The Core Mistake That Kills DTC Brands (According To The Guy Who Restructures Dying Ones) transcript

Fan buy is one of my very favorite people to talk to in e-commerce. Great dude who is the CEO of the hedgehog company. And Fan does a few things with e-commerce businesses. He advises on distressed businesses. He buys businesses and puts a management team in place to help run them. He's doing consulting in different ways. He's also got his own podcast where he's talking to different people all the time. And what that means is that he's one of those people with perspective across the entire e-commerce industry all the time.

He's just constantly looking at different e-commerce businesses. So this conversation is very much like a lot of my conversations with fan where we're talking about sort of the broad state of e-commerce and it really goes in two steps in this conversation. First is what do bad businesses look like when Fan is looking at distressed businesses? What went wrong? This can serve as a cautionary tale for you so you can know what problems to avoid and maybe the problems you're in right now related to debt and CAC and opex and everything else.

Then secondly, when he's looking at great businesses and seeing people crush in their e-commerce businesses, what went right? how come they were able to be successful and how can you engineer it in the same way. I loved this conversation. Loved it a lot. I think if you can get some of this stuff into your head, it'll really help you think through what you're doing with your business right now. Let's get into it with Fan Buy from the Hedgehog Company.

Fan, you have helped a dozen, 10, 15 broken businesses in the last year, year and a half. Is that right? Uh e-commerce brands. you're you're just living in a sea of crappy financial situations. Is that is that am I understanding correctly what you've been spending your time on? >> Yeah. Um look, I think over the last five years, we've been getting calls where it's, hey, we have three weeks or we have three months of cash left.

We've exhausted all capital markets options. We're um broken covenants or in default with our senior lender. We're starting to get demand letters from how vendors heard that you're a guy that sees this and like has some best practices. What should we do? Um and originally it was buying these and turning them around um which we're still doing. And um but about yeah 18 months ago we started providing restructuring services um to support um these situations and um yeah just a a whole bunch of learnings you know digging into you know that many businesses. >> This is like a education and how brands go wrong. you've got this particular perspective of like how it goes badly for Shopify brands and anybody watching listening to this you probably don't want to think about it but it's exactly the kind of thing you should be thinking about if you're running a company like how does it go badly when it goes badly as it happens I have also spoken to a few brands in the last probably six months that have had some crazy debt situations for a mix of reasons sometimes they've done things wrong sometimes there's been fraud in the business where somebody has done something to them but uh but I've also seen some some crazy situations in the last six months or so and for at least two of them They solved it before it got too late.

Getting some education on bad business. Um let's let me ask you a question first. So about about how big are these businesses on average that you're looking at? >> Probably 10 to 20 million in revenue. >> Okay. So low eight figures. Um is there I mean this is an unfair question because I'm sure there's a lot of mistakes. Is there one core mistake that you see them make over and over again that is like this is the thing. >> Efficiency declined and never improved again and they kept fixed cost the same for too long. >> Efficiency in their ad account. >> Yeah. or or retention. >> Oh, interesting.

So, they like didn't realize the LTV that they previously realized or they just over overcasted their LTV. >> LTV started to decline. Um and or you know said another way, retention started to decrease. Um maybe there was more competitors. Um maybe they were on the wrong side of trend. >> Um so yeah, something either happened with retention >> or their ad efficiency decreased. Um and so Mr. went the wrong way and but kept kept fixed costs um the same. >> Yeah. >> Um so it went from either you know break even to unprofitable or slightly profitable to break even.

So now you've got a working capital problem. How do you finance working capital as a um increasingly inefficient potentially declining business? You get expensive debt that only accelerates the problem um if you don't fix it quickly which is hard to fix. Um, and so begins the death march. >> I am so sympathetic to this is basically what I started to do at 4x400 for exactly that reason. Like just and and and when I think back to my time when I was there, we only I think took out one MCA loan and and paid it back.

But the when I think about when I was there and that was this is a while ago now at this point, you know, four or five years ago, but uh I think the reason that it happened for me is that I really didn't understand what made the businesses work. like I didn't I did not understand what my CAC targets should be. I did not understand how much opex I should have in the business. So I basically was flying without any kind of core model financially for like how an e-commerce business ought to look.

