Dave Rekuc Beat Cancer, Cash Conversion Cycles transcript

[Music] foreign [Music] to the Andrew Ferris podcast thanks so much for joining me for another episode of the show today a guest that cannot believe that I have not had on to date I slacked Dave ricook uh not very long ago and said Dave why don't you come on the podcast and talk because it's like a crime that we haven't done this to this point Dave and I talk e-commerce all the time and so I thought like why not record a conversation about what's kind of top of mind for him and what's not Dave as you probably know is the president and CEO of bamboo Earth which is the last remaining 4x400 brand so Dave and I worked very closely together when I was at 4x400 and stay connected all the time around all these things today on the show we're going to talk about a number of elements of what is going on at bamboo Earth right now what Dave is doing to drive uh actually insane value in that business and and see that thing go way way forward and be a real monster of an e-commerce business you're going to like hearing from Dave he's one of the smartest guys in e-commerce as if you know his name who came in to hear from him you already know that let's not delay it let's jump in all right Dave how you doing doing well doing well happy to be here again do you feel like offended that it took me this long to invite you on my solo podcast oh oh definitely I felt offended a little bit on myself definitely a huge huge offense and yeah I'm gonna hold that against you forever very locked up yeah you strike me as you've always struck me as a guy who's like deeply resentful sitting on a lot of anger and and really holds a grudge yeah that's what drives me yeah hahaha before we get into Vancouver [ __ ] just a little bit about what's going on with you I think there's some people who probably know this and some people who don't but you've had quite the health Journey over the last however long and it's not the first time in your life you've had a quite a health Journey do you want to tell people kind of where you've been and how you're doing yeah uh sure now that it's a good update ah yeah yeah yeah so I'm we'll start with the good stuff from cancer free now guys confirmed by medical technology and I was dealing with uh testicular cancer that so something I learned about cancer is by the way the type of cancer that they name it is where it starts in your body it doesn't actually matter where it goes it stays that type it could answer so testicular cancer obviously starts to the testicles but if it migrates to your abdomen you don't have abdominal cancer you don't have you know if it goes to your lungs you don't have lung cancer and so it started obviously testicular cancer I found out about last year but it wound up migrating to my abdomen and had a surgery last year this year found out about it in my abdomen had to go through about nine weeks of chemo and then there was still some left over which can happen it could be like scar tissue or even benign stuff but they have to they have to pull it out so I had a surgery in the abdomen actually flew out to Indiana to do it because that's where the best in the world are and it's like pretty easy booked it on points and uh went out and had the had the surgery there and uh and came back I've been recovering since but uh overall it was a long journey and a lot of interruptions personally but fortunately got to the end result that I that I wanted yeah it's awesome news it's fun to see you obviously we talked a little bit during that time hair's back it's good to see you look great you sound great you said you were telling me earlier that your Energy's coming back which is really awesome man I know you got you got small kids and a wife and all kinds of stuff going on well beyond work stuff so it's been I've been glad to get good updates as they've come because it's that's quite the thing I'm curious I mean you know you can talk about this as much as little as you want but just while we're talking about it I'm curious what that Journey has if that's given you any life Reflections on sort of work and personal and family and any you got any wisdom to share from all this experience that can be one of the good outcomes of an experience like this I think no you know like as you mentioned before I've gone through something similar in my life actually even more life-threatening testicular cancer has a 99 plus percent survival rate even though the more advanced cases have really high survival rates and early earlier in my life when I was 21 I had a bone marrow transplant which had you know significant only higher mortality rates to it and uh so whenever you go through kind of this thing that challenges your mortality you certainly have some reflective moments and I I'd say for me you know one thing I actually thought was interesting is a lot of people actually have this reflective moment you you find out like they're a lawyer and they were like battling cancer and then they were just like F this I'm not gonna like live my life in you know in these four walls and and then they kind of like go start a beach shop or something like that and start like living but for me what a funny thing that actually came out of it is like I like doing what I do like and I think I'm of the you know fortunate like point one percent right like where it's like I get to go make good money and enjoy sort of the game of what we do I've referred to it as game to my wife where I'm like look it's a it's a game that I get paid to play like and I think that's kind of an interesting way to think about it because I was I was taking calls and getting chemo and like working there like and not to say that I just can't put it down a workaholic but like there's just elements of it that are just still addicting even after all these years and that was definitely a part of it that I enjoyed finding out about myself that this isn't just a grind and then the other thing is the couple moments you have with your kids and your family it just became so much more important for me to be present and like just put my phone away or keep my phone upstairs and be there when you're there and I think that's generally good life advice is be present with wherever you are it's on a podcast with your good friend Andrew even though he didn't have you on for a year plus and you're pissed about it just be there and you know really lace into him you know big present with this person with the anger and really Channel it yeah yeah that's really good I it's funny I've been I've been you know our kids are very similar ages and I've been taking some more drastic actions towards cell phone removal and some of that kind of stuff and the last couple weeks I've loved it it's funny how little like I didn't expect to miss my phone you know but like it's just once you actually take some steps it can be if you can find the right set of steps to take that help you get some distance from that it can be so helpful so yeah I really really relate to that and it's funny what you're saying about the game element of this you know Taylor holiday and I had a theory for a long time that the place to look for good sort of e-commerce thinkers and media buyers was