The 2026 E Commerce Masterclass That Will Make You Question Everything

I had to lay off a 100 people in 60 days. It was the worst time of my life.

days. It was the worst time of my life.

And now 3 years later, we're 50% larger than we were at our peak with half as many people. Taylor Holiday is a data

many people. Taylor Holiday is a data obsessed ecom operator and founder of Common Thread Collector. They have

helped scale brands past $3 billion in revenue by turning paid media into a disciplined profit first growth system.

>> Our industry has collapsed around the worst creative strategy idea ever, which is iteration. Make an ad, look at the

is iteration. Make an ad, look at the results, create a change, iterate, iterate, iterate, iterate. There needs

to be some effort that goes into creating stories, not iterations on ad hooks. The question I always ask is, why

hooks. The question I always ask is, why does someone need to buy this right now?

Not why do they need to buy it? Why do

they need to buy it today? And the more that you can answer that question, the more that you're going to create leverage against that marketplace.

So you've managed hundreds of millions of dollars over the last decade and you've built a proven system to scale profitably. Let's get into it. What is

profitably. Let's get into it. What is

the profit system?

>> The idea is we want to generate predictable profitable growth.

E-commerce is a business that if you want to make money, it's predicated on buying inventory at some expectation of selling through that inventory within a fixed time period. That predictability

is what drives money into your pocket.

If you're wrong about the estimations on the inventory side, you cannot produce money in the bank account. And so our system is one begins with FPNA, so financial planning, forecasting. That's

what we've spent the last 5 years doing for brands. Last year we forecasted $3

for brands. Last year we forecasted $3 billion within 4% of target. So our job is to help brands decide how much volume are we going to do to set that expectation, build organizational

alignment, build a media plan that flows into that financial objective and then track performance to expectation every single day. So we like to say that great

single day. So we like to say that great forecasting is an exercise in execution way more than it is in modeling. So we

have to set the target and then every day we have to make it true. What's up

guys? It's Mark Taylor and I put together a playbook that distills all of his principles, frameworks, and lessons all into one free PDF. You can download the playbook below, link in the description. Enjoy the rest of the

description. Enjoy the rest of the episode.

>> Let's simplify that down as much as possible for people out there. So, you

just in short, it's finance meets marketing meets product.

>> That's right.

>> Yeah.

>> So, that at the end of the day, that's what a business is, right? It's the com combination of ops, finance, and marketing. So, what businesses struggle

marketing. So, what businesses struggle with is often these things are siloed.

They exist in disperate areas. And so

we'll walk into an organization and finance has built a forecast that's independent the marketing calendar that has no consideration for the effects of volume on CAC. So I've walked into

Fortune 100 businesses and seen a CFO with elite skills have a financial plan that has spend increasing 50% and CAC holding constant. That's not real.

holding constant. That's not real.

That's not reality. And so we have to first bring alignment between what is the marketing plan. This is actually where financial forecasting begins in e-commerce business. We call them units

e-commerce business. We call them units of growth. You make money when you

of growth. You make money when you launch an ad, you send an email, you do a post on social, you get an influencer to do something. These are the things that drive revenue reality. So you have to build a plan that says, okay, what actions are we going to take and then

what will that effect be on revenue and the in intimate interaction between your marketing calendar, a qualitative plan, and then financial modeling around spending efficiency curves, cohort specific LTV analysis is the financial

side. You bring those things together

side. You bring those things together and that's what does not exist in most e-commerce brands or businesses generally. So in short Sue, so you would

generally. So in short Sue, so you would actually say that the marketing department should be leading the numbers as opposed to the finance.

>> That's right. I I think that the fi the financial forecast for the organization in a consumer product business should come out of the marketing department.

Cuz here's why. Imagine last January, we launched a new product, okay? Cool new

t-shirts, mugs, whatever it is. Now,

this January, if I'm the finance department, absent the marketing calendar, and I go to build a financial plan, I go, "Ooh, January was awesome.

Our efficiency was A, our volume was B.

I'm going to replicate that on an extrapolation of the historical analysis. But then I go look at the

analysis. But then I go look at the marketing calendar and you know what's not there? That product launch. It's

not there? That product launch. It's

gone. The action that created that reality doesn't exist anymore. So if you don't tie these things together, what did we do that generated this outcome?

What are we doing now that's also going to replicate or expand on that outcome?

You will end up with an expectation that doesn't align to your behavior.

>> And what are those big things that you are doing? It's launching a new product.

are doing? It's launching a new product.

It's scaling a new type of creative.

What are those kind of big buckets that drive those initiatives?

>> Product releases, promotions. These are

the things that generate peaks generally inside of businesses. Those are the two largest. So most obvious ones to

largest. So most obvious ones to extrapolate off of are Black Friday, Cyber Monday. Everybody does that,

Cyber Monday. Everybody does that, right? That's the one we all do in the

right? That's the one we all do in the industry. Then for some business,

industry. Then for some business, there's usually a secondary peak. Maybe

it's Father's Day, maybe it's Mother's Day, maybe it's Valentine's Day, depending on these cultural tenants that are built in. But then on top of that, your business has some rhythms. We work with a business that every summer does a

capsule collection and they have a product launch every July. So that's a built-in rhythm or pattern of the business. And then on top of that, you

business. And then on top of that, you layer in a series of other actions.

Maybe last year you had a big PR hit that happened in February where cool influencer did XYZ, right? So these

moments, these actions that got created that generated revenue on the macro level. So those are big things. And then

level. So those are big things. And then

on the little level, every day you send an email, you send an SMS, you spend money in the ad account. Those are the individual units of growth that drive some expectation of future value. In

most businesses, they large email and SMS is a trigger for driving existing customer revenue demand. So if I look at my calendar and I look throughout the week and I see, okay, how much revenue did I do? You're going to recognize that

your existing customer revenue goes up on the days you send email and SMS. So as you go to forecast, you can't build the expectation of the flow of that revenue without the email plan, right?

And that's just a microcosm of the marketing calendar, right? Email and SMS send schedules are a micro portion, a subset of the broader email calendar that has to align to create a daily expectation of the financial reality of your business.

>> Let's keep breaking that down. So, it

seems as though there is a marketing calendar with product with promotion and then from a content perspective, there's organic.

>> That's right. Every email, every SMS, every paid media post, every organic social post, every website change, every PR hit, everything that you're planning to do as a business to the best of your ability should be mapped out with some

we call it, we have three models that govern our financial planning process.

One is what we call a spend and AMER model. This is the relationship between

model. This is the relationship between your media budget and the efficiency of new customer acquisition. AMER stands

for acquisition marketing efficiency ratio. New customer revenue divided by

ratio. New customer revenue divided by ad spend. Most people's paid media is an

ad spend. Most people's paid media is an effort to drive new customer acquisition.

>> Correct?

>> And if you were to map out, we use linear regression model. It's a

combination of models that looks at the historical relationship in every month between your spend and your efficiency and you build a curve, right? Everyone

understands generally that as spend goes up, efficiency goes down. The question

is the slope of that line. So we help brands to model that to identify, all right, if you were to spend X, you would generate Y efficiency. If you were to spend 2x, what would happen to y, right?

That's the question everybody wants to understand. And we do that with a

understand. And we do that with a seasonal effect. We do that with a

seasonal effect. We do that with a consideration for AOV. And that gets us our new customer revenue expectation, that model. The second is what we call a

that model. The second is what we call a cohort specific LTV model. This is

looking at every cohort of customers you've ever acquired. Cohort, fancy word for group. It just means looking at last

for group. It just means looking at last January, I acquired a thousand customers. They generated how much

customers. They generated how much revenue for me over time. You would take that revenue and you'd map it every month. You've seen these, right? Cohort

month. You've seen these, right? Cohort

tables, they have this sort of slant.

They show you revenue over time.

>> Product calendar, marketing calendar is so important to understand to know >> what caused those changes.

>> Exactly. So for people out there listening, like understanding and knowing that the customers that come in during a sale period, i.e. November,

they may be less valuable over time because they're more susceptible.

>> That's exactly right. So you can model all those curves, right? You look at everyone. Black Friday, Cyber Monday

everyone. Black Friday, Cyber Monday cohort, how did they do? January cohort,

how did they do? March cohort, how did they do? And you can then forecast out

they do? And you can then forecast out an expectation of future existing customer revenue. Okay, so that's like

customer revenue. Okay, so that's like the two, we call it the revenue layer cake. New customer revenue, existing

cake. New customer revenue, existing customer revenue. Those are the two

customer revenue. Those are the two foundational pieces of forecast. Now,

the third one gets to what we're talking about it. We call it the event effect

about it. We call it the event effect model. Now, we take and absorb your

model. Now, we take and absorb your historical marketing calendar. Every

action you've ever taken from the past and moving forward.

>> That's right. So, I want as far back as we can. We start with the API endpoints

we can. We start with the API endpoints we can access. So we can see every email subject line, every time you launched a Facebook ad, every Google campaign you've ever launched. Programmatically,

we can map those as an overlay on your data. It's like a qualitative.

data. It's like a qualitative.

You you've been around ecom, you Google Analytics used to do this thing called annotations. You could click on a date

annotations. You could click on a date and you would add a little note and you'd say we did this on this date, right? And when we would get partners, I

right? And when we would get partners, I always knew a brand was going to kick ass if they had tons of annotations.

Somebody was paying attention to what caused this change in revenue. So we

just do that programmatically. We absorb

all of those end points and then we ask them cuz most people keep their marketing calendar in a spreadsheet somewhere. We say give us give us what

somewhere. We say give us give us what you got. And what I'll say is that

you got. And what I'll say is that brands suck at this generally. They

don't usually have a very detailed marketing calendar. Some do, but then we

marketing calendar. Some do, but then we look at that and we absorb that into our system. So we have a data platform

system. So we have a data platform called statist. We put that in. So now

called statist. We put that in. So now

what we have is what we call the calendar report. You can go look at all

calendar report. You can go look at all of your revenue and I can see little annotations of everything you ever did.

And on the back end, our event effect model is going, okay, what happened to revenue when you did when you did that product launch, when you sent that email, when you did this promotion, what did that do to the efficiency of your media? What did that do to your existing

media? What did that do to your existing customer revenue? What did it do to

customer revenue? What did it do to organic demand? So that when you go plan

organic demand? So that when you go plan that event in the future, we can model that effect in the future. And if you say to me, Taylor, I don't like your forecast. Your forecast sucks. We want

forecast. Your forecast sucks. We want

to do the better than that. And I simply say, okay, well, what are we going to do? What actions will we add in the

do? What actions will we add in the future and what effect will that have on our expectations of our performance?

Because we don't just get to add revenue devoid of an action. There has to be something we're going to do that's going to generate that effect. And by building a model of those effects where I can show you a table of here's every marketing action you ever run. Here's

what happens when you put it on the calendar. We can begin to build a plan

calendar. We can begin to build a plan to affect the future.

>> You think in relation to that? I think

having continuity with a team like yours or anybody else's is so important because everybody has different systems and ways how they know stuff and when you change it's like net new information and you need to start all over. So I

think that's a huge issue. I think

secondly another thing I'd love your opinion on is it's so funny like when people are like looking at our company I'm just like >> you really should start in like 2024 given

>> the story given iOS given tariffs. So if

it's Q1 of 2026 and you're talking about this, what's the reality? Like they

should be starting during what year and actually using that information now forward.

>> So what you're describing is what makes forecasting one individual business so challenging is because a forecast at the end of the day is often an extrapolation on history. You're taking what happened

on history. You're taking what happened in the past and you're trying to model it out into the future. And when you have one business, this is why in everyone in between 21 and 2022 died or

went through usually an extreme version of trauma because 2020 and 2021 told us everything was going to the moon >> for everybody and then it all stopped, right? And so if you're forecasting in

right? And so if you're forecasting in 2021, the data says that we should anticipate some expectation of the future reality that's happening. Now the

benefit of forecasting a thousand brands is you begin to see those patterns emerge that you can apply to the individual business. The metaphor I use

individual business. The metaphor I use with this is are you into fantasy sports at all?

>> Yeah.

>> Okay. So if you want to build a forecasting model for trying to predict baseball players home runs next year.

Okay. Let's use Cal Raleigh as an example. Cal Raleigh is the catcher for

example. Cal Raleigh is the catcher for the Seattle Mariners. Last year he set a record for the most home runs ever by a catcher. Okay. He hit 60 home runs.

catcher. Okay. He hit 60 home runs.

Okay.

If you were to just look at that individual season and make a prediction about Cal Raleigh's home runs in the future, you would likely be very wrong.

It's an extreme outlier. And in fact, that's not what forecasting systems do.

>> He's going to hit 28 next year.

>> That's right. If you go to Fan Graphs right now, which is the best sort of baseball data site on the internet, and you were to look at, they have 12 different models that they constantly track the performance they're forecasting. The range of expectation of

forecasting. The range of expectation of his home runs, I was just looking at this the other day, is between 37 and 44. Well, why? because they have enough

44. Well, why? because they have enough history of baseball to regress his performance back to the mean. And so for businesses in our world, this is the benefit that we have is that we have the massive database to regress those

performances to something more normal.

If you're an individual business though, back to your original question, this is extremely challenging. So what I would

extremely challenging. So what I would start to do, >> this is the value of someone you because you have the adjacent companies. If I

have an art company, you could look at seven other art companies. If you only have two years versus six, you could two years for six or seven companies.

>> That's exactly right. And so often in any data analysis project, your ability to extrapolate the data is relative to the quality of the underlying data set.

And if you have one brand's data, it becomes very hard to be predictive, especially if that data looks like this, right? Where it's all over the place.

right? Where it's all over the place.

It's up, it's down, it's up, it's down.

Then you have to begin to do some qualitative work around what was the causal factors that contributed to those moments and environments. I was on a call today. One of the hardest things

call today. One of the hardest things about ecom and we're going to talk I think at some point about this idea of the cash flow era that I think is coming is that what happened during the co thing and what's happened in e-commerce

generally is that the growth of categories is not fast enough for the growth of supply of competition. So if

you're a business I was talking today with a supplement company a call this morning and they're watching their efficiency degrade. They used to be this

efficiency degrade. They used to be this massively efficient acquisition engine.

Okay. And I was like let's go back and look at that era 2022. Let's go back to the wayback machine and look at SER listings, search engine results pages.

Let's go look at the Amazon marketplace.

And what you find is that they were they functionally had a monopoly on a growing category. There were no competitors. Now

category. There were no competitors. Now

today, that same search term shows up 50 listings including people who are cheaper, different positioning to more specific subsets of customers. And so

their ability to capture all of the value that they create on a dollar of demand is just diminished. It gets

spread out amongst the competition. And

so the expectation of efficiency on every dollar of investment can't be the same as it was then. And this is one of the hardest things about e-commerce generally. It's a perfectly capitalistic

generally. It's a perfectly capitalistic market where with no barriers to entry, all the profits get competed away. That

is just the reality. It is a very fixed set of digital environments that you're competing in. Google search results

competing in. Google search results pages, Amazon search results pages, meta ad inventory. These are environments

ad inventory. These are environments where when the competition massively outpaces the growth of the category, there is diminishing value capture for everybody involved. and all they need to

everybody involved. and all they need to do is just see one person winning in the cate, one person with creatine companies, one person with fiber, one person with healthy pet food, and then all the competition just stacks on.

>> Here's here's the thing that I think we've all been diluted into a little bit as entrepreneurs. And look, I'm I love

as entrepreneurs. And look, I'm I love Shopify. I think they're an incredible

Shopify. I think they're an incredible product, but they gave us this idea that lowering the barrier to entry for everyone was good for us, right? Arm the

rebels. Well, the problem becomes if you arm everyone with the same tool, what leverage have I created for myself?

Business is an effort to try and create some advantage by which my dollar generates greater leverage of value capture than everyone else. If we're all using Shopify, Meta, and Google, and

we're all using the same tools to the same level of efficacy, the competition gets diminished tremendously to the benefit of Meta, Google, Shopify that are extracting that value of the volume

of growth of competitors. The reality is we you should not want to exist in competition. That's not how you create

competition. That's not how you create the most leverage for yourself.

>> 101 competition is for losers.

>> That's right.

>> 100%. I want to quickly go back to this the the modeling because you said a lot of a lot of a lot of great stuff there.

Do you recommend weekly, daily, hourly?

I know you do different kind of marketing mix modeling. Like what do you recommend?

>> I am a huge proponent of a daily expectation of everything that you're doing. Not for the sake of being right

doing. Not for the sake of being right but for understanding where you are wrong. Okay, this is really important. I

wrong. Okay, this is really important. I

think about this phrase I'll use all the time. Forecasting is an exercise in

time. Forecasting is an exercise in execution. We want to understand where

execution. We want to understand where we are wrong so we can course correct.

And if every day I force myself into the habit of asking what do I believe will occur on the thing I'm trying to do.

You're forcing two really important things. One is you're forcing your team

things. One is you're forcing your team to evaluate what they believe will happen for the action they're suggesting you do. Why should we send this email on

you do. Why should we send this email on a Tuesday? Why should we go do this big

a Tuesday? Why should we go do this big promotion? Why should we run this sale?

promotion? Why should we run this sale?

What do you think is going to happen?

That exercise of just trying to assign value to the things that you're doing is an important discipline then to figure out was I right or wrong and why and what do I do about it? And the reality

is that we work in these time bounds in consumer. We work in months, we work in

consumer. We work in months, we work in quarters, we work in years. And if you want to win a month, every month you set a forecast, you're trying to achieve the number. Is that if you know on day five

number. Is that if you know on day five that you're off, you have a hell of a lot higher chance of getting to the end goal than if you figure it out on day 22. And so now the tension is you can

22. And so now the tension is you can overoptimize towards short-term action if that's the case. So daily forecasting with the condition that you need an organization that's working on two

separate rhythms. And this is where I think the opportunity for a partner like us or the distinction between the role of your internal team and an external partner or different parts of your organization is somebody needs to be planning the moment in June. The big

thing that's coming, the thing that's going to alter the model that's going to break the dynamics, the big product launch, the big story, the cool new thing, and somebody needs to worry about tomorrow. They can't be the same person.

tomorrow. They can't be the same person.

>> I think that's the biggest problem is most people aren't you're talking about that those peaks. Nobody is planning that peak in 12 months to fill up the funnel and win on the back end.

>> That's right. And I want to explain why peaks in consumer ecom are so important too. Think about meta. Okay, where

too. Think about meta. Okay, where

primary most of the value is created for these brands is in the ad auction. Every

day the reality on meta is that we are market takers. What does that mean? That

market takers. What does that mean? That

means that there's a price to the inventory that we don't set. It's a

dynamic related to supply and demand as well as user feedback score and other things. But I don't get to set the

things. But I don't get to set the market price. I show up every day with

market price. I show up every day with my dollars and I go here meta and I get whatever CPM is assigned to that ad at that moment. My ability to arbitrage to

that moment. My ability to arbitrage to create value for myself is based on the price that I'm paying and the conversion rate on that price. That conversion rate leads to a clickthrough rate leads to a

CPC times a conversion rate equals some value capture for myself. If every day that CPM I can't control and it's static. It goes up when there's

static. It goes up when there's increased demand. It goes down

increased demand. It goes down independent me. higher on the weekends

independent me. higher on the weekends or lower on the weekdays, my job is to figure out how I are by increasing my conversion rate while holding the price of the ad inventory constant. Okay? So

tomorrow, if I'm just running my normal playbook, I should not assume that my conversion rate on my media is suddenly going to spike. There's no reason for that to occur. What moments do drops,

exclusive releases, why sales are so effective, why product launches happen, is they work off the market rhythm of pricing. Black Friday, Cyber Monday, ad

pricing. Black Friday, Cyber Monday, ad inventory goes up, everybody's conversion rate goes up. You don't

really gain something unique relative to your competitors. When I create a peak

your competitors. When I create a peak in the middle of May, in April, in the middle of June, when no one else has a peak, market price of ad inventory stays constant. My conversion rate goes up.

constant. My conversion rate goes up.

That's how you create moments where you can either choose to take more marginal value capture for yourself or increase the volume substantially because you've arbed the market price by creating some

increase in the demand for your thing.

>> Efficiency or volume.

>> Either one. You get to choose which one you want to take. But the key is the market price and your conversion rate need to move in in opposite direction ideally or one stays constant and you move your conversion rate way up. That's

what peaks do. You have to create a reason. The question I always tell

reason. The question I always tell brands to ask is why does someone need to buy this right now? Not why do they need to buy it, why do they need to buy it today? And the more that you can

it today? And the more that you can answer that question, the more that you're going to create leverage against that market price.