And part of the reason I'm optimistic still about e-commerce despite stories like the ones you're telling is that at least for me as somebody who's spinning up a brand right now on the side, I understand exactly what I think the P&L ought to look like as a level of percentages and things like that. But when I was in that world where I was making those same exact decisions you're describing for which again I'm just nothing but empathetic towards those founder I didn't have vision for you know it's like I just couldn't see what I couldn't see.

Do you think that is what is happening for these brands? They don't actually have a sort of mental model for what an e-commerce business ought to look like. As another way should you and I just be making constant content about like here is what your P&L must look like and if it does not look like this you need to cut cost now. >> I think you and I have already done two podcasts on this one on each other's podcast. [laughter] Um, so, um, >> well, there's still all these businesses showing up.

Maybe we need to keep doing it. Nobody watches those. They only want to hear me talk about bid caps. So, >> yeah, almost everyone today has a better mental model of what a P&L should look like versus >> three years ago or 5 years ago because >> um there's so much more content. I think thanks to us really, let's be fair. Um and um >> but it may just not be precise enough or maybe off by enough points and it's just so easy to let it slide.

It's like okay I know that like hey I should be targeting this contribution margin or this EBIT margin or this grow but like hey I'm off by 7% here 5% there and but I'm going to get to that. >> Yeah. >> And that just never happens. >> Um >> I understand that. >> I'd say there there's 50% of Yeah. There's there's a good amount that's that looks like that. And you know that happens year two, year three, year four. It happens for long enough that the business starts to get more stressed.

That's like you're just you're an unhealthy person that's getting kind of increasingly unhealthy. Um or it's to what I said earlier that you you started actually okay, but then something in your business economically changed and you were unable to get back. >> So what do you do when you go help these businesses? Like what do you start? What do you I mean do you just have to come in and be the person who tells them the heart?

Is this like uh some one of those shows where like Marcus Lamonus, is that what it was called? Profit. Yeah. Or like restaurant Impossible, I think that's the other where it's like are you just that guy? Do you just come in and be like, "Hey, you have to stop right now. Do you you know like is that what your job?" >> There's definitely there's definitely an element of that. I I would say that like uh to be very clear um >> we we're really manufacturing kind of soft landings more than um doing a complete turnaround and hitting it out of the park. >> And look, I wish that I was good enough to do that.

But in reality, these situations are challenging enough um not only from a financial standpoint, but like I said, kind of the all um the the ad efficiency isn't working. the customer love has fallen a little bit and that's really hard for us to um get back and especially in the the tight time window. So often we're our main objective is to usually sell the business um and for it to kind of satisfy as much of the financial obligation as possible.

Um and that the founder gets two things. one, they get to sell the business, you know, get a win, be an exited founder, and the second is um that, you know, they're not holding any bags at the end of it. Um, which can obviously be, you know, quite a challenging situation. >> How do you sell a business that distressed? Like that's that's coming to you in desperation like that like what how in the world do you accomplish that? >> I'd answer that question in a couple of ways.

One, there is um there were various restructuring mechanisms. The most commonly known one is, you know, a chapter 11 bankruptcy, but almost never none of our businesses get um get to that. Um you can do an assignment for benefit of creditors. There's something called an article 9 friendly foreclosure. There are ways to clean up the balance sheet so that it is sellable. And so that's the kind of legal u restructuring framework.

Um and so often, you know, um someone might see a business and be like, "Oh, um this is an okay business. I would be interested, but you know, with $10 million of debt, like I I I can't get into this. Um, well, there's a way to clean up that $10 million of debt and make it into a million dollars of debt. Just using an illustrative example. >> Yeah. >> And then on the income statements, so that's on the balance sheet.

And then the income statement side kind of have to um sometimes do a cleanup or be able to tell enough of a story that says, "Hey, Andrew, I've got this business today. it's losing a million dollars, but it's still it's actually got $2 million of contribution margin and potentially um more contribution margin if you believe some of these kind of efficiency gains. Um the business is just overloaded with OPEX. You know, you can cut all that out.