like good fantasy sports players it didn't have to be we're both baseball guys but it doesn't have to be baseball like and maybe like good strategy game players it would be like another potential place for this and it's because like the set of mental skills you have to do in those games is like sort of essentially like calculate probabilities and think about strategic interventions you could take where you you know remove weaknesses and increase potential areas of strength and you do that in a way that that is driven by data sets you try as best as possible to you know to remove bias from some of those things especially you know you think about with sports stuff you know being able to say like I don't really care this guy's on my favorite real life team if he sucks you know I don't want to own my fantasy team you know whatever so and that's like a bias removal thing and and so I really relate to what you're saying it's funny to say on the one hand that you're taking calls from chemo and on the other hand you want to be more present with things you've got a guy I think the distinction between that is that is there's one way of being a workaholic which is that like you're endlessly driven by a desire to get insanely wealthy and you know you're chasing something like that and that I think is probably a little less healthy but there's another version of it which is like it's a game you like to play you know like you said and it's fun it's not a boss standing over your shoulder yelling at you like going you know you you better do this or I'm gonna fire you it's not some Chase for it's not a means to an end entirely the thing is kind of an end in itself it's like it's just really fun to try and win so and I completely relate to that last night I launched some ads for a couple clients and I really had to discipline myself to not go check it a million times just because I knew if I did that I would I would it would keep me from sleeping not because I was anxious about the performance but because I just wanted to see what happened you know so yeah and so far by the way uh not great not great performance on those so so let's let's get into it so what's going on bamboo how's the business doing and can you give us any any sense of what's going on for the people who don't know what bamboo worth is who have tuned into this give them a quick quick sense of what the business is like yeah so bamboo Earth's all-natural skincare for yeah primarily serving women and primarily serving I would say now we've kind of honed in on like a 45 plus type uh demographic is probably the the bread and butter of who we serve and when we say natural skin you I think wrote The Copy seriously Clean Skin Care or you know truly natural because a lot of skincare out there tries to to be natural but winds up uh having quite a bit of other other things added to it so no preservatives no water added to it which is really uncommon and so it's uh typically like three to five ingredients in most of our stuff and so we're we're 95 d2c uh five percent Amazon and a rounding error of wholesales awesome and it's going well it is going well so uh we're still growing about 50 year over year or so and last year was really a breakout year for us um so we're in eight figures now and still growing up at about that 50 year-over-year rate so let's I mean so that was the logic in part with 4x400 right with the big hypothesis shift was like let's get rid of the worst upside or the worst opportunities and focus on the bigger one you know bamboo worth Taylor has been fairly public with a lot of numbers there with the connection to CTC and some of those things too but checks a lot of boxes for what you'd look for in a good brand can you just also give people a sense of those things why why does the brand work besides let's say let's talk about the obvious actually it's worth noting something you just said which is like the product is actually great people love it and that's reflected in some of the metrics that I'm sure you're going to talk about but I think it's helpful to think about like sort of business design and P L design for what makes a good Ecommerce brand at a base level besides the table Stakes I think which is like actually caring about serving your customers with a good product which I would say especially in the earliest days of Amber's formulations bamboo definitely checks that box I mean there's so many things that are attractive about it and I've been had some practice generalizing this because I've looked at you know some other people's P LS and other pills businesses and started to think about like how do I generalize the description of what it is that I like about bamboo Earth so starting with the actual product you know first of all I'm not an apparel brand that has to worry about carrying thousands of skus I'm not a brand that has to worry about Closeouts or uh clearance because I I'm carrying the same 25 skus all the time okay and just restocking those 25 skus there's some seasonality to the brand like there's a little bit of peaks in our January does q1 does well generally uh a little bit weaker in the summer we're talking about like a 10 to 15 fluctuation I mean there are Brands out there that 10x in Q4 and that's their bread and butter and you have to manage the ramp UPS ramp downs I'm talking about our worst month is 30 off from our best month like it's just not a huge fluctuation so that stability matters a lot for managing things like inventory turnover costs against the brand Etc and then if you start to dive into kind of the financials or the harder metrics so those are like soft things that you can look for start to dive into the financials you know Taylor shared this that uh we're in the the ballpark of uh 70 delivered margins so you know delivering it to their door 70 margins and again that that is delivered based on the order composition that we have today you know if if you started selling tons of one-off products that's not what it would be but we we do pretty well with near 100 aov and you know five I think 5.5 average units per order which is just fantastic and that's and that's how we kind of beat down the ratio of the value of the goods versus the shipping you know the carrier costs and the Pick and Pack and are we're able to deliver a lot of value and still maintain those kinds of margins I'm a big believer that aov is a is a highly overrated metric in e-commerce because it doesn't necessarily factor in margin but the one place where I think it is a helpful metric actually is in relation to shipping cost and so in that respect it tends to be margin positive because you know it's really hard if you're shipping anything to anyone in e-commerce to to ship for much less than five bucks and so you know five dollars against a 30 aov just is really really different than against 100 aov in terms of the marginal impact and so what you just said makes a ton of sense right just that part of the way that bamboo generates really high margin is is you know cogs themselves of course and Skin Care obviously is a high margin business to begin with on this pure gross margin side but but on top of that by getting by having a product where there's people putting five and a half