>> Yeah. For anybody out there listening, I would challenge you. An example is like with Iconic, our art company, you know, it has motivational undertones. So in

January, we do New Year, new you and some sort of programming around that. We

have the NBA license. Maybe we'll drop new products and new narratives during the NBA finals relative to the best players on the best teams. just having someone get ahead of it and it's like, you know, we have what we we call a cultural calendar, but it's going to be

very relative to your business and your ICP. Literally, all you have to do is

ICP. Literally, all you have to do is like go on chat GBT and say, "This is my ICP. What are the culturally relevant

ICP. What are the culturally relevant moments?" And that's it.

moments?" And that's it.

>> I'll give you two examples because I think this is super important.

>> We work with a band right here in LA for a long time called APL. I've got them on my feet right now. Awesome shoes. They

had generally speaking two peaks a year.

They had Black Friday, Cyber Monday, and they had Mother's Day. Okay, those were kind of built into the calendar. They

needed to find what we call we want four peaks a year. We want them one in each quarter. That helps balance cash flow,

quarter. That helps balance cash flow, helps keep you in a consistent rhythm.

So, we looked into March and we said, "What could we own in March?"

International Women's Day. We turned

International Women's Day into a moment the brand could own. We would tell stories of incredible customers, highlight cool influencers, go all in on highlighting a celebration of women on this day, highlighting the best SK. Now,

that's a peak in their calendar every year. Becomes part of the story.

year. Becomes part of the story.

Exactly. Yeah.

>> So, you build on top of it. Find a

partnership, do a charity, whatever it might be. I'll give you another example.

might be. I'll give you another example.

We work with a brand called Born Primitive. Okay. Born Primitive is an

Primitive. Okay. Born Primitive is an amazing fitness and apparel brand. The

founder is a Navy Seal. And they were looking for they generally they sell leggings as their core skew. The problem

with leggings is it peaks with sales in winter, dies off by the summer as generally people aren't wearing long leggings. So, the count the natural

leggings. So, the count the natural cycle of sales of that. So, they were looking for an opportunity to create a moment in the summer. Okay. They had

launched a new product category.

Category extension is a big piece of this into footwear. Footwear is pretty flat annually. So it doesn't naturally

flat annually. So it doesn't naturally create a summer peak. But what they found was 2 years ago was the 75th anniversary of the invasion of uh Normandy D-Day. It was coming up in the

Normandy D-Day. It was coming up in the middle of June and they were able to sponsor. They did a promotion where for

sponsor. They did a promotion where for three days all the money raised went to fund the the last veterans that were alive to go back on their trip to Normandy to celebrate the 75th

anniversary. And they created this

anniversary. And they created this limited edition D-Day skew. Okay. Like

500 of them. High price point, short-term drop. Cool. It's It comes in

short-term drop. Cool. It's It comes in like an ammo case. You got a baseball card of every one of the veterans they had. On the day of the event, the the

had. On the day of the event, the the military members that were jumping out of planes onto Normandy were all wearing the shoe. Incredible content. Bear is a

the shoe. Incredible content. Bear is a former Navy Seal. Lots of credibility and authority in that moment. In the

middle of June, those three days were the biggest days of their whole calendar. It didn't exist the year

calendar. It didn't exist the year before. It wasn't there. They

before. It wasn't there. They

manufactured a moment connected to a cultural story that allowed them to create disproportionate value capture for themselves.

>> And now he's finding every single relevant date that's to that time.

>> So, he follows up this year, >> July 4th. Veterans Day. Okay. The first

week of November, he came up with this brilliant idea. They're going to pay off

brilliant idea. They're going to pay off $5 million of veteran medical debt.

>> You can buy up medical debt for a pretty cheap price. So, it's not a onetoone

cheap price. So, it's not a onetoone dollar capture. So, for 3 days over

dollar capture. So, for 3 days over veteran medical days, every dollar they raised is paying off veteran medical debt. They got on Fox and Friends

debt. They got on Fox and Friends multiple times. They generated like they

multiple times. They generated like they ended up doing paying off $10 million of veterans medical debt. This is

Instagram. They're recording calls, calling veterans that have been carrying debt for 50 years, pay and saying, "It's gone. We paid it off." The emotion

gone. We paid it off." The emotion again, figuring out the cultural moment.

How does our brand fit into it? What's

the story? How do we benefit? And guess

what? All those customers, cuz there was no money. They gave it all to charity.

no money. They gave it all to charity.

But guess what's coming up in 3 weeks?

Black Friday. So now you have a massive influx of new customer acquisition. You

didn't make any margin because you gave it all to charity. Awesome. Cool. But

didn't help the business financially.

But all those people 3 weeks from now lead to the biggest Black Friday in company history. That's how peaks become

company history. That's how peaks become a progressive amplification of the business in total.

>> Yeah. And if you story tell properly, which we're going to get into. You're

getting all that amplification of, you know, probably UGC created content.

People are very excited about that. From

a from a distribution perspective, I mean, think about the PR, the earned media that they're getting that they're getting through that.

>> And that's like what brands need to think about more, whether it's an ad or it's PR, is what's a story we're sharing? What is the story that gets

sharing? What is the story that gets spent be sent between DMs with people?

That's how we communicate with one another, right? And so, who is your

another, right? And so, who is your customer? What are they going to be

customer? What are they going to be proud to say? Like a brand's not going to be proud to be like, "Check out my or an individual like check out my cool new pans." Like, that's not my content,

pans." Like, that's not my content, right? But if I cared about if I was a

right? But if I cared about if I was a veteran or I had been injured, that story is something that I want to show off like that I could be proud to participate in. And so those kinds of

participate in. And so those kinds of things, you want to give people a reason to share their identity. There's a great group here in LA that does called First Media that back in the days when like

Facebook content was ways that everybody organic Facebook content was the big the big harra they used to talk about creating for your audience's audience.

So the idea is I'm not creating just for the end watcher. I want to give them something that they can say about themselves to the world. And so they would make this content that was all about like dinner hacks. So it'd be like

if you have a crockot here's 10 cool recipes to show off to your friends, right? So when they think about that,

right? So when they think about that, what they're saying is, "Okay, somebody's going to buy a crockpot and they're going to have a house party. How

do I make them a hero in their world?

How do I help them create for their audience?"

audience?" >> Guys, this is deep right here. You got

to listen to this part. You're you're

enabling them.

>> That's right. Make them a hero in their world, right? And so with content, so

world, right? And so with content, so that's the idea. Create for your audience's audience. I want to give you

audience's audience. I want to give you a piece of content that you want to go show your friends that makes you cool in the group chat. And if I can do that or like for me, it's all about like how do I create a piece of content that I want them to show to their company. So when I

think about creating content, I think I've got a CEO, I've got a CFO that I want them to drop this video in Slack to their marketing team, creating for their audienc's audience. And so for me,

audienc's audience. And so for me, that's how I think about it is like who how do I give them something that if they can take to their people in their world, I've created value.

>> Yeah. You're like disguising sales as marketing. You want the people that buy

marketing. You want the people that buy your stuff to to market your product. I

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I got a million different questions. I

want to dive back into the numbers.

We're going to talk about storytelling and content in a bit. You got this >> hierarchy of metrics. I think so many people get this wrong. So I'd love for you to walk through when someone is looking through the numbers.

>> Y >> what should they actually be looking at?

>> Yeah, it's a great question. So we've

moved as a industry from caring about topline revenue growth in an era where there was an abundance of free capital that everybody cared about making revenue to now we care about the bottom line. We care about actually

line. We care about actually >> don't feel bad about yourself guys. I

was guilty.

>> We were all there. We were all there.

Right. So the key was but now is it's not even just IBIDA operating income.

it's moved all the way to cash flow.

Okay. So, if I'm in an organization though, the problem with trying to map to cash flow every day is that cash flow is actually a proxy decision for a bunch of fixed costs that don't show up every day. You have choices of when you pay

day. You have choices of when you pay them. So, what I would encourage people

them. So, what I would encourage people to do is the closest proxy that you can look at every single day for what will be ultimately your cash flow is contribution margin. And just to give

contribution margin. And just to give people context as well, the ultimate, >> the most important thing is cash flow, but that's a bit more it's moving. It's

a moving target. So you're saying >> that's right. As the CEO, you should have a 13week cash flow. It should be the first tab on your browser. It's the

first tab on my browser for CTC is my 13we cash flow forecast. I want to watch my money grow. If the bank account doesn't grow, something's screwed up in my system somewhere. Okay, so CEO has 13week cash flow forecast. But the the

problem with that for a marketer is that you can choose when you pay invoices.

You can pay them today, you can pay them tomorrow. So there's human choice that

tomorrow. So there's human choice that goes into cash flow that should be managed by CEO, CFO, a subset of people and that should be their primary thing they care about. So if I talk, we're going to talk about that. There's a lot of things you can do to get creative there.

>> That's exactly right. We're going to talk about vendors as lenders, all sorts of ways that you can manage the cash flow. So CEOs, that's what I would say.

flow. So CEOs, that's what I would say.

Your team, the whole organization should or worry around a daily view of contribution margin, which I would define as net sales minus product cost minus variable expense minus ad spend as

contribution margin. Now, that number is

contribution margin. Now, that number is the one that you should care about growing every single day and that you should have a goal for and the organization to be tracking and mapping towards. So, when I talk about the

towards. So, when I talk about the hierarchy of metrics built off of sort of like the idea of John Wooden's hierarchy and and the idea is that there's metrics that are more important than others. And so the rule is number

than others. And so the rule is number one is contribution margins at the top.

That's the very peak of the pyramid. All

I care about is winning that game every month. That's the scoreboard. But the

month. That's the scoreboard. But the

problem with the e-commerce is that that is insufficient. No one metric can

is insufficient. No one metric can actually tell you the health of your business.

Because I could be winning at the contribution margin level in a single month, but my new customer file could be shrinking. I could be experiencing a

shrinking. I could be experiencing a benefit in ways that is hiding some longer term problem. So contribution

margin is at the top. The next layer >> contribution margin is really let's talk about that 13we cash flow. You know in in the near future that you're looking good.

>> I would say another thing in relation to that. I want to let you know what I do

that. I want to let you know what I do and I'm curious what you do from a contribution margin perspective like we know our blended quote unquote daily burn but you know we're up and down a little bit. We spend on random stuff. We

little bit. We spend on random stuff. We

just do it daily and then at the end of the month we'd reconcile. Is that

something you do or you >> No. So So you're talking about the fixed

>> No. So So you're talking about the fixed cost. you take your blended fixed cost.

cost. you take your blended fixed cost.

So, here's here's the problem with that.

>> Okay, >> let's say rent. I have an office rent.

Let's do some easy math. Let's say it's $30,000. And so, I'm going to take

$30,000. And so, I'm going to take $1,000 a day and I'm going to put it into my estimation of some people will try and track profit every day. Okay.

>> Well, let's imagine that I generated $900 of contribution margin before that fixed cost and then I subtracted out that $1,000 of fixed cost.

>> Yep.

>> That signal to you says that I have negative profitability. Okay. What I

negative profitability. Okay. What I

find is that tends to be a signal to people that they need to cut costs. But

the reality is fixed costs as a percentage of your revenue go down as volume scales up. So often the solution to a problem like that, assuming you're generating incremental positive

contribution margin on your media is actually to increase spend. But what I find is that the fixed cost often creates a counter signal that gives people the illusion that oh, we're

losing money. I need to cut something

losing money. I need to cut something versus no no no no no I'm actually generating positive contribution margin.

I have to spend away from the fixed cost. So when you set your contribution

cost. So when you set your contribution margin goal, you should have a relationship to your fixed costs because contribution margin minus opex is profit.

>> Exactly.

>> So when you set that goal, it should be in relationship to those fixed costs. So

that that relationship really really matters. But every day, I don't want to

matters. But every day, I don't want to trick myself into thinking that I'm negative profitability and therefore need to cut costs. I'll give you another way that this shows up in January. We

just came out in January. If you report your media efficiency, me, marketing efficiency, revenue ratio, total sales divided by ad spend, a lot of people use this metric

in January. If I report me on net sales,

in January. If I report me on net sales, that includes returns. The way that Shopify because this is tends to be the dashboard that dominates people's thinking. Shopify reports revenue by

thinking. Shopify reports revenue by default in the dashboard under total sales. Total sales are today's revenue

sales. Total sales are today's revenue minus today's returns. Okay, in January for most businesses, not in the health or supplement space, but for most

people, December big, January small.

Okay, what that means is that a bunch of returns from December are going to be processed in January.

>> Okay, and so what happens is total sales might look bad. And so if I'm looking at my daily me including those returns all of a sudden I'm going oh [ __ ] I'm inefficient pull back but really you're

just having a higher percentage of returns show up on that P&L and you need to get returns either acred as an estimation or out of the the view of the P&L. So there's all these ways that the

P&L. So there's all these ways that the way you present the dashboard affects the behavior. And what I want to make

the behavior. And what I want to make sure is if I'm generating positive incremental contribution margin on my paid media every day, I don't want any indication that would stop people from spending more money on that effort.

>> So you're saying maybe like 30 to 60 days later, you're let's just say December, you're going to redo what December looks like and probably February 15th under the notion that there's six weeks that people could

return the product to get the real that then that's set in stone. What I

recommend brands do is do a a returns acrruel estimation every month and apply it to the present revenue, not wait and do returns on a cash basis. So

>> blend it over how long? Because

obviously December is going to be heavier than the other month. Just blend

it.

>> Your return rate won't necessarily be higher. So let's let's imagine I have a

higher. So let's let's imagine I have a 10% return rate as a business.

>> The rate won't that as a percentage.

Yeah.

>> So what'll happen is in December, let's say you do a million dollars. That means

you're going to get $100,000 of returns.

So, I'm going to use an estimation, which is every day I'm going to apply $3,333 of returns, and then I'm going to reconcile it at the end of that month.

What I'm not going to let happen is, let's say January, I'm going to do $500,000 in revenue coming off a month where I did a million. Now, that

$100,000 of returns, which actually gets processed in January, is going to feel like, wait a second, my return rate in January is 20%. And it's like, no, no, no, it's just lagging from the previous

month. But because Shopify reports

month. But because Shopify reports returns on a processing basis and that people batch process returns in weird ways, you almost always want to use a a returns estimation off of the present

revenue. You want to acrew it back to

revenue. You want to acrew it back to when the point happens. But some of these dashboards, dashboards are really powerful. They organize behavior in

powerful. They organize behavior in different directions. And so Shopify, if

different directions. And so Shopify, if you're listening, please update from total sales to order revenue and get this out of people's eyes because it's one of the biggest problems we face.

>> Drew from Iris is very, very adamant about this issue as well. He talks about it all the time.

>> Drew and I are kindred spirits.

>> Yeah, he's a great dude. So top of the pyramid is his contribution margin and then I would imagine next you're looking more at like >> next we call it the business metrics.

This is just revenue spend me r a ov. So

that that level still matters. At the

end of the day, every business wants to grow revenue. And while we can say that

grow revenue. And while we can say that bottom line is important, I have never met a founder that's happy with their business shrinking on the top line. It's

just a reality that businesses want to grow and growth is measured in revenue and ibida. But if you have a shrinking

and ibida. But if you have a shrinking top line, the enterprise business of your value will suffer. So it still matters that your top line grows while your bottom line does too. But it's just the sequence of the hierarchy. Then the

third layer I would say is often times the most important and neglected inside of the business. I call it the customer level metrics. This is now new customer

level metrics. This is now new customer acquisition efficiency, new customer contribution margin, new customer revenue and ad spend. So I need to all the time be growing my new customer

acquisition because new customer acquisition today is my returning customer tomorrow. And the best

customer tomorrow. And the best predictor of future returning customer revenue is the growth of my active customer file. So a lot of times brands

customer file. So a lot of times brands make the mistake that assume that my customer file just grows up forever.

Right? From day one I have one customer and every day I add to that total pile of customers. But the reality is most of

of customers. But the reality is most of your customers have lapsed and are never coming back. And if you were to map out

coming back. And if you were to map out the average time between purchases for most brands, you'll see that 80% of the customers that are ever going to come back will come back within the first 6 to 8 months. So once you get outside of

those windows, we would consider those customers churned or lapsed. And what we want to look at is the active customers at all times and the size of that file.

And when that file shrinks, what that means is that your returning customer revenue in the future is going to shrink too. And so we have to be growing the

too. And so we have to be growing the number of active customers all the time in order for the business to maintain future growth. And so new customer level

future growth. And so new customer level metrics become really important to have goals around how many new customers I'm acquiring and that I'm not just squeezing the sponge and getting all my revenue off of my existing customer base

from what you see so far. So so far we have contribution margin at top then business metrics then customer metrics.

Above that we have cash flow which everybody should be looking at. Who

should be looking at this and managing this? It's the business metric, the

this? It's the business metric, the customer metrics and then whatever is next exists.

>> I believe in transparency for the organization that everybody should see it that every day there should be a view of contribution margin to goal across the entirety of the organization. And if

you could even if you had the courage to be transparent to the cash flow level I even think that if you want the people inside of your company to affect the thing that you care about most show it

like you can't ask people to affect things they aren't looking at. And so

what often happens is I see founders what they do at the very bottom of this pyramid is what I call channel level metrics. This is Facebook rorowass right

metrics. This is Facebook rorowass right or your triple whale rorowass or your MTA number. This governs most

MTA number. This governs most organizations. This is where they force

organizations. This is where they force most people to look >> which is the devil because if you look at it isolated in a silo, you're done.

>> It's it's it's a proxy metric. It is not actually correlated tightly to cash flow in most cases, right? There's all sorts of things you can try and do to tighten the relationship between that. But the

problem is this governs the behavior of most organizations and then founders are wondering why don't I have more cash flow and it's like well because you're asking people to drive triple well rorowass or northbeam ros and this isn't

necessarily like against them as a platform it's that that signal is not what the founder actually wants. So my

belief is if I want especially my executives if I want to grow the corporate balance sheet then I should give them an incentive around the corporate balance sheet and I should show it to them every day. Um, I think a lot of times the insecurity to bring

transparency to that numbers is either I'm masking my own bad behavior, debt that I've taken on, distributions I'm taking or whatever it might be or I'm unclear on what it means and I don't understand how to measure it or affect

it. And so I I move myself I watch a lot

it. And so I I move myself I watch a lot of founders get stuck at the bottom of the pyramid just obsessing over Facebook Ross, Google Ross, etc. without really driving towards the thing that they care about, where enterprise value is coming from, where their obligation to

shareholders actually lives, which is often on their ability to distribute capital to the people who own the equity.

>> I believe in radical transparency and willing to get into this ESO program you talk about, but do you think it's dangerous for people that might be not as advanced to see the contribution margin but not understand the cash flow?

They could see dollars being made in the contribution margin, but it's like we're floating cash. I think that's a huge

floating cash. I think that's a huge myth. I think that attribution is a

myth. I think that attribution is a thousand times more complex than cash flow. You ask people to solve for

flow. You ask people to solve for something down here that is, pardon my language, it's [ __ ] insanity and complexity, incrementality tests and MTA models and all the things and we say do

this because that would be too hard to understand. And I just go, "No, no, no.

understand. And I just go, "No, no, no.

This is real money. This is reality.

This is objectivity. We can actually help people make decisions and understand these inputs. This is way, way, way more complex." And I watch everybody get stuck in this quagmire because there's some trope and I I I

absorbed this for many years too. The

idea that they couldn't understand a balance sheet. They couldn't understand

balance sheet. They couldn't understand the three financial statements that cash flow or a P&L would be too confusing and instead we adopted something way more confusing, way harder to understand.

>> You touched on measurement tools like a triple L or a Northbeam. What place do they hold in this whole entire thing? Do

you just think they're one tool on the bottom four of the quadrant right there that should be used as one extra kind of I'm not going to say it's subjective but just one more variable to look into the equation.

>> I think the key is that you tie together optimization and attribution. So what do I mean by that? Inside of Meta, we only can optimize for a subset of data

outcomes. So what do I mean by that?

outcomes. So what do I mean by that?

Meta's system. The actual allocation of your dollars is based on when you set up an ad account, you select what am I optimizing for. And your choices are

optimizing for. And your choices are conversions most often is what you're optimizing for as measured by one day click, 7-day click, 7-day click, one day view, one day click, one day view or now

they've introduced engaged view, right?

