
14:19
be. Beyond that, I agree with what you
14:21
laid out where it's not
14:23
about saying that anything they
14:24
bring to the table is not possible. It's
14:26
about saying, "This is
14:27
what would need to happen for
14:29
that to work." Anything is kind of
14:31
possible. Something is just very
14:32
difficult, but you'd have
14:33
to be realistic about it. If somebody
14:34
says, "Well, I want to be able to triple
14:37
my ad spend, but also
14:39
like I'm not going to invest in creative
14:41
or improve my agencies
14:41
and I've never been able to
14:42
do that in the past," it's like, "Yeah,
14:44
sure, fine." Maybe if you find like a
14:46
spectacular marketer that
14:48
is able to completely change the
14:49
messaging and branding and
14:50
everything than possible, but
14:52
realistically, there's going to be
14:53
certain amounts of
14:54
investments necessary in the marketing
14:55
machine to be able to help it increase
14:57
because it's not just about ad spend,
14:59
that's just the fuel.
15:00
The machine itself has to be capable of
15:02
processing a certain amount of spend
15:04
effectively. If not,
15:05
you have to upgrade the machine. So
15:06
that's the thing that people... It can
15:08
often be a little bit
15:08
of a hard pill to swallow for some
15:09
brands. Yeah,
15:11
definitely. So let's use Andrew's
15:13
hat shop scenario here. We've got...
15:16
Andrew's been slinging hats.
15:17
He did $2 million in profit
15:19
last year and he wants to do $3 million
15:20
in profit this next
15:21
year. How are you building...
15:25
What's a simple version of... And I know
15:26
it might be hard to fully
15:28
visualize this if we don't have
15:29
a spreadsheet in front of us of actually
15:31
going through this, but I
15:33
want people to be able to
15:33
walk away saying, "Okay, I know I need
15:36
this, this, and this, and I can work my
15:37
way back to a goal."
15:39
What kind of steps did you take from
15:40
there? I usually go top
15:42
down. So it starts from the
15:43
revenue perspective. So these are the
15:45
sorts of revenue growths
15:47
that I would have to hit.
15:48
Obviously, the models are dynamic. So you
15:50
start with a rough guess
15:51
and you're like, "Well,
15:51
that only got me to $2.4 million. So let
15:53
me tweak my assumptions." But
15:55
essentially, that's the idea.
15:56
You come at it from the revenue
15:57
perspective and say, "Okay, well, this is
15:58
the sort of revenue that
15:59
I need to be able to hit. For that, I
16:01
need to be able to... This amount of
16:02
spend at this sort of
16:03
CAC that will give me this sort of
16:04
contribution margin." And then from a
16:06
fixed expense perspective,
16:07
you kind of hope that you're able to keep
16:08
it stable, but
16:09
realistically, you're going to have
16:10
to increase it to some degree. So you
16:11
say, "Okay, well, I need to
16:11
add a little bit more personnel
16:13
on this side. I need to be able to do X,
16:14
Y, Z." And then again, you
16:15
also come back to the cashflow
16:16
side to say, "Okay, this is the P&L that
16:18
I want to be able to have
16:20
inevitably for this amount of
16:23
revenue growth. This is the amount of
16:24
inventory I'm going to have
16:25
to buy based on kind of like my
16:26
lead times and what have you. And do I
16:28
have enough cash in the bank to be able
16:29
to sustain that whole
16:31
cash conversion cycle?" So it's really
16:33
just kind of working top down
16:34
from the revenue perspective
16:35
in most cases. So looking at... You're
16:38
making this forecast,
16:40
you're looking at the revenue,
16:41
going through that with them and
16:42
forecasting. When people are building...
16:46
How are you changing
16:47
forecasts quarterly, monthly, weekly? How
16:51
often do you recommend a
16:52
brand owner changes that and
16:54
revisits the forecast? Because I think
16:56
sometimes people... I've
16:58
seen brand owners hold on to a
17:00
forecast longer than they should based on
17:03
things that aren't
17:05
happening, right? And that could be a
17:07
combination of a lot of different things,
17:09
but how often do you
17:10
recommend people are revisiting it
17:11
and looking at it based on what they're
17:13
seeing? Because there's
17:14
obviously going to always be
17:15
changes that are taking place in the
17:17
case. Generally speaking,
17:20
I'd say a month, like every
17:21
month. I think you get your updated
17:24
through that. Yeah, you do your forecast
17:26
to actual analysis. You
17:27
see the process, you get your books
17:30
closed, you do your forecast to actual
17:31
analysis. And then you
17:33
ask the question, it's like, "Okay, cool.
17:34
If I miss my forecast
17:35
above or below, what were the
17:39
assumptions that I had made incorrectly,
17:41
even if it's a favorable
17:42
outcomes? What are the assumptions
17:43
that I made incorrectly? And how does
17:44
that affect my future assumptions?" I
17:47
think if people are doing
17:49
that monthly, that gives them the
17:50
opportunity to make the corrections. I'm
17:52
a brand owner could look
17:52
at that and say like, "Oh yeah, I thought
17:54
I was going to 58% increase
17:56
spend and I didn't do that,
17:57
but that's because, you know, zuck." But
18:00
next month it'll work. And
18:02
like, "Okay, cool. They can
18:02
be delusional, that's their own
18:04
prerogative, I suppose." But
18:06
nevertheless, I think the
18:07
habit is to do that monthly forecast to
18:09
actual analysis because
18:11
realistically, the forecasting
18:13
is always going to be guessing to some
18:16
extent. It's just a
18:17
question of you getting better at
18:19
guessing over time and improving your
18:20
judgment and hopefully improving the
18:23
conservatism as well,
18:23
if you happen to be somebody who's a
18:24
little bit overly optimistic. So that
18:26
analysis on a monthly
18:27
basis is good. And then usually you
18:29
should, it's usually easy enough to be
18:30
able to just kind of
18:31
tweak the forecast as necessary to make
18:33
it a little more
18:33
realistic. Is it a lot that they're
18:35
missing forecasts because they're not
18:37
properly understanding like
18:39
what their OPEX is and it's
18:42
changing and they're not able to get as
18:44
many sales in the door? Or is
18:46
it tied to, is it, you know,
18:47
you mentioned creative previously, is it
18:49
that they haven't invested
18:51
in the other arms of it? Like,
18:53
what are the reasons that people are
18:54
missing a forecast?