units in per order on average you know whether you're charging for shipping or not that shipping cost just represents a much smaller percentage of the total yeah and then and then there's you know a part of this the way I want to express this is the carrying cost of our items is quite low so the way to think about that is because we manufacture in-house it basically you think about the full composition of what it takes to put a product in somebody's hands you have the raw materials then you add labor right in just like very simple terms raw materials plus labor equals the finished goods so raw material labor and then pickpack and carrier fees that's 95 of the cost of putting something in someone's hands so what you have to stock well in advance is the raw material and you have to have a consistent pipeline of Labor to turn it into that finished good and so the labor you're constantly realizing on this monthly basis but because of the fact that your demand is relatively steady you can hold relatively steady labor and so there isn't a lot of costs of ramp up ramp down ramp up ramp down nope you get people in train them keep them and and produce Goods on a relatively flat basis and stock are relatively consistent amount of raw materials and turn those in and so financially what that means is that the real carrying cost is this raw material which is constantly being added one month's worth of Labor and that labor would usually be part of a finished good for somebody that purchases this in advance right so like they would ultimately if I go to a contract manufacturer the purchase price for a finished good is actually very similar to my in-house uh the grand jury just thought at a scale where we're like massively saving on this sort of thing so it's very similar but the interesting thing is I'm not paying that labor four months in advance like like a lot of brands are because they have to stock this well in advance so I'm only carrying the raw materials two three months in advance and constantly adding the labor real time which means that financially for this business it means that I'm in much better cash flowing brand than even my other skin care peers because I'm only paying those raw material stocking costs and the way I'd Express that in financial terms is my gross working capital so like the inventory prior to any liabilities to offset it is actually very low and so whether I offset it significantly with with liabilities meaning terms with my supplier or borrowing whatever isn't that important right I mean like I could do it and I still should do it but it just isn't nearly as important or or punitive if I get it wrong compared to other brands so that's a really important component and people rarely frame it that way so that's why I want to take a minute yeah I think that's really helpful it's also obviously the fact that it's also again high margin on the pure cogs level before you sh for you are paying shipping costs like the raw materials are just not that expensive relative to the cost of that you can charge for the product and so on top of the the sort of time Advantage you just referenced by manufacturing in-house it's also just as a percentage it's just pretty low and so which I'm assuming means that you this obviously you've forecasted this business and because of seasonality and because of the sort of maturity of the business at this point forecasting is probably an easier game than it once was and I'm you know by easier I mean the error bars are a little narrower probably than they were before that said I also I also am assuming that that means that you you don't really have to like it's it's a bigger problem for you to run out of something than just than to keep enough on hand like it's it's probably fairly easy to stay in stock generally speaking because the cost of doing that is just not that high so then this brings me to kind of one of the last components is that by running the in-house production I don't necessarily think it's a competitive advantage in the sense that I have massive cost savings that I'm able to produce a product that others aren't honestly there's a hundred contract manufacturers in the United States that could produce the same product that we do but one thing I do think it is is a financially Engineers the business to be leaner from a cash perspective because for about a nine month period I turned over finished goods in two to four weeks meaning my entire inventory was sold out by the time I put it on the Shelf the maximum time it took to leave the Shelf was four weeks for a period of nine months I'm now holding eight weeks of inventory which to us is like we're swimming in Goods you know there's so many brands that you're working with that if they were a eight week inventory they would be panicking because they don't yeah because they'd be out of cash right and they well and they have to maintain four months of inventory because their lead times are like I would say average is probably closer to 90 or 120 days turnover of inventory not 20. you know that we're averaging so that it created that like very just in time for our finished goods and then lastly the last component that is just fantastic about it is uh the lifetime value um we get about a hundred percent of additional Revenue you know compared to the initial aov so 100 first order and then they'll come back and spend another 100 bucks with us over the course of a year on average yeah and that that's one of those things that I think you know people how do you do that how do you do that how do you get that LTV and the answer is you make a really good product in a consumable category and deliver on your promise to your customer that's how you do it you know it's like it's just it's like I'm sure you're you know I I know what the flows are like the emails are good all those things right the brand I think is cared for Amber puts had initially put her heart into actually resonating with people in a way that's meaningful But ultimately if this stuff doesn't help people's skin they're going to stop buying it no matter how much they like the brand it's like and no matter how much I like the emails or whatever well I agree with you like 90 95 the last component I would throw out there is to like you you could I don't know wave a magic wand and have an alternate universe where somebody else is running this business in a different way and probably get a 50 LTV and it wouldn't even be necessarily run poorly but the important part is that the way you acquire customers frames LTV so much and people don't don't fully appreciate that and and I didn't either until I worked on a you know a high LTV brand and saw that in action you know if you've listened to me on this show for a while that one of the things I believe is fundamental to e-commerce is the ability to scale the business without spending lots and lots of money on Opex that's part of where you create profit in your business and there is a way to double up on that not only by running lean but by running smart with effective excellent hiring via incredible e-commerce talent in the Philippines with my friends at more Staffing and you can visit them at morenow.co to go get incredible virtual Professionals in your