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The business is not the problem. It's the operator that's the problem. I mean, I like salivate at a a little bit at the business that you're describing there, the hypothetical business you're describing. Like, I should go buy that business and run it. You know, seeing what you see now and and looking at a lot of these businesses and talk and and just I mean, I think part of this is talking to these founders and talking to these operators like is the problem the business or is the problem the person, you know, like in general?

What do you think? Look, back to that example. We have yet to see a truly incredible business that's so poorly run, right? So, it's a little The reality is it's it's a bit of both. >> Of course, of course. >> Um, yeah, there isn't. >> I'm not letting you say that. You have to say you >> that that's the answer. But >> I I will answer your question, which in reality it probably is the business. I think in g like again 15 years 16 years into the Shopify ecosystem people have gotten sophisticated right now people there are a lot of people on their second or third they were maybe at a Shopify you know a DDC startup and then they founded once there the sophistication has definitely increased and the reality is the underlying business probably just isn't awesome and it's okay it's an okay business and you still need to believe quite a lot to grow it which is why like you know when we buy a business It's like our base case is it's not growing anymore and can we stabilize it get a profitable and create value that way that you know taking it from negative to an EBIT stabilizing it at one and then it trades on you know some EBIT basis. >> Okay.

So when you say it's an okay business what does that mean? What like describe an okay business as you understand that term. Yeah, I would say like an okay, we'll just define it on EBIT percentage, right? Like an okay business is like in the probably like five to 10 5 to 12% EBIT like on a normalized basis. That's as far as we can get it, >> right? Like >> 5 to 25%. You said >> 5 to 12%. >> Okay. 5 to 12%. That that makes sense.

Y >> like I would say a very good or an excellent business is that like kind of like 10 to 20 25% like that's a great business. Like yes, >> we don't really see businesses that we believe >> what size >> a call and not of 10. >> Okay. Yeah, that's that's what I think too. Like cuz if you if I think of like if I imagine like a 10 to$15 million business running at 20%. I think of that as a great business even if it can't really grow that much, you know, like even if it's never going to make it to 100 or whatever. >> Yeah. >> But some people that's still not a big enough thing for them to call it a great business, you know. >> Yeah.

I you know maybe we we'll call that a very good business and if it's like normally growing and it can still acquire customers it's got enough of a growing audience uh it becomes a great business but yeah we don't see many businesses with great or very good potential that are just run so poorly. It's we we see again okay businesses that could be like marginally profitable but you know have some structural issues. A lot of the time it's because the way that they were capitalized. you know, they wanted to be a high growth business, ended up with an okay unprofitable business.

Um, and then it's, you know, our job to kind of take the okay pot out, um, without the high growth expectations. And that makes sense to me. I think that's part of the reason why, you know, in the is e-commerce a good business conversation. My mentality is like it is partly, but I think of it, I don't I just don't have the level of ambition that some people do. So, it's like I don't know. I don't know if it's a good mechanism to get you to $100 million or whatever. like I don't really have much perspective on how that compares to the other opportunities to get to those levels.

But anyway, that's that's what's interesting to me is like you're describing businesses that you think are even distressed that by some balance sheet cleanup and stuff like that are still sellable businesses because somebody wants them. I think that's interesting. Like there's something there to me that is like Yeah, >> I would say the there definitely been other like when we started doing this five five and a half years ago there really like we weren't coming across anyone.

Now we're coming across in each process >> four, five, six other biders. It's it's become much more common which I Yeah. which I think it's just interesting. >> Why do you think that is? I I I have theories immediately, but why do you think that is? Why are there more biders for bad businesses? >> Um I think that um if you told the like adjacent e-commerce person that you could buy a $15 million revenue business for a million dollars and that had, you know, a million and a half of inventory, they'd be like, "What a great business.

I can definitely like that's a no-brainer. >> Um, and so I think that headline just kind of attracts people. >> Yeah. Okay. And that you think the people that it's attracting maybe are not experienced with e-commerce then? >> I think it's much hotter than some of the new entrance think that it is. >> Yeah. Okay. Yeah. All right. That makes sense. It's funny. It's almost like what happened was a few years back we had the aggregator moment where it was like raise a bunch of debt, grow businesses fast, uh build a big aggregator or raise a bunch of equity either way, you know, have that and you're going to have shared services and all these other things and it's going to create like a really big thing.

