You're Working Hard On The Wrong Problem. Here's How To Tell. transcript

So many brands go wrong before they have ever started and it's because people work on the wrong problems. This is true in basically every business, but there is so much leverage to be had in opportunity selection and I want to give you some examples today of places and businesses that I have seen recently that illustrate how valuable it is to get the right people working on the right problem because if you do that, that's the path to actually maximizing your profit in your business or maybe quitting your business and doing something else.

Let's get into it. Somebody pointed out to me a long time ago that there is just so little thought given to the problem of opportunity selection so much of the time that people will think really really hard about what to do and how to make a brand better and how to make a business work better and all these things, but they won't actually stop and think, put real time and effort into thinking what problem should I actually be working on?

Because you just kind of get the idea in your head and you go after it. And you know, say I have not always been great at this. I'm sort of prone in some ways to just going and chasing things that are not actually the best opportunity for me cuz they're interesting or whatever. So yeah, speaking of myself here as much as anybody else including in my service business. If you listen to my last episode of me and Patrick talking through this in our business, you can hear me wrestling with this question of like where should we put our time and effort given the basic different margin profiles of the things that we do.

But I'm thinking about this specifically for e-commerce operators cuz that's most of who's listening and who's watching. And I just seen recently a few different businesses I've looked at where taking all of the effort that the team was putting in and applying them to better opportunities within the business was going to create a better potential outcome even if that was different than what people planned on. And that principle is really important, right?

The idea of like the same amount of leverage applied against a better opportunity creates a much better outcome than the worse opportunity. It makes a huge huge difference, but it's really hard to do that because people start working on a problem and they get sort of their hearts are tied to it or whatever. Having the willingness at points to say, here's a better opportunity over here. I'm going to blow up my plan and go do this sometimes is a good idea.

That can also be shiny object syndrome, but sometimes it's a really good idea. So, where I see this happening, I want to give you a few places in businesses right now that I think reflect parts of brands that I've looked at recently where there's really, really big opportunity for getting this really, really for getting things really right if you can actually apply yourself to the right problem. And I want to give you some frameworks to how to think about how to find the right opportunities in your business.

And And some of this came from one particular client I was working with that looked at their business and said, we have this one product and this one program that 10 years into business, they'd they'd come up with the idea like this last year. And 10 years into their business they went, wait a minute. This has legs that are, you know, much more significant than anything that we thought. And maybe we should basically change what kind of business we are completely to support this product.

Business is already doing pretty well, but they were so impressed with the opportunity that they thought about They're thinking about literally changing I was in I was at an in-person two-day in-person, you know, offsite kind of planning couple days. We do that with all of our clients. We take a couple days and and get in a room with them couple times a year. And we were we basically dedicated the entire thing to this one part of the business that in the last 6 months has proven itself to potentially be really valuable.

The The weird thing about it is it would really overhaul how the whole business operates. So, it took us a few months of seeing some really impressive numbers to start doing that. And now more and more there's organizational energy around, well, what happens if we take everything we're doing and apply it to this specific thing, okay? And they should do that. We are going to do that in this business. It's just hard to find those.

So, I wanted to give you a framework to think about where to find the best opportunities in your business to apply leverage to to go make it happen. I'm thinking really especially on the marketing side here. One of the things you should always be thinking about in your business is how these things play out at the supply chain and operational side. Like, you know, all of the energy that's moving towards AI is basically this.

It's basically people saying, "If we put a lot of energy into AI, it's possibly going to be a gigantic multiplying factor." Like, you can run your business just fine without any AI. People have been doing it for a long time, building really good e-commerce brands. But, there is this possibility that AI is this gigantic multiplier of everything you do, and because of that, people go, "I'm going to go whoop. I had never had in my plans using LLMs to generate large portions of what I do, but now there's so much opportunity in it that I'm going to go do it, okay?" And that's actually probably the right consideration with AI.

So, it's so revolutionary that it probably should change your plans. But, these things happen all the time, sometimes more thoughtfully and some not. And And so, on the supply chain side and on the operational side, you should be thinking about that as you go. It's just I'm thinking especially on the sort of marketing and product side as the way to do this, okay? And so, opportunity How to How to think about opportunity selection in your business, okay?

I'm going to give you four main places to look in your business to see if you have anything here, and then some thoughts to help you think about what to do if you don't have any of these. And so, let's talk about the first of those. The first is gross margin, okay? Number one, gross margin. I have seen this repeatedly where brands have different margin profiles for different products, and therefore, and just for whatever reason they they hold on to multiple of those products, when in fact, more energy ought to go towards higher gross margin products.