business from the Philippines amazing eCommerce Talent the beauty of working with more Staffing they're going to recruit excellent talent in the Philippines pick them a lower rate then of course you would pay that person in the US but at a much higher rate than local rates in the Philippines I talked about this on a an episode with more Staffing CEO Lara Guevara who talked through the whole economics of why this works why it's a great deal for people in the Philippines and why when you work with more Staffing you attract incredible Talent into your business so it's not just about cheap it's not just about hiring the lowest cost virtual assessment that you can it's about hiring amazing talent more staff and will walk you through all of how to do it if you are growing and expanding your team you should be considering doing that in the Philippines high integrity hard-working wonderful people who speak great English and who are ready to work hard and do a great job in your business at a lower cost than you would get locally more Staffing will hold your hand through the whole thing they will onboard coach all of it they're just great go check them out at morenow.com to get incredible Talent from the Philippines added to your business go do it talk about that a little bit more I mean you know I know there's some ways to think about sort of the first order testing that you do that is in relation to sort of row ass right but there's another way of thinking about in relation to actual LTV but expand on the basic point that you just made that like how you acquire a customer matters a lot for their LTV so one of the important things is that like I see a lot of brands that especially in consumable products sell one-off products like so they they have a catalog of products and they sort of look at this and say you know we have a moisturizer here let's go sell moisturizers we have toners here cleansers we have you know these sunscreen products these whatever products and they build different pipes that that point to these and you know and sell those and the thing that misses the mark there is that if you again if I went and did that I would cut our LTV in half it would go clean and hap even our top selling product if you look at a 60-day LTV basis our kits will be like 40 for for most of our kits and 70 would be like an outlier meaning like again you know you placed a hundred dollar order and 40 would be you place another forty dollars over 60 days individual products will be like fifteen twenty percent and what what I did is I actually did an analysis on the repeat rate of an individual products so call this like unique product repeat rate so if you experience this product in any way what's the likelihood you come back and buy this product in any form and I ignored mini size full size whether it's in bundles Etc and all of those repeat rates are considerably lower than the customer level repeat rate and what that means is that if you only sold them one product you would only realize that that repeat rate of that one product so let I'm going to make up figures here but let's say I have a product that has a 20 repeat rate if that's the only thing I sell to my customers then that's the only thing they're going to come back and buy on but if I sell them five products with a 20 repeat rate I might be able to enjoy a 35 customer repeat rate or 40 customer review because they're going to find one of those that they're going to come one or two or three that they're going to come back and repeat on so that is one universal generally so even if they even if they stick with their other brands moisturizer they've liked for a long time maybe the toner is like oh man this toner's way better than my other toner and so they hold on to that you know even though you're selling the whole kit of stuff and you're thinking like okay they'll probably the idea is like they'll use my kit all the time and my exact sequence of products but that's just probably reality they're probably gonna be oh 200 from here it's also it's also probably just the fact that they just don't do a full routine cost they just do the two to three products that they like instead of the six products that they're supposed to it you know I'll just do a cleanser and a moisturizer that's all I want to do and they'll just wind up doing those regularly and throw in something else every once in a while you know what i product or something but yeah it's exactly right and so the way you introduce them so again I sell them a kit of products I sell them four five six products in a routine they're gonna be more likely to repeat not only are they gonna be more likely to repeat but they have more things that they're more likely to come back and buy not just one they're more likely to repeat at a higher dollar value I could sell them a mini kit which lasts them two weeks which means they're going to repeat faster I could sell them a full-size kit which means that they're going to repeat slower but actually do so at a higher dollar value because they had longer to experience your product and decide that I do yes indeed like it and this probably may be a little self-selection in there people that are willing to spring for the big kit up front but regardless we'll have a higher dollar value in a long term like a one year two year period so the way that you construct that initial offer really matters quite a bit in terms of your lifetime value so to cap that off the way I think about this is like as if I were a portfolio manager for an investing company because ultimately that's what I wound up doing as you know as the president here is saying okay I'm going to invest in advertising that's going to bring back a return to me and I'm thinking about that in the contribution margin dollars and so one I want to deploy as much cash as possible because ultimately if there's a positive investment you can go find people that will give you money that cost less than the positive investment so I essentially have infinite's BET right like I go spend 50 million dollars if I knew I was going to get 100 million back like you have a cash printing machine so I want to find the best return on investment at the largest scale and so for me that means the you know over an applicable period 60 day 90 day you know one year LTV where I'm looking at margins not not Revenue and relating that back to the initial spend and then saying at what volume can I do that because I actually have a couple competing pipes or kits that I can get a better return here but it's at a quarter or a fifth to scale of my solicit skinquist which is my largest pipe which is nice but no matter how hard I push that on ad spend I'll never be able to get to that you know that scale that's 5x that yeah it's super interesting so you're then thinking about not only how do I maximize my LTV but how do I maximize my reach while having positive contribution across all of them so you actually may take a lower LTV on some stuff as long as the total investment is still positive yeah I don't care I want I want to give meta some dollars and get back more dollars and I want to do it as much as possible in whatever configuration that is right this is actually this is definitely some people