And then that died, right? Verasio died and all of the smaller ecom aggregators died and it just became the reality that like that wasn't going to work. Um, and now it's like you're describing a new kind of theory there, which is like a bunch of people going like, "Oo, we can buy distressed assets." Almost like a new series of holding companies with a different thesis entirely, but to hear you describe it maybe also not going to work out. >> Yeah, not nearly the scale of Amazon aggregation, but yeah, I think there's definitely a crop of, you know, new holding companies looking to do this on a repeatable basis.

Um, I'll just go back to because you and I love to joust about the quality of e-commerce as a business. Back to the like $10 million business doing 20% in EBIT. >> Yeah. That's rare. I mean, that's rare. Yeah. >> And and even let's say like, you know, one one and a half. I agree that it is rare. But like >> if it's not growing Yeah. or even if it is growing. I I think like I'm just now again 15 years into e-commerce myself like >> increasingly questioning the sustainability or the halfife of that business.

And >> look we most of the businesses we see because we see a lot of venturebacked businesses. >> Huh. >> And venturebacked businesses typically go off >> go after big TAMs. >> Um which means that they're not usually very nichy businesses. They're in like big categories. apparel, pet food, etc. Like >> and those those middle of the fairway like those big categories are so competitive where like if you told me that like >> I had you know I was I had the Ned Flanders like left-hand tool business um >> that was doing 10 that was doing 10 million and like one like 1 million abit.

I'd be like that's a better business than like a $10 million apparel business. Um, and I I just think that it's so hard to stay relevant. >> Yeah. >> Um, >> just another comment on kind of >> Yeah. Yeah. I think another thing that doesn't come up very often in the conversation about like is it good is like well relative to what? Because like if I if I pull up like this chart, right? It's like okay 96% of businesses are less than a million just of all businesses out of 28 million firms, you know, it's like and I guess this is probably US, right?

I and I haven't checked this math. Only 4% of businesses make it over a million in revenue. 4% make it to 10 million. It's like well yeah I mean what that tells you right away is that like all businesses are bad [laughter] you know like it's like it's like if if you compare to the base rate then it suddenly is like well what does it mean to be good and like relative to what opportunities? Now, like that's you're taking this of course is like comparing an e-commerce apparel business to like a coffee shop, you know, so like who knows which one is actual, you know, but it's just um I just think people, you know, the conversation people don't do that.

They you don't compare it to anything unless you're Taylor Holiday and you're just saying like start an agency, you know, then you're then you're comparing it to something. But like uh but yeah, I think it's a I think it's an interesting thing to think about like like whether or not it's a good opportunity. It's just like I don't Yeah. Again, yeah, relative to what I think now the cash intensiveness is its own question.

Um, but yeah, you know, I don't know if you have a comment about that, but >> look, maybe this is like the anti-Shify marketing, which is like everyone should start a store and like look at all these like and um look at all these $500 million Shopify store owners and like >> that could be you. >> Um, >> yeah. Yeah. >> I just Yeah. I just want got to add a a different perspective. The kind of e-commerce operator that likes this podcast episode, thinking carefully and critically about what leads to a profitable, successful e-commerce business is the kind of operator that Intelligence was built for.

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Intelligence.io. Use the code Ferris 20. F R I S 20 to get 20% off your first three months. Ferris 20. F A R I S 20 here. 20% off your first three months with intelligence. Do it now. I have two I have two theories right now. I'm going to do one of them that's going to be about bad businesses and one of about good businesses. Okay, so here's my bad business theory. Um I have an increasing theory that for a subset of advertisers or people building Shopify stores and running Facebook ads particularly um that some of the behaviors present the way that gambling addiction presents um which is like this thing where like you just have to keep putting in uh and then and the next bet will cover your last ones basically and then that will get you going, you know?

