This eCom Operator Is Quietly Making 8 Figures in Profit (Ft. Roman Khan) transcript

Roman Khan is building e-commerce businesses at a scale that very few in this space are actually doing. He is in the nine figures and I can just tell you that's even kind of underelling it in the eight figures of EBIT DA. And the most amazing thing about it is that he is doing that while producing a ton of cash, taking money out of the business, distributing, not just tying it all up in inventory. And in this episode of this podcast, he is going to tell you exactly, and I mean exactly how he is doing this.

Roman, simply put, is one of the most impressive thinkers in e-commerce. He's got a hold co called Peak 21 with five brands in it, including a couple brands we'll talk about really specifically, Linear and Raycon. Roman is based in Hong Kong and says in this conversation that he has particular expertise and particular ability to create value in his businesses around supply chain and paid marketing. You have heard a lot in a lot of podcasts about paid marketing.

There's maybe we'll have him come back and talk about that later. But in this episode, we really talk about financially engineering your supply chain for both margin and cash. And that is the key thing here. Roman and I spent some time together at the Meta Performance Marketing Summit. He's simply one of the most impressive people I've been around. When we had our conversation, I left having coffee with him and immediately went got out my journal and started writing reflections on the conversation.

He's thinking bigger and more interestingly about how to build businesses in e-commerce than almost anybody I know. I think he represents his way of thinking, represents the future of great e-commerce businesses. You are going to love this conversation. On top of all of that, he's just a great dude. Gracious with his time, kind, remarkably humble. You're going to like this a lot. Let's get into it with Roman Khan from Peak 21 and talk about how you can build businesses with a supply chain that actually produces value and cash in your e-commerce business.

Roman, how you doing, man? Good, good. Thanks for having me. I'm excited for this uh this call. It's been a long time in making. I feel like we Yeah. Yeah. We've gone back and forth for a while. Had each other for a long time and then we finally got to meet in person. So, yeah. Thanks for having me and I'm excited. Yeah, absolutely. Well, I want to get right into it. You you um you Why don't you just give first let's just give people a quick bit of context so they know a little bit of the scope that you're um that you're dealing with.

What do what can you tell people about Peak 21 and about sort of your role in it that'll give them some context for the for the for the scope of your operation? Yeah. Perfect. Um, so we we're a hold co effectively that own multiple DTC brands. Um, and uh we we manage and operate them and now we buy them. So we buy brands that do north of $20 million in sales. So in June we bought a company that did $24 million in sales when we bought it last 12 months.

And um usually they're evida positive and then we grow them and in some cases we sell them. So, we've sold two brands so far um in that range and uh frankly speaking, moving forward, we're probably going to buy larger brands. 50 million plus I think is where we're going to go because our balance sheet is bigger. But yeah, that's what we do in a nutshell. Uh the brands I'm known for would be probably Linear, which sells jewelry online, and Raycon, where we sell wireless earbuds online.

U those are two like largest brands by Alliance Share. Uh yeah, that's us in a nutshell. Thanks. Um, so you said something that is really fascinating to me and fits uh some some narratives that I've been considering for a while when we were together and I I think it's a really striking element of uh of something like this kind of thinking and again thinking on this scale. You said that you think your core advantage and and I don't know you would say I'll leave you to say if it is the core advantage or one of a couple of them or something but was around supply chain.

Um when you say that what do you mean? What what how do you make supply chain a core advantage of e-commerce with brands? Yeah, great question. So I think there are two superpowers we have. One is paid acquisition and then the other one is supply chain. Uh the rationale and the reason we focus on those two things is because they're usually the two biggest cost items on the P&L, right? like you spend cogs is going to be number one or number two and uh or it's going to be paid.

Um the reason it's it's it's what we're good at we we we're spending more than $50 billion on procurement per year to give you a sense of scale. Uh shy of nine figures but more than $50 million. Um there's two reasons. Uh, one, when you're buying a brand that's doing less than $50 million a year, usually the founder is wearing five hats, right? Like they're doing HR, they're doing pay, they're doing product, they're doing supply chain.

Um, so just by the sheer scale of our business, we have close to 40 colleagues in supply chain in China, in India, in Thailand, across Asia where this stuff is made. So we're just able to give it more attention and focus than a solo founder could just by sheer scale. The second thing is that you know I've been in Asia for since 2007. Um I was in I was in the US for a short sin for two and a half years and for two years and Europe two years in between 2007 and now but you know Asia is our core focus.

