You MUST Prioritize Profit In Your Ecommerce Business transcript

[Music] I have a few clients who I'm working with right now that are just building monster businesses they are incredibly profitable they're not necessarily that big and that's actually one of the interesting things about them uh overall they're you know give or take in the eight fig range right or earlish eight figures that's the the brands that I tend to like to work with most started somewhere between two and 5 million want to get the 20 plus uh and I love to be there for that part of the journey it's my favorite part of the e-commerce journey and so uh the brands that I'm with are kind of all in that range in some way so nothing super crazy but some of these businesses I'm starting to see are building just like monster bottom line profits and that is both as a raw dollar amount by any objective measure they're building incredible incredibly profitable businesses uh not even though the total business is not necessarily that big it's pretty big but not that big the the bottom line is just huge on some of these businesses and uh and they're building that partly because they have huge percentage profits and the longer that I work with them the more that I've been thinking about what are the elements of these businesses that are just so good why are these businesses doing so well and uh and that has gotten me really pushing or getting my mind around what I want to sort of do in this episode which is think really carefully about for the DTC businesses that actually are really profitable and generating really good businesses like what is making them do that why are they so profitable because these businesses that I'm thinking of are different in many ways they're different categories they're different margin profiles they're different LTV profiles they uh the similarity is that they're spending a lot of money on meta ads right that's why they're working with me and that's just selection bias it's not certainly not the only way to build a profitable business but uh the kind of business that works with me and my services is because they want meta to be a part of that so that's the similari they see that as a core driver of growth and they're they're focusing on that and we're building around that but uh but otherwise there's a lot of differences in in a lot of different ways and yet this thing that unites them is building really good profitable businesses and of course at the same time I've also seen plenty of businesses that have come through including ones that have worked with me that are not profitable that are really struggling that are losing money Etc and that has me asking the same question like what are the similarities between those Brands why are they not profitable and where I want to start this conversation in this episode is with one idea that is probably so obvious to you when I say it that I think it's actually the key to this like the Cornerstone of this whole thing this one observation that I think is actually the key that that again sounds so obvious that that maybe you will wonder why I'm even bothering to say it let alone record a whole episode around it okay and here is that observation you ready the thing that makes great profitable e-commerce Brands really great is this they relentlessly pursue profit now like I said that sounds so obvious that uh it barely sounds worth saying but the more that I've thought about this the more that I think that it is not obvious at all to many people um I think brands that relentlessly pursue profit tend to generate a lot of it and the thing is if you think right away well like come on Andrew everybody is pursuing profit what does that have to do with me or with anybody else like like I want profit too that's why I'm listening to your show that's why I'm watching your show like what what like what is that that's not insightful at all right that's what it might sound like but you start to think for a second about why a brand that is relentlessly pursuing profit actually uh is able to generate a whole lot of it and why a brand that's relentlessly pursuing profit would not be able to generate a whole lot of it okay so let's ask it in the negative why would they not be able to generate a bunch of profit if that's what they're relentlessly pursuing and there are a couple of answers that could come to mind okay one of them is perhaps that they are just sort of stuck with the wrong vehicle for profit right something about the core their business is just not set up to produce profit in the way that they would want to and that typically that something is typically some combination of uh sort of business fundamentals in a uh Financial sense right uh margin profile like just like gross margin uh landed to the customer uh LTV something like that could be um organic content like customer acquisition strategy basically uh you know sort of where they're spending their money and how they're thinking about spending their money on customer acquisition could also be total adjustable Market I think this is another one that people sort of underplay sometimes but total adjustable Market Tam uh is another thing that is I think sort of fundamental to what a business is like to give you a sense of what I mean by that right think about a business as a category Creator versus capturing existing demand uh you know there's already a bunch of apparel sold in the world you think of maybe think of the big t-shirt companies or something like that cuts or fresh clean threads or uh true classic or any of those Brands right part of the thing that makes those Brands work very obviously is that there's a lot of white and black T it's sold in the world and therefore uh there's a huge and basically endless Tam okay and so that's what I mean that's a core to it versus say consider somebody launching a niche product into a niche Community there's just going to be only so much of that available uh and the business is only going to get so big okay so those are the things I think of as sort of fundamental of the business right and so you might say Andrew I want to pursue profit except the problem is these fundamentals to my business just don't work very well and so yes I am relentlessly pursuing profit but it's not working that well or at least not generating that much profit uh and this is probably a core point one of the things that strikes me about these clients that I'm thinking of for myself