And this is really obvious in one respect, but it still gets missed all the time. And I know because it just happened with a brand that I was working with. We're looking at one of their products and realized that they had an ability to get that product to their customer at 87 points of margin landed to the customer. Now, there's a number of unique things about why that number is so high that I can't really go into, but 87 points of landed margin to that customer.

And that had been sitting there in this business for a while, and just nobody had noticed it because people thought for a number of reasons that it wasn't really scalable. They were It was "Okay, well, we're doing all the things we can to scale it, but there's sort of a limitation to how much of this we can do. But I didn't even know that that margin was so high when working with the brand until we uncovered it in a meeting recently.

And when that happened, it made me stop and go, "Whoa, why don't we put way more of our advertising firepower on this product?" Because when you are building ads for a brand, one of the first things you have to do is ask the question, what product am I going to advertise? And you can ask that question a whole bunch of different ways, but you're going to put creative effort or landing page effort or whatever towards a certain product.

What happens if that product just has a much lower threshold at which you are successful? 87 points of landed margin means that you're making money at a 1.3 on first purchase, at a 1.3 ROAS. So your 1.3 ROAS is profitable on first purchase. If you have that, man, you don't actually have to be that good at it to like make a bunch of money. Now, like that's the most ridiculous margin I've ever seen, and again, it's hard for me to explain why that number is that high without giving away some things I can't give away, but that was And that's not normal, right?

That number is extremely high. But I have another brand that has is now looking at like 75 plus points of landed margin, still like extremely, extremely good, that I was talking to recently. And then that occurs to me that when I think about that, there is this strong incentive in that business to explore how do we deploy as much money as possible into an ad account because your possibility of making of like blowing money is really, really low.

So now you have a strong incentive to go and spend a lot of money on a lot of creative fast because you just again don't have to perform that well to make money on first purchase. Uh if you have any LTV at all, it gets really, really good down the line, and that allows you to like scale really, really fast and really aggressively and changes the way you think about it. So whereas if you have sort of 50 to 60 points of landed margin, you're going to be in the world where you need to get a two to one ROAS all the time.

In fact, this gross margin thing is so significant that for some brands I would look at them and say, "For your D to C business to grow more, you might even say are there products that we could develop that could generate higher margin for us to go and and make take a bigger swing at because right now we're going to be limited in our growth by the margin profile." So, this is the first thing to look at. Really closely examine gross margin and then go the next step and make the efforts you can to improve that margin because it is really a cheat code and again, if you've identified gross margin as important lever in your business, if you can go get a bunch more of it somehow in your business, man, you can really really really improve your outcomes without making your ads a single moment better.

It just does everything else. And this is definitely possible. Again, one more example, I talked to a brand recently that for a long time had existed at basically after net of returns and everything else, something like 50 points of landed margin to their customer. They were able to move their manufacturing to a whole different country and when they did that, they're going to get that number up to like 65 to 70 points.

Like like dramatically dramatically dramatically better by by overhauling their manufacturing. And again, what that is creating for them is an opportunity to grow much much faster. And so so sometimes what you need to do is go look for the high gross margin opportunity in your business, particularly if you're an advertiser, and say, "Here's where we're going to expand our efforts." But then on the other side, if you're the operator itself, you may actually go look at your products and say, "Man, if we had more margin on this product, it would really help.

I need to go do everything I can to go chase down my supply chain and see if there's any places I can make that better cuz it just makes a really really big difference. You should be efforting your supply chain. You should be doing it with help from my friends at Move Supply Chain. If you hear these stories that I'm talking about about people shaving real gross margin from your business, the way they do that is is really simple.

Part of it is negotiating with their present suppliers, but really a lot of it is going and and finding new suppliers who can make their products. That's what happened in the story that I just told a second ago. Somebody found a new supplier that was a better fit for their brand they did not know existed before and they went through the sampling process and they got their products back and everything came back really really good and so they can move to this new supplier and it can save them a whole bunch of money.

That is the process for generating better cogs and better relationships especially if that if your business already is growing some and you can you know you're in that mid seven figures sort of stage of business and you can actually go and >> [music] >> bring somebody some some the beginnings of some real volume to their business well then they're going to be interested in working with you. And the thing is finding new suppliers is very hard slow work.