18:55
Almost always it is that they
18:57
overestimate how much they'll be able to
18:59
increase ad spend while
19:00
maintaining the same row as our
19:02
CAC. It's almost always, like the most
19:05
default assumption is
19:06
people just showing up like,
19:07
"Yeah, we'll increase ad spend 10% month
19:09
over month every month for
19:10
the rest of the year." Like,
19:10
that's like the default that everybody
19:12
just assumes is going to
19:13
happen. And it almost always
19:15
is the biggest problem because to be
19:17
honest, almost everything
19:18
else flows from that. So yes,
19:21
a person can, like you'll have other
19:22
instances. Like for example,
19:23
one brand comes to mind, they
19:25
hired a very expensive like VP of sales
19:28
because they wanted to be
19:29
able to kind of like have all
19:30
this retail growth and the person didn't
19:32
work out. So they would
19:33
have projected that, "Okay,
19:34
we're going to get this sort of kind of
19:35
traction and retail and
19:36
whatnot." And that didn't really
19:37
end up happening. So then they end up
19:38
firing the person. So there's
19:39
adjustments to the forecast as
19:40
a result of that where, okay, your
19:42
personnel, your revenue didn't
19:43
kind of go up the way that you
19:44
hoped and your personnel costs went down.
19:46
But realistically, if
19:47
you're being at least somewhat
19:50
thoughtful about how you optimize and run
19:52
your business, everything
19:53
should flow downwards from
19:57
the way that revenue is performing. So in
19:59
a sense, it's like, if
20:00
you're thinking in terms of cause
20:01
and effect, it's sort of like almost all
20:04
of your OpEx is an effect
20:05
of, or sorry, yeah, an effect
20:07
of the cause, which is kind of like the
20:09
revenue and the ad spend.
20:10
And the only thing that's
20:12
upstream of that, if you will, is
20:14
creative investment for the
20:15
most part. Just either your
20:17
investment in kind of like the marketing
20:18
talent, the agency and the
20:19
creative, because that is
20:21
probably step one, which affects how much
20:24
you can spend at whatever
20:24
sort of CAC. And then for a
20:26
given CAC and for a given amount of
20:27
spending, a given obviously,
20:29
consequentially amount of revenue,
20:30
that's what affects everything else. That
20:32
affects your cashflow, your inventory
20:33
balances, your OpEx,
20:34
the personnel that you hire, how much you
20:36
spend on software. Pretty
20:37
much everything is downstream of
20:38
that. So like that's the biggest place
20:41
that people miss. It's just the
20:42
assumptions around ad spend.
20:43
I mean, I feel like that's something that
20:46
as a marketer, I've had to
20:47
tell people for a long time
20:49
on meta, the more you spend, you're going
20:51
to reach less relevant
20:52
audiences. And thus you're
20:54
creating creative immediately as you
20:57
expand to reach out to new
20:58
personas and stuff. One more
20:59
question, and then Brad can ask a
21:01
question. But like, if
21:03
people are doing this, they're
21:05
reaching less relevant audiences, the
21:06
cost is going up. It tends to be, to me,
21:13
a brand owner will say, well, now we're
21:15
going to fire the agency and
21:17
bring it in house. It's going
21:18
to be cheaper. Or whatever that seems to
21:20
be an answer. It seems the
21:22
new answer is we're going
21:24
to try to find something that can be
21:25
subscription, which I think is
21:27
actually a good answer. And I
21:28
think a lot of it too comes to like
21:31
product innovation and
21:32
coming out with that, along with
21:35
sometimes bundling would maybe be another
21:37
answer. What other things
21:39
have you seen businesses do
21:41
that help them fight the rise of CAC as
21:43
they increase ad spend?
21:46
I think one of the stronger ones is to be
21:48
able to rely on increasing
21:51
the LTV and the retention side
21:52
of things. So essentially how do I sell
21:54
more things to the people
21:56
that I'm already acquiring,
21:57
and then also having a little bit more
21:59
expansion in so far as like what my
22:01
acquisition mechanisms
22:02
are. So simplifying a little bit, let's
22:04
say I have one core product that I
22:06
acquire, like put all my
22:08
ad spend into. And over time, I do make
22:11
the investments in
22:12
creative and I'm able to optimize
22:13
that. That is going to, to some degree,
22:15
hit a bit of a natural plateau or an
22:17
asymptote, which just
22:17
can't really scale that much more beyond
22:19
that. So then the
22:20
question is, okay, cool. This is
22:21
essentially my terminal velocity for this
22:23
particular configuration
22:24
of the business. So I either
22:26
increase how much value I can get from
22:28
each one of the people that
22:29
I acquire without changing my
22:30
front end offer, but it's all on the
22:31
retention of the lifetime
22:32
value side. So making sure that I
22:34
have more products that I can sell to
22:35
them. And that can also show
22:36
up on the front end in terms
22:37
of like bundles and what have you. But
22:39
for simplicity, let's
22:40
just say I'm selling more
22:41
things to those same people or I expand a
22:43
little bit. So I have a slightly
22:45
different avatar or an
22:47
audience that it can kind of pull into.
22:48
And ideally it's adjacent
22:49
enough that I can also still
22:50
leverage the same sorts of things that
22:52
I'm selling. But once you kind of hit
22:54
your terminal velocity
22:55
from a revenue perspective, then it's a
22:56
question of just optimizing
22:58
everything else to be able to
22:59
say like, okay, now how do I maximize my
23:01
profit from that
23:02
perspective? Because a frame that I use,
23:05
that I started using a little bit more
23:06
recently, so I'm curious if you guys
23:08
think it makes sense,
23:08
but I think it's a bit of a simple but
23:11
elegant way to think of e-commerce is
23:13
that it's essentially
23:13
just two machines. One machine is just
23:15
saying, how do I spend as much money on
23:18
ads as possible to be
23:19
able to get like at the best possible
23:21
cacto? How do I just keep increasing the
23:23
amount of money that
23:23
I can spend without too much cacti
23:25
gradation? And the second one
23:26
is how do I run a business as
23:28
efficiently as possible for a given level
23:30
of revenue and ad spend?