I live in Hong Kong. So product is what we live and breathe and that allows us as owners to go out and meet the factories every single month and it makes a huge difference in your payment terms in your margins in general being ahead of new products come around the corner. Um so we we think about product and supply chain quite a bit because I think on on Twitter and in general in the DTC community there's a big focus on oh are you running cost caps or bitcaps or meta?

Uh but at the heart of it, we're all selling product and product is what makes a brand and uh that's where the value creation starts. So supply chain is at the core of what we do. So it's funny. I think I think those conversations matter about manual bids and I know you do too because I've seen you jump into them. Um and so it's not and and to your point you just made, right, it's one of your two biggest line items. Uh and so it matters how you manage that money.

It it adds up to being a lot of money. Um, but but I love this point and I think what you also clued in on is this idea that you're buying brands that are 50 and probably previously less than 50 in revenue and just I just I'm just almost certain that many brands in that in that space did not get there by thinking very much about their supply chain as a core competency. What typically in my view happens for that is like they have some kind of combination of product margin and uh and acquisition strategy that gets them to that kind of phase of business.

And so it seems to me that it's very likely that a business at that stage just has like a lot of lowhanging fruit, especially for a team of people like you with 40 people across Asia, you know, that can go in person to these factories. But I want to drill into that a little bit more. And you can feel free to disagree with anything I just said, by the way. But um but I also want to drill into that a little bit more. When you say that you have this supply chain advantage and you have these people, what are they doing that is actually creating that advantage? like like what kind of stuff is actually happening to make it so that you are turning those people into a better supply chain.

Yeah. And I would distill it into some bullet points just to make it very clickbaity like what are the four big things that you know we see when we uncover something. I haven't I don't have the exact number but let me go from the top from top of the list down to talk. So number one is usually on average I would say for nine out of 10 businesses we buy uh we will go in and ask really detailed questions about the product.

First of all we have no supplier redundancy because they don't need to because they're only buying $2 million worth of cogs per year or maybe five million at most. So we'll go in and we'll ask the most fundamental by redundancy by redundancy you just mean backup suppliers back then go right especially now with the trade war only there's like WTF what do I do? Yes. So the first question I ask in nine out of 10 cases the answer will be we don't know what that is or we don't have it which is number one they don't have a bill of material what you call a bomb.

So, perfect bill of material is something where you have let's say I'm selling um let's come up with an example like the wireless earbuds that we sell a break on behind me at that picture right there right you want to break down let's say whatever the price is let's normalize it we pay $100 for the airbud to the factory right um um our build material will have an extreme breakdown by detail uh the chipset the audio chipset inside cost $5, the gel tip cost $1, the case cost $2, yada yada yada.

So that's column number one. Column number two is the subreddit. So we know exactly where the factory, the assembler is sourcing each component from and what the price is. Column number three is the supply chain lead time, like how long does it take for our assembler to get the gel tips, to get the chipset, yada yada yada. The fourth column is the country of origin. The chipset might come from Taiwan, the gel tips might come from Thailand, whatever, we'll have that conrict origin too.

And then the last column is the payment terms that the assembler gets with these subcontractors. Um, the additional line items we have according to the components, I should almost mock this up because I get so many questions on this is what are the labor costs for the factory? What are the overhead costs for the factory? They buy machinery, they pay rent. And what is the factory margin? Is it 10%, 15% or 20%. What is it?

Um, so in nine out of 10 cases, most founders do not have a bill of material. They've been trusting their supplier. They have no granularity. When something like the trade war comes up, they're not able to negotiate anything because they don't understand how much the factory makes. The factory does not even know how much we make as a brand. We run things very transparent. And so starting with a bill of material, that's the 8020 just understanding how your partner eats and makes money.

So you're saying also that just to clarify that last point that you're also sharing back with the with your factory partners how much money you guys are making as well. So that you really are partnering with them. And I mean what you just said is really interesting which is like understanding how they make money is is key to how you guys essentially help them make more money by helping you guys make more money. Right.

Exactly. So building material is the first thing. Uh if I were to answer your question that I think is the missing part that we do really well at P21 is like we buy an asset. We then distill the bill of material down to granular levels. You just start chasing that information down. You build the bomb and you just go like okay this piece came from here. What's your lead time? You just Correct. And you're and I'm guessing you're doing that in person with them at the factory.

Right. That kind of deal. Yeah. First conversation in chat. Yeah. Great. Okay. Is that you? Are you getting on the plane and doing that yourself? I'm going getting on the plane and doing that myself. So that's an advantage for you being in Hong Kong basically. Yeah, for sure. You're going you're going to Canton you're going to Canton or something like that. You're like that's an hour and a half flight. You're fine. Yeah, exactly.