Go to movesupplychain.com get on a call with them and have them do it for you. This is what they specialize in helping you find new suppliers who will help you shave costs get you know better payment terms faster turnaround times all of that kind of stuff that makes your supply chain work better and they do that in your business. Move also is there a supply chain agencies functionally what they are. They they're like an ads agency but for your supply chain just experts in this one area of business that have been working on US based e-commerce businesses for forever and of course they are as I've probably as I've told you before based in the in the Philippines and so not only is it a very short flight to Vietnam and to China and other places in East Asia and Southeast Asia so they can actually go and represent your brand in person for you that's awesome but it's reasonably priced because you can attract great talent to work on the problems in your business in the Philippines for a really reasonable cost.

So go to movesupplychain.com start talking about this. They've done inventory planning really tighten up inventory operations for brands that have needed that kind of help as well. They just understand everything about what makes a good supply chain. If you're struggling in that part of your business if you feel uncertain about it get real expertise from people who have done it before and who can do it at a reasonable price without it just eating up more and more of your time.

It's a big opportunity in your business you should go chase it down. Go to movesupplychain.com right now. Okay number two LTV lifetime value retention rate however you want to frame it and LTV is probably actually the wrong way of saying it retention rate probably is the right way of saying it because you know if you're selling a $3,000 product and most customers only buy one of them ever, you have really high LTV, but really low retention.

And so, what I'm talking about here is retention rate. Is the idea of, okay, are there products where you can get an extremely good retention rate on this particular product or program? Again, recently I've seen this with something interesting where a brand found in their business a subscription product that worked really, really well that that that initially people were not really subscribing to, but what they discovered as they as they were able to get subscribers to it, was that actually customers really had an appetite to subscribe to it.

It was not a supplement or anything like that. And what they discovered in that was that actually customers love subscribing to the product for a bunch of reasons and it was this really, really big opportunity and the retention rate was massive and suddenly the entire retention profile of their business could shift if they put efforts there. And that is another thing where you look at it and say, if you can find different parts of your business that has this, then great.

And further, if you can generate them, then that is great. Now, retention rate on its own is not actually always the best metric. I've worked with one business that had a really actually pretty strong retention overall. Wasn't a subscription business or anything, but you know, it was it was really like customers came back at a pretty high level. I don't remember the exact number. The problem was that the average order value on the second purchase was like half to less than half of the average order value on the first purchase because of the way the product works.

And therefore, even with a strong retention rate, the actual amount of dollars they got back over time was kind of a problem. And so, if I was in that business, one thing I might consider is, is there way for me to maintain something like this product relationship, but just get the AOV on second order up? Because now I can acquire a customer for more money up front, but if I can make that with good retention rate and better AOV, I can make every customer's downstream value a lot a lot higher.

And if I can accomplish that, I can really get somewhere. I was suggesting to that brand they consider sort of limited edition versions of their products and finer materials or something like that. And you know, who knows if any of that that have worked, but this is the point. The reason to go take on a project that big is because there was potentially an opportunity to create really high retention value after that first purchase.

And if you can get that, if you apply a bunch of effort, and you solve that problem, okay, then you can generate a whole bunch more value in the business at an operational level. At an ad level then, there's a similar thing. For this business that had a sneaky high retention rate on a subscription product that they didn't know anybody would actually want, okay? If there's more opportunity there if there's more TAM there than they first thought, you know, they thought it was like a little subset of customers who would like this little subscription product and that was it.

But suddenly we've realized, "Wait a minute, the retention is so good here that they're thinking about how to launch more subscription products." And say, "All right, what about this customer over here that interacts with the brand totally differently than our subscription products? Could we get them to do it?" And we had the conversation where I said, "I don't think it's going to work. I don't think offering this second subscription product in this very different way is going to work.

It just doesn't seem to me that the customer's going to want that." But you know what? I think you should do it anyway because the subscription metrics in this business are so freaking crazy that if you can make it work, that it is going to be worth a tremendous amount of money to the business, and therefore you ought to take a crack at it because look, even if if you strike out, you struck out trying to solve the right problem, trying to hit the right pitch, so to speak, okay?

And that's the way to think about these kinds of things because again, this is going to require product effort, it's going to require website effort, it's going to require advertising effort, it's going to require photoshoots, all of those kinds of things, video, whatever. And it's and it's going to it's going to require the brand to work really hard. But the reason to do it is because if you have a monstrously high retention rate on some part of your business or monster monstrously high sort of uh returning customer value, let's just call it that, okay?