23:34
And the goal is to maximize
23:36
your profit as much as possible so that
23:39
you can just reinvest it
23:40
in increasing that ceiling.
23:42
So that's why a lot of brand, the two
23:44
mistakes that often happen
23:45
is number one, they're not
23:46
running operationally very efficiently,
23:47
which means that there's less profit
23:48
available for them to
23:49
reinvest in. Again, not to say the
23:51
creative is the only thing to say, but
23:52
just for simplicity,
23:53
like oftentimes that is the thing that
23:54
will move the needle the
23:55
most. So there's less profit
23:56
available to invest from that
23:57
perspective. And the second mistake they
23:58
make is that they often
24:00
try to spend beyond the point of like
24:04
their peak contribution margin. So
24:05
they're going to spend
24:06
closer to a break even because they think
24:08
that's like the fastest
24:09
that they can grow. But the
24:10
problem is that that's actually hindering
24:12
themselves because
24:13
they're shooting themselves
24:13
on the foot because if you're less
24:15
profitable from a contribution margin
24:16
perspective, then you have
24:17
less money to reinvest in the actual
24:20
improvement of your ability
24:22
to spend at a higher ceiling.
24:23
So I think those two mistakes are the
24:26
things that really
24:27
hinder the brands from making
24:30
the progress that they need to. But yeah,
24:34
I'm curious if that sort
24:35
of frame is something that
24:37
again, I started using this recently when
24:38
I talked to brands, but
24:39
I don't know if you guys
24:40
see it makes sense too. I don't know if I
24:43
was having a
24:43
conversation with somebody or I was
24:45
talking to myself via AI and just keeping
24:48
notes and brainstorming
24:49
things as I've tended to do so
24:51
far this year. But I had a very similar
24:54
kind of like thought process
24:55
to that. So that definitely
24:57
resonates with me. But it's like brands
24:58
today, it's like you have to
25:01
be good at a lot of things,
25:02
but like you have to be good at
25:03
marketing. Like it is just for better
25:05
words, like it is one of the
25:06
fundamental things you have to be good
25:07
at. And it might sound dumb.
25:09
Like you've always had to let
25:10
people know about your stuff and how you
25:11
sell it, but like more than ever, like
25:13
ads just continue to
25:14
eat the world. AI eats the world, AI ads
25:18
eat the world. Like it's
25:19
just this, these are the two
25:19
things that are happening. And so I think
25:21
that speaks to machine
25:22
number one that you're talking
25:23
about. And then yeah, machine number two
25:24
is like, well, if you want
25:25
to have any dollars left over
25:26
for you or for growth or for inevitably
25:29
both over long-term, then yeah, it's key.
25:32
We should probably come back to the OpEx
25:35
point of like OpEx and
25:36
efficiency and like where the
25:37
biggest mistakes you see are with that.
25:39
But we can put that to the
25:41
side for the moment. So like,
25:43
okay, we've talked about or looking at
25:45
the last couple of years,
25:46
setting an understanding,
25:46
then building your forecast for this
25:48
year. And then you kind of
25:49
went through what you guys were
25:51
just talking about was, okay, I'm now
25:53
reviewing on a monthly basis.
25:55
And so a takeaway, maybe for
25:57
people to do is like, you should go set a
25:59
task in your project management tool
26:00
right now or wherever
26:01
to say like, review the forecast. It's
26:03
like, if you don't have
26:03
one, you should do it. And you
26:04
should have a monthly cadence for
26:05
reviewing the forecast and to your point,
26:08
so you can go and see,
26:09
okay, I said revenue is going to be this,
26:10
it landed here. Why was that?
26:12
Okay, well, maybe my spend was
26:13
less efficient than I expected. Okay, why
26:15
was it less efficient than
26:15
I expected? Well, I thought
26:16
Facebook is going to be here and it
26:17
landed here. Okay, well, what's wrong?
26:19
You know, it's like,
26:20
it's the chain of the use kind of follow
26:21
that logical chain to find those issues.
26:24
Let's say you come in and you're 20%
26:26
behind on forecasts for January. Does
26:28
that mean you're just
26:29
kind of doing this like quick like, okay,
26:30
well, I know we're
26:32
simplifying it to not be new versus
26:33
returning. But does that mean, okay, for
26:35
the rest of the year, we're
26:35
going to say we project to be
26:38
down 20% off forecast the rest of the
26:40
year. Then what do we need to
26:42
do to not let that happen? So
26:43
at least how rude did someone in reality?
26:45
It's like, what, what,
26:46
what step do you take from,
26:47
you've, you've updated it. How are you
26:50
updating it? Like, maybe
26:52
specifically on the number side,
26:53
and then like, how do you build a plan
26:54
from there? It comes down to the answer
26:57
to what you describe,
26:58
which is under the analysis that cause
27:01
and effect relationship
27:02
analysis. So like when you kind of
27:03
keep working down towards a root cause of
27:05
what happened, once you
27:06
have that answer, that'll
27:08
determine what sort of an impact you make
27:10
to the rest of the forecast
27:11
and what is necessary to be
27:13
able to kind of change it. So really, if
27:15
it's something we're
27:16
like, yeah, we were below on
27:18
revenue because this one particular ship
27:20
container from China didn't arrive
27:21
because of XYZ war that
27:23
happened or whatever, then yeah, fine.
27:25
That probably shouldn't
27:26
happen again. We should be
27:27
good going forward. So that could be
27:29
reasonable. Where if it's just like a
27:30
ROAS assumption thing,
27:31
where you just got a little bit trigger
27:33
happy with like setting
27:34
really high targets and
27:36
yeah, probably worth making the
27:37
adjustment to the, to the forecast.
27:40
Do you set multiple, like you set a range
27:42
of forecasts? Like are you doing a,
27:43
here's kind of like the base case. Here's
27:45
the best case. Like, are
27:46
you setting multiple or
27:47
you just kind of go in like, this is the,
27:49
this is the, this is the
27:50
one that we're going off of.