I think sometimes they frame the idea of testing as finding winners and I think the framework that is obvious for that's most obvious for people in their minds there's most like it's like availability heuristic basically it's like the thing they think about when they think about that idea is like a beats B and so we'll keep a and we'll cut B but actually the better way to think about most testing is like A and B may both produce something valuable a May produce more things that are valuable but it may not be able to produce any of what B produces and so if you can get both infinite B is only a 10 additional volume to a that's actually 10 incremental increase of volume and therefore you actually want both you want to reach the most people as possible and of course like when you said that on the meta creative level this is really obvious in the sense of sort of like reaching different platforms and maybe some people never use Facebook and they only use Instagram and maybe people that only use stories and so getting placements Right video versus still product versus product Etc there's a million ways to sort of combine all these sorts of things up but I like what you're saying a lot in terms of essentially offers right like you're thinking about offers that may actually reach different people and not just trying to get the one kind of person but actually changing up the offer as the core lever of how you expand your reach yeah that's true but one caveat to that though is there are times when as a business that you're able to create an offer that is just so overpowering that it becomes like your primary and like a great a great example of this is like go look at like a fabletics like they pump this this is you know omnichannel advertising to the extreme right like this is pumped on they've I think Kevin Hart is one of their you know celebrity endorsers so it's happening on his organic social TV commercials obviously meta Tick Tock you know all the typical digital channels but they're all pumping the same or similar offers which are pushing their membership to have this like huge upfront bait and it's like 70 off or two for 24 shorts and what they've done is like they've nailed that one two three four offers that are just like categorically better than trying to sell customers at full price without a membership like they've done the math they've essentially figured that out that that is a categorically better and what I'm going to use here is like a term that I think about in like a conceptual level capture of margin per thousand Impressions like it just is more efficient at a capturing margin for my business every time I get anyone's attention and so our skin quiz is like almost there like we have a couple other pipes but like it really does dominate in terms of in terms of its ability and I actually think this is something that Taylor and I have talked about a couple times is people are focused on the cost side of advertising it's like your CPM and we've you've heard the the term like Arbitrage before uh when talking about like Facebook or Tick Tock which is what they're roughly referring to is cpms are cheaper than they should be right now uh you're able to get a good return on those because they're they're cheaper than what you believe the long-term market rate will be for those cpms and it is now an opportunity to go buy them quickly while they're there uh and get a return on that investment quickly because later on it won't be a very good return or or you know a return at all and and while that's true those opportunities happen like threads just thread well the threads app just came out right like so so like it's possible ad space picks up right and all of a sudden there's more ad space available than advertisers adopt very quickly and you have this window of like oh threads ads are really crushing it or reels ads or stories ads or whatever and then advertisers rush to and fill that Gap pretty freaking quickly especially in in the current economy but if you think about this like this free market competition going on here advertisers themselves are essentially setting this market rate like what who's paying the cost per thousand those that can afford the margin extraction per thousand those that are getting a profitable margin extraction for that cost per thousand so the best insulation you can have long term to that pricing is to be the leader in margin extraction per thousand is to be by far a categorically better than everyone else so screw you guys I'm gonna set the market because I get the best margin per thousand when I advertise and that's that's ultimately how you move your spend up that's ultimately how you can insulate yourself from rising prices because you can take a lower return basically on the first purchase yeah yeah and this is this is one of the arguments that I think all the time about like sometimes people will say sort of in a hand wavy way like you know you should definitely be profitable on first purchase uh and that way you can capture value on your LTV and mindset is like that's just true like there are just like plenty of times no they're like they're most brands probably should be right the vast majority Brands probably should be and you know bamboo is probably right on the line of Brands I could consider actually taking a lower return first purchase at 100 LTV but I think that there are plenty of brands that like bolt and there's some I shouldn't say plenty there's some brands that blow away the bamboo LTV and that actually are their margin extraction per thousand Impressions is way way higher if they actually take a loss on first purchase and by thinking about the value of your customer in that respect yeah I think I think you're 100 right the place for this actually gets I think really interesting where that that competition is is even more obvious is it like in a truly limited environment like search where it's like you know people are willing to probably I imagine I mean I haven't run supplement search ads subscription supplement search ads but I imagine those clicks got expensive because people are going to play this game in this really significant way but what I've come to realize is that like the roast that you get or that I should say the cack that you get is much more tightly correlated at the same scale across multiple Brands the CAC that you get is much more tightly correlated on meta anyway to aov not LTV so like what I mean is if two if two Brands can generate 100 aov in massively different categories with massively different ltvs they will probably be able to spend let's let's say we put the same marketer on both teams okay so the basically same skill level of marketer same aov but just different categories different LTV I think that if they were to spend to the exact same first order margin they would be able to spend a very similar amount of money overall right if I guess that a hundred thousand dollars or two to one they can probably both do that the difference though and this is I think part of what you're saying is that if you can actually extract more value over the long term then that's the difference and that and that you can actually spend more not because the customer is the same price