You may not be able to live in Hong Kong or operate at the scale of Roman Con right now, but you can get something that appropriates the same kind of ideas in your business with my friends at Move Supply Chain, who I've used to build the supply chain for my business. There's a lot of stuff that Roman's talking about in this episode that is very similar to the way that Move thinks about their businesses. move, first of all, is based in the Philippines, which means not only are they affordable for you, including getting incredible talent in your business at re reasonable costs, but they too are an hour and a half flight from lots of these places in East Asia and Southeast Asia.

So, if you are um manufacturing in those places, you can have a representative from your business go and uh and actually be uh meeting with your partners, your vendors, your manufacturers, building those bombs like ro like Roman talks about here uh with help from Move. They know how to think about e-commerce supply chains because they've been doing it for many, many years. They've been in US e-commerce businesses for a while.

Um, I know I've trusted them to do it in mine. I've watched them work with uh other brands save them serious money at every part of their supply chain process all the way through their 3PL. Like I had one brand that I sent them where after working with move supply chain and helping work out their 3PL relationship, they saved a dollar on every uh order on their processing fee. Like they're just really good thinkers. If your supply chain is underoptimized and you're looking for partners in your business who can go and attack that area of the business, you've got to consider getting on a call with Move.

You'll be amazed at how affordable it is, how great they are at being an extension of your team, how on top of things they are, and how they can help you do things like negotiate terms, get better pricing, get faster lead times, get lowerq, all the stuff that makes a great e-commerce supply chain and that puts cash in your pocket. Go to moveupplychain.com to get the conversation started today. They are an agency service that works like other agencies where they can work on a project basis or an ongoing basis and uh and they're just really great.

Moveup supplychain.com tell them I sent you. You will love working with them. In half the cases the factory does allow them to disclose it and then what we do is we just replicate the products with another factory but we start the relationship with that bread layer tip. The second thing item number two okay we're going to make a listical of things that are wrong. Number two is the lack of price breaks. So because you don't have number one, you don't have number two.

So for example, let's take the raycom example now, right? Like we don't have this for Raycon. I think I don't manage supply chain rayon. It's such a large business. But usually, you know, we think about the absolute profits the factory should make per month, per year, per quarter, yada yada yada. We try to align interest. So as volumes goes up, we get price breaks. If I'm buying 1 million Airbuds a year, I get a better price than at, you know, uh, 500,000 units a year.

So, because we have this bill of material, there are a couple ways to negotiate price breaks that are favorable to your supply chain partner. So, let's say we just what the supplier cares about is predictability because they're in the business of utilization. Think about an airplane, right? Like airplanes lose money because 10 seats are empty. They want a full plane, right? So it's the same for a factory. It's like an airplane.

They want full utilization of their labor and their factory. So what we often do to align interest with the supplier is like saying, "Hey, you don't need to give us the discount this year if we're hitting 1 million units, but give it in the form of credit next year as we grow." And there are different ways to think about it. That's why I'm not saying discounts. I'm talking about breaks. I mean it's it's a really the devil is in the details there and you want to make sure that your factory feels that everything is aligned and it can be in the form of a credit memo it could be whatever but the component of number two is the bigger driver for running a profitable DTC brand because unlike SAS right like I feel like we all feel like the grass is greener on the other side we want to go into software the problem with software is that you have developers and cogs is not predictable unless Unless you get like escape velocity.

The beauty with DTC is that your cogs goes down as you grow volumes. I mean there's a doesn't go down to zero but definitely should be going down as you scale up. So that's that's component number two. And on top of utilization, right, like these factories are typically uh also and maybe this is actually another way of saying the same thing, but when I think of uh manufacturing businesses, what I think of is it's a it's basically all about volume for them.

And that's why they can actually give price breaks, right? That like factories are really bad businesses at a low volume. And if they take on a new brand, you know, like the factory is going to do my brand that I'm building from zero, it's going to suck for them in the early stages, right? Um but their hope is that we can build enough volume to make that work. So, in both of those, and I want to come back to your next point in a second, Roman, but in both of those, uh, both the both the, uh, the bomb um, approach and also the price break approach, are these things that you think brands, let's say, let's say I'm running a $10 million e-commerce business in revenue.

Should I even be thinking about this yet or or is or am I just not doing enough volume to make this a very productive conversation? I think it's extremely helpful to have visibility uh because it's going to lead into redundancy and it's going to set you up for scale down the line. So I think if you're sub 10 million and you've been in business for 3 four years, getting into these conversations would be really helpful to be honest because it's going to give you a completely different point of view of product.