27:51
We're going to stick
27:52
with this one for the year.
27:53
Where possible. Yeah. I mean, it's always
27:56
ideal to be able to set, you
27:57
know, your base worst best.
27:59
Um, obviously it's also a question of
28:00
like the brand that we're working with
28:02
and whether it makes
28:02
sense to kind of, cause that's obviously
28:04
a lot more work. Um, so
28:05
it depends on that. I'd say
28:06
the value of doing the based, uh, like
28:09
the, the three sort of
28:11
scenarios, if you will,
28:13
are important in brands that have a lot
28:16
of high, a lot of fixed costs.
28:19
The, the reason being that take the
28:21
logical extreme of a brand
28:22
that's like all variable,
28:23
say a dropshipper, right? It's just like,
28:25
they don't have inventory.
28:26
They don't have any fixed
28:27
costs. I don't mean employees. There's
28:28
some like 18 year old kid
28:31
that lives at home has got like,
28:32
no, no expense. It's just like, he just
28:33
rides the wave of ad
28:34
spend. So like things go up,
28:36
revenue goes up, profit goes up,
28:37
everything goes up and
28:38
things go down. They just go down,
28:39
but he doesn't have any issues with that
28:41
to a certain extent.
28:41
Like there isn't necessarily
28:42
that much of a need to be able to
28:44
forecast what's my best case. What's my
28:45
worst case? Because then
28:46
you're just going to ride the wave either
28:48
way. So yes, if you have
28:50
like maybe a contractor for
28:52
like say 1500 bucks a month or something,
28:54
but you're actually doing a
28:55
hundred K a month in sales,
28:56
then like whatever ride your wave up and
28:58
down, your, your worst
28:59
case, you're still not going to
29:00
fire the contractor. You're good. But
29:02
brands that have very high fixed
29:04
expenses, especially ones
29:06
that like do their own manufacturing and
29:07
stuff like that, like those
29:08
are the ones where it's like,
29:09
you need to make sure that your worst
29:11
case can cover all of your fixed
29:14
expenses. So that's not
29:15
going to destroy your business. So that's
29:16
where the scenario analysis
29:17
becomes a lot more important
29:18
because you want to make sure, okay, at a
29:20
worst case, am I good?
29:21
Cool. Now, what do I need to be
29:23
able to achieve the more likely base case
29:25
so that you can make the
29:25
investments for that place without
29:26
necessarily putting yourself in a
29:28
situation where you screw
29:28
yourself over? Yeah. Well, you,
29:31
so we're talking about like the
29:33
potential, the negative side, but there's
29:34
even, there's even a
29:36
cap on upside growth from a cash
29:39
perspective, which I think
29:39
we've been talking a lot about
29:41
like P and L ish metrics, right? It's
29:43
like get revenue spend for
29:45
efficiency, but we're not,
29:47
well, I think it's hard. I think it's
29:48
hard conceptually to
29:49
understand cashflow. I mean,
29:51
I struggle with it for sure. It's like
29:53
one of the things I'm
29:53
really trying to spend my head,
29:54
wrap my head around this year is like,
29:56
okay, what is the cashflow implication of
29:58
these things? Because
29:59
if you're barely above break even, it's
30:03
like you can't even place
30:04
it your next PO until you
30:06
sell through most of your inventory. So
30:08
like, and then you're stuck for two
30:09
months waiting for it
30:10
to come in on a boat. And then you could
30:12
finally ramp back up. So
30:13
there's this like huge delay.
30:14
But let's assume things are going well.
30:17
Have you seen people like
30:18
actually be constrained because
30:19
their growth is either too fast and not
30:22
efficient enough or like some kind of
30:23
combination of that?
30:25
No, you're absolutely right. And don't
30:26
feel bad. Like even most
30:27
accountants have a lot of difficulty
30:28
with cashflow because it's a conceptually
30:30
very, it's a very
30:31
counterintuitive thing, honestly.
30:34
I wish I could say that I see it more
30:36
often because that means
30:37
like some brands are just
30:38
crushing it, but realistically, everybody
30:40
always ends up like setting
30:42
themselves up in a way where
30:43
it's like things have to work out
30:44
perfectly for them to be able to hit
30:45
their plans. And like a
30:46
lot of times it's a little bit tough, but
30:47
yes, it does sometimes happen
30:49
in theory. You're absolutely
30:49
right that like if you are able to
30:52
absolutely smash out of the
30:53
park from the ads or let's go
30:55
with a simpler example. You should go
30:57
viral, right? Like that's
30:58
not a question of like things,
30:59
you got lucky, things just shoot up, you
31:01
have a lot of sales and yes, it can
31:02
happen where you just
31:03
from a cashflow perspective aren't able
31:05
to necessarily sustain
31:06
what's necessary to be able
31:07
to hit that. I think it's interesting
31:09
because in e-commerce it's a
31:11
little bit less of a risk in a
31:13
lot of cases because of the fact that
31:15
your cash conversion cycle
31:15
is pretty low. So for the most
31:18
part, depending on again your supply
31:21
chain and lead times and all
31:21
that stuff, if you're getting
31:24
like such say really, really good ROAS
31:26
all of a sudden and things
31:27
are just going really well,
31:28
you are for the most part in a pretty
31:30
healthy place because
31:31
Shopify is going to pay you out
31:31
in a couple of days. You pay your ad
31:33
spend, you know, whatever 30, 50 days
31:35
depending on like your
31:37
financing structure there. And as long as
31:39
your supply chain is not
31:40
like 120 days, like you can
31:42
just place the inventory order. So
31:43
generally you should be able to kind of
31:45
move relatively well,
31:46
but where it becomes a little bit
31:47
problematic is for the
31:48
brands that are being a little bit
31:49
aggressive and kind of running closer to
31:51
break even, then they have
31:52
to be able to say, "Okay,
31:53
cool." Even unless they have a negative
31:55
cash inversion cycle, they
31:56
have to be conscientious of
31:57
like, "Okay, how much of a credit line do
31:59
I need? How much funding do
32:00
I need to be able to take?