Then then it's worth doing. And so look for that in your business as well. Is there somewhere somewhere where you can create this? Now, there's also a mistake and a trap here, which is that businesses sometimes, because everybody wants to have a subscription business, will go and create a subscription product or a membership program or whatever it is that nobody actually wants. And that's that's the challenge here, right?

Is that if you can't figure out how to do this in a way that nobody actually wants, then it it can actually sort of be a black hole where it sinks all of your all of your efforts into it because the it's so tantalizing. And this is the trick with all of these. This is the this is the challenging thing. You probably have to time limit the effort in some way or another. But yeah, if you if you can't find that But you can sometimes get sucked into this idea of going and finding this even if your business doesn't actually lend to it.

You have to actually serve the customer. And the reason I've seen this this particular example work, the reason why I think this like for both brands I was talking about, the one that sort of discovered a subscription product in their business that that was better than they thought, where with insane retention actually, um and the one where I was suggesting that they ought to go develop the limited edition or that kind of thing, was in both cases I thought there was a it turns out in the one case for sure, there's there's a subset of customers in this business who absolutely who did the product serves beautifully.

It plays a beautiful role in their lives. Like it is I mean that word. It is lovely. It is it is a great way that a consumer brand has created something that provides real meaning and value to people. And it turns out the customers had a real appetite for that to show up at their door every month, okay? Uh for that that kind of value. For this other brand where there's this like limited edition push or or finer materials push, my thought was I think customers would actually really like that.

I think they would find that really cool and it would and it would fit into this. Now, you have to solve some things, but that deal. And actually the operator who didn't do that basically said no because he couldn't see the he couldn't see the vision for that in the same way that I could, and I think that's okay. I think when he looked at the customer and the product, he thought, "I don't think they're going to care about that really.

And therefore I'm not going to try to force this because I don't think they're going to care about it." And that's I think that a good filter for this. Does it actually serve the customer in some way? This is the reason supplements subscriptions work so well, by the way, is that if it's a pill, it actually is great for it to show up at your debt If it's like I have to take this every day for 30 days, it's really nice for it to show up every day every 30 days, or excuse me, every 30 days for it to show up so I can take it like that.

I never have to go to the store to replenish it. It just shows up. I take my pill every day, and I move along. And if it really works or whatever, it's awesome. The mechanism of delivering to my house is actually a great way, from a customer perspective, to experience a supplement. It's awesome. The replenishment timeline is obvious and easy, and I can skip if I need to some month, but mostly it just shows up when I need it to, and that's great.

And therefore, supplement subscription works awesome. Um and there's a reason there's a million of those businesses now, right? Uh because they cuz it actually is great for it to show up like that. Okay. So, uh serve the customer when you do this. Otherwise, it's not actually going to work. That's the trap of chasing subscription. Okay, before we go any further, you should make sure to subscribe wherever you're watching or listening to this.

I'm doing a mix of these sort of more strategic and more tactical episodes, and if you like this content, you're going to like all of it. So, subscribe wherever you're watching or listening, leave a comment, give me your thoughts. What do you think? What did I miss here? Anything that you would look for as an opportunity selection framework, sort of uh opportunity selection uh identifier that that I should be passing along, leave it in the comment.

I read and reply to basically all of them. So, okay. Let's keep going. But, like it. Also, share it. You know, you know what to do. Okay, here we go. Number three. TAM. This is an underrated one. If you were looking for what opportunities are your best opportunities in your business, don't underestimate TAM, total adjustable market. And total adjustable market starts at the level of product. I have also seen brands who have really, really good gross margin and solid LTV um lose out on growth because there just aren't enough people who care about their product.

And this is a marketing problem, to be sure, but also I think sometimes it's just like a nichey a nichey challenge here, a nichey problem, where people just might not like it. You know, I've talked about the business that the e-commerce brand that I'm starting, and it's is uh people have asked me about this, by the way. It's like it's we're still working on it. It's very much a side gig. Um but but uh still working on it.

Anyway, the idea of solid cologne. I've talked about the idea of solid cologne. I'm confident in the gross margin. I think the LTV will be decent. Actually, I think the place where this becomes a real problem, to make this business really strike out and scale, is that it's just it's just possible that not enough people want solid cologne. The TAM is just too low. And therefore, it's actually not that good of an opportunity.