and and and certainly non-clients of like other brands I've looked at that are really profitable is they just generate a ton of it like the notion that D Toc businesses can't be that good or or aren't that big or whatever it is it's just wrong like I'm just around very good e-commerce DDC businesses that could sell for a really good multiple off of a really high profit number they're doing great it's a hard business in a lot of ways but um but but you could build a really good business this way and so um and so you know I want to dispel that myth like if you relentlessly pursue profit I think part of the equation here is that you can you can generate a whole lot of it so maybe you hear this and say okay Andrew like I'm relentlessly pursuing profit the problem is the vehicle for profit my business the fundamentals of that vehicle are just not very good for it and and so this works against your point this is an obvious Point except that your point doesn't work here because my thing is I'm sort of stuck with it and here I would say this exactly precisely illustrates the point that I'm trying to make because if you are really relentlessly pursuing profit then you maybe would just get a different business or you would make radical changes to your business in a way that would say okay if these fundamentals of this business don't work then I'm going to change the business uh I'm going to change my strategy drastically maybe my channel strategy or I'm going to change my product strategy or my customer acquisition or whatever it is because the point is the fundamentals of your business don't happen to you they're not like your eye color or your hair color traits of yours that like you know you can I don't know maybe go get adjusted or something but uh but uh but that basically are genetic and inherent and something that you can't do anything about right you just you just have a certain eye color hair color that's not what your business's fundamentals are your business's fundamentals your economic fundamentals in your business are choices you made and every day that you operate your business with those fundamentals is a day that you continue to choose those fundamentals and this is what I mean by saying relentlessly pursue profit this is the point if you relentlessly pursue profit if you relentlessly pursue profit you will not be uh willing to stick with those now here we illustrate also another important point in this conversation in this idea which is that you may not actually be relentlessly pursuing profit because you care about something else in your business besides profit like maybe you know that your business is never going to generate huge amounts of profit but it is a niche that you love and you care about and you're willing to not have that much profit in your business because you would rather stay in the niche and make products you love and feel proud of that's fine I I'm here like I want to just be really clear I'm making no judgments about that uh the the point actually is irrespective of anything like about what you actually should do what you should do with your time in your life actually ladders to some very other questions and I'll use myself as an example here like I've said before I am not trying to build that big of a business right now I think all the time about how do I create more profit or more Revenue in my business but there are certain things I'm unwilling to do including building a large agency like at least on that side of things I am simply not willing to do it even if I could and even if I could have a large Financial outcome I think I would hate that job I just I I like to be in the work I like to be doing the work a little bit more I like to be interfacing with my clients I like working directly with Founders in these businesses and therefore uh for me I don't want to Le go a layer up and build processes and build an agency around that right so if I was relentlessly pursuing profit in my business I would probably treat certain elements of the profitability of the business differently but there's a constraint for me about what I do and don't want to do with my time that's there if you are already a remote team team running a d Toc business and you are not considering hiring in the Philippines to add talent to your team I honestly I really mean this I don't know why there is a simple value proposition here which is good for all sides it works like this there is incredible Talent with deep e-commerce resumes across every part of DDC DDC e-commerce businesses available in the Philippines actually by the way also have folks who work in agency businesses as well so everyone across the DDC landscape there is Talent available to you you can pay a premium rate for that talent but that rate will still be less than you would pay for that talent in the US and so what that means is you attract the best talent in the Philippines and the best talent is really really good I know because I work with highly talented people from the Philippines in my own business and at the same time your costs are much lower than they would be if you try to get especially that same level of talent in the US it makes sense for everyone it is a huge win-win and my friends at more Staffing can help you do it they are the ones who help me do it you go to more now.co and more staff in will connect you with Incredible talent in the Philippines for your e-commerce business they will also give you a one-year guarantee so if you hire somebody with them and if that hire does not work out for a whole year if they don't stick with your whole business for a whole year they will help you replace that talent for free so go to more now.co fill the highly profitable business with help from incredible talent in the Philippines now just to be clear you may not be relentlessly pursuing profit but what we should be honest about is is that right we should be honest about that idea that um and there there may be some limitation to your relentlessness about these sorts of things and that can that's that's okay that's okay um but the point Still Remains if you are relentlessly pursuing profit you can generate a bunch of it and you will change the things that you need to change let me give you um well so so so I think this illustrates my point is the idea that there are these elements of the business that are fundamental and if you start pressing down as hard as you possibly can on the relentlessly