32:00
Where do I spend that money?" So it's
32:05
less of an issue of you, if you have
32:07
incredibly good return
32:09
on ad spend, then you're usually pretty
32:10
good, but it's more of an
32:11
issue of like, "Okay, we're in our
32:13
best case where our revenue number is
32:15
very high, but we are still operating on
32:16
kind of a razor thin
32:17
contribution margin." Then you still just
32:18
need to be very
32:19
conscientious of the funding as well.
32:21
Yeah, that's fair. When does adding
32:22
complexity with a forecast actually
32:25
improve decision making?
32:27
That's a great question. I'll give you
32:28
three things. So firstly, it
32:31
depends on the sophistication
32:32
of the actual person. There's no point in
32:35
having a forecast if you're
32:36
the type of person who like
32:37
doesn't really pay attention to it,
32:38
doesn't really look at it,
32:39
doesn't try to operate against it,
32:40
doesn't really make any changes to your
32:41
assumptions. So some
32:42
people are a bit more
32:43
like methodical, sophisticated, and
32:45
thoughtful about those
32:46
things. So some of it is really,
32:47
"How are you going to use it?" Because a
32:48
forecast is not inherently
32:49
valuable. It doesn't make you
32:51
money by existing. It only works if you
32:53
use it to inform your
32:54
decisions and are thoughtful about
32:56
that. The second one is with respect to,
33:00
it's a kind of like a risk
33:02
element to it. So if you are
33:05
running in a situation where you are
33:08
taking some very big risks, so kind of
33:10
maybe going back to the
33:10
example where you have a very significant
33:12
amount of fixed expenses,
33:13
then yeah, that's a situation
33:14
where the additional complexity of the
33:16
forecast can kind of cover
33:17
and show you the different areas
33:19
where you can have failure and where you
33:20
can have that risk. So adding that
33:22
additional complexity
33:23
can be quite valuable. But at the end of
33:26
the day, if you're in a
33:27
situation where, I guess coming to
33:29
the third point, you have very few
33:31
constraints, like the actual
33:33
bottlenecks on your business is
33:34
this one thing, adding the additional
33:37
complexity is not
33:37
necessarily going to add that value. So
33:39
the other piece is really, "What are your
33:40
constraints right now
33:41
to be able to grow?" So
33:42
to kind of clarify that with an example,
33:45
if really the problem that
33:46
I'm having right now is that I
33:48
cannot increase ad spend beyond 100K
33:50
without, you know, CAC imploding, then I
33:53
don't necessarily need
33:54
to spend too much time forecasting all of
33:56
my software expenses or
33:57
exactly when I'm going to
33:59
hire each person, how much are going to
34:00
pay them, how much are their bonuses
34:01
going to be? That's not
34:02
the thing that's needle moving. For me,
34:05
it has a lot more to how
34:06
much I'm going to spend on the
34:07
agencies, how much I'm going to spend on
34:08
creative and how much I'm
34:09
going to spend and what's the
34:10
CAC going to look like. So like, I need
34:12
to focus the entirety of my
34:13
attention from a forecasting
34:14
perspective on that aspect. It's not
34:16
really the rest of it that's
34:17
going to be a big needle mover.
34:18
Or on the other hand, if you're a
34:20
business that does a lot of
34:21
manufacturing, like another brand
34:23
I'm thinking of that we work with, for
34:24
them, like they do their own
34:25
manufacturing. So for them,
34:26
their constraint is they're actually
34:27
doing quite well from an ad perspective.
34:28
They can kind of push
34:29
the revenue up. Their constraint is that
34:30
they can't keep up with
34:31
supply unless they make
34:33
investments in machinery and the size of
34:36
their warehouse and the
34:37
staff that they hire. So for
34:38
them, they would spend a lot more their
34:40
time on that aspect. So
34:42
it comes down to where the
34:43
constraint is. But if you have low fixed
34:47
expenses, your constraint is
34:48
really just on the marketing
34:49
side and you're a marketer minded person,
34:53
then you can put 90% of
34:55
your forecasting attention on
34:56
just that aspect. And most of the OpEx do
34:58
it at a high level, but you
34:59
feel like get 20% of revenue.
35:01
That's probably an 80 20 you're good
35:03
enough. Maybe I'm
35:05
misunderstanding. But I think what
35:06
you're saying is like, once you identify
35:08
the constraint, then
35:09
you can make a decision on
35:10
whether you should be investing OpEx into
35:12
solving that
35:12
constraint. And to what degree?
35:14
I was talking about it from the context
35:15
of like specifically the how
35:18
much value there is to kind
35:19
of going super detailed on that part
35:21
forecast. But it's exactly
35:22
the same as what you're saying
35:23
from the perspective of like, that also
35:25
mirrors how important
35:26
that section actually is.
35:28
So if my constraint is over there, then
35:30
like, I don't need to spend
35:31
that much time on that other
35:33
place over there from a forecasting
35:34
perspective, because it doesn't really
35:35
affect the business that
35:36
much anyway. Yeah. Well, I think it's I
35:38
think this is an
35:39
appropriate time for beef, Andrew,
35:40
given that we're talking about our
35:42
frustrations with OpEx
35:43
decision making. And I mean, look,
35:45
we're marketer minded people. So like we
35:46
want every dollar
35:47
that we can to pour into
35:48
into into into marketing rather than
35:52
random fixed expenses. So I'll start but
35:54
beefs, if you're not,
35:56
if you're not familiar, it's just like
35:57
something that's something I
35:58
frustrate to. And since we're
36:00
on the top of your gears, you have really
36:01
grinds your gears. I'd say
36:03
in the context of beefs as
36:05
relates to OpEx, I just think like my one
36:07
of my biggest
36:07
frustrations is like, when when when
36:10
brands make decisions around OpEx without
36:12
like an actual expectation of
36:14
what that is going to return.