I think that's one of the most obvious ways that that business goes wrong. If we can actually sell it and I know we can do it at a high margin. Like that's just like kind of locked in. If we can do that, there will be at least some LTV in the business. I don't know that it will be spectacular, but I think it will be pretty good. And it will be very high margin LTV, high high margin retention. And so, I think that will be pretty good as well.

I just don't know if enough people want it. And that would be the argument against that whole category. Now, if you look at that and and if you apply that same kind of thinking in your business, then you should be thinking about this then then you should be trying to identify as well the products and the materials that actually work at real real scale. And so, again, I have another brand right now. I've mentioned them before.

They They have basically two businesses. One of them sells like inflatable like lake toys, like docks and stuff like that. They're called Solstice. Really really really cool brand. And I'm really confident that we can sell a a solid amount of things for like great days on the lake because they're really awesome products and people love them and they're really thoughtfully designed and all those things. But they have another brand also called Swimline.

And Swimline sells pool float type things. Now, in some ways, neither of these these brands fits the typical e-com margin profile that you would really want. Some of them can be kind of expensive to ship even even though they're deflated. The LTV is not particularly good etc., right? So, it's in in some ways like it's not it's not the perfect e-commerce business. But what I can tell you is like a lot of people with with pools and a lot of people with who have lake houses and boats and or just live near a river or whatever it is.

And when I look at it, I think, man, the game for these businesses is to keep finding ways to just get those products in front of the right people over and over and over again, whether that's pool floats or whether that's lake toys or whatever else. I'm pretty confident that if we just put our heads down and keep efforting and so far this has proven out with basically every effort we've had. We will be able to get spend to go forward materially over time if we can just keep doing this because there's just a lot of people who want this stuff.

And so, if you can make a great product that a lot of people want, you can get really, really far. And if you can find more ways to put it into people's lives, you can also go really far. So, sometimes even a business that does not have spectacular margin or retention can work really well just because a lot of people want it. The other example of this in this category, I think it's really obvious, is like all the drinkware brands.

It's just like everybody needs cups and water bottles. And so, you can just sell a whole bunch of them a whole bunch of different ways because of this. I think there's just a lot of examples like this. You know, I used to work with Feelers Choice Goods, FC Goods, wallets made out of old baseball gloves. Really, really cool brand that I absolutely loved working on. But among other problems, there's actually a relatively limited market for people who want to spend $200 on a wallet made out of an old baseball glove.

Like, it's a really cool product, but there's just not going to be that much TAM and therefore was never going to be that big of an opportunity, no matter what we did. And so, now, the baseball collectibles market is very big. And so, if you could sort of use that as a way to get into there, then maybe that's the way you drive the product development in a brand like that. But TAM is just this really, really big factor that people often don't think about.

And TAM also sometimes implies competitiveness. And I want to talk more about competition in a minute and how and how this creates problems because at some point if everybody wants it and if it's reasonably simple to make, then it's going to be really, really competitive to to get attention and to grow in that world. But TAM can just go extremely far for you. There's another way of thinking about TAM though, which is not just about sort of how many people generally want to buy the product, but it's more like how many different ways are there to talk about the product.

Zack Stack made this point about Mars Man when he was on the marketing or when I was on the Operators podcast talking about that business. He said if you could sort of build One of the things he loved about the category that he was in, of you know, like a hormone supplement or whatever, is that there were just a million ways to talk about the value that it it to people. There's just brain health and heart health and physical training and getting stronger, whatever it was.

And so there's so many entrance points, category entrance points, some people have used that language CEP to talk about the product that it makes the TAM really, really wide because it just does a whole bunch of different stuff. And so it's a good category to play in because it reaches really far. And there's other things that are compelling about that business as well, but that basic idea, I think allows you to generate more scale really, really fast because there's just a lot of ways to talk about the product.

So same thing, look inside your business and ask the question, "How many ways are there to talk about this product? Or how many people can I reach with this product and how many different ways can I do it?" If you can ask that question and answer that question and then the number is like, "Whoa, really big." Go put a lot of effort towards that cuz it's a it's a that's that's what creates a really big opportunity. Even again, if the margin and the LTV are not actually incredible.

In fact, sometimes the very fact of large TAM drives down margin. And that's because of the competitive because of the competition factor. This is one of the first things I want to say about competition. If there is actually a huge market for something, it tends to drive the price down, you know, because it creates so many entry points there or there are so many entry points for that that it becomes really, really hard to get much margin on it and can can work against gross margin.