pursue profit button you will start to clear away those things and you will not be stuck with them and maybe to illustrate this further we can think about what gets in the way of relentlessly pursuing profit and I'm going to use a framework here to to illustrate this point that I that I thought of and and kind of developed into some tweets and into a thread recently as well and I I think it will help us to think through this idea a little bit more about what makes this work um like let's think a little bit about what are the actual uh enemies of profit in this business and and I want to think less tactically and more strategically in a general broader sense here okay because I could say right like automated bidding on meta ads right but I it's I don't want to get down to quite that level I want to think broadly about how you're approaching the business okay so the first one is one I just mentioned which is like the fundamentals of the business maybe just don't work that well for uh for for pursuing huge generating huge amounts of profits okay in that case you maybe need to make some radical changes in your business uh and and so that can get in the way of it okay another thing that could get in the way of it this is related to that is actually your channel strategy and I'm thinking here really specifically of businesses that that have a a good business in a lot of ways but they don't make that much sense for D Toc because uh this framework of relentlessly pursuing profit in your e-commerce business is is meant around this idea of like a dtoc business that's mostly who I'm talking to Okay um but if you can think about this idea and think like wait a minute some businesses can generate real profit but the margin profile or the LTV profile or the Tam or something like that or the customer acquisition potential it's just wrong for D Toc so like I actually recently um stopped working with a client where there's nothing wrong with the relationship at all we just looked at things and said this is the wrong approach to this category for us to generate the most profit possible and and so we're going to actually rethink where we invest our time and effort away from sort of a meta ads driven strategy around a d Toc thing and instead think no our goal for generating Revenue in this business is going to come from some other elements of the business with different margin profile I also think back to when I was a 4x400 one business I worked with at 4x400 one of the brands was in a niche space it was low margin we could never get out from under shipping costs for the business okay and it was because the the product was Heavy to ship around and it was it was fairly low LTV as well and so you put all those things together and it just made no sense for D Toc it was like less than 50 points of land of margin landed to the customer all the time we were fighting between 45 and 50 we had uh not a particularly large Tam for a bunch of reasons and uh the LTV wasn't particularly good it was actually a consumable product but people um didn't use it that fast and so they didn't come back and buy more it lasted for a really long time and those elements are a bad d2c business like they're just not that good D Toc business now we were able to get it still pretty decently far but it was never going to produce huge amounts of profits because of those fundamentals um in the beginning and I think if I could have that back I wouldn't go back and say get rid of the business I would just completely change the channel strategy and actually um one of the members of our team at the time was saying that he was saying look guys this is just not a d Toc business we just couldn't see it or hear it DDC was the only thing we really knew and so we just didn't have that idea he was saying this is a retail business you can go find the communities who are most likely to buy this you can show up in their retail stores and crucially if you ship pallets of this stuff at a time it actually isn't particularly expensive to ship it's just expensive to ship one or two or three units at a time and so if you ship a pallet at a time you get a whole bunch of money back and your retail margin will actually be very close to your D Toc margin which of course is unheard of in D Toc because the retailer needs to take a cut but if but most of the cost of the product was not on the cost of goods it was um at least at the DBC level was not cost of goods it was in sort of the raw cogs it was in the price of shipping to the customer even though we collected shipping dollars and we tried all these things to get the shipping price down right and so the best way for us to reach our exact market and to be able to sell at the highest margin and volume possible would have been to push really hard on a retail strategy and try to sell into some stores and some of those things we just couldn't see that point is now I don't know if it ever would have been a huge business but it would have been a much better more profitable business almost for sure DDC would have been a part of it but we never would have relied on it to be quite the the same level uh and we would have thought much more about how we Market into that community and and and think more carefully around how we make it so that people walk into a store recognize the product on the shelf and generate sell through in our retail relationships that way and that's the way we would have tried to power the business right um and to the point there is part of the thing that you might have to think about in your business if you're relentlessly pursuing profit is you may actually have the wrong the wrong business for D Toc and therefore again you have to go change the whole fundamental strategy of the business the other example of this I think of all the time is simple modern um I've had Brian Porter the the chief e-commerce officer one of the founders of simple modern one of the guys who launched that brand on the show I'm G to put the link in the show notes please go back and listen to that episode it's before I was doing video so it's Audio Only U but it's wherever fine podcasts are sold okay and Brian talks so brilliantly about that product because that's a low water bottles it's a low margin product okay and it's actually they're priced um on the low end like they're not they're not very expensive and um and they're their lower margin and so D Toc was sort of an afterthought instead they started on