up front or it customers a different price up front but because you can extract more value over time time and so understanding that difference is where I think the real Arbitrage is like you're saying yeah no I agree and so I agree slightly like I do think that you know take a skincare uh company that gets a 1.5 you can't necessarily sell like this shoes like somebody's selling shoes is not going to be taking you know it's a hundred dollars for skincare hundred dollars for shoes somebody's selling shoes is not going to be taking a 1.5 even though it's in that range and part part of the reason for that is because the Skin Care buyers are tagged as in market for skin care and we are competing to a degree skincare is competing against skin care and there is some known LTV component of something like skincare right um as opposed to shoes which is yeah there probably is but it's a much longer frame than it's realistic but I generally agree with you that a lot of the competition happens for the aov not for the LTV and part of the reason I think like my theory behind that is how I would explain that to myself is the customer has to trust you on that initial order whereas on the subsequent orders you've already earned that trust right so like no matter what if they're taking a hundred dollars out of their pocket to buy from a brand they've never heard of prior to today there's a hundred dollars of risk in it so the rate that you can convince them to take that jump is relatively similar because they're taking a hundred dollars out of their pocket no matter what yeah this is very similar to how I thought about this it's because of exactly what you're saying it's because the first order always feels like the first order of the customer the customer is not thinking about the fact that they're probably going to place five more or whatever you know they're thinking about that first order and then and then going from there and and so in the consideration phase of the customer's head that's why that's why the cack is relative to the aov not the LTV it makes perfect sense to know that people's spending habits yeah so what else is working for you guys at bamboo why is the business working and what are you doing that you're seeing Ford moving on and that people should know yeah I mean so one interesting thing about bamboo is like when I have a breakthrough win I get six to 12 months Runway till the next time I need to have a breakthrough and what and so the like what I mean by that is like okay so say 100 upfront aov right and then a hundred dollar LTV after that for the course of the year we will essentially normalize right around 50 repeat Revenue so if I have a breakthrough that drives me up to half a million dollars in acquired Revenue then it takes about 6 to 12 months for the repeat Revenue to solely approach that 500 000 so it will take me six to twelve months to realize the fact that oh I have a million dollar a month business even though I've been running at the half million dollar acquisition that created that Million Dollar business nine months ago but it took me that long to know this is exactly where my ceiling is take me that long for the full Revenue to approach that and so there's been a couple breakthroughs that we've had and we've talked so much about offers right now I'll keep it there we had a big breakthrough initially on offers where again the skin quiz we were doing well we were uh running at about 100 125 000 a month in terms of AD spend and I ran a test where I said let's instead of just selling the mini exclusively the two-week version let's just add the option of the full size and so you're going from something that is about 75 or eighty dollars per for the mini and the full size costs like 150 to 200 on the first order but I found thirty percent were taken the full size right away with no hit on conversion rate so we experience almost a 30 to 40 percent increase in margin per session like that and my allowable CAC just went Boop it just went right up and instead of just taking oh you know as there's a great point that you're making is that is that oh we could have just taken 10 15 up front whatever it is 20 up front we could have but I traded that back to the market for triple the volume and then all of a sudden the account was running at 300K a month 300 350k so that one change in our margin per thousand capture a margin per session allowed me to basically triple the account and then the following nine months was just realizing the growth from that breakthrough yeah how was the LTV difference on full-time versus minikit purchaser my my theory would be the LTV would be worse on a 60-day window but better on on a on a one-year window that would be my hypothesis going in correct which also took me a year to find out right yeah right yeah just because you would go through it so much slower you know and people some of those some of those products take they last a long time you know Etc yeah I've obviously been in that business but I didn't I didn't know if that was the answer or not you know I could also imagine somebody kind of yeah that had the same theory is it's like oh are we screwing ourselves because you don't have that 60-day bump anymore but what what you did is you traded a little bit of that 60-day bump for cash right now right at the purchase and so instead of needing to take a five dollar loss and then make it back in 30 60 days or whatever you just break even day one and then you can eat a little bit over the you know the 60 days and then eat quite a bit over the year well and this is another thing I think about high LTV businesses is that like the cash challenge so this is actually sometimes where I think the notion of like a 60-day window for LTV may not be that helpful for some businesses because the cash challenge is relative to the business's life cycle and growth stage and those kind of things if you have these big highly valuable returning customer cohorts that produce value over time actually like at some point especially if you're Gro if you're if your acquisition is incessantly scaling then it's really hard to realize the value from those unless the value is like really massive and so it still becomes a cash challenge to grow because you can't have a stock more inventory or you're constantly paying for new customers and you're constantly waiting for those new customers to have their value come through and so it sort of pushes out the value realization over time over and over again but if you get to some point where your acquisition gets somewhat more stable actually those returning customers produce so much more cash than your new customers because you don't have to pay meta then you start realizing the cash from the returning customers and therefore you actually could use the returning customer cash to front more new customer acquisition even if you took a lower margin on that but you but you had a one-year payback window on it because because now you've got all the cash and returning customers I've actually worked with the business that's doing this kind of thing right now where we're actually their cash it's like a weird e-commerce thing but their cash is starting to beat their ebitda every month in this