This isn't always true. You think about beauty or something like that where price signals value really strongly and you just will be high margin no matter what because if you price too low, people will think your product is bad. It's not always the case. You know, apparel is like this in certain ways, but but sometimes in some categories, one of the things that can really harm margin is TAM because especially if there's no real way to differentiate as being as it being a good thing that you're the high priced item.

Okay, TAM is worth considering. I think you get the idea. Everything I am saying in this episode applies as much to what you do with your marketing efforts as to your sort of operational and product efforts. And that includes what kind of things you are testing in your business. And I love so much that Intellijams has released a tool where you can go plug in your website and [music] you can go and they'll give you an audit of like the three biggest highest leverage uh with AI the three highest leverage tests you can make on your website right now.

Go to intellijem.io/audit and just go check this out. So an incredibly cool tool. You go go to the tool tell it basically like what your business is and it will tell you here's what test you should be running right now and here's what the opportunity is for [music] your business if you go run these tests. And that's because intellijem is built all around being a not just a split testing tool but way more than that a profit optimization tool that has everything from you know the split testing CRO stuff you've known about for a long time to post purchase upsell in checkout upsell and card upsell a whole bunch of other things that it does that a lot that makes it a really robust tool for making every click that gets to your website every person that gets to your website create more value in your business by setting up the right funnels the right audits the right prices the right upsells all those things in your business.

So intellijem.io/audit go check out that tool or just go to intellijem.io and check out the the tool yourself. Fair is twenty f a i s twenty to get twenty percent off your first three months. You should be using it to do real profit optimization on your website. It's one of those things that has a really big impact. Go check it out today. Number four also related to the issue of competition etc. And this is something that that fits a lot of things we're saying but I'm going to call this unique mechanism or unique product.

Basically is there something actually awesome about your product? And this is so underrated like like one of the great challenges for some businesses and the reason they don't do that well is cuz their product actually just isn't that interesting or good. And I go back to my friends at Solstice and and Swimline like their their products are really really cool. If you have a lake house if you have a boat go to solsticewatersports.com right now and buy some stuff.

It is cool. It is great well designed thoughtful products. I sent some some of that stuff to my friends recently who were who were the people at Solstice had sent me some product and I I sent it with my friends who went to the river for the week you know and I said hey take these with you tell me how it tell me how you like them." It was these these docks that you like hang out in, floating docks, inflatable docks. And they came back and said it made the week.

They were so cool. They're so sturdy. They were like easy to use. They were inflated They're inflated really fast. And they We just like absolutely loved them. We thought they were really really really cool products. The whole experience of the entire vacation was better because we sat in those things for 8 hours a day and it was amazing. And our feet were in the water and it was great, you know? That's if you have that in your brand, like you have so much of it solved.

And so much of e-com like is a generalist's game where people, you know, find a manufacturer, get into it, and go. And fine, fair enough. I'm I'm like opportunistic and capitalistic as well, right? But one of the things to look for in your business is is there something actually awesome about it? Whether it's like something uh something unique about the the construction of the product or the design of the product or just a mecha- or, you know, an ingredient that does something amazing.

You know, is there something actually amazing about it that does something? And can you then make a compelling case going forward about that? If so, you have a good opportunity there because if it's really great, people will want that. Again, I have another brand right now that's uh looking forward that is about to enter is about to enter into a space that where they have an element of their product that they think is sort of on the rise trend-wise that is different and unique in a very large TAM category.

And they're saying, "We're pretty confident that everybody's going to be really into this really soon. And we've worked really hard to make this awesome about our product. And therefore, even though we they function differently than a lot of brands in our category, they've done something that they think is really great. And that's a compelling case." Cuz now, in a very large category with something that does something really well, with real innovation in the product, etc., you can just get really far.

So, look for that in your product mix as well. Do you actually have something better in your category? And if you do, and you're in a large category, and especially if you do that and you have a reasonable LTV and good margin, you have now the makings of a of a monster brand. Now, an incredible opportunity. Most brands, frankly, are not going to have all four of these. They're just not, right? And but so if you have even two of them, I think you probably are in really, really good shape.

And some brands get away with one cuz they're just so good at the e-commerce game. But if you have two plus of these identifiers, you can just get extremely far. A product that is unique in some way, that does something really cool, at a reasonably high margin or or LTV or both, um and that does something in a large category, that is the frame That is the recipe for a great e-commerce business. Um you know, unique mechanism is is a more subjective category, but it really matters.