Amazon because what they could do is think about price as a lever and uh and volume Tam as a lever and then the ability to generate a whole bunch of variety by starting by launching that business as an Amazon first water bottle business they could do things that none of their competitors could do which were built for um you know typically brick and mortar uh first businesses and and so their whole business was structured around maximizing Amazon as a channel and they were able to get that to a 9 figure Amazon business just a mon me just on Amazon alone right they added other channels over time they found some other ways to expand margin now they're you know big brick and mortar Mike Beckham the CEO of simple modern has been public they're in the mid 200 Millions now total revenue I worked with them at some point to get on their meta ads as well but those were supplemental to originally an Amazon launch strategy why because the actual core to the product made much more sense as an Amazon product where they could capture a bunch of organic demand and make their margin by having extremely low cacs um by winning the price game on Amazon um and therefore they got their margin not at the product level but essentially at the CAC level so it's a distribution channel strategy game again the point being if you were to start simple modern today with the same margin profile you would price uh the water bottles differently you would if you were doing it D Toc first you would think about the whole thing really differently than if you were um than if you were doing the Amazon first strategy that they did and again if you're relentlessly pursuing profit that's going to lead into that sort of thing so you may have a decent business but if you relentlessly pursue profit then you might at some point look at it and go I will never get there D Toc I just will never it's just not it's not working for that it doesn't work very well for that business and so you would think about some other channels okay another big reason why brands that relentlessly pursue profit don't get there and this is this is maybe the other thing that came to your mind when I mentioned this idea um is ignorance okay uh lack of education and uh and I'm sensitive to this I understand this and I don't I don't mean ignorance that sounds condescending or negative I don't mean it that way at all I just mean you don't know what you don't know and uh and one of the problems is it requires a real skill set okay and uh and that is a really hard thing to get so you may be pursuing profit really hard but you just you just haven't had enough reps yet to be that good at it now this is my favorite problem uh in one respect this is why the ineris podcast exists this is why I love when people reach out to me and say like I feel really satisfied and when people reach out to me and say you uh youve really helped my business thank you so much I've I've a number of people dm' me or email me or whatever um and because I love dealing with Founders I'm not a true entrepreneurs entrepreneur when I started my own business it was not very risky I already had you know some Twitter following and a podcast following and people who wanted to work with me I had a network from working at agencies all those things and so it just wasn't a big leap of faith for me uh and and I wouldn't have pursued it if it was I'm just not I don't have I'm not quite that kind of guy okay um but I like those people I like them a lot and when people go and they start their business shipping some product they made out of their living room or whatever and they're just you know boxes in their garage and all that stuff I think it's awesome and I love being helpful in those situations but along the way you just have to learn you know I have had this thing where I started as a media buyer on the brand side then I went over to an agency and looked at multiple Brands and I learned very quickly that not every brand worked quite like Kao where I had started as a media buyer okay and then I became the head of marketing at Common Thread Collective and or excuse me the head of growth right at Common Thread Collective and was an executive there and it was like okay now I'm seeing more and more Brands and I figure out how to coach people in this business and then I went to 4x400 where we owned and operated up to six brands at a time and those Brands were all different from one another from a skincare brand to my baseball glove wallet brand to the you know whatever all these different brands that had that and now I've gone and and now I've been you know running my own freelance and then agency business uh for the last couple years and again have a different set of skills well that that represents 10 years of experience that represents a lot of wins and a lot of failures and man I have learned so much from both of those things and it's just impossible to replace the Reps uh at first okay so if that is you the key solution to that problem if you are relentlessly pursu pursuing profit is twofold the first is and this is something I cannot express enough find the people in your life who will be on that Journey with you over some longer amount of time do everything you can to get them to be honest with you and to keep a good relationship with them and then process and analyze as you go and note What You observe Etc somebody doing with you for a long period of time especially if they're um smart and talented and all those things even if they don't have a ton of experience right if they if they're smart and talented and can analyze over time and can keep building their mental Bank of knowledge can be so incredibly helpful to you and your business um I am incredibly thankful to have done all of my 10 years in some way or another alongside Taylor holiday sometimes formally as people working in the same company for a lot of that time sometimes kind of technically as business partners sometimes just as friends where we can just text or send each other or Marco Polo or or you know video message or whatever it is get on the phone talk have dinner any of those things and say Here's what I'm seeing what are you seeing here's what I'm seeing what are you seeing and process and process and process and as as we're talking about the things that we are doing in our businesses where there's wins and there's losses and everything in between we're able to take those experiences and turn them into intellectual