It's going to open up a part of your brain that you didn't think of before and be like, hey, like this component is really expensive. Do my customers really care about this? Like we second guess everything because we have to build up material and you know for example take raycon as an example like one chipset might extend the battery life to 42 hours another one might do 35 hours and that tradeoff you can clearly understand it and how it translates into SRP because let's say you mark up your profits by five times adding a dollar in COGS adds $5 in SRP right so I think it's really important because it might unlock a ton of revenue and it all of growth because you can do these trade-offs.

Um the the third thing I see with um most brands is that they don't have payment terms and the way they ask about payment terms is really um stupid. Yeah. Rudimentary I would say that's kind of being naive and like not aligning interest again. So another line item we have a little bill of material is what is the cost of financing. So if you go back in time you think about the first point I made now we know what payment terms and what the vendor lead times are for each component for the assembler of rake on airbuds.

So we know that you know for the chipset they pay 90 days later maybe it's 20% of cost and they source it from Taiwan. Like I'm just making up stuff now. And um you want to make sure that you understand their true cost of financing. So often Chinese suppliers can go to a company called Sinoure. It's a stateowned enterprise quasi private quasi uh quasi government owned and they can give payment terms on the back of their POS.

So having a transparent conversation with your supplier is often what I hear. I had this viral thread on Twitter about buying 30 million worth of goods from China with 85day terms and it's actually changed people's lives. I've gotten DMs from people saying like this is crazy. This changed my life like taking this approach. Often what you want to do is just talk to your supplier and ask them what their cost of financing is.

Often it's zero. But you know having this open conversation helps a lot. And for some of these brands, we just split the cost halfway like you know brand takes care of X half and and the factory takes care of half. So being intelligent and transparent about you know talking about pay returns makes a big big difference in the outcomes for you as a business. That's number three. And that's that's simply a matter of them having access to better financing than you as the operator, right? and you seeing that, helping them to see that and again just saying like look, we can do more volume if you make it easier for us to float the terms because then the cash movement in the business is just drastically easier.

And so and you're not even asking them to bear the full cost of it, right? You're saying you we'll split the cost, but it's just if you can make those terms better, it makes sense. Yeah. the the biggest caveat that was put here is just to explain to people how it works if you're working with a Chinese factory and in some cases Thai or Vietnamese factories like all our jewelry for linear is made in Thailand just to give an idea like so um it's not apples to apples but you're a factory XY Z you're supplying 10 brands you pay an insurance premium per year it can be anywhere between $50,000 to $200,000 as a factory to buy this credit insurance Then what they do is they go through the financials of each client and grade them from A to C.

A, B, C. Let's say a small business that have had a lot of delayed payments will be graded C and a large business that never had delayed payments is a grade A. And that determines the cost of capital for per per customer in terms of factoring, what you call factoring, right? Like so um that's how it's done. And if you have a supplier offsiz, you should be able to have this conversation very transparently and you can split the cost.

Ideally, the factory of course takes care of this whole cost. But that would allow you to basically uh get payment terms from day one and more importantly get pretty visibility on whether you can get to net 90, net 120, net 180. Some of our businesses we have that and it it goes from IBIDA being funding growth to IBIDA being a dividend every month. That's the difference in people's personal lives. Right? So very important conversation to have.

Um the fourth point is not understanding how supply chain can fund the growth or let me rephrase how can you turn your supplier into your bank. So most D2C brands take expensive loans with Shopify capital or you know yada yada yada. How can you avoid that and unlock growth? So the easiest thing to do is to calculate your free cash flow and working capital understanding truly like okay I did $2 million in revenue per year.

My COGS is 1 million. My marketing is half a million. What is my free cash flow at the end of that? Uh based on payment terms of cost of goods sold and your marketing. Um having clear understanding in that is going to help you a lot. And then what you can do to your supplier is say hey if I get net 60 instead of net30 or net 90 instead of net30 I can add this much in growth because cash is not the constraint. So that's probably the last fourth stage that I would say is the most sophisticated but if you can get there then negotiating payment terms uh is going to unlock free cash flow and your business is going to boom.

Um, yeah, that's so good. I wanna I want to come back to the thing you said first actually, which is the bomb issue. Um, you, by the way, when we talked about this, you were like, I don't know, supply chain's kind of boring. And I'm like, no way. I could go with you for three hours on this right now. I know we don't have that kind of time, so I got to go point us somewhere. Um, okay. Uh, let's go back to the question of um of bomb.