But these are as reported by meta systems as seen by meta systems. They are going to allocate your media towards that. Now what the MTA solutions started

that. Now what the MTA solutions started realizing was they they understand that this is actually true that you can't affect a number that the meta system isn't optimizing for. So they introduced things like Northbeam Apex where you can

actually set the optimization setting where they're passing back signals to meta to optimize for it. My connection

is one I think that whatever measure you're using should have some relationship to one of those metrics higher up the hierarchy. So ideally new customer revenue. So you should try to

customer revenue. So you should try to find the strongest causal relationship between whatever measure you're using and new customer revenue. And you should make sure that you are optimizing for it in meta. So if you're going to use

in meta. So if you're going to use Northbeam, you better use North Beam Apex. You better pass that signal back

Apex. You better pass that signal back to Meta because otherwise Meta is optimizing for something completely different than what you're measuring.

>> So So I just want to break this down real quick. So you have we could say

real quick. So you have we could say Meta, we could say Google, we could say anything. In platform is one side. The

anything. In platform is one side. The

MTA is another side which is these tools that are the measurement tools. You're

saying the northstar what to look for from a data perspective in each is who is delivering the most amount of new customers.

>> Yeah. I'm saying that whatever setting you just you you talked about in platform that's reporting.

>> Yeah.

>> MTA models are reporting. I'm talking

about the actual algorithm that allocates your dollars. What data is it using? And in almost every case, they're

using? And in almost every case, they're using meta reported the numbers in here, this attribution view, that's what they're actually allocating your dollars based on. So you can measure it however

based on. So you can measure it however you want, but whether or not you win an auction is based on the machine's ability to make a predictive model about a conversion as identified by Meta's

system. So it doesn't matter what

system. So it doesn't matter what attribution model you use, the actual allocation your dollars is happening based on Meta's data. So I most often and have have seen that meta's data

correlates very strongly to new customer revenue especially if you use 7-day click with good exclusions you can create a very tight relationship to that causal number and then your job is I

think the layer there is to then run incrementality studies geo hold out and to find out what the actual causal effect was on your revenue and let's say meta reported a one and your

incrementality study said it was a 1.2 two, then you create what we call a factor, a multiple of the relationship between the platform reported result and the incrementality study and you measure

Meta's platform result with that adjustment and you optimize accordingly.

But the point is at the end of the day, whatever attribution model you use is irrelevant because Meta is allocating your dollars based on that system, based on that attribution view, and that's the one I would care about the most.

>> At what scale do you think people should be using this outside incrementality tool? I think that when you get into

tool? I think that when you get into multi-channel allocation of your media, you need to understand the distinction of the effect of each channel. When you

are in meta exclusively, there should be a tight correlation. You should be able to export your 7-day click rorowass and it should correlate very tightly to AM on a daily basis. So, you could just throw those both in a spreadsheet on a

daily basis. Go equals parenthesis co r

daily basis. Go equals parenthesis co r e l comma the two data sets and you'll see hopefully it's a 7.8 point. There's

a tight relationship. You can assume that meta is driving new customer acquisition. You can map them. You can

acquisition. You can map them. You can

see it visually on a graph very easily.

The second you go, okay, now I want to try YouTube. I want to try Tik Tok. I

try YouTube. I want to try Tik Tok. I

want to try Apploven. What I would encourage you to do is start with an incrementality study of the net new channel, go into that channel with an isolation of some DAS or geographic

regions to determine the effect of that new channel to start. And that will give you a benchmark factor in that place and on and on. The challenge is if you're a brand that already has a very diverse

media mix, it becomes almost impossible to sort out the causal effect of every channel individually and then you have to kind of work backwards to start going through channel by channel to understand the effect and it's much more

complicated. Best case scenario, you're

complicated. Best case scenario, you're in one channel and as you expand now you introduce that testing to understand the effect of each new place you go into.

>> Explain that a little bit more. I don't

know what you mean by DMA obviously from a geo perspective. When you say hold out, it's basically you just want to do a a split test. You just want to do a test that meta and everything else is

excluded. So you have a very controlled

excluded. So you have a very controlled environment to see if it works.

>> DMAs are often references to zip codes or smaller subsets of regions beyond states, right? So you're going to take a

states, right? So you're going to take a subset of DAS where the revenue is modeled to be similar to one another. So

good data science teams will look at the relationship of revenue in different areas. AI can do this pretty

areas. AI can do this pretty effectively. There's lots of tools. We

effectively. There's lots of tools. We

do it at CTC. House does it. There's a

bunch of incrementality tools out there.

And they're going to get a data science team to model two regions. In one area, the spend is going to be turned off. In

the one area, the spend is going to be turned on. And we're going to figure out

turned on. And we're going to figure out how much more revenue showed up in the place where the ads were. And that gap in revenue in the control versus the variable is going to give you the actual

effect of your media in that region.

>> Makes a lot of sense. From a platform perspective, we just talked a lot about meta. I would say for most people that

meta. I would say for most people that are listening and or have come on, I mean I could tell you like for us, we're 85% meta and meta is obviously Facebook, Instagram, and then Google kind of is everybody's I would say is everybody's

second biggest one.

>> You have you work you've seen thousands of brands.

>> Yep.

>> You won 2026. What else are you seeing?

So the key right now is actually mapping a relationship between your channel distribution strategy and your media measurement. So the playbook in 2026

measurement. So the playbook in 2026 looks like this. And I'm going to speak this is for slightly more mature mature brands. If you're sub 10 million, stay

brands. If you're sub 10 million, stay in the single channel orientation. You

don't need to go beyond meta to drive growth in that area. I think that's a well-worn topic. I think most people

well-worn topic. I think most people understand the capacity for that channel to drive real growth. So for this section, I want to talk to brands in the 10 to 100 million range. So you're

saying 0 to 10, sprinkle on some Google, obviously >> sprinkle on just basic search. Yep.

>> Yeah. And you should just go really, really hard on meta.

>> That's right. Cool.

>> That's right.

>> Continue.

>> So what I see now is in many of these categories, we have to recognize that e-commerce as an industry postco is growing back to its pre-COVID norms, which is about 15 to 20% a year.

E-commerce as a percentage of online retail is growing about that much. Okay.

Many brands, what's happening is the supply, the amount of competition is growing faster than that. And so their category growth is either flat or very small. So their dot website growth is

small. So their dot website growth is stalling. I'm seeing this everywhere.

stalling. I'm seeing this everywhere.

Exclusive.com revenue growth is challenging for many brands. So what

they're realizing is that the growth mechanism is to expand channel distribution. First step, Amazon. Amazon

distribution. First step, Amazon. Amazon

still represents somewhere between 40 and 50% of all e-commerce sales.

>> Wow. In some categories, commodities like batteries, it's 97%.

Right? So depending on your category and how commoditized it is.

>> Wow. The blended average is 40 to 50% of all >> all e-commerce happens on Amazon.

Apparel, which most people is 40%. 40%

of apparel purchases happen on Amazon.

And the more commoditized your category it is, the higher that number is. So

brands are realizing that like consumers want to shop on Amazon. That's like a very serious reality for most businesses. And if they want growth,

businesses. And if they want growth, it's usually going to include that. The

problem with Amazon is it's almost entirely demand capture, right? In the

sense that it doesn't drive incremental net new demand for a category. It takes

that and there's some amount of search volume that exists and you're competing for your share of it and you're still obligated to go drive that demand >> and it's a black box.

>> Yes. It's very challenging. Okay. But

what's happening is is that if I'm I'll give you an example of a brand. We work

with a brand called Fellow. Okay. They

sell coffee makers. Awesome. super cool

high-end coffee makers. They're on

Amazon and for a brand like that, if they were to measure the effect of their meta dollars exclusively on the impact of.com, what they would see is that as

the Amazon business is growing, the perceived effect of their meta performance declines. And so what brands

performance declines. And so what brands will do is they'll expand the distribution Amazon Walmart whatever.

But they continue to measure their media exclusively on.com. And it looks like

exclusively on.com. And it looks like it's going down. they pull back and the whole engine stalls. Okay. So, what the best brands are doing in 2026 is they're realizing two things. One is that when I

spend money on Meta, it drives an effect on Amazon. And the way that I actually

on Amazon. And the way that I actually get to seeing the signal to drive incremental effect is I measure my media's effect on both.com and Amazon.

You can do this using incrementality studies. And then what that allows them

studies. And then what that allows them to do is unlock other higherfunnel channels like YouTube. Okay. So, we're

sitting here. This video is going to end up on YouTube. YouTube

drives as much value capture on Amazon aset.com. For every dollar of value that

aset.com. For every dollar of value that you will generate running a conversion optimized ad on YouTube for your website, you will drive equal effect to your Amazon revenue.

>> Wow. Meta is more like 20% of the value will end up on Amazon. 80% of it will end up on your website. The higher

funnel you go, the more of that value realization will end up on the larger purchase volume channel, the Amazon, right? It'll look more like the normal

right? It'll look more like the normal category pie of e-commerce. So, as you get to CTV, as you get to YouTube, where it's not a direct click often, it's often a view-based consumption. A large

percentage of YouTube ads are watched on TV now >> and they're like, "Oh, I remember this brand. Where do they go to first? It's

brand. Where do they go to first? It's

Amazon."

>> Amazon. Because that's their normal behavior. So as you move up funnel in

behavior. So as you move up funnel in order to unlock growth in those channels to get to media channel expansion you have to broaden your measurement to include broader effect. So you have to

look at the effect on.com and Amazon again incrementality study is a great way to do that and all of a sudden that YouTube ad that looks unprofitable when measured just against.com now suddenly you realize oh [ __ ] that is profitable I

am making money and it unlocks scale there. Okay, now I'm going to give you

there. Okay, now I'm going to give you the third channel that's happening that's driving this this effect of the 2026 brand. Tik Tok shops. Okay, the

2026 brand. Tik Tok shops. Okay, the

largest attention channel that we're all spending way too much time on our phones on is Tik Tok. Tik Tok ads to direct.com. Dog [ __ ] Terrible. Almost

direct.com. Dog [ __ ] Terrible. Almost

never work, right? So, what happens is people go try and run Tik Tok ads. They

try and drive it to their.com. It

doesn't work. They shut it down. That's

not the game. The game is set up Tik Tok shops, build the giant affiliate network, try and run this channel at neutral or even maybe slightly losing money.

>> I'm seeing companies losing on there and doing 100 million profitably, holistically.

>> Drive the effect through the entire digital ecosystem. And so the pyramid of

digital ecosystem. And so the pyramid of 2026 looks like this. Top offunnel

demand like YouTube, Tik Tok shops with the affiliate network at a neutral margin for that distribution.

Value realization comes from limited edition, high AOV, high margin merchandising. The

merchandising. The >> true fans, >> the volume movement happens on Amazon.

My core black skew, you're going to end up with more volume on Amazon as these top offunnel initiatives become a higher portion of your media mix. That's where

all the volume is going to end up. But

the overall digital enterprise, we call it grows. And that's the playbook. Now

it grows. And that's the playbook. Now

it this idea that this is DTOC.com exclusive growth meta exclusive I run YouTube to.com you're going to get sliced to death your media efficiency will degrade the amount of businesses I

see that have siloed Amazon and.com competing against each other separate P&Ls all the meta budgets on.com why is dot slowing down meanwhile the Amazon channel's a hero look at all this margin

no it's one engine that you're creating for your digital enterprise that's the playbook in 26 >> yeah I think that there's a lot of people out there and you know you said 10 million It could even be maybe sixth, seventh depending on the circumstance.

>> You need to do these incrementality tests.

>> Yeah. You have to understand >> cuz Kent was on and it was from Neurogum and it was 20 24 fastest growing brand on Tik Tok. Yep.

>> And he was talking about the relationship between Tik Tok and Amazon and he shut and when he shut off his Amazon ads nothing hap his Amazon velocity did not go down. That's right.

Because Tik Tok was driving the top of the funnel and people were transacting on Amazon.

>> Amazon ads are attacks. They are not a demand creation. and they are a defense

demand creation. and they are a defense against people overtaking the SER. It is

Amazon's ability just like Google branded search and it's a tax you have to pay to defend your own demand. It's a

finger in the hole that keeps your funnel tight but it doesn't create net new demand. So often times Amazon ads

new demand. So often times Amazon ads like Google branded search are going to be very low incrementality until a ton of competition shows up and then it's just a tax you have to pay that's going to be margin destructive to your business over time. That's what happens

when you exist in a category with no moat, no IP, no defensibility. All the

profits going to get competed down.

They're going to compete on your branded search terms. You're going to have to pay a higher and higher tax. You're

going to get less and less margin capture. That's why monopolies lead to

capture. That's why monopolies lead to higher leverage, higher margin. High

competition leads to lower margin capture, less value. So, but the key is as you expand distribution, and this is even more true. We didn't even talk about retail, but a lot of brands are rolling out retail and they're going

like, "Why is my do efficiency going down?" Well, it's because a lot of

down?" Well, it's because a lot of people prefer to shop in Target and Walmart and Best Buy and wherever else, but your measurement has to broaden with it. When we started with we worked with

it. When we started with we worked with Native Deodorant, from the day that they were acquired by PNG, 5 years, okay, the day they showed up, 100% of their media

was on conversion optimized meta ads. By

the end of our run with them, zero dollars were because the and the business had grown like 15x because all the distribution moved to retail. It's

deodorants. Where does the bulk of deodorant purchase still happen? Still

happens in grocery. It still happens in Target. And so the media mix needs to

Target. And so the media mix needs to move in support of the distribution. You

can't expand distribution and continue to measure your media exclusively on.com. So this all goes back to it's

on.com. So this all goes back to it's that second bucket bucket that business metrics. Even if you go into retail, you

metrics. Even if you go into retail, you just and that you know you can argue that retail you're transacting there, but it's also marketing. That's right.

It's just what is your blended contribution margin across all and do incrementality tests and hold out to see individual channels. Are they

individual channels. Are they successful? Are they not?

successful? Are they not?

>> That's right. Media exists to drive your business growth, not to drive your growth. And I sit with founders all the

growth. And I sit with founders all the time that are just assuming that this channel expansion is coming from nowhere. That it's just like it's being

nowhere. That it's just like it's being manufactured demand somewhere else. But

the reality is Meta, YouTube, Tik Tok affiliate, this is the motor for the growth of your entire business in every channel. And if you don't begin to see

channel. And if you don't begin to see it that way, you will suffocate the demand because your.com efficiency will look like it's degrading really quickly and it'll give you a signal to pull back

on that efficiency and you'll choke the growth of the whole thing. And look, the best retailers will be purely complimentary audiences where they do serve as marketing. Being on an endcap in a great retailer is net new awareness

for your business that can drive demand as well. But I have seen brands that

as well. But I have seen brands that have large-scale distribution of.com in a geo and then they will open their own store in that geo and all of that

revenue in the store is just cannibalizing.com. It's just the same

cannibalizing.com. It's just the same people buying in the same place for the same thing. And you have to be really

same thing. And you have to be really careful with that. And that's why like a lot of times I see brands that are like the retailers are really good at baiting people into this. It's like oh Nordstrom's is going to launch with us.

Oh, it's gonna be dot exclusive for a while. You know what Nordstrom's is

while. You know what Nordstrom's is going to do? They're gonna sit on your brand terms. They're gonna siphon your demand and they're going to make you make less money and compete against yourself and they're going to tell you

it's their value creation. It's not.

Value from retail usually comes from being in store in net new places where you are not in yet where you can expand awareness for your business and drive truly incremental demand in those places.

>> Big thing to point out there too is it's what we've done is product segmentation.

So we have different art substrates in retail. So then and that's it's lower

retail. So then and that's it's lower ticket in retail. If they like the designs, they'll come upstream, higher price point, see the brand, and get the canvas.

>> So much of this is great merchandising, right? It's having a plan for like the

right? It's having a plan for like the brand I was talking about the coffee shop that they are like, well, how do I get into Tik Tok shops? It's super high AOV. And I go, it's a merchandising

AOV. And I go, it's a merchandising problem. You need to create something to

problem. You need to create something to unlock a channel. You need to have a point of view of how you access the attention of consumers with your product and innovate for the sake of the channel. In the same way that if Walmart

channel. In the same way that if Walmart came to you and said, "We want to write a $10 million PO, but we need a skew that costs 20% less." You're going to get with your product team, you're going to figure it out, right? That's no

different for Tik Tok shops. You should

be thinking the same way. How do I create some merchandise that works here?

Because this is a massive flywheel of attention if I can unlock it. So, Meta,

Google, you mentioned Tik Tok Shop, you mentioned Amazon, you mentioned retail.

What are those other quote unquote, I'll just call them, you know, paid platforms that are you seeing working because you're seeing a ton of brands.

>> Other big one right now. So if I look at share of wallet, yeah, so the percentage of customers, it's Meta, Google number two, and number three and four right now is a close battle. Tik Tok kind of fights in there every now and again. If

you separate out Google and YouTube, it might be YouTube, but let's just bundle those together for right now. Number

three right now is Apploven. Okay, this

is the channel that has experienced the most growth of late. So Apploven is a network, an ad network built into mobile gaming. One of the novelties of that ad

gaming. One of the novelties of that ad unit is that it's an unskippable ad. So,

we've all played mobile games. You're

sitting there and you're waiting an ad interjects and you have to watch all of it. So, it's forced consumption, which

it. So, it's forced consumption, which may feel annoying, but it's a high value audience with a lot of whales. So,

mobile gaming is a whale audience where there's a small subset of customers that spend a crap ton of money. Okay? So,

there's high value consumers in there.

It tends to be net new and incremental for a lot of brands when they start there. And I'm seeing it pick up 3 to 5%

there. And I'm seeing it pick up 3 to 5% share of wallet for big spenders. It's

not going to compete with Meta. Some

brands have. I've heard those anecdotes, but for the most part there is and I can we've run a bunch of incrementality studies and we've seen it be more than 100% incremental meaning the actual impact is matches or exceeds what's

reported in platform tends to be a really good sign. They're doing good work around trying to find more products around new customer optimization. The

team there is highly responsive. They're

really engaged. They want to win in this channel and I'm seeing brands get to a substantial amount of media in that channel.

>> What else? What are the other small ones? YouTube, CTV. So podcast, CTV,

ones? YouTube, CTV. So podcast, CTV, let's put Pinterest and Snapchat tend to be even X and it tends to be industry specific, but I have yet to see any of

those really consistently across a large portfolio of brands unlock scale.

>> Yeah. So we have a partnership with Universal Comcast for CTV and it's funny because all of this stuff they are not taking on any client unless they are adamant about the incrementality test.

>> That's right.

>> Because then you're not actually understanding and knowing their performance. That's like a non-starter

performance. That's like a non-starter for them. And what I would say is CTV

for them. And what I would say is CTV should match when you have broader distribution to capture the value because again when there's not a click directly the ability to realize the value on that ad dollars is predicated

on showing up into the person's life at another point that they already interact in. So it's being in retail and they're

in. So it's being in retail and they're connecting the dots to that ad that they saw. It's being on Amazon when they're

saw. It's being on Amazon when they're browsing whatever it is. So if you have.com Amazon and retail CTV is really powerful. If you're dot exclusive, it's

powerful. If you're dot exclusive, it's really hard to get it to pencil on exclusive.com. It's possible, but it's

exclusive.com. It's possible, but it's much more challenging.

>> What I like about it is going back to kind of that culture calendar is you can actually pick >> Yes. You can show times and they do like

>> Yes. You can show times and they do like the Olympics. That's right.

the Olympics. That's right.

>> Like imagine if you're speaking to that cohort and you're, you know, you get hit here, here, and here, and then you're watching TV.

>> That's right. And if you're going to be selective about trying to show up in the places that matter to your business in coordination with a moment, let's go back to that Veterans Day moment. If

you're going to go into CTV on Fox on those days, like that all makes a ton of sense is to try to amplify and attach to those cultural peaks. CTV can be really powerful for that. Guys, quick break.

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>> Um, let's get a little bit into kind of scenario planning. You have this four

scenario planning. You have this four quarter accounting fit planning process.

Why don't you break that down? We talked

a little bit about how we saw the hierarchy of metrics. I want to talk about this four quarter accounting.

Yeah. What is it?

>> So I want to make it easier for business owners to understand their P&L. So we

came up with a very simple heristic. I

call it four quarter accounting. The

idea is that you can break any P&L up into four categories. The first category is your what we would call cost of delivery. So that's your cost of goods

delivery. So that's your cost of goods plus all those variable expenses that we talked about. Okay. The second is CAC.

talked about. Okay. The second is CAC.

This is your marketing expense. These

are all the dollars that go towards driving a direct response on your media.