experiential capital u in our minds that we can take to the next thing so that's one thing to to help with the ignorance problem okay the other thing you can do though is make sure to get the best quality input and this is this is another crucial thing that I think is is really tough okay um because on top of ignorance uh there is also like bad ideas bad ideas is its own problem that's sort of related to ignorance but it's different there's just like this massive proliferation of information related to uh to e-commerce and dtoc growth right now and uh and some of the ideas are wrong some of the ideas are bad and one of the best things you can do is give yourself a steady diet of uh D Toc nutrition you know you know the stuff that's really good for you now the problem is if you're ignorant it's really hard to sort out what are the good ideas and what are the bad ideas uh if if your experiential capital is low it can be more difficult to sift through those ideas and this is also where like a great agency partner can be so helpful somebody that you really trust and let into your business if now this is risky because if they're the wrong person it can be can be very hard but like uh somebody who can be led into your business who can give you really good advice and give you really good guidance actually one of the things I've noticed about my clients when this has happened is that the clients that are successful and have a longer relationship with me first of all they see the world the same way as I do like they they may not be trying to build a huge business in fact most of them are not trying to build a huge business at least not in the very very short term I'm probably the wrong fit for them if they are if they want to go really really fast really really big okay but they are trying to base the Valu their their Pursuits around profit they they've really fully internalized the idea that profit is the basis of their valuation not not just growth right no like the size of your business the amount of profit is really important for your valuation so this is where growth can matter a lot and by the way there are good arguments at times to grow faster and we'll talk more about that in a minute but they are ultimately doing anything like that towards because they care about a bottomline number of everything else and they're trying to build their business around how do we generate a really big bottomline number now that's within whatever constraints of their lifestyle they want you know one client who really wants to um spend a couple hours every day outside being active and he's just like look I know I could probably go faster and bger if I didn't do that but that's what he wants to do I love that I think that's great so there's there's some uh there's some limitation to how quote unquote Relentless he's being about pursuing profit right but in his business he's very clear that profit is the goal and therefore we have alignment around what we're trying to produce in the business and therefore all of the conversations that we have about strategy come back to that shared very very clear goal how do we produce a very big profit number and that's what we care about that's what we talk about that's what we analyze and now I can serve him really well because I've got some experience that I can bring into the business about how to think about forecasting the business to generate that how to build an ad strategy that's built around a really true profit first ad strategy how to think about Opex and Advising around those things what kind of Partners to bring in to other channels in the business when should we do Channel expansion when should we not all these questions that are strategic and tactical and everything in between for the business I can now do that because we're so clear on this so they are pressing down really hard on relentlessly pursued profit and the thing is where their knowledge stops they've now got a relationship with me where they trust me and they say like can you please help me with that now I'm not the only person out there who can do that right uh it happens to be that I've seen 10 years of these businesses I I think I do know how to generate profit in a business if you have um product Market fit in some way or another and you've got these fundamental economics built in a way where this thing can work yeah over given enough time we will keep pursuing this and we will make sure that we doggedly uh relentlessly pursue profit if that happens I can be a really good guide and my knowledge can cover over theirs and I think again this is just something it's really easy to underestimate if you in your business are not experiencing profitability in the way that you want it may be that you need to have some humility and invite somebody in to give you the help that you want uh to to get there and to invite the right person in now if you want somewhere to start for the best information that I know of for this that will shield out bad information and help you find good information you know look I hope my podcast can be that for you this is why I do it um I think it's it's really really fun and satisfying like I said to do that look I'm biased but I think my information is mostly right I think I think I know how to do it okay so there's that I'm not the only one who's right but that that's that's what I'm going for if I didn't think that right uh I would not keep doing this okay so there's that um but this is also why I push people all the time to admission from Common Thread Collective I think there's there just so many um I get I get a lot of requests for coaching and things like that and there's just a lot of them that I have to say no to or my price is high or whatever it is I keep a pretty small book of business like I said not trying to grow a big thing and so I say no and so over and over I send people to admission from Common Thread Collective and the reason that I do that above everything else uh is is because I believe in the quality of ideas that they have more than anybody else's that I know of I'm sure again I'm sure the other ones exist but this is the one that I know where the quality of ideas I completely trust and what I know is if you were an earlier stage founder and you are at a spot where you're trying to pursue profitability in your business but your own lack of knowledge is one of the things getting in the way if you will throw yourself into the information