What I'm actually interested in is to go another layer deeper with you which is like let's say you get that complete you do all that work right you get the supplier to the supplier you might even get their supplier somewhere in that process right like the supplier's supplier right so um what um what do you do with that information let's go back to your example with the with the um earbuds okay with Raycon and you just mentioned a few things right chips versus pieces for the case versus the uh the little material on the end of the earbud right like um the the rubber or whatever that is.

Um like let's say you get all that lined up and you get country of origin and you get margin on each one of those and and payment terms and all these. What do you do next? Like you you get that whole thing in front of you. How do you actually turn that into action and not just like an interesting thing to look at? Yeah. I think the first thing that happens is that there's a mental shift in your brain as an operator and you start taking out dividends and you start like living by profit first because you if you achieve everything I said and you're running at let's say let's say cost of goods sold is 20% of revenue but your EA margin is 10%.

This is like very typical I would say for most brands like let's say 25% COGS 10% EIA and you're growing a 100% year on year you're going to burn cash if you have no payment terms right because the net profit is lower than the cost of goods sold and you're spending more in cost of goods sold because you're wrapping up assuming you have no lead times and payment term fictional scenario but directionally you understand where I'm going with it happens all the time it's it's not fictional at all like it's completely real so now you're at this other end where you have the same margin protocol like 25% maybe 9% because you're splitting financing cost whatever but you know all of these payments come due after you sell the product right like because you have extended payment terms all of that stuff the first thing that happens then when we go in and then fix the business and we get these terms is that we start paying ourselves every month consistently so 100% 90% of that EBIDA produced that month goes out into a treasury out and is not touched for anything.

So, you're not paying for your growth anymore. That's the 9010 of what we're trying to get to with this framework. How do we not have your D2C business be a casheing machine? That's the most important part I would say. It's like how do you avoid it from being cash eating machine and then once you've constructed the supply chain and payment terms financing around that then you go guns blazing you start growing because it's not going to tank you but that's that's the fundamental thing so I feel like a lot of the to see brands figure out growth before they figure out the financials which are tied to supply chain they grow grow and then it's a little bit like a Ferrari car driving at 300 miles an hours an hour you're definitely going to at one point crash versus driving at like 50 m an hour.

Um that likelihood of crashing is sub close to zero, right? So I think figure that out first and once you have that then we can kind of go at 300 miles an hour because it crash won't kill you. Um that's yeah that makes tons of sense. What about specifically with the bomb though? Like again, let's say let's say you look at that bill of materials and do you um Oh, okay. Sorry. No, no, that's okay. That's okay. I I'm I'm actually tempted to go back to what you just said as well because people talk about the cashing machine issue all the time.

So, actually, let me let's do two questions. So, let's come back to the um to the thing you just said, which is again I want to ask the question. Let's say I'm at a 10 million in revenue, not at your scale. What I really want to get at is how much of what you just said is possible for you because you're operating at so much scale versus how much of it do you think is possible? Um because because now you're just so valuable to those suppliers compared to let's say my little $10 million business or thing.

So how how much how much of that is is because of that do you think or or should the $10 million business be doing it? No, it's a great question. Frankly speaking, I've only learned this at scale. So I haven't been in the seat of doing it is at like 0 to 10. We did it with linear when we started jewelry 5 years ago. Now jewelry is like a gigantic category for the brand. It's like 99% of sales. So when we talked to the jewelry factories, they kind of took us seriously because we already had a professional looking website and a brand.

So frankly speaking, I don't know if you can pull this off when you're small. I'm not sure. I'm not 100%. You might not be able to get net 90, but maybe you can get net 45 and that would already be a huge improvement, right? At least you move somewhere. At least if you talk to your supplier in these matters, I think they would double down on you and believe in you. Uh asking these slightly not tough questions, but critical questions I think would put you in a better spot.

Anyway, so I would encourage people to do that. We're talking about business excellence on this episode and that means it's a great time to talk about my friends at Intelligjam. Intelligence is one of those tools that brands that are margin conscious, ibida conscious, profit conscious in their business ought to be using to build highly profitable e-commerce businesses. That's because uh Intel gems is a CRO tool, but it's much more than a CRO tool.

It's really a profit optimization tool, not a conversion rate optimization tool. The difference is all the difference. The difference between those is that uh you may actually at one point want to lower your conversion rate, not raise it if it produces more profit in your business. Maybe by raising the price uh and or by changing your sitewide offer. Maybe you're giving too much discount to customers who would have bought anyway.