Okay. The third is opex. These are your fixed costs, right? So this is your rent, your labor, your software, whatever goes in that category. And the

fourth is profit. Okay. In an ideal scenario, if you were to build the way that we draw this graph, and we'll throw one of these up there hopefully. Good

good tag to the editor here. Is imagine

that you have all of these at 25%. Okay,

right here. So 25% COGS, 25% opex, 25% marketing, 25% profit. I think if anybody's running a business and they got 25% profit, they're feeling great.

So what tends to happen is that profit gets eaten away in one of these three categories. E-commerce, the traditional

categories. E-commerce, the traditional mix looks more like COGS are probably 60% or 40% is more of where they land.

So 60% is your gross margin, 40% is your COGS. Opex should be lower and that's

COGS. Opex should be lower and that's where all the innovation is happening.

that should be going down down now down closer to 15%. And tax it somewhere between 25 and 30% and then you end up with a 15 to 20% e-commerce business, you're killing it. But if you were to just take your P&L and what I what I

encourage people to do is ask your accountant to build you a four quarter accounting chart. Just show me those

accounting chart. Just show me those four categories every month. Just break

it up. I don't need to see every single line item. It's so confusing where they

line item. It's so confusing where they all are. It's hard to understand. Show

all are. It's hard to understand. Show

me my total cost of delivery, my total opex, my total CAC, and my total profit.

And see where is my profit going? which

of these can I go and create leverage against and that's the problem to go solve and you'll find all these areas where it's just oh man this is like why am I so much worse here than everybody else >> it's so crazy man I didn't start doing

this and I see this from a daily but I look at it more from a a monthly perspective I didn't start doing this till four or five years in the business and again in conjunction with 20 in 2021 just like everybody else I saw my opex

was way too [ __ ] high but I want to go through each of these so cost of delivery is the product and all those little small things for people out there like really think through, you know, the the 3PL charging you 15 cents to write

the handwritten note on the card. Yes.

Um but let's let's can we let's go through each one because I think it's important to understand some benchmarks within each one.

>> Yeah, benchmarks too. Perfect.

>> So cost of delivery is usually two primary components that your product cost and your shipping expense. Okay. As

a general rule, one of the things that brands do way too often on their do especially and this is again a thinking about a channel strategy is they give away free shipping and so they are net negative on their shipping dramatically.

And so if they look at their cost of delivery, it should be that product costs usually actually aren't that expensive for most brands. They're

somewhere between 10 to 20% of revenue is actually product costs. Shipping I

see also can be as much as 10 to 20%. If

your shipping is 20 or 30% of your revenue, something is wrong. Either

you're not charging enough for it or you're getting just destroyed by your 3PL or there's something happening there. Now, there are some products that

there. Now, there are some products that have bad what I call value to weight ratio. We work with igloo coolers.

ratio. We work with igloo coolers.

You're shipping a bunch of plastic air.

It's a bad product for e-commerce in many ways. It's bad value to weight

many ways. It's bad value to weight ratio. Shipping is always going to be a

ratio. Shipping is always going to be a high component. Jewelry alternatively

high component. Jewelry alternatively has great value to weight ratio. Guys,

for people out there listening, this is a highly underestimated part of the conversation. I think I talked about

conversation. I think I talked about this with Sean. Same thing with me with Art, bro. Over 39 and a half inches on

Art, bro. Over 39 and a half inches on one side. It incrementally jacks up the

one side. It incrementally jacks up the shipping. It's the absolute worst. Get a

shipping. It's the absolute worst. Get a

little baby get a little baby product that could >> Exactly. something perfume like anything

>> Exactly. something perfume like anything that is really small, doesn't take up a lot of space, and has high AOV. That's

great for e-commerce, right? So,

shipping should be about 10% of your revenue tops. Ideally, it's less than

revenue tops. Ideally, it's less than that. And I actually think it's a goal.

that. And I actually think it's a goal.

I encourage brands to track what I call net shipping cost. So shipping revenue minus shipping costs. Now the question all the time is like could I realize more shipping revenue? Could I charge the customer more? And you should get

really clear for yourself and this is where price testing all the time should be coming in. But that net shipping revenue is something you should keep an eye on all the time because shipping just destroys a lot of businesses in

ways that is kind of hidden at the grand scheme of things.

>> Yeah. Yeah, for our business it's a single unit drop ship and our production is one of the biggest FedEx and UPS accounts. So we actually have our

accounts. So we actually have our shipping baked into the COGS there's more way to hide it.

>> There's more predictability and then when we charge for shipping it's just >> new. That's right. Yeah. So there's lots

>> new. That's right. Yeah. So there's lots of ways to play with that game but gross margin the reality is the average gross margin in e-commerce is about 42%. So

about 58% cost of goods across the industry. Um, we we ran a really great

industry. Um, we we ran a really great study that we'll share some of the data in one of the show notes with Final Loop large accounting platform to look at some of these benchmark averages. So

about 58% is is industry average.

Apparel, it's usually the return rates into a lot of that. If you're a hard goods that has no LTV, you probably want to be a lot more than that. If you have higher LTV, gross margin can be less of an issue because you're going to get a high consumption rate and more future

purchases. So there's all sorts of

purchases. So there's all sorts of considerations around what's good gross margin for you. And it depends on how much of that repurchase rate, how much competition exists, all sorts of different things. But that 10% shipping,

different things. But that 10% shipping, 20% product cost is a good indication to go, okay, where am I at relative to that and why? And can I fix that?

and why? And can I fix that?

>> You're talking about the cost of delivery, you're saying needs to be what? What's the range?

what? What's the range?

>> Ideally, again, if I can get that to somewhere between 30 to 40%. That

probably means it's not the biggest problem in my business. There there's a there are some some limitations to how low you can actually get that number.

Some of that is negotiation with a supplier. There's probably a

supplier. There's probably a conversation to be had about too the difference between the P&L and cash flow where there's it makes sense sometimes to give up margin on the product level for cash flow.

>> We're going to talk about that.

>> So, but let's say if I can get this between 30 and 40% is my cost of delivery, that's probably not the biggest problem in my business, >> right? Let's jump into CAC then.

>> right? Let's jump into CAC then.

>> So, on the CAC side too, just for it's basically your marketing dollars.

>> Yes. Are you baking into that like marketing contractors and agencies?

>> I don't. That number for me is pure media dollars for the sake of generating revenue. The others I would put into

revenue. The others I would put into fixed costs. I just don't want to

fixed costs. I just don't want to convolute that number with fixed dollars. I want it to be purely variable

dollars. I want it to be purely variable marketing expense.

>> I think that might change for you like what we were talking about before off camera now that creative is becoming such a big thing. Do you think maybe that will >> if creative is a variable expense which it's becoming more of the case where

creative becomes a variable expense in which case it should be baked into that.

Yep.

>> But if it's a fixed expense, I would separate it out. So that's just the distinction. Is it is it variable or is

distinction. Is it is it variable or is it fixed? If it's a variable marketing

it fixed? If it's a variable marketing expense, it goes in this bucket >> coming. So from a CAC side, what percent

>> coming. So from a CAC side, what percent are we looking at?

>> Okay. This has to do with the stage of business that you're in and whether you are a high LTV or low LTV business.

Okay. So you had Sean on here. He sells

Ridge Wallets. He runs at 50% marketing as a percentage of revenue. Right.

Because >> must be nice, Sean.

>> Yeah. Right. high gross margin, low opex, high marketing expense because every month all of his revenue has to come from new customer acquisition.

Yeah. And the reality is the median result on Meta across my entire portfolio for new customer acquisition is like a 1.7.

>> That means the average cost of acquisition is like 55 to 60%. Right? So

that's huge, right? So now how does that change? How does that get to where

change? How does that get to where you'll you'll talk to these businesses that are large scale retailers like Antler Loft or a coach or these like legacy businesses and they're like marketing should be 10% of revenue.

Well, how does how do you get there over time? I have this graph that's one of my

time? I have this graph that's one of my most viral tweets that I have that I call the Mona Lisa of e-commerce. And

the idea is that if you could hold new customer acquisition constant, okay, if you're a business with good LTV and you every year you went out and acquired 100,000 customers, 100,000 customers, 100,000 customers, your marketing as a

percentage of revenue would go down over time and your revenue would go up. You'd

see margin expand because more and more over time your revenue would be coming from your existing customer base. So if

you have high LTV, you should see marketing as a percentage of revenue go down over time because more and more of your revenue is going to be coming from your existing customer base over time.

You get high LTV, you're capturing value off that base. You hold new customer acquisition constant and that that will expand over time. So you can be a business that those businesses tend to

have higher opex because they can afford effort towards the relationship with the customer because they realize value over time. They're less of a new customer

time. They're less of a new customer acquisition engine. They have higher

acquisition engine. They have higher emphasis on customer service, higher emphasis on loyalty, higher emphasis on retention because the value capture is all after they've been acquired. But if

you're a hard good like that doesn't have good LTV, you're going to see this number be closer to 40 to 50%. Because

every month you have to go acquire new customers over and over and over again.

So so much of this depends on the stage of the business that you're in and the type of business model you're running and being aware of the distinction between the two. So Sean's business at Ridge is always going to be high

marketing cost, low cost of goods, low opex. That's going to have to be the

opex. That's going to have to be the model in order to get to profitability.

And you've just got to be aware. So with

four quarter accounting, there's lots of ways to win the game to configure the the the the different levers. You just

have to be conscious of what business model am I in? And so therefore, what needs to be true about where I have to create leverage >> or pick a product that has good LTV >> or just Exactly. Or solve the problem by

just picking a better business. Exactly.

I mean, me and Sean, we talked about on camera, but also off camerara. It's just

like the fact that he's winning the game. And [ __ ] I've won the game at a

game. And [ __ ] I've won the game at a smaller level. We've won the game with

smaller level. We've won the game with not >> the hardest business model ever game.

>> You have a want, not a need, and LTV. No

LTV.

>> It is the hardest version of the game.

And this is teaser to get you guys to stick around for a little while. This is

why I'm going to tell you that service businesses are way better than e-commerce businesses later.

>> Yeah, because I was just about to say this looks absolutely terrible. We have

ken around 50. We haven't even talked about opex and this is why it is fundamentally important to understand that e-commerce is a low opex game.

E-commerce is not a full-time employee large scale business large scale office business. That's what we all thought it

business. That's what we all thought it was in co but it's not. It is how much leverage can you get off of a very small employee base. It is a lean opex

employee base. It is a lean opex business. I've watched the standard go

business. I've watched the standard go from 25% to 20 to 15 to now the benchmark for great e-commerce business is somewhere in that 10 to 12% range for their entirety of their opex because the

marketing cost and competition just demands that the dollars go to growth not to labor and so you have to create leverage and the good thing is like AI is creating this they're creating opportunities and you're seeing this now brands with a million dollars of revenue

per employee $5 million of revenue per employee it's happening in e-commerce all the time >> yeah I don't even think you can win if you're over 20 at this point I think that the last five years.

I mean, I know because I actually just looked at these numbers yesterday. I

don't think that that there's any business that is still in business today that year over year, you can argue I'm not going to argue a percent of revenue, but their fixed

dollars per day of opex >> has to have gone down every single day.

It has to.

>> And I'll just say like >> and I don't even care if you're scaling, you're doubling up. It's just it has to.

I promise you have not found the maximum output of the people inside of your company because AI is changing it every day. What is possible for one person to

day. What is possible for one person to do today versus what it was 2 years ago is like infinity x times greater output.

Number of ads they can make, number of channels that they can manage, number of things that they can model from a forecasting and demand planning side.

Like everything somebody can do now in partnership with all the tooling available, the output is just infinitely greater. And you have to challenge your

greater. And you have to challenge your organization to move along that curve or you're going to get swallowed because what it's going to mean is somebody can spend more for marketing. And if they can pay more to acquire the customer in a competitive set with you, you lose.

It's the old Henry Ford like he who wins is whoever can pay the most for a customer and that's the end result.

>> Good point. And if you're going to get that that leverage on the opex, it might be better to play a different game which we'll talk about. But I want to talk specifically about this four quarter account and the four things that we spoke about and how do you use this cash

conversion cycle in your planning to optimize what are all these things that you >> so it's really important that you understand that playing the P&L game which is what four quarter accounting applies to it's a way to analyze your

profit and loss statement is very different than managing your cash flow and your balance sheet and there are times to take tradeoffs in your profitability in your gross margin for

the sake of cash. Okay. In business, the end goal priority to everything else is growing your bank account. And

especially in an era where M&A is really challenging for brands, there's funding is really challenging. Growing your bank account gives you ultimate optionality.

And so I'll give you an example of a tactic that we help brands with all the time that has to do with a reduction in the view of their four quarter accounting. Makes their P&L worse, but

accounting. Makes their P&L worse, but helps the overall business from a cash flow standpoint. Apparel is inventory

flow standpoint. Apparel is inventory intensive and you're making guesses all the time about the allocation of colors and sizes and you're doing your best to model it, but the only thing that's true

is that you're going to be wrong. The

question is, what do you do when you're wrong? And so what we help brands to do

wrong? And so what we help brands to do all the time is track what we call aged inventory. You break inventory into four

inventory. You break inventory into four different categories, A, B, C, and D grade. Okay? And that just has to do

grade. Okay? And that just has to do with how long it's been sitting in your warehouse or how many days of inventory outstanding there is in the warehouse.

And so what you want to do is you want to be turning inventory as fast as possible. And ideally your days of

possible. And ideally your days of inventory remaining, it matches how long it takes to produce the product such that if you were to place a PO today, you would run out just as the new shipment arrived. Right? That's ideal.

shipment arrived. Right? That's ideal.

That's called just in time inventory planning, right? But what happens is

planning, right? But what happens is sometimes you make an order and the sales velocity dips and all of a sudden you find that you have a thousand days of inventory outstanding. That's a

problem. That's a cash flow suck. And so

when we what I think about is how much you should be willing to discount a product or alternatively how low of efficiency you'd be willing to take to turn it back into cash should be related

to how many days of inventory you have outstanding. So brands make two mistakes

outstanding. So brands make two mistakes >> if you need to optimize for cash. if you

need to optimize for cash. But

regardless, I would contend that aged inventory that isn't moving should be liquidated and a new bet should be made for the sake of the business always >> because it's just decaying there and it's probably losing its value by the day.

>> That's right. And anybody who's sophisticated that comes in is not going to assign to you uh the full retail value on your balance sheet for an inventory that's been sitting there for 2 years. Right. So, if you are trying to

2 years. Right. So, if you are trying to hold it there because it's propping up your asset to liability ratio on your balance sheet, you're pro probably overstating the value of that inventory.

>> Guys, go to Uncle D. Murphy at ghost.io.

I'm going to put the link down below to liquidate all your needs.

>> So, is that really is he liquidator?

>> Oh, he's Oh, it's an it's episode one.

You got to watch it.

>> It's maybe the most important resource a business with large inventory constraint should have is relationships with liquidations. And then also the capacity

liquidations. And then also the capacity to develop what we call liquidation funnels. So imagine you have a set of

funnels. So imagine you have a set of SKs that you want to discount and turn back into cash. There's two ways to do that. What we suggest doing is creating

that. What we suggest doing is creating an unlisted PDP. So not one that shows up on the website, right? It's unlisted.

And we're going to run ads. And if our target CAC on our good inventory is our target ROS is a 2:1. Well, on

liquidation, it might be one, it might be 08. And so there's two ways you could

be 08. And so there's two ways you could do that. You could either discount it a

do that. You could either discount it a ton on the funnel and make it only available through the ad, not available on your website. You can exclude all your existing customers. So don't people don't see it or you just take a much

lower efficiency to move through this inventory quickly. So that's a tactic

inventory quickly. So that's a tactic that improves your cash. It'll harm your P&L. It'll reduce the overall margin

P&L. It'll reduce the overall margin value of the business. But that's okay because turning that back into cash that you can go back and buy good inventory is just as important >> or you can make high margin dollars.

>> That's right.

>> Yeah.

>> The other mistake that businesses make is on the other side. And this is what happens when a media buyer is operating under a rowass obligation independent inventory position. If you are about to

inventory position. If you are about to sell through a skew, let's say you only have 30 days of inventory left and it takes 80 days to order more. Okay, you

should either increase the efficiency expectation and maximize the marginal value of that batch of inventory or turn off the ad's entirety. Okay, the worst thing you could do is pay a high CAC to

move through inventory that's about to go out of stock, right? Because what

that does is it minimizes the marginal capture on that batch of inventory.

Every time you place a PO, your job is to maximize the marginal value of that batch of inventory.

>> So you're probably tearing it down from ABC D just from a margin. Like how do I get the most amount of margin? And then

it just keeps tearing down.

>> Exactly. Right. And so what brands don't do and if I'm a media buyer, I'm going to sell your best SKs at the target that you've given me and I don't care about the inventory. I'm just going to move

the inventory. I'm just going to move through your best deeper than you think.

>> It is. It's so much more detail.

>> This is game right here. This is this is serious game. So,

serious game. So, >> so if you're an apparel business or you're you should have an inventory meeting with your media buyer every week and you should be looking at how many days of inventory outstanding are there on the best SKUs. Where are my ads

going? What what am I spending money on?

going? What what am I spending money on?

Oh [ __ ] I'm going to run out in a week.

Raise the efficiency expectation a ton or turn it off and let's move let's move through some of this other stuff and see and make sure all the time that your demand creation matches your demand planning. Those things are

planning. Those things are disassociated. And so if we go

disassociated. And so if we go marketing, ops and finance, this is the connection between ops and marketing.

The relationship to ensure that your demand planning and demand creation work in sync.

>> And then if all bets are off at the bottom, you go to Uncle D at Ghost and >> and you liquidate >> and you liquidate and or if it doesn't affect the brand, maybe you hit the big list >> with a discount and maybe build a

narrative around it.

>> That's right. There's but but you have to have strategies all the time to move through inventory and turn that nothing is worse than paying a storage fee to put on shelves inventory that you have

no plan to sell. There's no ads running.

There's no emails planned. It's just

there and you're just going to pay someone to store it for you. That's your

money as a founder. That's literally

your cash that is sitting on a shelf that has no plans to be sold. Go get

that. Turn it back into cash. Make a new bet.

>> Yeah. I mean, I I will really really want to touch on suppliers and vendors and and and terms because that's something for me, man.

>> Oh, yeah. I give you some bad games.

>> I have I have crazy You go first. I got

crazy I'm so late to the game. I've only

been doing this for three, four years.

I'm like, "Oh my god, I could go from net seven to net 90." You go first, though. Yeah.

though. Yeah.

>> Vendor as lender, bro. Is that my cash flow is your float. Okay. I'm going to give you tell you how the big boys do this. Okay.

this. Okay.

>> Six months ago. comes to us, they they're spending, you know, million plus a month on media. They say, "As of

next month, you are going to put our ad spend on your credit card and I'm going to get net 120day terms on that a

million." And I go, "Guys, you want me

million." And I go, "Guys, you want me to float a million dollars for 120 days?

You think I have like this kind of cash flow?" They go, "Oh, we actually created

flow?" They go, "Oh, we actually created an internal lender that if you want a loan to manage that float, we created one. So now, not only are you going to

one. So now, not only are you going to handle my media, I'm going to loan you the money to float me the cash. I'm

going to make a vig on that and push my media terms out 120 days." Now,

>> we might have to mute out the name of this company. This is some gangster

this company. This is some gangster Illuminati [ __ ] right here, dude.

>> This is what ultimate leverage looks like >> because they know they could just go to any agency wants that business. This is

this is why like agencies like they think they want the enterprise game. You

don't guys, you don't want the enterprise smoke. You want to go after

enterprise smoke. You want to go after the small businesses because they themediums, not the smalls.

>> No, dude. The smalls. I'm telling you, we could come back to that if you want.

You want the smalls. The leverage rel in the relationship dictates everything.

When you go to Walmart, the reason they pay you on a net 180day terms on retail is cuz what are you going to do about it?

>> The only one Walmart, >> right? So, the leverage matters. So,

>> right? So, the leverage matters. So,

that's the extreme example that does.

Wait a second. We have cash flow issues in ecom solved. Our we just turned our media expense into net 120 days. They do

it with their suppliers. They do it with everybody. Now, if you're a small

everybody. Now, if you're a small business, you don't have that kind of leverage. But here's the important

leverage. But here's the important things is that you need to understand the cost of capital in your ecosystem.