Do you know what I mean by that? Like that's what that's like the classical gambling behavior, gambling addict behavior is like you just have you already have this debt, things are going that way, but you just you keep taking swings because you're like, well, if I can get this next one right, then it'll cover all my last ones and then I won't make those mistakes again. Um, you know, that's what you that's the lie that you tell yourself and it eventually makes you bankrupt um because because you end up losing.

But that's sort of the behavior that I feel like I see sometimes where that describes some of what you have said which is like you're spending money the CAC becomes less efficient that you don't fire people when you should you don't downsize when you should because you're just like we got to stay in it the future will be brighter than the past and then you start funding it with bad debt and like that that's that's what I mean and I think even what made me think of that is like what you're saying about sort of Shopify's marketing or something right where it's like hey look this could be you and it's the pres presentation of the picture of like the wealth that you'll get when you do this and how great it'll be to own your own store and you know all all those kinds of things like I don't know do you think that's overstating what's happening here to compare it to gambling addiction or do do you think it's follows that pattern >> it's certainly a very interesting perspective very inflammatory um I hope that um we don't get a cease and desist from Toby and Harley um um but >> yeah I just mean when it goes wrong like I I don't mean like necessarily that every business is that way because there's not a house in the same way I mean people will say Zucks the house or whatever but I don't think so I that's the difference is that like it actually is a money-making proposition in a real way, but when it goes wrong, that's the behavior that I feel like I see. >> Yeah.

And I I think that like um look, you you default have to be an optimist to get into this because you have to suspend some disbelief. Um and >> where I think it gets tricky is it's okay finding, you know, you can be the cat with nine lies and you can find the second life, the third life, the fourth life, the fifth life. Once you start getting into the like the 10th life, the 11th life, the 12th life. Yeah. That's where it becomes like you start making much more questionable decisions.

That's where you get to a similar state that you know you referenced earlier about gambling of like um you know digging yourself into a deeper hole and um and that's where you can create some really kind of really bad outcomes. >> Yeah. I agree. Let's switch it. So surely you look at some good businesses. [snorts] >> Yeah, >> we do see Yeah, we do see >> who is who who is doing well like and how are they doing well? When businesses are going well, what does it look like?

We've described bad ones. What does what do good ones look like? >> Yeah. Um I mean I think that that they just have the like opposite traits um around ad efficiency and customer retention. you you asked this question earlier like is it the operator or is it the business when it's on the downside and I said it's it's the business because I actually think the the operator in the bad business and the operator in the good business >> aren't that far apart they might be like >> you know >> a like a 6.8 eight operator verse an like, you know, 7.9 operator, you know, like it's not hugely different. >> And but for luck or some other like they've just picked a category with a product with a price with a brand message um that has really resonated and then you have and then there are orders of magnitude to success, right?

There is the there is the $30 million business and there's a $300 million business. Like we sometimes see a really, you know, a growing profitable $30 million business and be like, "Wow, like you've just really hit product market fit. You get really good ad efficiency. You've got a category with good built-in margins. Your customers keep coming back because they forget to unsubscribe and like it's just cheap enough that they don't care." And then they're looking at the $300 million business being like, "Oh man, we can't break through the frontier like we can't spend enough.

Ad efficiency drops off at each marginal dollar." That kind of funnel magic plus consumer sentiment plus TAM is like that's the black box. >> Yeah. Yeah. So my theory on this side of things is right now this is and this is solidifying more for me like almost all the time is that there are rocket ship brands that like that like have insane growth velocity. Um but they're really few and far between and their stories get blasted out really really loudly and that actually the way that brands really win is by having more reasonable growth expectations over a longer period of time.

Put another way, get rich quick is really a scheme. it's not actually a viable way for people to grow, even though it does occasionally happen. And that what it really requires is like is sort of discipline and emphasis on major strategic and product level issues over a long period of time. And essentially, you have to reject the gambling addiction mentality, which is that like my next ad is the way that I that I blow up and that I just need to like effort the ad account harder. instead it's like much more of efforting like product customer channel like you know if there's like a you know potential for like adding Amazon or or or uh brick and mortar whatever these things that are big large lists that take a long time to do well you know if you sell into Costco it's going to be really hard work to make that happen you know so like you got to focus on it and builder if you add international and that's a big part of your business it's going to be really hard work and you got to go build this kind of stuff it's not going to be quick it's not going to be easy so um brands that get that right and decide that that is how they're going going to operate and they're going to be disciplined about their opex as they grow so they have a comfortable margin and they're going to take bigger swings and that's the way they get there.