There's all kinds of things that happen like this in e-commerce businesses. And what intelligence does is they give you a very easy to install tool that allows you to split test different elements of your website whether that's a really tight advertising funnel or that's your sitewide um funnels like your homepage etc. and measure all of it on their god metric which is profit per visit. Profit per visit that's the key metric for measuring your output.

So maybe uh that includes things like I said like like uh price testing like perhaps you should raise your price or lower your price. I know when I launch my brand I'm planning to price test from day one with Intel gems because there's just so much value creation to be had in getting your pricing right and it's a really hard thing to guess correctly and that's what most people are doing. They're just guessing. They're just guessing what price they should charge.

Okay. um offer testing, like I said, sitewide offers, free shipping thresholds, uh uh whether or not how much you should charge for shipping, uh and of course the regular ongoing kind of um tests like how should you be organizing the images in your carousel and your thumbnails and those kinds of things that are all normal parts of PDP testing in e-commerce businesses. Intelligence is easy to install. You don't need a developer and you can get 20% off your first uh 3 months by using um the code ferris 20 fs 20.

Go to intelligjs.io to get started with Intelligjams today. get testing, build more profit in your business with intelligence, right? I think that's right that that part of it is like you just have to go and do that. I know Matab talks about this and he's dealing with um he said he said it on my show that he and he's dealing with certainly smaller brands than you are and you know he's just a huge advocate of get on a plane and go visit. just go every other month.

Honestly, in the beginning, if you're going like think about the expenses, right? Like flying from the US to China, what is that like less than $1,000 and staying at a hotel in China is really cheap and the only excuse is like that the flight is long, right? So, I think going out once a quarter will pay huge dividends and telling your factory like, "Hey, we grew this much this quarter because of XY Z. This quarter we're shrinking." whatever it is, just giving them frequent updates is going to keep keep you top of mind, especially as a small player.

Um, so big fan of like going out more. Um, okay, I like that. So, yeah. Okay. So, back to the bill of materials then. Again, I just want to take that to one other step. Once you get all that stuff in front of you, that's okay. Yeah. So, um, let's take for example Raycon as an example um, with the chipset, right? Like that powers the sound and yada yada yada. Two ways to do it, right? One is like maniacally focusing on cost and getting that cost down.

The other thing is to tie it to your MPS and postpurchase survey. What are people complaining about? Maybe the bass is too like loud or the the sound is not loud enough on XY Z. Um you can go in and try to understand fundamentally is the chipset that constraint or is it the gel tips? What are stopping you from making customers happy? So I think by having this visibility you have so much more autonomy over where you can go.

That's an example of raycom. The other example is with linear. We use lab grown diamonds. We're only selling lab grown diamonds. Lap grown diamonds. Four years ago were four or five times as expensive for some of our designs and now they're down dramatically. So what we do with the supplier is we procure diamonds with them every quarter and having this visibility allows us to adjust pricing really basic but like pretty right but I like I like that point because you you just went in two directions one of them is product quality right so you can go see where people are struggling with the product and where you're just not delivering on the promise to the customer which is crucial of course um on all kinds of levels but then the other one is towards price right you by by getting clarity of the price you might see some part of the some part of your bomb where you're like oh there's this is too this part is the thing that's driving up my cost.

Let's go attack that and now you can go get down to the next supplier or whatever it is. You do like really basic stuff too where you like you take your competitor, you buy their product, disassemble it, you can see what chipset they're using and you can just ask your supplier like why is brand XYZ using this chip and why are we using that? So you know really basic stuff but you know interesting. Yeah. Do you do anything um this another thing I'm curious about with supply chains especially for earlier stage businesses and maybe this is not as relevant at scale but it strikes me that in if you tie all this back to a growth approach you know there's the cash element of this which you've talked about a lot but there's also the element of like being able to use new products to generate additional growth like at the level of the ad account right so so um I'm curious if you also do anything at the supply chain level um to to make it easier to sort of essentially test new products with new audiences so that you can grow faster.

There's this old story that I've I've told on this podcast before that like sticks out to me that is sort of the the god tier version of this which is um which is ColourPop uh the makeup company. They had actually they were like they had this thing where they would test new new colors and stuff um and they could turn around from like a test run of products that they manufactured in their facility I think in Oxnard in California um or or somewhere close to there and they could and and then they would just launch them on the website every week and there'd be new launches constantly and every time something hit they could go from like basicallyQ level orders to mass-produced in like 7 to 10 days like they they basically had had shortened the turnaround so much and the net result of that was that they could constantly test new products which funded their growth because product is by far the biggest you know element of their growth.