36:15
Now you can have a you can have a theory
36:17
about like, I think hiring
36:19
this agency is going to do
36:21
is going to help me increase my
36:22
efficiency. It's like, okay, well, how
36:24
much does efficiency and
36:25
need to increase and at what spend level
36:28
or like what in order
36:29
for it to pay for itself,
36:30
like what actually needs to be true. And
36:32
so I just think it's not
36:33
like taking that next step and
36:34
just doing the math. You can just yap
36:37
into chat GPT with how much
36:38
it costs and like your metrics,
36:40
and it can return to you like what needs
36:42
to be true. And so I think
36:42
it's just not actually taking
36:44
like making it making an OpEx decision
36:46
that you don't take to the math to
36:49
understand like, well,
36:49
okay, what needs to be true of this, the
36:51
same could be true for
36:52
like, you're opening a retail
36:53
location is like, okay, I know most
36:55
people opening a retail location, like
36:56
generally think that through
36:57
because it's a pretty big thing to do.
36:59
But like, did you figure out how much
37:01
your lease is going to
37:02
be and what this needs to do in revenue
37:03
and what the implications
37:04
are for the staff that you need
37:05
to hire and there's a lot that goes with
37:06
that we had a client that
37:07
just did this and they did they
37:08
did the exact opposite, which is they
37:09
thought it through very
37:10
thoughtfully. And so that's why I
37:12
bring that one up. But what OpEx are you,
37:14
what are you beefing with, Amir?
37:17
So I don't want to copy you because I
37:19
would probably say the
37:20
same thing. So I'll give you
37:21
a couple, but they're very closely
37:23
related. So one of them is specifically,
37:27
this one annoys the crap
37:28
out of me because I think it's something
37:29
that we fall into like as a
37:30
business as well as a trap.
37:32
Businesses do not spend most business
37:34
owners do not spend enough time
37:35
scrutinizing the ROI on full
37:37
time hires. I think when it comes to
37:39
personnel, for some reason,
37:40
they just fly under the radar
37:41
insofar as like what sort of value
37:43
they're driving and what they're
37:44
contributing to the business.
37:45
And a person who works full time can
37:47
like, I'm not, not to
37:48
imply that they're like time
37:50
thieving or like actively trying not to
37:52
do stuff, but they'll do
37:53
stuff, but it'll just be like a lot
37:54
of busy work along the way too. And the
37:57
frame or the scrutiny that
37:58
people apply to agencies or
38:00
freelancers or contractors, like anybody
38:02
that's an external to the
38:03
business, they just do not do that
38:05
to somebody full time where if I were to
38:07
go to them and be like,
38:08
okay, what did this person do
38:09
last month? They're like, well, they did
38:10
XYZ. I'm like, okay,
38:11
cool. That cost you in salary,
38:13
let's say $8,000. If somebody came to you
38:15
with an RFP and said, I will
38:16
do these things for $8,000,
38:18
would you assign that contract?
38:20
Absolutely not. But people just don't go
38:22
into that frame at all.
38:23
And I think it often comes up as a
38:26
specific point of frustration in the
38:28
context of like people
38:29
comparing in-house marketers to agencies
38:31
because they'll hold like
38:33
this almost unreasonable level
38:34
of scrutiny to agencies that they'll just
38:36
never apply to somebody
38:37
in-house where it's just like
38:39
things just kind of happen with the
38:40
in-house persons, like how
38:41
much time they spend on things,
38:42
how much value they drive. It's just,
38:43
it's a completely
38:44
different way of analyzing things.
38:45
But at the end of the day, yeah, cool.
38:47
One's a full-time employee. Sure. The
38:48
other one's an agency.
38:49
Yes. But at the end of the day, it's cash
38:51
out and what are you getting
38:52
in his ROI? And people just
38:53
don't think about that. And I think that
38:55
I personally find
38:56
quite annoying, but just to
38:57
not completely copy you, I'll add in a
38:59
slightly tangential second
39:00
one, which is that there's also
39:02
oftentimes a lot of bloat that develops
39:04
when it comes to fixed
39:05
expenses. People will be thoughtful
39:07
about adding it, but then it's now there
39:10
forever. And so they don't
39:12
necessarily spend that. It's
39:13
almost like in the real world, people
39:15
have subscription
39:15
issues. They just kind of keep
39:17
subscribing to stuff. It's like, "Oh, I
39:18
had 10 bucks for Netflix and
39:19
10 bucks for Spotify and 10
39:20
bucks for Apple Music," or whatever. And
39:22
then it just kind of adds up
39:23
over time. So whether it be
39:24
softwares or also personnel too, or like
39:27
you just have an army of 17
39:29
VAs that all had different
39:30
things that they had to do, they kind of
39:31
made sense at the time.
39:33
There's a lot of bloat that
39:34
shows up in OpEx that people just don't
39:36
necessarily scrutinize
39:37
because it takes time
39:38
and effort to kind of... And it's
39:40
cognitive load to do that. And people are
39:42
so busy kind of trying
39:44
to focus on all the fun, dynamic,
39:45
exciting stuff like ad spend and CAC.
39:47
They just kind of assume
39:48
the fixed expenses are fixed and they
39:50
never really take the time to think like,
39:51
"Okay, cool. How much...
39:52
If I were to be able to shave off 10K of
39:54
fixed expenses, and then I
39:56
spent 10K on creative, how
39:59
much more of a needle mover would that be
40:00
for the business?" But people
40:02
just don't do it. And I find
40:03
that... Yeah. Well, you've given people
40:04
very tactical homework. It's
40:06
go look at the last couple of
40:07
years, then build a forecast, then make
40:08
sure you're updating the
40:09
forecast. If you didn't set the task
40:10
in your project management system, you
40:11
need to go do that. And now you've given
40:13
them another task to
40:14
add to that, which is like, "Okay,
40:15
probably on a monthly cadence,
40:17
go look at your OpEx." I think
40:19
at this point in time, there's this viral
40:21
thing on Twitter, which is
40:22
some guy made a thing that you
40:23
can upload your personal expenses into
40:25
chat and it reviews it and
40:27
yells at you if you're spending
40:28
money on dumb things. You can do that
40:31
with your business as well.
40:32
Andrew, I don't want to leave
40:33
you hanging on the beef. So you got
40:35
something teed up for us. I
40:37
mean, my big beef actually is in
40:40
relation, just because you mentioned
40:42
about people opening up retail locations.