Okay? So cost of capital, just think of that as a simple proxy for it is the interest rate on the lending that anybody has access to. So if you're a business and you go, well, where could I go get my credit cards? 30% interest

rate. A merchant cash advance is like 70% interest rate. I have extremely expensive cost of capital. Well, your

suppliers in China in particular, there are a lot of government subsidies for manufacturing because they care about the industry. So, those guys can get

the industry. So, those guys can get much cheaper capital than you can. So,

if you go to them and you say, "Hey, I'll actually pay you an extra two bips or 10 bips on my gross margin. So, I'll

actually pay more for my cost of goods, but I need better terms." For them, that cost of capital calculation might actually make sense, and they're going to be more than willing to do it. For

people out there listening that don't know, net terms is if you transact, if it's net seven, you pay them seven days after. Net 90, you pay them 90 days

after. Net 90, you pay them 90 days after. The bigger the net terms. That's

after. The bigger the net terms. That's right. The better.

right. The better.

>> And what you really want is you want your terms to be relative to the manufacturing timeline timeline such that you're paying them with your customer's money. So let's say it takes

customer's money. So let's say it takes 90 days to manufacture your product. If

you can get 120day terms, that means you receive the product and you actually sell it before you have to pay them.

That's what a negative cash conversion cycle is, right? You're fundamentally

paying the manufacturer with customers money. That's ideal right now. That's

money. That's ideal right now. That's

really hard to get to in many cases. But

one, the longer your relationship you have with suppliers, this is why you go to China. This is why you go build

to China. This is why you go build relationships with the humans. They

trust you. You build long-standing commitments. You pay more gross margin.

commitments. You pay more gross margin.

Sometimes that matters. And the

manufacturer is obvious. But here's the thing. You could do this with me.

thing. You could do this with me.

>> You do this with everybody, right? So

you come to me. Let's I'm an agency. The

one of the benefits that I have is that my cash flow to Ebida ratio uh is like 95%. So, in other words, when I pull a

95%. So, in other words, when I pull a P&L EBA every month and I make X dollars, 95% of that is cash I realize that month. E-commerce, your cash flow

that month. E-commerce, your cash flow to to Ebida ratio is terrible. It's way

worse. So, for me, I have a very cash intensive business where I make a lot of cash flow. So, if you come to me and you

cash flow. So, if you come to me and you said, Taylor, I'm actually willing to sign a longerterm agreement or I'm willing to pay a little bit more, but I need longer terms. Done. For my

business, my issue isn't cash flow. I

don't have that problem. Mine is I want to make more margin. I want more committed dollars into the future. So

there's trades that we can make all the time. And Kendall, if you're big enough

time. And Kendall, if you're big enough and you'd probably ask me for it, I'll probably grant it to you anyways, right?

So you can do this with Meta. You can do this in every place. You can try and find the maximum allowable payment terms with every person in your life.

>> Three things, guys. You said three things there. I want to break it down.

things there. I want to break it down.

One was the cash situation.

>> Yep.

>> Two was obviously wanting to optimize for margin. And then three, optimize for

for margin. And then three, optimize for length of contract. That's right.

>> And you see that, I mean, dude, you see that with like a lot of like the email providers of the world. They're like,

"Oh, it's, you know, is it month to month? Is it 6 months? Is it 12 months?"

month? Is it 6 months? Is it 12 months?"

Even with licensing, you know, with minimum guarantees and royalties, understanding and knowing that the account manager >> Yep.

>> gets evaluated on minimum guarantees.

>> That's right. So, if I know I'm going to clear my minimum guarantee, bro, I'll give you 10 to 20% more on the minimum guarantee upfront, but I want 1 to 2% less on the royalty, knowing that I care

about margin. I'm good with cash.

about margin. I'm good with cash.

>> That's right. Exactly. So, the the thing to do is, and this is just like it's the same as an employee, understand how everybody around you makes money. How

does your manufacturer make money? How

do I make money? How does my business work? Is it cash intensive? Do I have to

work? Is it cash intensive? Do I have to depend on a lot of loans? Do I have a lot of flow? Could I understand it? Same

thing as if you're an employee in a business. How does this business I work

business. How does this business I work in make money that allows you to negotiate deals to understand to create mutually beneficial relationships because this isn't about being predatory. This isn't about screwing

predatory. This isn't about screwing your partners. You want to have good

your partners. You want to have good relationships. It's about understanding

relationships. It's about understanding where is there a way in which the way you make money and the way I make money allow us to come to a relationship that's mutually beneficial.

>> Love that. Yeah. And I mean I guess having a single unit drop ship business isn't bad because obviously we're not paying for anything. Well, a customer pays for it and then I can get >> I would actually contend that the

ultimate way to buy inventory with your lenders isn't actually net turns. It's

consignment. It's to say to them, I'm going to hold the inventory and I'm going to pay for it when I sell it.

That's that's what you actually want.

Which is why dropshipping is a category that is so attractive to people is because that's functionally what it is.

You're selling inventory that you don't have to pay for. And if you get a good enough relationship with the supplier where they trust you, Roman Khan, who is a guy you should probably have on here, he's coming out June.

>> Is he? Okay. He's awesome. He talks

about this where he goes to his suppliers and he says to them, I'm going to take this on consignment. You're

going to get paid before my children.

Like, I'm going to commit to you that you will get paid for your inventory.

Help me build this business in a way that's most effective that allows me to grow and be aggressive in investing and we will grow together. And he builds trust and he builds authority and he builds credibility over time. And the

end result is he sell he manages inventory on consignment. He's

functionally drop shipping but he's actually holding inventory. Now you can scale like crazy as a business without having to go raise a bunch of debt or outside capital to in order to grow the business. That should be the ambition

business. That should be the ambition for your relationship with your supplier is that actually they would trust you so much that they would give you the inventory on consignment know you're going to move through it.

>> A way for people out there to look at that is if you have one side you have drop shipping, the other side you have inventory, in the middle is consignment.

>> People don't like drop shipping because it's usually worse unit economics. Yep.

And if you buy into inventory, you're getting the economy scale and good price. So if you do the consignment, you

price. So if you do the consignment, you get the benefit of both.

>> That's right. Exactly.

>> Uncle Roman, smart man.

>> Yeah. Yeah. He's going to kill it for you. So So you listen to those and you

you. So So you listen to those and you realize, okay, and this is all I think what I'm watching happen macro in industry. What I It's like an evolution

industry. What I It's like an evolution as hardship shows up, natural selection occurs and brands evolve these skills.

And so this is like I have this idea that I call the cash flow era which is like we've gone out of this era of abundance that was the co era where we all got fat and happy and learned growth. Then we went through what I call

growth. Then we went through what I call the ompic era where we all had to get super lean, cut opex, cut everything.

And now we're developing into what I call the flow era. And this is all these brands that are merging these skills and abilities that they've evolved to make an e-commerce business generate cash.

And they can. And some of them are doing a fantastic job. And it's through tactics like the ones we're discussing that allow you to take a really difficult cash intensive business and make it work for you so you can actually make money.

>> With you saying that, I I think I've said I don't even know probably two times at the podcast already. Man,

experience is so underrated in entrepreneurship. Like for me, I think

entrepreneurship. Like for me, I think the ideal entrepreneur would be someone you want, you know, I would say the younger the better, but someone that at least has been in the game since pre-COVID. That's it.

pre-COVID. That's it.

>> Because those are the big waves. It was

super easy from 12 to 19 where just like you put a dollar into face a little earlier but >> dollar into Facebook at $45 but if you've been through co iOS tariffs and then this kind of another two three

years of just like figuring it out and you're here >> I want to bet on that human >> that's evolution man I it's the tales of old times that natural selection breeds skills and if I look at each of these eras it's easy to just sort of like

dismiss them as oh that was when it was easy but what we did in the co era is we learned how to grow. We learned the skill of deploying dollars. We learned

how to generate revenue, right? We

didn't learn the finance skill. We

didn't learn how to manage lean opex, but we learned how to deploy capital fast, aggressive, make a bunch of stuff, build manufacturing, supply chain, scale, go, go, go, go, go. That's an

important skill. We learned it. Then we

went into an era of austerity. All the

capital disappeared. And we had to learn how to get lean. We learned finance. We

learned how to manage contribution margin. We learned how to forecast. And

margin. We learned how to forecast. And

each of those eras give you a skill. And

so the longer you live through them, the more of the skills you evolve, right?

And so now we're continuing to move into channel distribution and product development. These are the skills of the

development. These are the skills of the new era, right? And so every time, you're right, it's like a Pokemon that's evolved over many generations, right? Is

that each of the ones that you live through gave you a set of traits. And so

as you get to here now, you're seeing these brands that are like they're behemoths. They've got all the

behemoths. They've got all the superpowers because they evolved all the skills over time.

>> Let's talk about those. You got five.

Yep.

>> You call it the flower. Let's start with the first one.

>> Yep. Constraint as a superpower. Yeah.

Why is constraint the most important trait for brands?

>> Because what it this idea of understanding my unit economics and being disciplined about the point at which I am not willing to spend another dollar forces you to then go solve the

problem a different way. There was a point in 2021 we did an analysis with a business partners of ours that found that 60% of the media dollars spent were

net never profitable. net 60% of the dollars never paid back over any period of time. Okay, that is a lack of

of time. Okay, that is a lack of constraint. That is the inability to

constraint. That is the inability to understand what are my unit economics, what is my LTV, what is the period in which this is going to pay back and then deploy the media against it.

>> Let's talk about really quick. So what

is that a company that just raised a ton of money and has spent hundreds of millions of dollars and just bleeding Ibida?

>> That was the majority of the industry.

>> Never made a dollar. There are some of the biggest darlings that I >> These are like like the Caspers of the world and like those >> Yeah. without knowing the specifics of

>> Yeah. without knowing the specifics of any individual brands that I I won't name here, but yes, there were $5 billion of venture dollars that flew out into consumer economy in 2021. Those all

got deployed into unprofitable media acquisition, right? Think about like the

acquisition, right? Think about like the allirds of the world that got all the way to public without ever generating a profit dollar, right? There are

businesses that got really far doing that. And again, it was the era. It was

that. And again, it was the era. It was

what the market demanded at the moment.

It was actually like really logical in some ways because that's what the market wanted. the market pulls you towards

wanted. the market pulls you towards what it wants, right? And so what happens today though is that brands have developed constraint. And what happens

developed constraint. And what happens when you're not allowed to just lower the rorowass, it forces you to go solve the problem a different way. You get

creative around storytelling. You

develop those peaks. You go do better creative. And that constraint like if

creative. And that constraint like if you any if you've ever worked with a creative person, there's this sort of idea that if I give you a blank page and I just tell you like make anything, the boundary is too wide. You don't know

what to do. But if I give you a box and I say, "Okay, here's the here's the limitation or here's 10 boxes. I want

you to put one idea into all of them."

It actually unlocks more creativity. And

so constraint is an important attribute to creative problem solving. And so what I say to a media buyer or to a marketing team as a finance leader or CEO, this is the cap. There's no moving it. Don't

the cap. There's no moving it. Don't

come to me with a solution that says low raise the CAC, lower the rorowass. Go

solve the problem. They will go solve the problem and find creative ways to do And I've watched businesses after years of watching their CAC degrade just reach a moment where they go line in the sand.

We can't get worse than that. And all of a sudden all the energy of problem solving goes into something else. It

improves product development, channel expansion, new peak moments, influencer ideas, all these things that unlock new opportunities for growth.

>> Yeah. I think with under the notion that everybody's trying to drive opex down and with you know AI coming out like putting that on people saying that like this is where the buck stops and you

have to figure it out I think is >> is a must. I guess a good thing to talk about in relation to the constraint is let's go back to 2022. You're on the phone with the bank every day. Yes.

>> During the holiday break to avoid foreclosure. You told your board I think

foreclosure. You told your board I think you should fire me. I think I've lost the emotional capacity to do this.

>> Yeah.

>> A lot of people listening have been there. Tell me about what happened and

there. Tell me about what happened and tell me about how constraint and and what you did to get out of that.

>> So much of my experience maps all of the partners that I serve. And so we rode the wave up uh with everybody else in we walked out of our office in March of 2020 with 50 people. We had offices in

LA and New York. 18 months later we had 200 people. We hired 150 people in about

200 people. We hired 150 people in about 18 months. We get to 2022. June of 2022

18 months. We get to 2022. June of 2022 all the music stops. Okay. You have to remember at that time we were talking about this before the podcast started all of our deal structures were a percentage of media right so it was 10%

of spend 8% is the spend and for two years spend just went up every deal grew grew grew grew then all of a sudden when the capital dried up iOS 14 hits and retail opens back up everything just

went down and so brands that went from spending paying us $10 a month to $70,000 a month very quickly went the opposite direction I had to lay off a hundred people in 60 days okay it was

the worst time of my life I felt like I I had no capacity to continue forward. I

felt like I had failed everybody around me. There was so much disappointment I

me. There was so much disappointment I was dealing with, a lack of clarity about what to do. It was an immensely difficult time that we rode through with everybody else having to stare a bunch of humans I cared a lot about in the face and letting them know that I let

them down. And nobody wants to deal with

them down. And nobody wants to deal with that. It's not an experience I ever want

that. It's not an experience I ever want to have again. But that is an evolved skill. Now I have this like sense of the

skill. Now I have this like sense of the pain I'm trying to avoid and a lesson about how to avoid. We changed every contract out of a variable spend to a fixed business model. We reframed

everything we did around marketing and finance. We built this system and now 3

finance. We built this system and now 3 years later we have we're more than 50% larger than we were at our peak with half as many people. And so we grew the business and we just this past June we

sold the company to private equity to become a platform. So, we're off doing our version of M&A, but we never become that thing without that suffering. Like,

there's just no way.

>> I love that, man. What do you think is like the most common quote unquote constraint mistake that founders are making? Like, what's the number one most

making? Like, what's the number one most common one?

>> Capitulation to efficiency of acquisition. I think that it is very

acquisition. I think that it is very hard to have your marketing team coming to you and saying, "I don't think we can do this. This target doesn't work." And

do this. This target doesn't work." And

founders and CFOs often don't know. They

maybe they think they're right. They're

being reasonable. And so they go, "Okay, we can lower the bar. We can lower the bar. We can lower the bar. We can lower

bar. We can lower the bar. We can lower the bar." And not capitulating and

the bar." And not capitulating and saying to people who you think are smart and are trying hard and are exhausted, no. No.

no. No.

>> It's as simple as that. Just

>> I won't draw change the standard. Solve

the problem. And what it might mean is that sometimes there are some people who have decided in their head that they can't do it. And it might mean you have to get somebody else to try. But you

cannot lower the standard. The standard

is the standard. And when you know that that's where the marginal efficacy of the business is, do not let someone talk you into the idea that you need to capitulate that standard. Find somebody

who will work with you to try and solve it. Doesn't mean you will for sure, but

it. Doesn't mean you will for sure, but get people who are on board with trying to accomplish that objective.

>> Yeah. You can't buy into, oh, the macro economy is poor right now. Everybody

Yeah. It's all noise. It's all noise.

>> It doesn't matter. Your job is to win anyways.

>> It's to in spite of that reality, now what?

>> I've been guilty before. We all are.

>> Cuz we Yes. And like I >> I want it to be true that it's not my fault.

>> Like I would love it to be true that the failure of the company was a macro factor act of God.

>> It doesn't mean that I suck, >> but it doesn't matter because at the end of the day, like it's all you lose, you lose. You win, you win.

lose. You win, you win.

>> That's it.

>> All right. Number two, productled growth. You typically hear growth, you

growth. You typically hear growth, you know, through like paid media or creative iteration. What's your rebuttal

creative iteration. What's your rebuttal to that?

>> What happens is, and I'll use this category of leggings as an example. We

have a customer that grew their business on the back of fitness leggings. Okay?

If you go today and you search black leggings on Google, you will see everything. A thousand brands and you'll

everything. A thousand brands and you'll see not only that, you'll see the best brands in the world. Viori, Lululemon,

you are now competing in an absolute knife fight with the best brands in the world. Whereas 5 years ago, that

world. Whereas 5 years ago, that competition was much less. What that

means is that the amount all the profit has been competed away in that product category for almost every every business. So if you are in a business

business. So if you are in a business with a product category like that and you are just yelling at your meta team, make the efficiency better. Make the

efficiency better. Go do more creative.

Go solve the problem with the ad creative, you are likely asking them to accomplish a thing that the market has eliminated. Okay? And so sometimes what

eliminated. Okay? And so sometimes what you have to do is recognize that this business might be a $10 million a year business and that the growth of your company is not coming from getting that

from 10 to 12 or 12 to 15. It's going

all right leggings are 10. What else can I add that's five? How do I get into shoes? How do I get into swimwear? How

shoes? How do I get into swimwear? How

do I get into the next thing? And that

product expansion unlocks that growth.

And ideally, I'll go back to the Born Pro example, which I'm using here, is they recognize that footwear could be an off peak where they had a winter moment.

And so for cash flow, they wanted to go to summer, higher AOV, better gross margin, lower return rate, less LTV, but different economics in a way that supported the business needs. Unlock the

category, add another trunch of growth.

Now we've got 10 million here, we've got 8 million here. And you can begin to build an expansion of the business that recognizes the limitation that every category is not going to grow forever.

And so a lot of brands are getting immune to this. You use the Ridge example, they went from wallets to backpacks to suitcases because they recognize the ring business is $20 million a year and it's not going to be a hundred. It's just not what's there.

a hundred. It's just not what's there.

The competition of the category, the growth, etc. We work, >> especially under notion that it's shrinking given all the competition coming in. We talked about

coming in. We talked about >> and it's just not growing fast enough.

We work with a a large business in the musical instrument space, okay? Without

giving away who they are, and they come and they're like, "Look, our category growth every year is 3%." We're the largest player in the space. We're not

going to grow 50% next year. That's not

what's going to happen. So, our job is to maintain our percentage of the category and grow 3%. They're aware of the economics of the category. Now, if

they somebody came in and said they wanted to grow 50%, they aren't going to do it on that product. They're going to have to figure out something novel to introduce to the business. And so that's the tension is where is that growth going to come from?

>> Some new cases for the trumpets.

>> Yeah. Exactly. Right. Exactly. Whatever

it is. So I seeing more and more brands are becoming aware of this. Go look at what Grunes did. Go look at Athletic Greens. These businesses that got to

Greens. These businesses that got to massive scale on a single skew and are going well the growth is going to come from expansion into the next category and expansion into the next category as much as possible. And so brands are

becoming realizing that product development is growth marketing as much as the media account is. And I think that's where this idea the head of growth is a title that I have been very

critical of because I think head of growth is fundamentally the CEO's job.

They are the head of growth. And so

right now what brands are realizing is that all used to be concentrated into fundamentally what was digital advertising. People used to say okay the

advertising. People used to say okay the head of growth is responsible for spending more media dollars >> managing the content and putting putting out ads.

>> That's right. But the reality is is that growth now is as much an exercise in category expansion and product development as it is in media. And so if you want to grow next year, you need to be thinking about that at a unit level.

How many of these units am I going to sell? And what other things am I going

sell? And what other things am I going to introduce? And the the investment,

to introduce? And the the investment, the return on invested capital of developing a net new product category is usually so much better than the next meta dollar. And that's where brands I

meta dollar. And that's where brands I think CEOs need to see themselves as capital allocators. And if I have a

capital allocators. And if I have a million dollars, I could put it into the meta account that's going to yield x percentage over the year or I could put it into a product. It's going to have a different value realization cycle, but

the return might be better. And for many brands, they're realizing that growth is coming from that effort.

>> So from like a a capital allocation perspective, from a priorities perspective, like R&D and finding your next product, that should be a priority.

>> Absolutely. Yeah.

>> And I think that the way I like to think about it is just like you would with your personal budget at home is that when you want to make an investment, if

you are living paycheck to paycheck and you can't make your mortgage next month, it's not the time to go make investment in a long payback period of a condo or something, you're going to go broke, right? But as a business, what you want

right? But as a business, what you want to do is you want to build up a cash reserve. And when you get into a

reserve. And when you get into a position where you can make a longer term, longer horizon investment, I could take $100,000 and if it doesn't pay back for eight months or 9 months, that's okay. I don't get in trouble. Then you

okay. I don't get in trouble. Then you

make that allocation on a horizon against the best bet over a longer period of time. So the the horizon that you view the return on capital changes relative to the availability of your capital.

>> This all comes back to the cash flow.

>> Everything comes back to the cash flow.

And and what I think about brands doing is like when you win the cash flow game, you're building up some cash reserve.