in admission from Common Thread Collective and into the relationships there because there's a community into the coaching there you can get very good price coaching and I'm going to put my affiliate link um for that it is an affiliate link so just full disclosure right um I'm gonna put my affiliate Link in the show notes here where you actually get your first coaching call for free so it's $150 an hour um uh coaching call and you get the first one for free when you sign up for admission okay so I'm going to put my my affiliate link there but the whole reason that I built that affiliate relationship the whole reason I do this is and and I send people there is because I ultimately believe that and look if the affiliate thing is going to make you nervous that the only reason I'm recommending this is because I get a little Kickback that's fine email me podcast aaf.com I will set you up with admission and I will not even take the affiliate fee because that's how much I believe in it okay so so just so you know okay but that's why I do it because I think the quality of information is good um again I love how much information there is out there but I actually think that uh now the problem is sorting through the good and the bad ideas and this that's Source where I think the ideas are consistently good and if you can do that and follow what they say you can get a real jump start on the on the gap between your experiential capital and the experiential Capital required to build a really good profitable business okay so ignorance uh bad ideas are are part of the problem um okay let's talk about uh another one that is a huge huge problem for brands that gets in the way of their profitability and that um and is the reason why again I say if you relentlessly pursue profit you will actually get it um here's something that gets in the way of the relentless suit of profit growth you probably know that you need better pixel tracking than what is available to you native with the native Shopify meta pixel integration I hope you know that if you don't know that let me tell you that right now you probably do need upgraded pixel tracking to make it so that your meta ads dashboard reports data more accurately your events manager records shows more events being recorded on your website in a post iOS 14.5 environment and there are a few options out there that do this all of my clients use Billy that's b i l. a and they do not use Billy because Billy started sponsoring me I took Billy as a sponsor because my clients use Billy they came to me like six months before we did a sponsorship and said we want to show you that we are the best third-party 100% serers side tracking pixel available to any brand out there we will show you that on your own client accounts we ran tests we tested Billy against the native integration we tested Billy against other thirdparty Integrations and consistently found that Billy had the highest quality event matching and at the same time saw better in platform results recorded more results more accurately even saw one brand have an immediate increase in spend after installing Billy and so I a huge fan of Billy it is also significantly cheaper than all the other options in the marketplace for many of my listeners it will basically require you to sell one or two more products per month for Billy to make Financial sense for your business it is really really affordable so go to B ly.

A to get 100% serers side tracking upgraded pixel tracking and more accurate data in your meta ads dashboard get it started right now this is something I see over and over where brands have a very hard time slowing their growth down look any e-commerce Gathering you go to somebody may start asking the question oh how big is your business and there is and that that just illustrates the bit of like Pride that has to that you have to be ready to deal with and the sort of you know sense of self that you have to deal with around this question of how big your business is nobody ever asks how profitable your business is partly because it's kind of too personal right but they ask how big it is and I ask that question sometimes because I just want the context I actually don't care in one sense like how big the business is if you're human I'm interested in talking to you right because you're valuable just by nature of being a human uh so I'm I'm glad to talk to you at any kind of a gathering uh with that but what I want to know is the context like you know what challenges are you probably facing well those are really different for a100 Million Dollar business and a $50 million $50 million business and a$1 million doll business and a$1 million doll business there just different challenges in the businesses and if I'm going to talk to somebody about their businesses I like to know the context of what they're dealing with okay so that question might come up but what I want to illustrate here is when you say that number it is so easy to attach your sense of self and selfworth to that number and therefore sometimes in your mind slowing your growth or even reversing your growth like literally going backwards for a year for the sake of profit even if it's the right move is incredibly painful and sometimes it's even just sort of outside your control like you just have all this inventory and you have to keep growing you have to keep selling it just to turn the invent back into cash right so you're just sort of stuck that can be another problem but but part of it is this and I want you to be so aware of that reality that growth the pursuit of growth can be a direct detriment to your profits it really can this is especially true in your ad account I think it is so easy to spend bad money to keep growing the business because you feel like you have to keep growing the business um and and you know you you you want the spend number and the revenue number to go the right way when actually like the thing you need to do is shave off the worst 20% % of your ad spend or 30% of your ad spend and what that will do is trickle straight to the bottom line because that 20 to 30% is the least profitable part of your ad spend and if you just cut that down a little bit you could you would slow down a little but you would actually have a whole bunch more profit because it's just actually that 20 to 30% is just a pure cost center right all it is is cost in your business you're acquiring customers that are losing you money and that's