That's the actual path for most brands to build really really good businesses and um and people need to tune out the rocket ship stories because they're all supplements anyway. So, um, so just get rid of that story in your mind. Um, and just assume that that's like not the pathway to to doing it. And that if you can do that, you can actually build a really good business, but you just have to you have to just like change your self-conception of what success looks like in the time period at which you get it.

That's my sense of things right now. So, what do you think? >> I think that that's totally right. I think if you can put a B+ 7 and a half out of 10, if they're better, great. But like a good operator who's financially disciplined in a seat, that's a Yeah, that's a half the battle. >> Yeah. Yeah. >> But you still need the product to fly. And and that's the thing that like >> is really hard to predict. >> We're talking before like I had um Hudson from Plant People come on and share a story on the pod.

And they were like flat for a couple of years really trying to figure it out. Um then they doubled down on a single skew. They did a bunch more customer research and kind of repositioned on this mushroom gummy again supplements but like and in the last 18 months the business has completely changed um and I think like you know something like 5x the business doing it profitably incredible like um but >> product selection customer research uh like efforting those things in big ways over a long period of time. >> Yeah.

And I was he like is he a better um operator than he was two years ago? I don't know. Is he like top 1%? Like I think Hudson's a great operator, but like um and could he recreate that from scratch? >> Like I don't know. I think like one of the best testaments um to this question is Sean Franks said many times publicly like he could not recreate rich. >> Yeah. Right. >> Right. I think right time, right place, right message, right price and how far that product flies is really hard to predict. >> Well, and the other thing that's very hard to evaluate in this is like this this question of sort of like operator capacity.

This is another thing I've been thinking about is like like an example of this I always come back to is like watching what Zack Stuck has done with his he's got a supplement brand I think or something like that that he doesn't really talk about publicly as far as I can tell and then hollow socks which he talks about all the time and he was posting his screenshots and I'm you know I don't know I don't have Zach's P&L but it's like in the many millions for a holiday for Hollow socks you know um like there's a lot of revenue there and and assuming the screenshots are are are true and again I don't think he's lying like it's just like he's doing that at a good margin That that makes sense.

Well, it's like let's just take that story at face value. Like part of things I just think Zach's better at it than most people and and I actually think it's a mistake. Like he's better at like the marketing side, efforting marketing funnels, like that side of things. He's just he seems to me to be extremely good at it. And the mistake is to believe that I can be as good at like the idea of a top 1% marketer by definition means I am probably not that.

Uh right because like n that's that's only one out of 100. 99 out of 100 marketers are not that. And I certainly don't think of myself as like being in that super elite tier of those kinds of things. It's not the way that I want to try and do it. And so what you're describing with Hudson I think is actually in some ways like a better compliment. It's like you figure out how to do it without being like the elite of the you know Alex Herozi funnel builder or whatever you know.

Um it's like you know that that I I think there's something to that that almost like everybody has to take a dose of humility so that when you read and see stories out there of who's going crazy you go like oh well I'm probably not as good as them. So, I should have expectations that are lower than theirs. You know, >> I would say two things about Zach. Um, and I want to be careful because I'm trying to convince him to come on my pod and I [laughter] haven't I haven't booked him yet.

Um, >> I think he is I think he is elite. >> Um, and um, >> Sean Sean too, by the way, you mentioned him. I think he's like an elite operator. So, sorry. Go ahead. >> And he's got two incredible businesses. Um, >> and I and he has shared this. So I don't think I'm sharing any nonpublic but it's two within a portfolio of I think five or six >> right so his hit rate is you know call it 300 350 right and he is the top 1% >> right >> so what happens if he went he was the founder and went all in >> on one of the other four >> yeah I mean it is interesting this is another way of think about it like what about maybe maybe part of this is that you just have to take a sort of venture mentality to it which is like you you just assume some of these are not going to work very well, but the what you're trying to actually do is position yourself to get as many app baths as possible, you know, until you find the winning ones. >> I think that's been one of my biggest realizations and takeaways and if I would, you know, have my time over again or give the advice which is like >> I could really time box the PMF and I know that that goes against what like >> I just said about Hudson at Planned People.