And I experienced this as an entrepreneur. You go from sales person

entrepreneur. You go from sales person who's just trying to sell every day to survive. You're trying to just meet your

survive. You're trying to just meet your expenses to all of a sudden you begin to build treasury and all of a sudden I've got money in a bank account. And now my job becomes not just fuel the machine

that grows the cash, but now I actually have to make decisions about what to do with this capital. And so entrepreneurs, we go through this where we have to evolve a skill of capital allocation. I

now have treasury. What do I do with treasury? That's a whole skill in and of

treasury? That's a whole skill in and of itself. And now you begin to make these

itself. And now you begin to make these bets on different horizons because the payback period might be better on that store that you're going to build or the new product category than it is to just redeploy it in the meta.

>> Guys, if you have cash in the bank, just at least be getting a couple percent.

>> That's right. That's a treasure, right?

Yeah.

>> Where do you stuff like that? It just it takes a long time to get there and understand it.

>> So you're picking your products. you got

this product MVP framework for evaluating new products opportunities.

Why don't you walk us through that?

>> Yeah, so product MVP is a way to look at your own matrix of most valuable products that you have. And what I look at is the relationship to the cost of advertising on that skew relative to the efficiency of value realization. So

across the entire portfolio of SKS, if you were to build a last month, you were to look at total unit volume sales and then you were to allocate the media dollars against those SKs and you were to look at an efficiency of like the

rorowass or me on the skew level. Y

>> what you would find is that there are some products that produce more efficient acquisition than others. There

are some that have better LTV dynamics.

There are some that are underserved. And

so as you look across that matrices of value, it's going to give you both ideation of how you should allocate the future media in and opportunity, but also where there could be investment

into new category expansion. A lot of times this has to do with like unlocking visions of efficiency across gender spectrum or different categories, tops versus bottoms or footwear versus headwear as an example, where you're

going to find that the efficiencies aren't the same. And so a lot of this is about trying to decide maybe colorway expansion or limited edition. Should I

go after sports bras or leggings? Should

I go after footwear or headwear? And

some of that needs to come down to well, how effectively can I deploy media dollars into that category? And I just I don't see brands do enough work of looking at the the relationship between

where is the media being allocated against the unit velocity sales and using that to decide then how should we think about what we should make next.

>> And that goes into inventory on hand.

Yeah. And where you allocate the dollars for this MVP. You have margin, value, and popularity. I would

and popularity. I would >> Yeah. So, yeah. So, when I think about

>> Yeah. So, yeah. So, when I think about the opportunity to develop a net new product, I'm trying to solve for usually a margin problem, a volume problem, or a cash problem in different ways. So, the

cash problem would be the example I used before where let's say you have a high seasonal concentration of unit sales in January and the summers suck. The

problem with that for a lot of businesses is you have to place the PO for the winter in the summer. So often

the problem with peaks like that that are highly like we call it biodal distribution of your revenue where there's two large peaks and they're very far from each other is that you have to place your PO in the valley and that tends to be a big problem. So what you

want to solve for a cash flow product development cycle is the idea that oo I need to find something in the valley. I

need to find a summer product. I need to find something that can help to smooth out my revenue curve in that period.

That can be a cash problem. volume

problem is like okay where is there a trend where the category is expanding so in supplements you see this a lot where it's like oh okay creatine gummies you use that example maybe there's this c colostrum became a really popular thing

fiber people talk about where is this opportunity where I might be in a market that's stagnating and I want to get into one where there's velocity sign up for things like particle where you track sales velocity for different categories

and find those trends and opportunity that inform innovation >> that already has product market fit that meets your ICP, you're right. Yeah.

You're you're selling protein powder and then you'd go into creatine, then you go into fire.

>> That's right. Then there's margin expansion, right? So, this is looking at

expansion, right? So, this is looking at and going, "Wow, my gross margin as a business is 50%. I've got bad value to weight ratio. How could I actually

weight ratio. How could I actually innovate a product that has better margin?" And that's just allowing you as

margin?" And that's just allowing you as a business to be more aggressive on the marketing front to help inform new customer acquisition because instead of needing a 2:1, maybe you could develop a product that only needs a 1.4 to one.

And all of a sudden you can continue to increase the volume of acquisition without doing it at an efficiency level.

And so when you go to do product development, there's this real question about like what problem am I trying to solve? And what I watch brand these

solve? And what I watch brand these teams do is they sort of just again they do these things in silos where it's just sort of like well I what is the next cool thing that I want to create versus like what is the business function or problem that I'm trying to solve that's

most important. And that MVP idea gives

most important. And that MVP idea gives you at least a rubric to start to apply against what is likely thousands of ideas that you have for the next product that you could develop.

>> And ideally, you want them to be all three. Like there could be a product

three. Like there could be a product that's blowing up in each category.

>> Yeah, there could be a product that's blowing up right now that has super high margin.

>> That's exactly right.

>> Yeah.

>> And that's so if you think about scoring them all in a category, people do this with like ice as another framework for impact. I don't even know what they all

impact. I don't even know what they all stand for, but it's just like how do you build a framework for optimizing against the idea that's going to be most impactful to your business. And I think you really got to understand, do I have an IBIDA problem? Do I have a growth

problem? Do I have a cash problem? And

problem? Do I have a cash problem? And

usually your business exists and one of those, sometimes it's all of them, but do I need to grow topline revenue? Okay,

I got to find something that's going to move volume. Do I have a margin problem?

move volume. Do I have a margin problem?

I got to find something that helps my gross margin profile. Do I have a cash problem? Well, this is something that I

problem? Well, this is something that I could go to my vendor and just get the best terms on. Like, what problem do you need this product to solve that can help you idea or get clearer on which product to go after?

>> Guys, that's a bar right there. That

last line right there that that tells you everything you need to know as far as product portfolio goes as far as prioritizing resources. You have another

prioritizing resources. You have another framework. It's about champions, growth

framework. It's about champions, growth drivers, underperformers, and hidden gems. >> Yeah, >> each has a different strategy for investment liquidation. How would you

investment liquidation. How would you look at kind of each?

>> If we go back, if you were to do that exercise where we call it the product matrix, every skew, how much media I spent on that skew, and you were to assign what you're looking for. So, a

hidden gem would be high volume, low media investment. Oh [ __ ] Like, I'm

media investment. Oh [ __ ] Like, I'm actually selling $30,000 a month of sports bras and I only spent $1,000 to do it.

>> Efficient.

>> Yeah. What if I increase my investment in that individual product category?

Okay. Let's get the creative supply chain fired up. Let's get some creators.

We're going to make an investment in trying to sell that skew. Okay. Your

champions tend to be the highest volume at the best efficiency. This is

generally every brand knows what their hero skew is. You know where the driver of volume is going to be. But what I find is that there's a lot of these hidden gems. Now, alternatively, >> the champion's a black t-shirt.

>> That's right. Exactly. And but the other side is like high inventory, low volume velocity. That's a problem. Now, I need

velocity. That's a problem. Now, I need to go turn that's the one I need to go turn into cash. I need a different strategy for it. So, every skew in some ways is its own little business is the way to think about it. And I have to treat it then with its own market

demand. And this is another thing I'm a

demand. And this is another thing I'm a big proponent of, which is like even within the same categories because skew can be a little bit challenging. Let's

let's use t-shirts because you said it.

Skew usually exists at the color and size level, right? So, you'll have a categorical product. It's the black or

categorical product. It's the black or it's the t-shirt and then it comes in black small, black, medium, black, large, black, extra large. That's where

the skew gets assigned usually, right?

And then you'll have different colorways and sizes for every one of that product category. So, what'll happen often is

category. So, what'll happen often is that we price all the SKs the same.

Okay, >> I know where you're going. This

>> But the reality is like the demand for them is not the same. And if you go on to comfort.com right now or you go to nike.com, what you're going to find is that the bright pink hightop costs less

than the black one because the demand is not the same. And all they're doing in that case is they're playing the same game I talked about with the liquidation that you can do on the media front.

They're fundamentally just price mapping to the actual demand level that exists for the skew so that they can move it.

you made a bet that some amount of extraarges in some color were going to sell and you were wrong and you need to allow the market to dictate the point of liquidation for that skew cuz there's

some price point at which it'll move.

It's just not the one that you have listed. And so as inventory begins to

listed. And so as inventory begins to aggregate on some of these outlier SKs, there's an opportunity to more dynamically price the product.

>> And not only from a black t-shirt to a red t-shirt, you could probably go within the black t-shirt. And I would imagine the medium and large are going to be >> more money than the triple XL.

>> That's right. And so what'll happen so so often what I see brands is they sell out of the core color and size on a skew way before everything else.

>> Of course.

>> And what that just tells me is that there was a mismatch of price and demand for that skew. If all of a sudden, and that's what kills the velocity of an ad account is like you have a thing, it takes off, it's ripping, and all of a

sudden mediums are gone. All of a sudden, black is gone. And you know what happens to the ad? Tanks, right? And

that's where I go, wait a second, we we needed to slow the ad account down because there's nothing that kills an ad account that's machine learning optimization over time quicker than, oh, this is taking off. Oh, now conversion

rate plummets. In Meta's eyes, that ad

rate plummets. In Meta's eyes, that ad sucks. They don't track your inventory

sucks. They don't track your inventory allocation. They don't understand like,

allocation. They don't understand like, oh, as soon as that repopulates, I should respend on that ad. It's not an input in their system, right? So, as far as they're concerned, that creative sucks. It's gone. Stop spending on it.

sucks. It's gone. Stop spending on it.

When really, it was a winner. And so,

this this ability to map the unit velocity to the demand is so important for keeping a healthy ad account running over time. Uh, they are not a partner,

over time. Uh, they are not a partner, but I endorse Intelligjs, which is a price test thing. That's right.

>> And, uh, yeah, we found out that we could charge a lot more and there would not be drop off in velocity.

>> That's right.

>> It's pretty crazy. And so every brand has a different elasticity of price. And

so you want to find it at the product level, you want to find it at the skew level. And I think that the more that

level. And I think that the more that you can do that, the more that you'll realize the overall value of the total batch of inventory you have.

>> I just want to touch base on before we get off that is the growth drivers. The

growth drivers are are those the new bets that you're taking that potentially could be a champion.

>> That's right. That's one where I'm going, okay, hey, the hidden gems have disproportionate efficiency. This is

disproportionate efficiency. This is where I see revenue growth over time, but I've kind of held the investment constant, right? So, this is where, ooh,

constant, right? So, this is where, ooh, I'm seeing an increase in spend and revenue, but now I'm going to make a disproportionately sized bet. We're

going to size up here. And so, we're going to scale into this opportunity more than we have been. We're going to find out where the top of this market is because it's giving me signals, but maybe we've only gone 10% each month.

This month we're going to make a 50% growth driver, Brett, because we have a trend line that suggests that there might be more opportunity.

>> That's when the product planner gets a raise right?

>> Exactly. That's right.

>> Yeah. Yeah. Got you. Awesome, man. What

about any types of process for kind of testing demand? I mean, for me, I don't

testing demand? I mean, for me, I don't really know. Do people still use

really know. Do people still use pre-orders, but what do you recommend for someone that's testing into a new >> I think that if you can't solve for the net terms that pre-order becomes your solution to that problem, right? So if

you can't get your supplier to allow you to front the cash, you're going to ask the customer to do it, right? And that's

the trade that you try and make all in all directions. And I think to use

all directions. And I think to use comfort again, I think that when you have enough demand, you can get away with this. You can say, "Hey, new skew

with this. You can say, "Hey, new skew is coming. It's hot and it's awesome.

is coming. It's hot and it's awesome.

Pre-order now at, you know, good price X and you can frontload all of that revenue to yourself >> because they're driving enough velocity that demand for it.

>> They can hit theQ like immediately."

>> That's right. And so some of that is it it also helps you to map the PO is you can actually understand the demand clearer when you do that. So pre-order

is super powerful. What I would say is that it's a lever like net terms are which is that you have to understand your customer appetite for it. What I'll

say is that introduces some accounting complexity. You can't realize the

complexity. You can't realize the revenue on your P&L until you've actually fulfilled the order. Right? So

you do have to be a little bit careful about understanding that you're going to introduce cash flow benefits and accounting complexity on the P&L side.

So, this happens a lot in the furniture business where it's actually pretty normal for there to be really long lead times because it's made to order is another way to say pre-order, right? Is

that you order it and then we make it is a fancy way of saying you're going to pre-order my inventory. The two risks that come with it is that because you

can't realize the revenue, there tends to be an unknown cancellation rate. So,

the customer has the right to cancel their order >> until it comes >> until it comes. And so what you have to be careful to model, this is the same thing, the same issue with buy now pay later, is that when brands introduce

that, what's often unknown is there's usually a much higher return rate or try before you buy is a similar idea. And so

you have to be careful when you do the modeling of the efficiency on a pre-order is that you have some unknown cancellation rate and that's going to reduce the actual value capture on the total PO. So these are all pieces of

total PO. So these are all pieces of that journey and it can be really powerful if it exists, but you do have to be cautious with it. Biggest mistake

brands make when expanding their product line.

They don't map out how much expectation of media it's going to take to move the volume that they placed. Brand I was in planning with they have $20 million of

revenue expected on a new skew that's coming out. I asked them how many media

coming out. I asked them how many media dollars do you think it's going to take to move the 20 million? No idea. It was

a expectation of demand devoid of the demand creation plan. You have to say, "Okay, we're going to place a PO. We're

going to generate this many units and here's how we're going to sell them.

We're going to sell this many through email and SMS to our existing customers.

We're going to sell this many through influencer seating. Paid media at this

influencer seating. Paid media at this efficiency is going to move this amount of volume. Therefore, I need X dollars."

of volume. Therefore, I need X dollars."

And that's the demand plan that supports the actual PO. And so brands will make the actual inventory decision independent of understanding the actual allocation.

>> And that's directly tied to kind of the cash cycle within that PO and >> and like the assumption of the efficiency of the new thing is one of the hardest things to get right because you have no historical data. And so you

also need to assume really wide error bars on things that are unknown. If

you're if you're a brand that's selling wallets and you're getting ready to go into luggage, like you have to be really careful about the assumed efficiency of that category. And the more that you can

that category. And the more that you can place a small bet that scales into a large one, the better off you're going to be.

>> Yeah. Just lowQ guys.

>> That's it.

>> Small batch orders.

>> That's right.

>> And when you send out the organic email or text, just pray to the gods that a good velocity >> I'll give you right here in your backyard. So we're in LA, right? The

backyard. So we're in LA, right? The

best brand I've ever seen at this is ColourPop. So Colourpop that is

ColourPop. So Colourpop that is ColourPop. Okay, so ColourPop is a

ColourPop. Okay, so ColourPop is a makeup brand here in Oxnard, a little north of here. And they are owned by Seed Beauty, which is a manufacturer that also did Kylie's Kylie Cosmetics.

And the way that they operate is inside of their facility in Oxard, California, is a manufacturing lab to produce about 100 smart.

>> So what they do is they make the 100 units on site on location, put them on the website, test demand, then place the PO. And I think this is going to become

PO. And I think this is going to become a much more common thing where you have two different supply chains. You have a flexible lowQ gross margin doesn't really matter supply chain and then you have large

scale PO supply chain. And so this is like to me what it gives them is what they would do is they'd watch ulta.com.

Oh that skews trending make it right now. Get it on the website within 72

now. Get it on the website within 72 hours. Take advantage of the trend test

hours. Take advantage of the trend test the demand for it. Run some ads. Get the

efficiency. Now you place a PO with real understanding. That's how you create and

understanding. That's how you create and win this game. Like the way you die in this game is bad inventory purchases. So

how do you derisk that as much as possible? And that kind of internal

possible? And that kind of internal supply chain where you think about these things have two different functions.

Large scale supply chain, fast, flexible. Who cares about the gross

flexible. Who cares about the gross margin on those SKs? It doesn't matter.

I'm not trying to make money here. I'm

trying to understand demand >> and mitigate risk.

>> That's right.

>> Yeah. George from Represent, he was on.

He's doing that. And I'm throwing it out there. I'm just talking to the gods

there. I'm just talking to the gods right now. I want Steve Madden on. His

right now. I want Steve Madden on. His

documentary is absolutely crazy. And

what he did, he's like the pioneer of this. I don't know if you know the

this. I don't know if you know the story, >> but he his time square location obviously had the highest velocity. Y

>> So he would be producing SKUs at 8 a.m.

today and then he put it on the floor tomorrow at 8 a.m. and he'd have this kind of baseline of sell through like, oh, if it sells more than 15 units, >> right, >> it's a win because time square is the velocity and it drives the trends.

>> So if you think about return on invested capital, right, there's two parts of that equation. There's the potential

that equation. There's the potential return, the amount of dollars, and then there's the cost that it takes to do it.

Product expansion, what creates risk in category expansion for brands is that the cost is often pretty high. You have

to spend a lot of money. So that makes it so that you have to generate a really high return in order for it to be worth it. So a lot of times people think about

it. So a lot of times people think about this part of the equation. They how much value could I create off of this? But

they don't think enough about derisking the cost to test the new category. So if

you're ColourPop, what you've done is not actually increase the volume. you've

in you've decreased the cost of every bet that you make and that increases your return just as likely it makes you a better better right and so I think in that case brand should think more about

how could I make it as cheap as possible to test demand for new things that gives you a massive advantage over everybody's >> small batch weight list that's another good one pre-orders as well let's move

on to the next one number three of five story not iteration we've talked about this briefly I just want you just to get any their thoughts. What are you seeing out there as far as >> I think that the art industry has

collapsed around the worst creative strategy idea ever, which is this idea of iteration. Make an ad, look at the

of iteration. Make an ad, look at the results, create a change, fix it, iterate iterate iterate iterate >> optimize the hook, optimize the body.

>> You are, what you are doing in that scenario is that you are optimizing for the local maxima like a really tight band of potential performance change, right? Small changes equal small change

right? Small changes equal small change to outcome. And so the almost every

to outcome. And so the almost every brand's creative system is this illusion that I make a set of ads I analyze data and candidly very poorly very poorly and not very data driven actual analysis of

creative and then I make some change to the ad and I try again and I try again and I try again and I try again okay and that represents the entirety of the creative workflow and what I would just say is if we go back to the stories I told earlier about born primitive or the

international women's day is that there needs to be some large portion of your effort that goes into creating stories that matter, not iterations on ad hooks.

I'm not saying that some amount of time can't be spent there, but I'm just saying that we are underallocated to breaking the model, to disassociating from the local maxima and generating a return that's bigger than anything else

we've ever done before. And that's not going to happen through iteration. That

happens through an unlock of a novel idea or concept or story that's bigger than anything you've done before.

>> Yeah. I think for story, I said it earlier, but I just want to repin it down. This is all about I mean it

down. This is all about I mean it basically backs into cashier but it's about efficiency and how does this story drive a more content and b more more distribution which just gets you more

eyeballs and more conversion.

>> Yeah.

>> So it's just how how does more people talk about it? That's really what it comes down to.

>> That's right. When we so my brother started Kalo Ring. We launched it in I don't know 2016 selling silicone wedding rings. First silicone wedding ring on

rings. First silicone wedding ring on the market. Okay. And when we started,

the market. Okay. And when we started, we had no idea which market the demand was for. My brother liked to work out.

was for. My brother liked to work out.

He built motorcycles. He hated wearing a metal wedding ring. So we created one of silicone. Okay. And at the point it was

silicone. Okay. And at the point it was a to solve our own problem. So we

started selling to these people. Then we

started we had a woman reach out and she ran a blog called firefighter wives.

Okay. And what she said was that, "Hey, my husband's never been able to wear a wedding ring to work a day in his life because ring aulsion, where you literally get your ring caught on something and it rips your finger off,

is a risk." And so firefighters, police officers, people in the military aren't allowed to wear wedding rings.

>> Holy cow. All of a sudden, our world got unlocked to this idea that there were all these different places where we could go and tell a novel story in a compelling way and unlock massive

demand. So in each of these categories,

demand. So in each of these categories, there is a cycle of okay, let's go after firefighters and let's take ads and let's try and make them better and create different stories. But the real thing that kept unlocking the next

trench growth was ooh crossfit. Let's go

build an relationship and attachment and find a charity partner and go find the best influencers and build a novel story into a new area. And in so often that the next big unlock, the thing that

moves you from one trunch of opportunity into the higher tier is not just staying in the same place and trying to refine the story. It's to go build an entirely

the story. It's to go build an entirely new one. And I think brands just get

new one. And I think brands just get caught. They find a pocket that wins and

caught. They find a pocket that wins and then they just drill it into the ground and they get stuck on this hamster wheel. And so instead, it's like, okay,

wheel. And so instead, it's like, okay, this is the back goes back to that idea that there's two rhythms in business.