It really matters a lot. If you do something really cool in a really different way, it can really matter. Um you can do that. Now, what about if you have none of these, okay? So if you look at your whole business, your product mix right now, and try to identify, you know, which of these apply to you, and you say, "Okay, we will put more effort into product A instead of product B, because product A fits more of these that Andrew's saying than product B." Great.

But what happens if you do that exercise, and you say, uh "We don't have any of these. That's great. Or we have a big TAM, but the margin's not that awesome, the LTV isn't that good, and I'm not sure our product is actually that much better than the competition." What do you What happens, okay? There's a couple possibilities. The first possibility is that you need to go make some new products, and you need to be honest about that.

That you need to go and figure out how to add products into your business in a way that is going to create additional opportunity. And you need to do develop those products with some vision like like this opportunity selection vision that I'm giving you. I'll give you a great example of this. I I had a brand that was kind of stalled out. It's actually the brand I was talking about before that was thinking about kind of a limited edition product or whatever.

And they realized like they have incredible margin, decent LTV, but their TAM seemed pretty limited. They No matter what they did in the I mean they they they played them massive amounts of diverse creative game, you know, they they had a product people like, but they just seemed to be hitting a ceiling in their business, even though they were doing all the right things from a financial and creative standpoint, influencer, all that stuff.

They just They just hit a ceiling. And they said like, "Well, what do we do here? Because the If I just keep going the way I'm going, if I if I have to take all of this effort and I keep applying it to the this same opportunity, then it's just not going to work very well." And so they turned around and said, "We're going to put a huge amount of effort into new really, really cool products that are in the same category as our core product that are going to take a bunch of work to to get going on, but but we think it's a really big opportunity.

Okay, if we do that, maybe then we can sort of expand things." Now, I don't know how it's going to work for this brand, but it is the right kind of thinking. They have spent months and months and months, maybe over a year at this point, designing with incredible detail and incredible thoughtfulness with a real product development lead, beautiful, really cool products to try to expand their reach. They're still going to be extremely high margin.

They did it with this whole idea in mind. We're going to go go maintain super high margin, and we think it'll have a good LTV profile, and I just but we're going to do this with a really different product that's going to push our economics in these different ways. And so it's a big, big job, but they're doing that because this is where the opportunity is in the business. To me, that is the right move. So you can they could either sort of accept where they're at and say, "Nah, this business just kind of is what it is.

I'll start a new business." Or they're going to say, "We're going to go put a bunch more effort into a new product line in the business and see if that's something that can can be Now, again, they're doing that and they're not just making a cash grab. They're putting a lot of effort into it, but that's the way they're thinking about the problem. I think that's really right. That's one possibility. Another possibility, and you need to be honest about this, is that it's possible you should just stop working on that opportunity altogether.

You just say, "I'm I'm not doing it anymore." There's just it's just never going to be that big. That's one possibility with it, okay? Um so possibility number one, develop new products. Possibility number two, quit. Stop. Go put your effort into something else. Sean Frank, uh a while back, tweeted something about how backpacks are an extremely hard category. He said, "No matter what you do, zippers are just pretty expensive to to make.

Zippers just are are relatively high cost supply chain wise. The category is extremely crowded. Everybody likes cool bags, and there's a lot of people who have entered into it. It's really hard to make much margin. It has very low LTV. It doesn't ship that cheap. So, even though there's a very large TAM, it's really hard to stand out. It's hard to make a backpack that much better than any other backpack." And Rich makes bags and backpacks and stuff, but he just said like, "It's just really, really tough.

I looked at brands that came to me and said, you know, what do you what do you think about this?" And I said, "You know, you're just playing the game on hard mode because you're in this category. And even if your product is really, really good, then like you just are going to have a hard time standing out in this category. It's just really tough for these reasons. And what they needed to hear and what I told them was, it's I think it's I think you should put your effort into something else.

Run this as lean as you possibly can, but put your effort elsewhere or find a way to make this effort work better here by like doing the following things. But I I'm not sure that this is really the best opportunity for for where you're going. And you need to be just really honest about that. It's possible. It's possible that you need to do that. And the best thing you can do to generate the best outcome for yourself now is stop working on that thing.

It's very possible, okay? Nobody wants to hear that, but it's very possible. Number three, you have the opportunity. This is the other possibility. So, right, it's make new products, stop working on it all together, or number three, sometimes there is a sneaky way in which the the deck being stacked against you is actually the best opportunity. Uh so, you might have and you got to be careful with this, but you might have the opportunity no one else will take.