like weird way where where yeah it's like it's this very strange situation relative to it's the exact opposite of mostly Commerce businesses they're actually realizing all this cash and that's because of the way the like timing works and including like you know if they I think they have a pushed out payback period with with meta so they're waiting 45 days to pay their metabill every time you know so all those things happen but anyway the point is that actually then allows you to start to think on a little bit of a broader timeline and think you know almost more like like you said like a portfolio manager where it's like I actually am not trying to necessarily just generate a bunch of cash on 60 days what I actually am trying to do is generate that cash over a longer period of time because I know it's going to come I'm going to be here in a year when this business is still around and I'm not going to die in that time period and therefore uh as long as I have the cash to float that I can I can be a little bit more aggressive there so and so so really quick the the financial the framing that I've that I've I want to try to get people to understand this this better is like it's change in working capital so like the exception that you just gave us is a a negative change in working capital every month and so what that means is that the they're increasing their liabilities faster than they're increasing their current assets current liabilities faster than current assets and so what that means is that they keep owing more and more against uh in which scenario you're saying that that's negative working capital yeah that's it that's in the scenario of your business that's generating more cash than profit correct so where you have that weird scenario where they're actually pulling in more cash than profit they have a their negative working capital absorption so as they're going up their working capital is actually going down and into the negatives and that money that they because the liabilities are going up exactly so so that money that they have that's above the profit is actually essentially a loan from either their vendors meta you know Etc but basically that's a loan or a liability in some form but you're realizing it in a real way that you can go spend it you know it's a loan very often unsecured without interest without terms you know whatever so that's negative cap working capital absorption and then the other scenario that you described where you're saying hey you can actually take a loss and uh continue as long as you've got this predictable super strong LTV is all that is doing is just saying hey instead of just going like ramping zero to a zero to a million in spend slowly absorb this like we're going to need to increase the amount of work in capital so that's positive working capital absorption what we've done is spread it out over a long enough period of time that it's that it's manageable from a cash perspective so they are actually what they're doing is they're reverse instead of borrowing money out of the business they're taking some of their profits and they're throwing it in like getting locked inside the business and that's growing growing growing but what you're doing is you're getting a business bigger business around and so like working capital is working capital going up or is working capital going down networking Capital which is just defined as current assets minus current liabilities that's a really good way to think about on top of what we're doing on a p l and the change in working capital is the adjustment for cash does that make sense uh well what do you mean by the adjustment for cash the adjustment from what for cash so I bottom line a million dollars out of profit out of p l okay just keep it down yeah I'm just going to say probably sure yeah sure so so sure yeah yeah yeah yeah that's fine that's fine yeah so I bottom line a million dollars over the course of a year but I only realize 800k in cash what's the Delta why because my working capital increased by 200k that's the answer to it and it's 200k got stuck inside my business inventory whatever it's stuck inside my business in some way and that's why I couldn't get it I only got 800k which may in fact be exactly what you want that Capital to be doing right in some in some cases right because because what it represents is the continued investment into I mean what you're saying is that like it's the best use of this cache is for me to buy more inventory right uh because I can make a return on that inventory that's going to produce increased value or something like that right so it's necessarily a problem especially as long as you have the cash to meet all of your obligations and and your operating expenses one thing I want to come back to because you talked about two different generalizations that that Taylor usually is like a big champion of it's like is break even on first order and then I forget what the uh the other General 60 stats fee and one interesting thing one interesting like Liberty that you and I have is that like we could talk about nuances and think about nuances because we're working on either one or a very small handful of Brands and your handful of Brands by the way is like extremely curated to be like smart people that you want to work with who get it okay okay so like okay versus either running a large agency that has a a lot of clients that you don't have that personal relationship as well as a megaphone that is generally projecting to the industry more widely and and I I've had conversations like this with Taylor and what I find is it's not that Taylor doesn't understand the Nuance that he can understand that he could lose five dollars and still be profitable he's just so tired of the thousand and first client coming in and saying but I could lose ten dollars and still be profitable I just like no you freaking can't like just get your head around the fact that you need to break even or better on the first order stop thinking about the edge cases you aren't it you know and and so like we have the we have the liberty of of having that Nuance but it's not that we disagree with Taylor in that sense it's that he's just had to scream this so many times at people that are not that edge case that we're talking about that it's like just stop you know well so what you're what you're framing is really right I mean I don't actually yeah you're right I don't disagree with what Taylor's saying there at all and I I actually think part of the value of me saying that is the conversation and people who are listening who are taking the time to listen to a 45 minute or an hour conversation between you and me or whatever are kind of people who are interested and curious enough to kind of try to go really deep on some of these issues that we're going to talk about we're capital in terms you just did and so I think that part of the value is to try to help people think through these general principles applied to their specific businesses and to and to sort of poke at those things because I completely agree with you if you're tweeting or if you're putting together a guide or whatever yeah there's there's a world where like what Taylor has to do is something very different