There's the day-to-day improvement, efficiency, execution, but somebody has to work on this counter cycle. the one

that looks out and goes, "Okay, how will I take us to an entirely new tier of opportunity?

>> Find a new cohort and tell an interesting story to that."

>> That's right.

>> Yeah.

>> Four or five. Let's get into forecasting and cash. We've talked about it a lot.

and cash. We've talked about it a lot.

So, I just want to ask you one question on that. What do you think is the most

on that. What do you think is the most invisible cash flow killer in ecom? I

know you've seen a lot of P&Ls out there.

>> Yeah. Invisible cash flow killer. I

we've talked a lot about the ter. So, if

we think about the biggest buckets of spend, it's ad dollars. It's your

inventory. Those are the two largest buckets and then your opex is after that. So we've talked a lot about the

that. So we've talked a lot about the supplier terms and everything in there.

I think the next piece is just inefficient ad dollars are a massive waste that there are so many places where brands are out beyond their marginal frontier and then that the next dollar of spend is a loss, right? And so

the easiest thing to do inside of every business in the world is to walk in and cut that ton of spend and that is destroying cash most clearly. This goes

back to the first point of constraint.

And so I think that I know that's not the sexiest answer in the world, but you just got to follow the bulk of the dollars to find the biggest potential wins. And then unfortunately the reality

wins. And then unfortunately the reality is the third thing is labor is that there's a stark reality that most people are not driving incremental value to your business in excess of their cost.

They're just not. And the other thing I'll say is that e-commerce, if you look at the flow of your revenue, the idea that your labor pool should be fixed over time against a business that is

highly seasonal, e-commerce is a wildly seasonal business. And so the idea

seasonal business. And so the idea should be that you have flex staffing way more than you realize. And so FTEES, full-time employees that have the same cost in months where you have low revenue and months where you have high

revenue, you should try to figure out how you can model the actual labor cost of your business more in line with your re I like this little rabbit hole here.

The baseline of your full-time labor force should be at 12% of your lowest month of the year. Say that again.

>> So if I look at your revenue every month, if there's a month where you do a million, there's 800, 700, 600, take the lowest point. Okay. My payroll in

lowest point. Okay. My payroll in relationship to that month should be the thing that is my baseline of full-time employee staff. I want to have the right

employee staff. I want to have the right relationship in the lowest point.

Everything beyond that should be flex staffing.

>> Wow. So you're saying you're you know if you're doing 500 one month or a million a million another month regardless your base should be 60,000 because that's 12% of and then everything above that you're sourcing out.

>> That's right. And and and what brands do so often is they accept the idea that in low months they have to lose money and then in good months they have to win money. I'll just tell you that there is

money. I'll just tell you that there is so much labor that is willing to work in a seasonal or in an outsource or in a flex staffing model whether it's agency

freelancer even people that you hire for periods of time. The the labor pool has never been larger optionality for brands from the Philippines to Argentina to Brazil to people in the US to AI. The

idea that you have to maintain full-time staffing in periods where your business can't support it financially is just not true.

>> I'm actually the mayor of the Philippines. I love the Philippines.

Philippines. I love the Philippines.

I've been there for months at time. We

have a how many have in the Philippines now?

>> We got we got we got six.

>> It's unbelievable. And and the other illusion is like I just the global talent pool is incredible. It's

incredible.

>> Guys, Taylor is basically saying that you should fire like 20 to 40% of your staff. Basically,

staff. Basically, >> I I'm not afraid to say it. I reality.

>> My ICP is operators, not employees. So

that's that's fine for people out there.

>> But here's the thing and what I look I have employees. They listen to this.

have employees. They listen to this.

They're going to hear me. And what I what I think is the most honest thing I can tell them is that at all times your obligation is to deliver value in excess of your cost at all times. And that's

the most honest thing I can give them.

And if they want to grow in my organization, actually the best thing they can do is deliver more value such that I could pay them more money. Like

and I am excited to do that. And so at all times, the most honest thing you can do is give people the truth about the market and what optionality we have as entrepreneurs. If somebody in the

entrepreneurs. If somebody in the Philippines can do your job at the same level for half the price, then the market price for your service is not yours. It's the one that's half. That's

yours. It's the one that's half. That's

actually the market replacement cost.

Sports are a perfect analogy for this.

It's the easiest place to see this play out. People go to free agency and people

out. People go to free agency and people go, "Well, you're worth half of what you were before, person X." And that's just the reality is that as you age, your value depreciates. And so suddenly all

value depreciates. And so suddenly all of a sudden the market plays out in a very real way. And we all accept that when watching our favorite sports team.

We I'm a Lakers fan. I hate that we're playing LeBron James as much now as when he was 30 years old. That's criminal.

His production is not as good. And it

won't continue because of that. Right.

And so the truth is the same in every labor market that's capitalistic is that it will move towards the price of replacement cost. And the global market

replacement cost. And the global market is changing that and AI is changing that too. overseas is like 20% guys. For

too. overseas is like 20% guys. For

those people out there that are not arbitrageing that you should definitely take a look. The fifth one is progressive peaking. We're not going to

progressive peaking. We're not going to get into it. We talked about it a bunchal >> about usually have you have your one big peak and then Black Friday find the other ones to drive.

>> And the key the key with the progressive thing because we just haven't touched that enough is that usually your moments like Black Friday are a value realization off your existing customer base or people who already know you. So

if you can create a large-scale new customer acquisition moment in October or November, that group will overd deliver for you in those moments of peak realization. Like you again, we've

realization. Like you again, we've talked a lot about Ridge just because he's your audience has heard about them.

They do their big giveaway for their car in September and that's very intentional, a big moment to go out and acquire customers ahead of those peaks.

>> Build a funnel September, October for sure. All right guys, we're going to get

sure. All right guys, we're going to get into Quick Strike. We have a bunch of hot takes, a lot of a lot of questions we got here. We're going to start with you said the next wave of 9 figure e-commerce exits won't be brand SAS or agencies they'll be shons.

>> Yes.

>> What is a Shaun?

>> Software enabled agency. So I I know you have a bunch of people in your audience 25 to 35 deciding where am I going to allocate my time and my precious life force towards the greatest opportunity.

I'm here to contend that the best business model in the world is human services. today 2026 that if you want to

services. today 2026 that if you want to make money, you want to have a high floor and high exit upside the best business model in the world.

>> Both you say cash flow and exit >> both is agency. It's human.

>> We going to pop up Sug Knight, Steve Weiss with a massive exit.

>> Go through this. Look this up. Wromote,

Power Digital, Tenuity, Mute Sex, Common Thread Collective. Every one of my

Thread Collective. Every one of my direct competitors that I've grown up with has sold their business multiple times to PE and multiple better than any consumer business that you've seen. The

idea that agencies don't have exit potential is wrong. It's fundamentally

wrong because what's PE private equity in particular what they value a business on is its ability to handle debt. And you know what kind of business can handle debt? A business

with high cash flow and predictable cash flow. And so the more leverage you can

flow. And so the more leverage you can put on a business, the higher the multiple you're going to get from private equity, the more they're going to want to be involved.

>> That cash conversion cycle you're talking about.

>> That's it. You know what has a terrible cash conversion cycle? E-commerce

business, right? You know where there's a ton of gross margin pressure?

Software, right? Software was valued because of the predictability of revenue. There's a metric called net

revenue. There's a metric called net revenue retention. It's the most

revenue retention. It's the most important number in my business model and in software. Of the revenue that you had last year, how much what percentage of it stays next year. Software is

famous for its revenue quality. 120% net

revenue retention. All the customers I had last year, they generate actually 120% of their value in the previous year. My business 100% net revenue

year. My business 100% net revenue retention. So the idea that I can

retention. So the idea that I can produce the same gross margin, the same operating income, the same revenue quality in the world right now where AI is creating the number one leverage

against labor. All of my cost is labor.

against labor. All of my cost is labor.

We have expanding margin as a result of it. AI unfortunately doesn't create as

it. AI unfortunately doesn't create as much leverage for your business in in e-commerce because there's atoms that you can't actually AI away the actual physical cost of the product. Yeah.

Yeah.

>> Right. So the revenue quality is the same. The cost of capital or the cost of

same. The cost of capital or the cost of starting is basically nothing. You can

be making cash flow immediately. You

don't have to go raise money. And the

exit potential is just as good as in any industry there is.

>> I would say in ecom, correct me if I'm wrong. feel like we're at like a one

wrong. feel like we're at like a one times revenue and 3 to 10 times ebida multiple and again this is where we >> February of 20 2026 that is I mean it's

very different all over the place agency where we at with >> 8 to 12 >> 8 to 12 the bottom >> yep of Ibida >> let's say from 2 million 2 million in Ibida to 5 million in Ibida you're

probably in that closer to 6 to 10 range from 5 million to 15 million you're closer in that 8 to 14 range what 14

right now like again this is all about understanding value of an enterprise depending on who the buyer is is all predicated on what is the model that they use PE uses a discounted cash flow

model they look at future earnings they finance debt on top of the business and so all of lending is just a confidence in your cash flow it's a confidence in your future cash flow and if you have

contracts that are annual contracts you have proof of high levels of net revenue retention that is a high level high free cash flow to IBIDA ratio that is a high level of confidence environment to lend

into. E-commerce is the exact opposite.

into. E-commerce is the exact opposite.

It is horrible relationship between free cash flow and IBIDA. It is incredibly difficult to service large amounts of debt when you're in this business because it's so capital intensive for an inventory as a business. You have none

of that expectation on the service side >> and the software enabled part of the agency. You're just talking about that's

agency. You're just talking about that's going to lower your opex cuz software the problem with software right now is nobody wants a tool. Everybody wants an outcome. So I don't want to go pay for a

outcome. So I don't want to go pay for a software. I want to pay for some result.

software. I want to pay for some result.

And so what you're seeing software businesses have to do is they develop these large customer success teams. And the lie about software especially in the e-commerce industry is this idea that it's really high gross margin because

people look at the dev expense against the resource but they hide customer success as marketing or sales or something else. But the reality is the

something else. But the reality is the actual gross margin of the product is much closer to what it is in mind because the customer success piece of it is so highly intensive. They have to do a lot of work on the human capital side to spend time to make their product

valuable to people. So what I say is like two things are happening. If you

buy a software, you have to hire an employee to make it valuable. If you

hire an employee, you have to buy software to make them valuable. A

software enabled agency gives you both for less. So you can hire my people, you

for less. So you can hire my people, you get all the incrementality, all the attribution, all the forecasting. You

don't need to pay for any of the software. where we have all the

software. where we have all the technology and you get the person to deliver the cost at a lower price and you're buying the outcome obligation on us >> which makes it stickier and you get a longer LTV

>> and just go watch like the markets we're sitting here today it's like fe what is today February 5th or whatever we are in the middle of one of the largest stock market collapses for software ever the last four weeks why because everyone's

realizing that AI is driving the ability for brands to build the software inhouse right and so there's this question about where is the value going to acrew and my contestation is the value crews to the

person willing to be accountable to the outcome and so the problem with software is it's not accountable it says here here's your tool good luck go make it work for you and the problem with just even the human side is that they need that resourcing so the question is who

is the person that will put their hand up and say I will deliver you your contribution margin and if I don't fire me and I think all the value acrru to the person who's willing to be most accountable >> the reality here is no one really gives

a [ __ ] about how you do it they just they just want it That's really that's really the thesis that you're >> because I don't want to have to analyze like how do I make this tool is your tool going to really accomplish. I just

want you to say I will deliver you the outcome. Okay, cool. I'll sign up for

outcome. Okay, cool. I'll sign up for that.

>> Yeah. So many of these AI tools I feel like we're about to get to the next wave where people are going to start doing more of this Sean stuff, but a lot of the ones >> it's happening in every one of them. Go

look at Icon. Go look at what Drew is doing in Iris. All of them are turning into, okay, we will actually take our tool and make it valuable for you and we'll sell a service on top of it. It's

every single one of them. I'm watching I mentioned Leo at Final Loop. They're

they're considering optionality around launching a service business on top of it. They're realizing that the

it. They're realizing that the obligation is that the tool makes you money. And if the brand owner doesn't

money. And if the brand owner doesn't have time or energy or resource or availability to go in and figure out how to do it, then they cancel the tool. And

the tools are awesome. The problem is somebody has to learn how to make it effective. A hammer by itself does

effective. A hammer by itself does nothing, right? Someone has to pick it

nothing, right? Someone has to pick it up and wield that thing.

>> It's so It's so funny you say icon because this goes back to the experience. They started as a software

experience. They started as a software tool and realized that people weren't getting the results that they needed. So

now they've every single one of them >> a quote unquote >> agency business.

>> That's right.

>> Love that. I'm into it. Who's the most important member of a modern marketing team?

>> That's a great question. So I am going to contend there's a role emerging that I call the profit engineer. Okay. So

this is a phrase if head of growth was the most important person of the previous era in development. Something

happened where there used to be a dev team that included a product manager, a designer, a front-end engineer, and a backend engineer. That was a dev team,

backend engineer. That was a dev team, right? Inside of every software business

right? Inside of every software business in the world. They became what became known as a full stack engineer. Their

job was to do all of it. In ecom, a marketing team used to be a head of growth, a media buyer, creative strategist, maybe meta and Google media buyer, and a retention strategist, right? All separate members of functions

right? All separate members of functions of the same team. Well, guess what?

That's going away. That's not four people anymore. That's one person. We're

people anymore. That's one person. We're

calling them the profit engineer. It's

the evolution of the full stack engineer in development. It's the same thing

in development. It's the same thing that's happening in ecom. It is entire media buying for one brand is not a full-time job. Creative strategy for one

full-time job. Creative strategy for one brand is not a full-time job. Not with

AI tools and their capacity to help you with research and output and briefing and all those things. There is no way any one person can do enough work to sit on one ad account all day long and develop 40 hours of work such that they

should be a salaried employee. Those

days are gone. And so what you're seeing is the convergence of expectation that someone has the ability to forecast a business, manage the media account, define the creative, upload it in the creative, manage the expectation, design

the email calendar all themselves.

That's what we expect of our people.

That's what the systems are existing to do. And that's where the future's going

do. And that's where the future's going >> in that stack of all of those like three, four, five different skill sets.

Which one do you think is the most valuable of those?

>> I think it's the capacity to connect the dots between define the expectation and the authority and capacity to control the outcome. is that what's happening is

the outcome. is that what's happening is the feedback loops between the person who set the financial goal, again, this goes back to the disconnect between finance and marketing, and the person whose job it is to deliver it is a chain that's too long and too diluted as you go.

>> Agree?

>> I need both. You set the goal and I'm accountable and I have the authority and capacity to deliver it. I don't have to depend on this long chain of people where the message gets degraded as I go and the connection to the goal. I don't

understand the goal. The goal wasn't fair. It's so and so's fault. It's

fair. It's so and so's fault. It's

that's fault. It's inventory's problem.

one person on the hook accountable to defining and delivering the expectation.

>> Yeah, I would argue that it's actually the person that understands and knows creative because I think all the other pieces kind of the finance and numbers those are going to be very objective in nature because we're going to have so many tools tools like you have the profit system. I think that there's

profit system. I think that there's always going to be subjectivity on the creative side and what I've seen is a lot of these numbers type people >> and they don't understand and know

creative. I think the question is just

creative. I think the question is just are you sure that the AI isn't better at creative than you. Are you sure that a human should be making that choice? And

I'm not. I So I'll give you an example of a study. Do you know Eric Seaffort?

>> I don't.

>> You should have him on here. He's

awesome. He runs uh a great podcast and he had on a research team and they looked at AI creative through three different workflows. One was humans

different workflows. One was humans themselves, ones was humans briefing AI and one was AI by itself independent the interaction. Right now the illusion is

interaction. Right now the illusion is and it's because we humans def desperately want to be important and and necessary in this process and I feel this too is that we think that humans should interact with machines to do the

creative and that's where the leverage happens. The problem is we are the

happens. The problem is we are the problem. We are the limitation because

problem. We are the limitation because we have all these preconceived notions about what will work and what should work and we're horrible at processing data. In this model, when they ran this

data. In this model, when they ran this study, the one that outperformed all of them was to allow the AI to work independently of the people. When you

think about the exploration of ideas, one of the problems that we have is that we have preconceived notions about what will work. We have biases. We have

will work. We have biases. We have

fears. We're afraid to touch certain taboss. We have all sorts of reasons we

taboss. We have all sorts of reasons we will and won't try certain creative based on our own individual experience.

And AI doesn't have that that same limitation if you allow it to optimize for a specific outcome. And so I think what's going to happen is we are right now on the the third rail. The idea is I I saw a tweet the other day that was

like, you know, on meta there's all these AI enhancements now where they'll add music to something or they'll automate the creative for you. And

everybody's like, this is a terrible idea, right? Somebody was like the tweet

idea, right? Somebody was like the tweet was something along the lines of like, hey Zuck, hell no. I don't want you to DJ my static images because there was like an option to add music to it. I'm

just going to tell you that person is dead. They're dead. They are so wrong

dead. They're dead. They are so wrong and so far from being able to leverage these tools abilities to test through thousands of variations of things and deliver the most efficient result.

>> Scary hours is around the corner. It's

it's already here in 126. What do you think about Mattis? Because this is something that people are starting to talk about that on the creative and the media buying side they're just going to do everything. So, I'll give you an

do everything. So, I'll give you an example of how I've been playing with Mandos. Because the hardest thing I have

Mandos. Because the hardest thing I have right now is my own ability to set appropriate expectations of my team in this world. How many pieces of creative

this world. How many pieces of creative should my marketing team be able to produce? Five, 5,000, 50,000? How good

produce? Five, 5,000, 50,000? How good

should they be? I don't know how to level the expectation in this world. So,

I'll give you an example of like an outbound sales rhythm in our world. So,

I work in service. Okay? We work with a bunch of golf brands. Sunday Red, Travis Matthews, Bad Birdie, a bunch of golf brands. Okay, bar stool sports, all

brands. Okay, bar stool sports, all these categories. So, we have this

these categories. So, we have this incredible case study. So, I go to Monus and I say, "Here's what I want you to do. Here's my information about the

do. Here's my information about the success that I've had with these brands.

I want you to build me a deck of that is an industry report on the performance of golf. Highlight my success with these

golf. Highlight my success with these specific brands. Build me a list of all

specific brands. Build me a list of all of the CEOs and CMOs of every company in this sector between this size and this size. Design me a workflow that I could

size. Design me a workflow that I could message them on LinkedIn and what I should say. and then give me the option

should say. and then give me the option to deploy that 10 minutes later the whole thing is done. That outbound sales strategy for my business would have

taken 90 days last quarter. How how do I how do I possibly rightsize what I should expect from my team when that's possible, right? And the deck is sick

possible, right? And the deck is sick and the research is good and like yeah, is it pixel perfect? No. But like can I edit that really fast? Yes. But the

point is like that whole modality here's every contact you could possibly want.

Here's a sick deck that here's a message you should send them. Here's the

followup. Here's what to do next. Do you

want me to deploy it? God. Like it's

like it's an infinity X capacity for what is possible 6 months ago.

>> Guys, the passion the passion is seeping through. OPEX is going to 3% of topline

through. OPEX is going to 3% of topline revenue.

>> It is.

>> That is that is crazy.

>> The joke is like you and a bunch of agents, right? Like that's that that's

agents, right? Like that's that that's the thing. Or maybe not even you.

the thing. Or maybe not even you.

>> I hope it slows down a little bit.

You've talked a lot about using an employee stock ownership plan, ESOP, to give employees equity. Can you walk us through that and how it's impacted your business?

>> This goes back to the idea that the dashboard I show my people, I want to as closely align to my incentive as a person. Well, the problem with that is

person. Well, the problem with that is that if the actual financial incentive of your employees doesn't also match, then their behavior won't either. I'm a

big belie that believer that incentives drives action and that if I want to increase shareholder value is the primary thing I care about then I have to make my people care about that too and the best way to do that is to make them owners. We've done this in two ways

them owners. We've done this in two ways in inside of my company. One was through an ESOP employee stock ownership program which is a really cool vehicle. What it

basically allows you to do is to bring in a debt to finance the purchase of your own equity from the existing shareholders that gets put into a trust in a tax-free way for your existing employees that they realize over time.