the reason and so you need to you need to slow them down right but growth growth can be this really big problem this this internal sense external sense whatever it is that is is pushing you to grow the business uh that can be at the direct cost of profitability now take what I just said about growth and multiply it by 20 if you have investors if you have to go to your investors and say to them we are slowing down our growth in many cases that will be a very hard conversation now if you have the greatest investors in the world they will hopefully realize that their investment is going to be valued based on the profit your your company produces not the total revenue number and so if you can make the to those great investors like Hey we're slowing this down because we're going to create more value in the business by doing this hopefully they will realize that what they just that what you just did for them has made them more money okay um but that can be incredibly hard there's all this external pressure I've seen external boards give uh you know Revenue numbers that a a client has to hit that they're like sort of apart from profit or whatever and say okay go hit this Target and they're just totally and completely unrealistic and so then the re then you know they've invested money and they say well you're supposed to spend all this money on ads or on inventory or whatever and that's going to grow your business and that's going to you know forget profitability now you're going to get there in the future which again it's another illustration of this idea if you relentlessly pursue profit you will never say forget profitability now you'll get there in the future or if you do it will be based on a very very good forecast okay right like you have an extreme LTV business and so you know that it's actually true but otherwise in many cases there will be this external pressure that's really really hard and it will require serious mental and emotional fortitude for you to go before your board and say we're going to slow down before go before your investors and say we're slow down we're going to make a bunch more money by doing it trust me this is going to be much better now a couple years ago that would have been the wrong decision this is another important point and this is why actually you need to like be ready to deal with and walk with people through these things right five to 10 years ago Taylor holidays made this point a bunch of times which is like the early wave of e-commerce IPOs even though a lot of those businesses have turned out to be like unprofitable nightmares where their um where their companies have become less and less valuable since the day they ipoed and or whatever brands that sold you know to Giant uh cpg companies or or whatever is have ended up making like you know been really bad Investments for some of those really big Acquisitions whether it's a you know private company acquisition or or an IPO or whatever they've been bad Investments because in that early wave uh the uh they were valued on Revenue they were valued on growth and the idea was big as good it didn't really matter if they made money and in that case it was completely rational to disregard everything I'm saying in this episode and say no actually what we cared about was growing to a certain amount continuing to raise money keep growing the bus business keep growing the valuation and sell out a high valuation if that's what the market was dictating I think there's nothing immoral about going and behaving according to what the market did right um in this case though the Market's not dictating that the Market's saying for for now and for as long as we can see no e-commerce businesses are not software businesses they have some economy of scale but they do not have software economy of scale and therefore we do not want to grow forever uh at the cost of profitability we actually need to generate profit and if you want to sell your business it's going to be based on profits and what I have seen over and over is that externally funed Brands especially if they come in with that kind of pressure from their investors externally funded brands have an extremely hard time turning around and changing strategies uh midc course especially if they raised money four years ago five years ago when it was sort of in between this like Revenue versus profit valuation stage and now they're like actually it's like all profit like if you started on the grow really fast and don't worry too much about profit phase it's so hard to make the switch like sometimes literally again you just have too much inventory and so it's just you have you can't slow down or you have to really have a really hard time I actually watched one business do this incredibly well uh where they were they were like grow grow grow grow grow try and sell the rug got pulled out from under them right when they were trying to sell the business after they' had this whole mentality and then they had all this inventory on hand and suddenly they were running out of money and they couldn't finish the sale because that market condition changed right at the wrong time I mean just right at the wrong time and they took a couple of years changed the whole business and now they're actually profitable and doing doing really well and it's really impressive right they've been able to um change the whole thing around by doing all that so um but it's really hard really painful the CEO ate it for a long time it was very tough for him I I've talked to him about it it was a very difficult decision um so uh growth can be a really big challenge now at the same time I want to say something else which is that it's possible that you should keep growing even at a short-term loss sometimes because of the LTV and this is actually one thing like if you relentlessly pursuing profit you might be saying I know this business presents pursues gets more profit at $100 million than it does at 10 and I want the profit number to be as big as possible because that's what my valuation is based on so I am going to reinvest my dollars into marketing over a long period of time instead of paying a big tax and give 40% of it to Uncle Sam every year at the end of it uh I'm going to reinvest into marketing because that's the best use of my money to generate the profit outcome that I want there is an argument to do that at times that's really different than saying grow apart from profit it's really