40:44
Mine is, I feel like
40:47
I don't know why we keep seeing it, but
40:49
it's so common that you hear big
40:53
companies opening up
40:54
retail location before they need to. The
40:56
most recent example
40:57
I've been very privy to,
40:58
because I'm a cyclist, as a lot of people
40:59
know, is Rad Power Bikes.
41:02
So they're an e-bike company,
41:04
and they grew in the pandemic and
41:06
everybody was buying
41:07
e-bikes. And then they just assumed
41:09
everybody was going to buy a billion
41:11
e-bikes till the end of time. And they
41:13
opened up some crazy
41:14
number, like 12 retail locations. And I
41:17
know for real, in Santa Barbara,
41:21
California, where I live,
41:22
they're at least, somebody told me, is 50
41:24
grand a month. I was like,
41:27
how many e-bikes do you have to sling to
41:29
like, and then guess what? They just
41:31
filed for chapter 11,
41:33
because they're freaking bankrupt.
41:35
Because like, yeah, so I
41:37
think there's so much in business
41:40
from a forecasting standpoint, if I am
41:45
given the keys to a business,
41:47
I always ask myself, how much of this in
41:51
the forecast is based on
41:52
hubris? And how much is
41:55
based on reality? And I think that
41:57
there's a lot of ego and
41:58
hubris that's like, it tied into
42:01
running a business. And the more you can
42:04
be tied into like, is
42:06
this a real thing? Like,
42:08
is this, are we actually seeing this
42:10
happen? Is like a big thing that
42:12
separates operators.
42:13
So that's my beef. Because for some
42:16
reason, these MBAs get put in
42:19
these jobs at red powerbikes,
42:21
and they're sitting around a conference
42:22
table. And like, they make
42:23
this decision, you're like,
42:25
I know that things are going well, but
42:28
like, I'm just so conservative, I would
42:30
never make that call.
42:31
And then people get PE money, and then
42:34
they do really crazy
42:36
stuff. And they're just like,
42:37
okay, I guess you're just lighting money
42:38
on fire now. So that's my
42:40
beef on that. But anyway,
42:41
back to the regularly scheduled
42:43
programming. I think what
42:45
you said about looking at the
42:47
employees is a huge one. I think that is
42:51
something I've seen and I've talked to a
42:54
lot of people about,
42:54
because I do a lot of work with people
42:56
that are brands that are in
42:58
the Foxville community. Do I
42:59
to go in, do I train my person better? Do
43:01
I bring it in house or do
43:02
I use an agency? Obviously,
43:04
there's this is an endless debate we
43:06
could go on and on about. But
43:07
in terms of other things that
43:10
people can assess in forecasting and
43:14
continuing to forecast, what
43:16
are the top three things you
43:19
would make sure that a business owner is
43:22
doing that you don't
43:23
think 90% of them are?
43:25
I'd say deeply in analyzing their
43:27
inventory. A lot of times people just
43:29
kind of assume that it's on
43:31
the balance sheet, right? So people don't
43:32
even necessarily look at
43:33
it. So look at how many days
43:34
inventory on hand do you have and what
43:36
the distribution is for
43:37
the various amount of skews.
43:38
I come across a lot of businesses who are
43:40
sitting on hundreds of thousands of
43:42
dollars of inventory
43:42
and still ordering more every month
43:44
because it's in the wrong skews. It's not
43:47
in the stuff that they
43:48
sell. And so then figuring out like,
43:49
okay, fine. If you're not
43:50
going to sell it, like, can you
43:51
liquidate it? Can you do some sort of
43:52
bundling? Can you use it as
43:53
an offer to be able to kind of
43:54
improve your acquisition or something?
43:55
But at the end of the day,
43:56
if it's just sitting on the
43:57
balance sheet, it doesn't make you money.
43:59
And it's again, it's cash
44:00
that you could have been using
44:01
elsewhere. So I say the inventory is one
44:04
that a lot of people
44:05
miss. The second one, I mean,
44:07
we spoke about it at length, but just
44:09
essentially kind of spending
44:10
a lot of time to understand
44:11
what are the investments that you are
44:13
making in increasing the
44:15
ceiling for your ad spend. So not
44:16
just assuming I'm going to increase ad
44:18
spend 10% every month or
44:20
every quarter, whatever it is,
44:21
like it's easy to make the assumption.
44:22
It's like, why do you think
44:24
it will work? Like what are the
44:26
actual things you're doing that would
44:28
allow you to increase your
44:30
spend? Like, because last month,
44:31
you spent 100K. So why should I believe
44:33
that next month you're going to spend
44:34
110K and CAC's going
44:36
to stay the same? If it could do that,
44:38
why didn't you just
44:38
spend 110K last month? So
44:40
spending the time to be like, okay, I can
44:43
justify that there's a
44:44
reason this will go up because I
44:45
am making these sorts of investments. And
44:47
the third one I already
44:47
said, but personnel. I think
44:49
personnel, people need to spend a lot
44:50
more time on justifying why somebody
44:52
should be hired and what
44:54
the people are actually spending their
44:55
time on because, yeah, to
44:57
your point, I know the agency
44:58
versus in-house debate comes up a lot.
45:00
And I think that there are
45:02
arguments to be made for the
45:03
in-house, but I think a lot of times it
45:05
comes from an idealized
45:06
scenario of like the theoretical
45:07
benefits of having somebody in-house and
45:09
how much money you could
45:09
save. But the thing is that most
45:10
business owners don't necessarily have, I
45:12
think the, let's call it
45:15
discipline to be able to
45:16
scrutinize an in-house hires activity and
45:20
what they do in the same
45:21
way that for some reason they
45:22
naturally and easily do to agencies such
45:25
that the vast majority are probably
45:27
better off just going
45:28
with agencies until they're in a place
45:29
where like it's truly
45:30
justifiable to in-house.
45:32
Yeah, I've, so let's just talk about this
45:34
for one second because I
45:35
have lots of opinions about it.