It's really cool. But what I would say is when you give someone equity at no cost to themselves, you rob them of half the power of ownership, which is risk.

And so the second thing we did in the company is at one point we had some passive partners that we bought their shares back and we invited our top 20 employees to write checks into the company to purchase shares. All of them

did. They wrote, every one of them wrote

did. They wrote, every one of them wrote five figure checks. And these are people on salaries like W2 employees saving up their money. That was the most effective

their money. That was the most effective thing we ever did as a company cuz we introduced both the upside of the value creation and the risk of loss. And

that's part of the beauty of ownership is that if you only do one, the ESOP program was cool. It it invited people into understanding ownership. There's a

lot of beauty in that. And I I believe in community capitalism is a really infective effective way to run business.

But it just it robbed them of the risk.

>> And when we did the buyback thing where they actually wrote checks, it transformed our company. They're vested.

>> Yeah. And they never left. And that was the other thing.

>> And in this ESOP, is this like vesting like with a cliff and you get it over time?

>> That's right. So the way it gets distributed is it gets distributed pro rata. You get an allocation every time

rata. You get an allocation every time the company makes an allocation out of the trust as your salary as a percentage of the total payroll. So if you make a h 100,000 and the company payroll for that period was a million dollars, you would

get 10% of the allocation. And so we sold 20% of the company to the ESOP. So

20% of the company's shares were in the trust and were allocated. They have to be allocated over a 5-year period. And

so you make an allocation every year to the base of employees because you want to keep it in the hands of the employees. And what's cool about it is

employees. And what's cool about it is if they leave, we actually have an obligation to buy it back from them. So

it's actually more liquid than most stock too.

>> Yeah.

>> So it's really interesting. So when we sold CTC for human service businesses, we had 60 people that made six figure checks or better.

>> Damn, man. Good for you. Love that. True

or false? LLMs will be a real revenue driver in 2026.

revenue driver as a source of traffic or transactions will occur in them. Which

do you mean either or?

>> I think I think they will. Let's define

real as you will see up to 10% of revenue either sourced from or occurring within them for some businesses. I think that will be true. I

businesses. I think that will be true. I

think that we are moving to a world where the website is diminishing in value and it's omnipresent commerce.

People like to talk about omni channel commerce. I like the idea of omnipresent

commerce. I like the idea of omnipresent commerce. Whether it's in your glasses,

commerce. Whether it's in your glasses, in an LLM, on Tik Tok shops, at physical retail, on Amazon, you want to be everywhere where the customer is. And I

think an LLM is where people are spending their time. I like to say that transaction always moves to the point of discovery. Wherever people are

discovery. Wherever people are discovering products, they will try and transact. And the closer that you can

transact. And the closer that you can bring those things together for them, the easier it is, the less friction exists between the discovery and purchase, the better off you are. I

think LLM have all the attention.

Transactions will happen from them.

>> Why Tik Tok shop is winning.

>> That's exactly right, >> guys. I'm going to put a form down

>> guys. I'm going to put a form down below. I just paid $1,000 to a really

below. I just paid $1,000 to a really smart human to analyze my company and others on how to get ahead on the LLM side. Highly recommend it. I'm going to

side. Highly recommend it. I'm going to put a tight form below if you guys want.

>> Yeah. ACM, UCM, those are the protocols for understanding the commerce structure that how LLM are going to absorb your product feeds both from Shopify, Attach EVT, and Google. look those up and try

and make sure that you're feeding the correct data back to the LMS. >> It is absolutely incredible how I mean I paid her and then I just went at like 15

companies like big companies none of them were doing anything right. It is

crazy to get ahead. I mean I've seen companies you want to talk about opex as a percent of revenue that had >> hundreds of thousands of backlinks and had a 15-year head start on SEO and just

literally their company is winning. They

are doing their opex is so low. They're

doing like no marketing just because of SEO.

>> Exactly. Right.

>> So >> get ahead of that.

>> That's one of those games too that you want to talk about the counter cycles of business is that you have to make this investment with a horizon for longer.

>> You have to >> biggest lesson you have learned from the legend David Oglevie?

>> Yeah. It's only creative if it sells, right? I think the the general idea is

right? I think the the general idea is that the obligation for us as advertisers is that we are not artists.

We're not. That's not what we do. We are

in an industry where the obligation and expectation and evaluation of our work is to drive a business outcome. Um, and

so I think that the more that we could subordinate ourselves to that reality, the better our creative work becomes.

Guys, go consume all the content you can on David Olgo, the absolute legend. Tell

us about your good verse bad role documents. What are they and why do you

documents. What are they and why do you think they are so important?

>> I think when you create a role, a job description, so often we are trying to tell people what it looks like to be good at it. I think sometimes it's equally as helpful to tell people what it looks like to be bad at it. What is

this role not? Because sometimes the aspirational identity of the role can come alongside things that are also really detrimental. And so this is

really detrimental. And so this is actually comes out of I think it was it's an A16Z thing. It might be a Ben Horowitz document. I forget exactly who

Horowitz document. I forget exactly who wrote it, but it was like good software engineer bad software engineer. And so

the idea was write job descriptions that include both the good examples of the role and then what it's not. So you say a good a good media buyer does this, a bad media buyer does this, a good media buyer does this, a bad media buyer does

that. And it just gives people a better

that. And it just gives people a better understanding of how their behavior can best come to life in your organization.

>> Print it out and put it next to your computer. You look at it every day. You

computer. You look at it every day. You

can see I should not do this or I should do this.

>> Uh what is working better on meta image or video?

>> I don't I hate the frame. I think that you can have a great image ad and a great video ad and that in and of themselves the formats are meaningless.

I think that your job is to deliver the communication as is necessary. The

question I like to ask for every product is what is everything somebody needs to know in order to make a purchase and if I'm selling like I I just bought my son a 3D printer. The amount of things I

need to know to make a PR a 3D printer decision is like a thousand things. What

kind of a what's the right plastic that I need? How big is it? How hot does it

I need? How big is it? How hot does it get? Is it good for kids? what software

get? Is it good for kids? what software

would I use for it? Like, you have to answer a lot of questions. So, your

advertising funnel needs to do a good job of that. If it's a static image ad, your landing page better be freaking awesome. If it's a long form video ad,

awesome. If it's a long form video ad, drop me in checkout. You've already

given me all the information. So, I like to think about the design of the entire funnel relative to answering that question. What is everything I need to

question. What is everything I need to know in order to make a purchase? If I'm

buying something very simple that I understand, static image is probably highly effective at that. You don't need a lot of explanation. So your job is to think about the product to try and answer every question the customer had and to decide am I doing this on the

landing page or the or the ad and just ensure that the funnel covers all those questions. King of context, should

questions. King of context, should people still be using old creatives for ads?

>> Yeah, never turn off an ad.

>> What's the best performing ad format in Q1 of 2026 that you have seen?

>> Oh, I hate this question. I am I I am probably the person that believes the least in the idea that there's a transfer of value associated with

format. Um I actually think I I ascribe

format. Um I actually think I I ascribe way more to like the Seth Goden purple cow idea which is to say that like your replication of an idea that works is actually the degradation of its value.

So the more that we all go ooh post-it notes are awesome and everybody goes to use Post-it notes the less valuable the format becomes. And so in in some ways

format becomes. And so in in some ways my answer to this question should be the do not do thing. You want to find the thing that nobody else is doing. You

want to find the purple cow. You want to go and create the ad format that is the most novel. Not to be a fast follower to

most novel. Not to be a fast follower to the things that are already working. If

you find yourself as we are a creative shop that tries to replicate the performance of other people, just know that your yield on that will always be subordinate to them is that they created the format that generated the novel

approach that maximized the yield and you are you are downstream from that. So

I just I I don't I don't like to think about creative through that lens.

>> Marketers ruin everything. That's that's

the basic thesis. Last two questions.

What's your current thesis on influencer marketing and what's your advice for a founder with limited budget on how they should start this? The two greatest influences on purchase decisions for all

time will be a recommendation from somebody you trust and price. That will

forever be true in every modality. When

we use the term influencer, we have made this word mean a lot of things. I have a drawing video that I do if you check it out on YouTube where I break this down into how I would approach the idea of

influencer as a business. There are

people for whom I want their credibility. What I want is the fact

credibility. What I want is the fact that they have trust with an audience that I care to reach and I want to proxy their trust with their audience for me and those are people are really really

important. I think about that like if I

important. I think about that like if I this is where doctors become really good influencers as an example in a space right they don't have audience right sometimes I'm using an influencer for an

access to distribution to audience I'm trying to get take my doctor and put them in front of a large scale audience and so I'm using influencer for access to audience and sometimes I want their

content this is where the words creator and influencer will sort of get mapped together where the thing I actually want from this person is the media I actually want this video so I can put it in the ad account and I can make a bunch of

money. Your job is to gather all of

money. Your job is to gather all of those different types of resources, right? And so to think about, okay, how

right? And so to think about, okay, how do I get both trust and authority, distribution, and assets? And

influencers represent a spectrum of possibility across all of them. The

question is, what do you need? What do

you have? And what do they represent opportunity or potential to? But your

customer cares about what somebody says about your product, and you should figure out who it is and make sure that they're talking about your business.

>> Yeah. And they could definitely be all three. I mean, and it could

three. I mean, and it could >> That's right. That's best case scenario.

>> And it could go way past that, too. I

mean, you can leverage that to go raise money. Just put their name on the deck.

money. Just put their name on the deck.

Put their name on the PDP page.

>> That's So, I I talked about this a lot where like there's a time. So, I let's go back to icon cuz I I had a rant about this the other day, which is like at different points, you're using different things to solve different problems. So,

when I'm trying to raise money, my positioning as a business is all about upside. Yeah,

upside. Yeah, >> this is going to be an infinity billion dollar business. And so when you build

dollar business. And so when you build the deck to go show the investors, you don't show the service business, right?

You show the infinity moonshot, right?

And so then you go to the next phase and you're like, "Oh, well now I have to generate a revenue and I'm selling to a brand. What does a brand care about?"

brand. What does a brand care about?"

Right? I don't know what your take is and I did not see your tweet, but I want to say something in relation to this because I want to see if it's what you were thinking because this is what I was thinking because I followed this guy on Twitter. He was very, very loud about

Twitter. He was very, very loud about Peter Teal investing.

>> That's right.

>> In the beginning, >> who does that appeal to? Yeah.

>> Right. So, it's that's that's >> he was leveraging that social proofing to a raise more money and b give credibility to this actually works, >> right? That's not for the seven figure

>> right? That's not for the seven figure e-commerce owner. They don't give a

e-commerce owner. They don't give a [ __ ] right? So, the question is all the time, who are you selling to and therefore who influences them and how do I co-opt that voice? Co-opt is probably a nasty word, but how do I bring that

voice alongside mine to build trust with my customer base? And then sometimes it goes bad and now I have to substitute that a different way, right? So all the time you're trying to proxy trust through people for your business and

apply it to it as best you can. So

whether that's Marquez Brownley for Ridge or, you know, a doctor for your skincare brand or whatever it might be.

Influence matters. It always love that.

Last question. We talked about it off camera before. You mentioned you had

camera before. You mentioned you had watched the Kane episode. Great episode

for people that have not seen it. Kane

Callaway.

>> What is your overall thesis on just like the creator economy and the creator business? Because Taylor, for people

business? Because Taylor, for people listening, he has a great great I don't even content podcast. He's on

whiteboards. It's great. I've gone down your rabbit hole well before this episode as well. It's amazing stuff.

>> What's your thesis on just how to create a let's just call it media empire? And

yeah, how do you see it? What are the pluses? What are the minuses?

pluses? What are the minuses?

>> I thought he did an awesome job of explaining that the first thing you need to decide is what business model you're in and therefore how that content informs that monetization strategy. So

for us as a service business, we sell contracts that are worth a$4 million, a million dollars, large scale value capture to a small subset of customers.

My goal is not view count, right? And

even for my advertisers, what they're trading on with me is authority to a small subset of audiences, right? And so

it's high levels of trust that they're trading on that I can charge a really high CPM. If you look at my audience

high CPM. If you look at my audience size, you know, it's not massive for my podcast, for my YouTube channel, for my Twitter X account, but the CPM I can charge for that subset of people is much

much higher than the CPM that you're going to get on YouTube with a million views by a lot, right? And so we can build that business and then what I do, the way we think about our media portion

of our business is that if I can offset my marketing cost, so I can drive my functional co customer acquisition cost negative. So, inside of CTC, we have a

negative. So, inside of CTC, we have a negative CAC. We make money off of

negative CAC. We make money off of marketing. And so, you my business runs

marketing. And so, you my business runs at 30 plus% operating margin at meaningful scale because I can drive a negative CAC because that marketing line for me in four quarter accounting is

actually I make money because I have a media business that drives awareness to my customers that I get paid to create content and the flywheel just continues.

The more podcasts I create, the more videos I make, the more media dollars come in, the more I get to reach my customers, the more they buy my services, and that flywheel informs my monetization strategy. But it's all

monetization strategy. But it's all about selling services. It's not about trying to make money off the media, right? It's about

right? It's about >> you make money off the media.

>> That's the you have a fairly flat opex in relation to the media and then you're making a substantial amount of money on sponsorships.

>> We scale the opex on the media relative to the ability to drive revenue off of it, right? So the more that we can grow

it, right? So the more that we can grow the media business, the more we can invest, the more people we can make, the more content we can create, all those things, the more customers I reach, the more services I sell. But for us, we are

very clear for ourselves that we are in the services business. That is what our job is. We run an agency. We are selling

job is. We run an agency. We are selling services to to e-commerce brands. The

media is a mechanism to generate large scale awareness and monetization and a negative CAC for the sake of that business. So it just depends like what

business. So it just depends like what are you trying to do? And and what I'll say is like if I was in a media exclusive business, my content would be very different because I would need to generate way more eyeballs than I do. I

would have to generalize and dumb down the content and get rid of all my acronyms, right? I'd have to like really

acronyms, right? I'd have to like really think about how I reached a much bigger audience if I was purely trying to build a CPM based advertising business. It's

not the business I'm in. I sell

services.

>> Yeah. For people out there listening, you should definitely watch the Callaway episode. and the fact that you have a

episode. and the fact that you have a very narrow ICP. It's like if you are obsessed with ecom and the relationship between marketing and finance, I would imagine that you'd love this episode and you would love all of his stuff. So, I

would say you would have uh what I'm learning now, especially over the last couple months.

I think that this media that top part of the pyramid that I always talk about, the sponsors, I think that there's more money than you than you think.

>> It's crazy. Well, I think the category, this is where choosing your content category really matters because th those brands, they will pay a massive CPM if your audience is niche and right for their customer because again, why are

they willing to pay that? Because they

monetize it at such a massive level, right? They make so much money off the

right? They make so much money off the customer. Like think about the f you you

customer. Like think about the f you you brought up fintech. Some of the best sponsors that we have are Mercury Bank and the large scale banking providers where their average customer value is massive. Yeah.

massive. Yeah.

>> So, they can afford those CPMs. High CAC, high LTV, and price discrimination.

That's it. The bigger the fish, the more money they pay. You hit one whale.

That's it. And they chilling. Last four

questions that I ask everybody. Amazing

time, man. Favorite book or podcast and why? The book that I give it sits in my

why? The book that I give it sits in my background on my Zoom call is a book called The Carrot Seed. It's a book for kids, but I think it's the ultimate entrepreneur stories. It's 10 pages and

entrepreneur stories. It's 10 pages and the story goes like this. A little boy planted a carrot seed. Everybody around

him told him it would never come up.

Every day he watered the seed, pulled up the weeds around the carrots while everyone told him it would never come up. And then one day the carrot came up

up. And then one day the carrot came up just like the little boy always knew it would. And I think that's the story of

would. And I think that's the story of entrepreneurship is you show up every day, you water the ground, pull up the weeds. Everyone's going to tell you it's

weeds. Everyone's going to tell you it's not going to work. You're going to have a bunch of naysayers. Show up, water the ground, pull up the weeds, never stop believing, and one day the carrot comes up just like you always knew it would.

And that story like I read it and I just feel this like I I I identify with little boy so much. It's just like just show up. I've been doing I've been in

show up. I've been doing I've been in the same business for 12 years. 12

years. There were a bunch of days you told heard the story either I wanted to quit. Still every day there's every

quit. Still every day there's every other day I feel like we're for sure going to die. But you just show up, you do the work, you water the ground, you pull up the weeds and it'll come up.

>> I'm going to get that book from nieces and nephews. Guys, I'm below.

and nephews. Guys, I'm below.

>> Get it. The carrot seed.

>> Love it. Entrepreneur or brand that you want to give flowers to and why. Taylor,

take your time on this, baby.

>> Yeah, >> take your time. I'll give you two because I know you have a [ __ ] ton of clients and you have been in the space for a long time.

>> Yeah, it's a great question. So, we're

connected through BG. Brian Garall is the CEO of Skull Candy. He's the best business person I've ever been around.

And what I care what what BG understands is that his life is a 20 long journey of building surplus value into the community that he cares about where he

gives more than he takes. and he did it for 20 years and he's now the CEO of Skull Candy. He's going to go on to be

Skull Candy. He's going to go on to be the CEO of lots of companies over the course of his career. But Scott

Galloway, I'm a big fan of his content.

He talks a lot about this idea that masculinity is attached to the idea of surplus value. Is that every

surplus value. Is that every relationship you're in, whether it's with your wife, with your kids, with your employees, with the school that you're at, whatever it is, you give more than you take. And he's embodied that to me more than anybody I've ever been

around. And so I think and I what I've

around. And so I think and I what I've watched him do at Skull Candy, which was a company that was really cool in consumer electronics, fell apart, and that he has rebuilt into a place that's incredible. I'm constantly inspired by

incredible. I'm constantly inspired by him. And this is another example. Us

him. And this is another example. Us

sitting here is a byproduct of him making that connection in a way that he didn't have to do. He went out of his way cuz he cared about us, both of us probably, and said, "Hey, there might be mutual benefit here." That's just woven into who he is in a way that is deeply

deeply impactful to me.

>> For people out there, I did an episode with BG. is probably the most underrated

with BG. is probably the most underrated episode of the 25.

>> Yeah, he's he is underrated. He's the

definition of BG.

>> Yeah, he is such a weapon and I say it all the time. I think the most interesting interesting thing about him is he is a he has covered so much ground like he was a marketing guy

>> and now he's like an ops and finance.

>> Well, that path from from head of ecom to CMO to CEO is very rare. Like you

don't usually see CMO to CEO and so he I think is aspirational for any marketer out there. It's a good career path to

out there. It's a good career path to follow. Yeah, I think it's going to be

follow. Yeah, I think it's going to be so interesting when he's like 57 and he's like CEO of like a Disney or something and he is the guy that has

been in enough roles both you know ecom CMO CEO and then enough companies >> to know how to win there and he's so like systematic in nature >> well and and like the other thing is like you know what really freaking matters is integrity.

>> Oh, he's a great dude too.

>> Just doing what you say you're going to do, being honest and caring about the humans around you. I'll tell you I've run a an agency for 12 years, okay? But

we've had lots of wins and lots of customers.

Two times in the history of my company has a customer shown up at our office to thank the team for the work after Black Friday one year in our office. He showed

up with a cooler of ice cream sandwiches, stood up on a table, said, "I just want to thank all of you." This

is when he's the CMO of Igloo. Thank you

all for the work you're going to do. You

guys are an important part of what we did. Gave them all ice cream sandwiches

did. Gave them all ice cream sandwiches and walked out. It's happened two times in 12 years. the amount of people that actually look around them and can express gratitude and appreciation for the place that they're in and can always

make the people around them feel like, man, you are an important part of why I am successful is like an unbelievably rare skill.

>> BG part two 2027 2027 2028 great guy. Last question. How

big can common thread collective be?

We could be a public company within three years worth a billion dollars.

>> Enough said. We'll leave it there. Where

can they find you on the internet?

>> Commonth threadco.com is where you can come and chat with us. If you're a seven or eight figure e-commerce brand, we'd love to chat. And then I'm Taylor Holiday on Twitter. DMs are open. Love

to jam with people on X. Twitter. But

>> guys, I'm going to do tons of links and resources below. Hope you enjoy the

resources below. Hope you enjoy the episode. Adios. What's up, guys? If you

episode. Adios. What's up, guys? If you

guys got this far in the episode, I would assume that you enjoyed it. If you

got any value, it would mean the world if you hit the subscribe button, give it a like, post a comment, tell a friend.

We could keep going bigger, bigger guests, bigger locations, more value.

See you in the next episode.