than what I have to do and and even really then what you have to do because you really have to think about one business specifically you do a little bit of control yeah everything I do here can be misinformation it does this doesn't actually matter to me I just go back and run a business at the end of the day it's just one but that's right but it's funny because actually another thing that you're getting at and I think this is something that is actually a great episode to bring this point up one of the things I'm constantly reading with clients of mine is their sophistication and I'm trying to factor that into the advice that I'm giving and what I mean is like the possibility that they actually can't manage to the advice that I'm giving is a real possibility right that that in fact they should take a first order profit not because it's like the highest percentage return on their dollar or like or whatever but because it's gonna make the business more complicated if you don't take it for short of profit you know and so if you aren't sophisticated enough to do that that's fine or if or something I bring up all the time his goals it actually might be the case that your goal is to have the least stressful business possible that produces as much cash as possible well look you're probably not going to build as big of a business with as much shareholder value if you have very high LTV and you take first order profitability but that's all right if your goal and so I'm so I you know that's the other thing there is that like there's some element here where people have to have a sense of kind of Their Own ability to manage these things and I and by the way I don't say that with any condensation if I was running a business right now I can speak with some authority to these things but like let's take just me and you you are way clear on a lot of things we talked about in this episode in your head than I am I can follow and talk with you about it for sure but I know for a fact that some of those concepts are a little bit trickier for me to get my head around when I talk about them and therefore I would probably put myself in like a c c plus category of being able to manage those things and I like working capital absorption again like cash you know cash management yeah yes I'd want to make the game a little easier on myself because that's one of the places where I could go wrong yeah no that makes sense and a great a great parallel back to like the investment thing if you sat down with a financial advisor the very first thing they ask you is what are your goals and because there's there's a reason for that because financial advisor anyone that's worth their salt will tell you the best investment plan for you is the one you will actually stick to as soon as you deviate from the plan you create damp because there's again in financial it's different it's like there's holding periods there's this that Etc so yes you could you could look at a business and and prescribe an objective Apex for operation but if you deviate from the plan and can't do it and can't manage the cash and have to borrow it uh MCA rates and have to you know overnight inventory in because I prescribed you a four-week turnover and you can't do it you know then that's not the Apex you know so the the best Apex for profitability for cash Etc is the one you can actually stick to the plan the the objective Apex doesn't matter it's a bit like dieting advice I think which is like uh the the most effective like the number one factor in that people have studied and the most effective diets is adherence basically eat anything you want as you know with obviously not anything you want but like do whatever diet you want as long as you'll do it you know if you can actually stick to it yeah right or also similar to Morgan House's comments in psychology of money about like him paying off his house he's like listen I know that I had a very cheap loan on my house I know that it wasn't the way to maximize my total dollars but you know what I don't have any more house payment you know what that means I sleep a little better and that's probably worth it to me so it was the right decision for us so all right we gotta be done what should P where should people uh where should people follow up with you to get all that good day free cook content as a website called twitter.com that's where you'll find me too much yeah what about threads.net threads.net I am on but so far I've posted zero value is probably negative value waste your time so you can find me there it's a hedge actually a kiss a kiss Twitter goes sideways I'm on threads I'm not LinkedIn too but it'll take me two months to accept your invite so yeah uh at Dave recook that's right are you at David or Dave I can't remember unfortunately on Twitter I'm at Dave ricook and then on threads I'm at David Cook so good luck guys you that is so confusing it's so terrible that's funny all right man thanks for your time glad you're doing well glad Bamboo's doing well great to talk to you thank you [Music] all right there you have it with Dave just one of my favorite people in e-commerce so smart so good at thinking through how to grow eCommerce Brands I hope that was helpful to you was helpful to me very helpful to me as I thought about how to get the most out of my clients don't forget to follow Dave on Twitter at Dave ricook he is going to be probably the best follow that you will add if you have not added him already in a long time he shares all kinds of really good data real honest live stuff it's great and I know he gets some occasional Consulting requests he tries to keep it fairly low but you know beat down the door if you really want to see if you can get an hour of his time okay that's it for this week please don't forget to visit more Staffing by going to morenow.co if you are trying to scale up your team at an incredibly cost effective way with Incredible virtual professionals by going to morenow.com and doing that in the Philippines with more Staffing I love more Staffing I'm so happy to have them as a sponsor please go check them out and of course subscribe to this channel to this podcast wherever you're watching or listening to this I would love for you to do that tell a friend about it that's actually the number one way you can help me if this content has been useful to you as always I would love to hear from you too you can reply in the comments if you're watching on YouTube or or else podcasts at ajfgrowth.com is the place to email me you can also reach out to me on Twitter Andrew J Ferris I would love to hear from you next week on the show I've got another solo episode coming for you I think that's going to be helpful to you as well and then a bunch more interviews coming up got Jack Reuben from Purdy and fig who has got an incr I mean just a monster of a business that I've gotten to look at from the inside he's going to be on Ezra Firestone still coming soon a couple of incredible real deep dives into businesses and live ways there's just lots of really good content coming don't miss out on it subscribe wherever you can that's all you know what to do you know how to interact with internet content I will see you next time thank you so much [Music]