I'm going to have this other diaper business on the pod where again they were grinding for four years. Now they got now they're mid eight figures and it just like all hit in the last 18 months. And again it was like huge product evolution. But I would say like my general rule would be like if it's not flying within two years like you should be able to know within two years. Like if it's not flying within two years just start again. >> But that that perspective can also apply at the level of products and brands.

I think and is like essentially one one of the one of the ways brands can approach this mentality while not going and building a portfolio of brands is to say like I'm going to take my my brand my one brand and launch a bunch of different products within it and see if any of those show possibility and then that becomes like your venture bets within the brand basically. And I've watched this happen. Like I have I have a brand right now that's like launched into its like fourth very different category.

And that fourth different category is going okay so far. Like there's like some signs they should keep investing there. And I think they probably should at least take one maybe two more rounds of investment into that category with some additional products within it. But I don't really care if it works because they have made the investment small. Their cogs are low enough to where they didn't have to like go out lay a ton of cash for it.

And if it works, it will add 30 to 40% to the business, you know. So, it's like it's just an outsized bet, like it's asymmetric bet, you know. So, and I think there's there's something about that mentality with a lot of these businesses that that people can should figure out way if you can keep your losses low enough on the losers and and stay in the game long enough, then then maybe you can take that kind of approach, whether it's in a brand or in a portfolio. >> Yeah, I think that's a really good perspective and certainly not one that, you know, I've thought about.

It takes a lot of um frankly it takes a lot of innovation and it takes a lot of courage to be placing those bets within the brand um and a ton of work. >> I think at the product level that's a better bet than just than just launching more ads to for your one product. Like I like launching a new product is a is a better use of your time. But I think people get into the like just make more Facebook ads, you know? >> Yeah.

Well, it's it's it's you get the you get the dopamine hit faster, right? Like the new product cycle could be six to nine months. >> Oh, it's so long. and you're like, "Well, shoot. I need to make, you know, anoQ, so it's going to be, you know, 50 to 100 grand, and I'm not going to get the feedback loop for eight months, >> right?" >> Like, I can get the feedback loop later today. >> Yeah. Yeah. Yeah. 100%. Anything else you notice about like the best businesses, fan, before we before we sign off?

I know we're running out of time. >> What I think of when I think about your question is like there there also just levels of the success. Um and um there are >> $30 million businesses growing at 30% that's reinvesting fully back into grow that are break even. And then there are 30% businesses doing that and still ripping 15% margin. There are hund00 million businesses that are doing 3% EBIT and $100 million businesses doing 20% EBIT.

Right. And um >> Yep. >> Um there's so many levels to this. >> Yep. >> Uh all right. If people want your help with their distressed business, where should they go? >> Fan of the Hedgehog Company. >> Cool. That link is in the show notes in the description on YouTube. Um, so go check that out. Uh, man, you're one of my favorite people to talk to in the space. I I uh I would like to have two hours to have this conversation sometime and really stretch it out, talk more specific examples and all that stuff.

Thanks for thanks for taking time. >> Uh, great to be back on and look forward to next time. >> All right. Thanks, Don. Fanthehedgehog Company.com is the place to reach out to Fan. He just talked about it. The link for that is in the show notes. As I said, you should also follow up with Fans content and podcast at inthemoneyhq.com. There's a bunch of different uh stuff that he's doing there. All kinds of great conversations with great operators from $5 to $50 million basically in [music] revenue and his podcast as well.

So, go check that out. If you're interested in following up with me, you can email me at podcastfgrowth.com. I'm always super glad to have any feedback [music] about episodes or ideas or um questions. I'd love to do any Q&As's, that kind of thing. And of course, you can find everything I'm doing at ajfgrowth.com. That's the place to find uh if you want to work with me in AJ Growth, then you can go uh sign up there. Tell me a little bit about your business [music] and I'll get back to you as soon as I can.

Thanks so much for watching or for listening. I'll see you next time.