Okay? You might have that. All right, like right now all this money is flooding towards supplements. And all these supplement brands are starting uh for all this reason. And and that's understandable. Because if you look at the opportunity selection framework I just gave you in this episode, supplements are the perfect brand. Extremely high LTV via subscription, very good gross margin, big TAM. Some of them make real claims around unique mechanisms about what makes their product different or better.

Though that I think is the sketchiest part of that. And it just looks like an area where where there's a whole bunch of opportunity. So, all this money floods towards that because people are rationally responding to the exact kind of framework, even if they wouldn't put it in these terms, that that I've been laying out in this episode. But, what it makes me wonder is, what about for those brands that are actually really different from those kinds of that kind of category, and that look at these and say like, how can we do something unique in a category that is large but crowded and difficult?

Is there some way in which basically the fact that it's hard makes it harder for other people to come and chip away at us? You know, one of the things I'm very concerned about in supplements, and I'm concerned about this for my clients as much as anybody else, is that it's just going to get so competitive on the CAC level and everywhere else that it eventually it's going to be very, very hard to make the economics work because you just won't be able to do it at any scale, you know, at the same time as you trying to compete with people for the same number of, you know, feeds, basically.

Feed placements and and real placements and whatever. It's just going to be too expensive. It's going to be too hard, okay? I also think it's possible that some of the LTV timelines don't work out the way people think for a bunch of similar reasons. Now, I don't know. I think it's also possible that I should just go start a supplement brand right now cuz it's an amazing opportunity. But, I also look around and say, man, there is maybe an opportunity here for somebody to think, what is the category that is so stinking hard that actually if I could do something unique in it, it would keep everybody else from going away?

Because a new supplement brand starts every 3 seconds, okay? What about And this happened in skin care before, before everybody realized it was supplements. There was just a new skin care brand all the time. And it's it's for the same reason, for exact same reasons. It's because of this opportunity selection framework. So, what category can you go play in, or what can you do that's really different in your category that makes it so that actually the deck being stacked against you is your opportunity?

That's my question. Is there a way to do something really, really difficult because it keeps other people away from it? Um that's a hard road, but it can be something that can happen. I sometimes think back to Simple Modern um going on Amazon and just pricing much lower with a much lower gross margin specifically as a strategy to stand out on Amazon especially. Like it's a really smart move and that allowed them to build a really really good business, okay?

So, um that's kind of one of the things I think about. Really really competitive category in the most competitive possible marketplace and that's exactly why it worked because they were able to take all the search volume in a very large TAM, apply it to something where they took less margin than others up front, created more colors than other people up front and that became starting place for a really good brand. So, okay, what about other other opportunities like that?

Are there places you can go where you can actually take that deck being stacked against you and make it into the opportunity? You have to have a real thesis for why that works, but it can be done. >> [music] >> All right, I hope that was helpful to you in some way or another. Put your effort into the best places to put it. Examine your business right now and think about the question, how where is the actual best place for my for my efforts?

[music] Uh it's it's a really really important question in your business. Uh as you go and do that and the answer might surprise you by the way. As you go do that, subscribe to this podcast wherever you're watching or listening. Hopefully I can help you in the journey along the way. You can also email me podcast@ajfgrowth.com or leave a comment and tell me a little bit about what you thought of this episode or ask any questions that you have.

I read and respond to every one of those comments. So, do that and uh if you want to work with us along that journey as well, go to ajfgrowth.com. Fill out the intake form, tell me about your business and we'll see if we can be some help to you. Big thanks to my sponsors in this episode, Move Supply Chain and Intelligems. They are both great. I have a really cool idea coming up for this podcast. I'd actually love your feedback on this.

I'm thinking about having less guests uh like a less of a range of guests, but having the same guests come back [music] more often. So, I've just been thinking about who my favorite people to talk to are, who I think are really really good guests. And what if I got those same guests to come back not every week, but every couple months and it was a kind of the same rotating cast of people hitting different themes that they're really really good on.

Cuz there's just some people who are so smart that every time they come on like I've done this with Taylor Holiday for a long time and just I just love talking to Taylor about this stuff. Every time we can do an episode together, I think it's great. So, okay, how do how do I create more great content >> [music] >> by just having less guests but my favorite ones more often. So, that's one of my ideas. Tell me what you think about that.

Okay, thanks so much for watching and listening. I'll see you next time.