different than that it's actually built off of a plan and a strategy and Clarity to those things and so uh so you can do that and that can be a really reasonable thing as well uh but um but you need to know exactly what you're doing why you're doing it what the timeline is what how you're thinking about the tax calculation all those kinds of things all right lastly there's the silent killer of of uh relent the Relentless pursuit of profit and it's it's really around this idea of relentlessness it's the idea that at some point inertia becomes a problem you end up with just this issue where you just can't keep doing the the whack game to the cost centers in your business that you feel like you should be doing at some point like you just you just accept your Rass in your ad account as like something you'll never beat and you just kind of keep spending on it and you just you're tired of shopping a million agencies and trying to find the right freelancer or the higher or whatever who can actually generate this better and so you just kind of accept it or another one I've seen commonly right is um uh I think again this is a Taylor holiday phrase but e-commerce lifestyle bloat um sometimes this is like software where like suddenly you just keep adding software and nobody's really paying attention and you know your clavo bill gets really big and nobody ever downgrades it and you just it's just kind of an unmanaged thing that nobody really notices that happens or even the lifestyle bloat side of it more is is like suddenly you're just like going on more client trips your photo shoots are getting more expensive you just go yeah this is what we need to do bigger Brands pay more for these kinds of photo and video or whatever now look you may need toay pay more for photo and video uh it may be a good investment for your brand I'm not saying you shouldn't do that what I'm saying is know exactly why you're doing it if your Opex starts to kind of tick up and up and up and up and up that's the lifestyle blo idea suddenly the uh the Prius that you're driving is not good enough for you and you got to drive a Mercedes right so to speak quote unquote and and uh and I mean maybe that's actually what you do right but the that can happen in your business in all kinds of ways and this little inertia takes over where you just get tired of pursuing these sorts of things there's this uh great book called The Outsiders actually references in my episode of Drew Fallon a couple weeks ago about some of these financial principles as well where uh this uh writer profiles a bunch of large company CEOs who whose companies had performed very very well relative to Market uh you know public companies relative to relative to the market over a long period of time and one of the things that he notes about a lot of them is that a lot of them just hate bad costs they just like they just aren't the businesses that go and build monster offices you know and and the cushiest kind of things and they're flying private everywhere or whatever right they they just they just hate that stuff they tend to be lean they tend to be careful not all of them but like because they just know that putting up a very large profit number even at that level of business over you know in the time that he was doing that was going to generate value in the business and they just hated unnecessary cost in their business and so they just pursued those inertia is something to really watch out for you just start accepting things as the way they are instead of going like stop don't launch that product it's not good enough change what you're doing stop uh accepting the manufacturer terms that are we need to go renegotiate that and you keep staying Relentless Relentless Relentless in your pursuit of those things and what is united in all of those things I just laid out is this idea of relentlessness if you actually keep saying every day I am trying to generate a great bottom line in this business if you do that you will push through almost all the things that I just said uh most of the time right maybe all of them uh some of them will pop up it's really hard to do this exceptionally all the time right it's easier said than done I can sit heing lay them out in the podcast but it's a lot harder to execute but the but that's the that but it can be done it can be done if you are able to just keep pursuing those things so uh there's more to be said about this and I'm GNA probably have some future episodes where I dive into some more of these kinds of things but the Relentless pursuit of profit is is a strong enough Central tenant in a business that wants to produce a very high valuation in e-commerce in DDC that if you do that um and you really let that thought lead you to where it should lead you if you follow it all the way down you can produce very profitable e-commerce businesses you can produce a very very good business even if it isn't that big you can produce a very very good business I know because I see it with my clients I've watched it happen over and over you just have to stay Relentless all right thanks so much for watching for listening if you're pursuing profit in your business don't forget to visit both of my sponsors that's why I bring them on this show because I think they will make your business more profitable I really do I use them myself that's why I know that so that's that's a more Staffing virtual assistants can be helpful virtual professionals can change your business go to more now.co and go to billy. a to get upgraded server 100% server side tracking for your meta ads I use Billy as the pixel provider for all of my clients and you should do the same thing it's an incredible uh value it's incredible software uh if you like this episode I would be so grateful if You' share it with somebody else who also would like it that's the number one way you can say thanks to me for any content that you have gotten value from and uh of course you can also reach out to me at find everything I'm doing at a.com you can email me a podcast at a.com or reach out to me on Twitter at andrewj Ferris I would love to hear from you i' love any questions you have any thoughts you have thinking about putting together another AMA episode and so uh just need to know what the topic should be so uh yeah hit me up with any thoughts on that please do that I would love to hear from you thanks as always for watching for listening talk to you next time [Music]