So I'm curious and that again that like I said is sort of the god here to go from test products to uh scale production in a week is pretty impressive but like um is there something is there any way that you're thinking about supply chain relationships that do anything similar to to that in terms of testing new products finding ways to explore new audiences etc. Yeah, I would say we're like I would grade ourselves C minus on this as a company probably because of our share scale.

I think we have a lot of room to grow on that like the best marketers and best product people out there. I know they get a lot of hate on X but like are drop shippers. They do the best like yeah we should all be like drop shippers, right? like on mentor pass of like three mentees that are drop shippers doing, you know, 50, 60, $80 million a year and they're 22 year old kids and 22 23 year old kids and they're just crushing it because it's like a solo Navy Seal team, right, with some VAS and they just make happen.

And if I were to grade myself against them, were Dminus, right? Like like really really bad. Um the only place it's very category specific doing these things like at raycon scale we just can't do it. We have to have an excellent product just because it's a mag for linear with our jewelry we're somewhat there the the big unlock for moving towards this is to be with your factories all the time because the number one question I think you should go and ask your factory is like how big is how big am I as a percentage of your revenue? how big am I as a percentage of your volume?

And with some of these factories were 50%, some of them were 10%. And then what we ask is like who is your biggest? And then they'll tell us and then we say who's growing the fastest and what is growing the fastest and they'll just show you the products and you'll immediately know what you should launch. But to be honest, most of our growth, we're not good at, you know, innovative ideas yet. I would say we're building that muscle now. uh is uh from that framework like I think like some of our brands are growing 50 to 100% this year on the back of this fundamental first principles just going out to the factories and seeing what sells.

Yeah. And I mean if that's the case then you don't probably need to go do this next right keep keep doing the thing that's getting you the 80% growth. Um I uh I also think there is a difference in those two companies that you just stated, right? Like Raycon versus, you know, again a consumer electronic company versus um versus a a design focused jewelry brand. Correct. Exactly. You know, for the jewelry brand, it's probably all about designs.

It's like how many of those can you test? How quickly? Right. And production lead times are two weeks. Like it's nothing, right? Yeah. Right. So it's small. you can drop ship it like for couple weeks with a bad customer experience and then like you know in stock, right? Like so it it's really category specific, but it's not something I think we're very good at. Frankly speaking, it's also the kind of thing where like the ad for the jewelry brand is probably just a picture of the of the statics, right?

Like 50% of that account is just statics, right? Barely any videos. UC doesn't work. Like people just want to see the design. Yeah, that's right. The problem is like the design is the ad. Yeah, exactly. So like from an AI standpoint, we want to deploy AI and do this more iteratively, but then AI can't get the details right yet. Six months from now, I'm sure it can, but right now we can't deploy it in a way that drives low volume.

Yeah. Um, okay, Roman, we only have a couple minutes left and that's fine. Um, but I always just like to leave a little space. You know, a guy like you, you're in a lot of communities. You were at the Meta Summit last week. You're with your team this week in New York. you're all over the world and you're on Twitter and active there. And so I'm just assuming that at any given moment there's one or two things floating to the top of your of your brain uh that you're just noticing.

Could be about something we talked about, could be something totally unrelated, but I'm just curious u while I have you if there's anything else for you that you're just sort of hot on right now or interested in right now that you think is worth just taking two minutes and giving us your best thought on. Yeah, I come out to the US six, seven times a year. First, I need to do my plug. So, if you know a founder that's wanting to sell their companies and you make an introduction, just an email intro and we end up buying it, we'll pay you $100,000.

So, just drop me an email. My email is romanpeak21.io. Uh, we paid out more than $400,000 the last four years to give everyone a sense of scale. So, we that program works really well. So, please send me a couple days. One observation from this trip because I think I have the benefit of being far away. So when I come the incremental changes compounds quite a bit. I feel like North American founders don't see the pattern just because they're in the in the trenches every single day.

Um I think we're both at the better performance marketing summit. So I think we're moving more and more towards a polarized world in DC. There are these outliners outliner success stories like companies doing 50 million overnight. I mean, Andrew, we we met two of them while we're at the Meta Performance Marketing Summit. Like 0 to$50 million runway rate overnight, literally um uh uh coming and it tells a story that Meta is back.

Like Meta for me right now is doing as well as it was in 2014. Like it's almost gotten cheaper to advertise on Meta I feel like over time. And then you have the other end of the spectrum where Meta is really not working for a client. they're caught up in the trading war and they're just going bankrupt. So I feel like the net outcome if it were Shopify, right, like GMV is going to continue to grow. There's going to be a ton of churn among the bottom 25%.