45:37
I think it's totally true. You know, I
45:38
think that we've had a lot of
45:40
people that have brought, that
45:40
are brand owners that have brought their
45:42
head of growth into the Foxville
45:43
community to make sure
45:44
that the head of growth is like on it.
45:46
And they've given me a plan to say, make
45:49
sure that they, this
45:50
person is, you know, on it with this,
45:51
they're getting reviews and
45:52
whatever. There's so, there's
45:55
so many people that are just not, they're
45:58
not positioned to be able
46:00
to know whether that person's
46:01
doing a good job. So if you're going to
46:03
in-house, equip yourself
46:06
first and like almost learn it
46:10
eight out of 10, nine out of 10 yourself
46:12
before you hire someone
46:13
because hiring someone in-house
46:16
without the proper oversight is not going
46:18
to be helpful for you.
46:20
Someone's can come in and then
46:21
they're going to realize that you have no
46:23
idea what you're doing
46:24
and that they're, and it's,
46:26
they're unfortunately in most cases,
46:29
they're going to take advantage of you,
46:30
you know, and I've seen
46:31
that happen. And I mean, I'm not saying
46:33
there are certainly head of
46:34
growth type people. There are
46:35
marketers that are fantastic that are
46:37
self-starters that go out there like, and
46:39
could just crush it.
46:40
And the boss doesn't need to know, right?
46:43
Think about the previous
46:44
episode we did with someone
46:45
like Miranda from 365 holdings. She's
46:47
insane. She's so smart. And
46:49
she's going to keep doing that.
46:51
I could, you know, cause her, she's
46:53
probably, maybe she's
46:53
incentivized to do that. You know,
46:55
that's another thing. Make sure you're
46:56
incentivizing the employee
46:57
to do a good job. But like,
46:59
that kind of self-starting mentality and
47:01
attitude is rare. And
47:03
there's a, so just, anyway, that's
47:06
another thing I think is important to
47:07
talk about because what you're getting
47:09
with an agency is like
47:10
you, they are going to be on it mostly
47:13
like, you know, and that's
47:15
what you're paying them for
47:16
because they have to be. Beef's V2. I
47:18
didn't know we were getting, I could
47:19
look, you brought me
47:20
then pull something up. I can, I can
47:22
scroll through my Twitter for like four
47:23
seconds and I find it,
47:24
endless things to beef with. Super, super
47:27
fun to talk about forecasts for, I mean,
47:29
relatively speaking, obviously a lot more
47:31
fun to bitch about
47:32
agencies versus in-house, but no,
47:35
I totally. A beer, let people know where
47:40
they can find out, find
47:41
you and about your company.
47:44
Yeah, absolutely. So I'm on the internet.
47:46
My name's ABIR, so it's
47:48
not that hard to find me.
47:50
But yeah, beer, you can find me on
47:51
Twitter, LinkedIn, all that
47:52
kind of stuff. If you're a
47:53
brand that's listening, we offer a really
47:56
cool kind of like one hour
47:57
CFO deep dive that reviews
47:59
kind of like the last 12 months of data
48:01
and does a lot of the stuff
48:02
that we're talking about kind
48:03
of prior to the forecasting, just kind of
48:04
making sure that all your
48:05
numbers make sense. And you
48:06
have that strategic plan that is kind of
48:08
realistic. So that's also
48:09
something that we offer for free
48:12
to kind of Foxwell folks, but I'm sure we
48:14
can do it for free for
48:15
anybody listening to this episode
48:16
too. But yeah, otherwise, upcounting.com.
48:20
That's where I am. Awesome. Thank you,
48:23
Abir. I'm glad to have you. And thanks
48:25
for joining us. Of course.
48:26
Thanks so much for having me.
48:32
This episode is brought to you by Brad's
48:34
company, Work Marketing.
48:37
If you need a DTC marketing
48:38
agency, let me tell you Homestead is
48:40
great, but work marketing is also
48:43
fantastic. And let me
48:44
tell you, you aren't going to find
48:47
friendlier people out
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there in the e-commerce space.
48:51
So we decided to do these little ads for
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each other's companies.
48:54
So hopefully you find it
48:55
interesting, but seriously, great team at
48:57
work marketing, very
48:58
smart. Brad and Jordan are
49:00
incredibly dialed in. I just gave them a
49:02
lead. Artie made this
49:04
brand that I gave them. Like,
49:05
I don't even know, double, double revenue
49:08
that they had the
49:09
previous month or something. So,
49:11
it's very exciting to be connected with
49:13
Brad. And if you need a great agency,
49:15
there's really no one better. Zach,
49:17
anything to comment on work marketing?
49:19
Yeah. I mean, if you want an agency that
49:21
cares about your business
49:22
much more than they care about
49:23
their own website, I just tried to load
49:25
workmarketing.com and
49:26
it was broken. So they're
49:28
definitely going to give more of a shit
49:29
about your business than
49:30
their own. So I highly recommend
49:32
Brad and the team over at work. They've
49:34
been incredible. We've
49:35
referred a lot of business
49:36
over to them as well. Really, really
49:37
good. As far as like cracking
49:38
funnels and figuring out like,
49:40
rapid growth for brands.
49:41
So I recommend these guys.
49:48
The only way that we grow this podcast is
49:50
by you sharing it with
49:52
your friends. Honestly,
49:53
like reviews kind of don't really mean
49:54
anything too much anymore.
49:55
They're really meaningful,
49:56
but they don't do a lot for the growth of
49:58
the podcast. And so
50:00
sharing YouTube links,
50:01
sharing Spotify links, sharing Apple,
50:04
whatever we call it
50:05
under the podcast app now,
50:07
anything you can share, the better we're
50:09
going to be guys. Anything
50:11
else you want to say on this?
50:12
Yeah. Please go check us out on YouTube.
50:14
Rack up those views for us.
50:15
We'd love to see it. And then
50:16
subscribe. Make sure to subscribe on
50:18
YouTube as well. And I
50:19
relentlessly refresh the YouTube
50:20
comments because it dictates my mental
50:22
health for the day. So please say
50:23
something nice about all of
50:24
us. Thank you everyone. Thanks for
50:27
listening. Honestly.