And the top 5% is going to make up for it many times over. So I think if you're in bucket number one, congratulations. If you're in bucket number two, I think um uh I think hard times ahead, frankly speaking, just because of the volatility. But that's like the biggest thing I'm seeing. So, if you're in bucket number two, I'm getting a lot of emails. My M&A team is getting a lot of inquiries from people going out of business because of the trade war.

If you're in that bucket, drop me a line and hang on tight. I think like you're not that's that's like the parting message I would say for for your callers and viewers. Yeah. Yeah. It's really good. I think there's um I I you know, I did an episode uh a week or two ago. Uh, by the time this comes out, it'll be a few weeks before where I got got my hands on a P&L of a $5 million e-commerce business and just like walked through it basically and just kept the kept the business's name quiet, but the fascinating thing about it to me was how fixable it was.

Um, it it was like break even or or negative for like a bunch of time. And in fact, this fella had actually met with MAB, who I mentioned earlier, who I know you're friends with as well. Um, and Metab had helped him and just said, "You've got to fire some people among other things." You know, that was what he That's actually that's a much better point that you're making. Yeah, is the enemy of progress. Yeah. And what I see with so many founders, I just had coffee with another founder two days ago.

I sent the business to Metal because I feel like it fits his wheelhouse. $40 million revenue 10 like sub 10% EB margins and they've been doing 40 million for five six years or whatever, right? So even the revenue is two 300 million. Founder is not taking out any money barely. Jesus. I'm just like, you know, you need to eat. Like, it's great that you have all these employees, but you need to you need to get especially in the world of AI and remote work with VAS.

Uh, and if you're in bucket number two, actually, you're not alone. But number two, take action and do the things you just talked about. Well, and that's the thing, right? It's fascinating because over the over the most recent two months on the P&L that I looked at, they were they had gone from like break even or below to like 12 to 17% profit and they were back to growing. It's like they had exactly that they had just taken the right actions next and there were still more they could take and it's like oh I can actually see a really good future for this brand you know and maybe even an exit at some point like could really work.

So one thing another thing I want to say is like I have the privilege of having looked at more than a thousand companies the last four years. There's a cohort of companies that do 20 25 30% EA margins growing 30 50% a year. So this like narrative that you can have 20% EA margins in BTC is completely false. It's wrong. It's totally wrong. Completely wrong. And usually it's a factor of growth versus profits, right? Like so these guys are so humble.

The characteristics of these founders is that they're so humble. They don't live in these big coastal cities where greed and envy and fo gets to them. I think they're in middle America. They're in Utah. They're in like, you know, whatever Minnesota, Texas, etc. And they just build the businesses for profits. And it's feasible. You just have to you just have to be um a little bit more maniacal and put profits first. That's it.

At the end of the day, they're all human problems, Roman. They're all It's all freaking human problems. They're all about our disordered emotions and the and the challenge of managing those at the which is which is perhaps the greatest challenge in life. All right, there's a good spot to leave it. Um, I was going to plug you as well, but do sell your business to Roman. Um, Roman uh is great to deal with and uh and I think you will really enjoy that.

This has been a fantastic conversation. Thank you so much for taking the time. The question is not whether or not I will try to get Roman back on the show again in the future. The question is how often and how many times I can get him to do it. He's a busy guy and it's very gracious of him to give the time, but I'm sure you learned a lot from that episode just like I did. Roman P21.io is the way to get a hold of him.

If you uh are looking to uh sell him your business, he is a great person to talk to. So, go and do that. Or as he said, if you've got um an introduction that you can make to somebody else looking to sell their business, especially in that 50 million kind of range, um there's a handsome payout for you. So, go go go check that out. Um, got a whole bunch more really good episodes coming uh with other interviews with people putting up monster profit numbers like this.

Um, and as well as some really good solo episodes coming on metads optimization and all the usual stuff that I'm talking about uh all the time. I'm doing some testing with some account structure stuff that's going to roll out in podcast form hopefully soon if it hasn't already. Uh, you can follow up with me at ajfgrowth.com if you want to look into anything I'm doing, if you want to work with me, any of that kind of stuff.

Email me at podcastfgrowth.com [Music] and uh follow me on Twitter, Andrewj Ferris. I'm x and ferris. Um and uh and that's it. I think I think that's everything that I get. Oh no, let's move supply chain. Go work move supply chain. Moveup supplychain.com. Get that supply chain optimized. And of course, Intelligjee uh to go do profit optimization on your site. Intelliggeems.io. Use the code Ferris 20 to get 20% off. Subscribe wherever you're watching or listening.

You know what to do. Thanks so much. See you next time. [Music]