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On this episode, Taylor and Richard break down the most important trends in ecommerce, and discuss what the future holds for margin innovation, AI, and the connection between marketing and finance.

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Hey everyone. Richard here, revenue's flatlining. There's a chill in the air even where Taylor's at in Southern California, where I understand it's a frigid 73 degrees, and that can only mean one thing Q4. Almost upon us. Now, obviously it's the most important time of the year for pretty much everyone in e-comm, which is why we're bringing back the Admission All Access membership for a limited time only if you missed it the first time.

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[00:01:28] Richard Gaffin: Hey folks. Welcome to the E-Commerce Playbook Podcast. I'm your host, director of Digital Product Strategy here at CTC Richard Gaffin, and I'm joined as I always am by Taylor Holiday. Who's the c e O here at Common Thread Collective? Taylor, how you doing

[00:01:42] Taylor Holiday: I am a little tired. I made the mistake of trying to hang with the e-commerce Cowboy, Mr. Chris Hall last night down at San Diego, and so, I don't quite got it like that anymore, Richard.

So I'm a little tired. 

[00:01:52] Richard Gaffin: sorry to hear that. Is is the e-commerce cowboy, like all, all cowboys good at, good at kicking it or whatever. , like he goes, goes hard, goes late.

[00:02:00] Taylor Holiday: well, between, between him and the, the heart and soil boys, they're all you know, all hopped up on their warrior pills and, and cow liver. So, you know, they've really got this like, true carnivore energy that I gotta try and match as well. 

[00:02:13] Richard Gaffin: All right. So it's not necessarily about them being partners and more about they're getting a lot of collagen and organ meats and whatever,

[00:02:19] Taylor Holiday: I'll just say this, at about 12:45 AM last night in San Diego, I was drinking raw milk on a balcony. That's, that's how my, that's how my night ended. 

[00:02:31] Richard Gaffin: In some ways that's that's probably the most illegal thing you could have done, I believe. Right. So,

[00:02:36] Taylor Holiday: I don't know where, I can't, it can't attest to where it came from, but it was in the fridge and. I'll tell you what I was surprised at, how delicious it was.

[00:02:44] Richard Gaffin: Interesting. Okay. I'll, I'll have to procure some myself at some point. Okay. Well one other thing that happened beyond staying up too late and drinking raw milk yesterday was you participated in a, well, a panel, I guess it was right, called 2024, the year of blank, and it was you and a couple of other e-commerce thinkers sort of sitting down and, and breaking out what you sort of thought the future of e-commerce was going to be in obviously the next year.

So. We'll kind of tie this into another, I guess, round of Defend that tweet featuring Taylor or defend that X or whatever we're calling the actual product of the platform. I have no idea. But, so yesterday, or what was this? The 14th, so this would've been last Thursday, you tweeted three beliefs are governing my vision of CTC today.

One, predictable, profitable growth is the most valuable thing you can sell. Two, all production level tasks are on a freight train to zero cost and infinite volume. And three, connecting marketing and finance is the missing link. So I think like today what we wanna do is go through each of those categories, talk about what it means, both for us in specifically, and then for, you know, all of our listeners out there as well, and how you think that is specifically gonna play out in the next year as well.

And maybe we'll also break down a little bit what some of your conversations were yesterday. But maybe, yeah. Let's start with the thought. What was the general thought, I guess, behind this, this tweet? 

[00:04:05] Taylor Holiday: I'm in the middle of a couple of overlapping tasks right now. One is forecasting C'S business for 2024.

My budget is due here pretty soon and what that means is, I have to look at each of our service line items. So at CTC, we do growth strategy.

We do paid media strategy, paid search strategy email, s m s, digital products, creative strategy, all these different functions. And I'm thinking about the growth of each individual line item. I'm reflecting on the growth for the past year, which services grew, which services shrank, which grew the most, and why.

And I'm thinking about the future. As well as preparing for this panel where I have to come up with a philosophical idea about filling in the blank on 2024 as the year of. And then also just the strategic direction of CTC. I usually start writing alongside my budget, a strategic plan and shareholder letter, and I'm starting to gather all of this information, and so it forces me to do some thinking about what I believe about the future. And this tweet is sort of an output of that, and my conversation on the panel is an output of that as it relates to what's happening. In the world or what I'm experiencing inside of our businesses, in the business of our, of our partners and clients. And so that's what I was trying to put together when I thought about each of these three things.

[00:05:19] Richard Gaffin: Okay, so then let's, let's maybe just dive into each one, one at a time and, and unpack them a little bit more. So first one, again, 0.1, predictable, profitable growth is the most valuable thing you can sell. And of course you're talking as . Specifically from an agency perspective. Right. 

[00:05:33] Taylor Holiday: That's right. 

[00:05:34] Richard Gaffin: expand on that a little bit.

So, maybe at first blush it's just sort of like, well, duh, that seems like obviously it's the most valuable thing you can sell. Everybody's looking for it. But maybe expand on why this is sort of a unique observation or perhaps like a unique offering in this space right now.

[00:05:50] Taylor Holiday: Yeah, I would just say that I think about kinds of things that you could try to accomplish, like let's imagine you could attempt to Grow a hundred percent at a 25% likelihood of success, or you could try and grow 15% at an 85% likelihood of success. I think two years ago, three years ago, the more compelling offer would've been the first one I. Higher potential upside at the more variable risk because being wrong had less consequences. There was more of a cushion for failure because capital was available. You could go raise another round, you could get a line of credit, you could come up with some way to try again. And so in that scenario, shooting for upside is really, really important. 'cause it's a high floor, you want a high ceiling.

But I think today, It's actually different. I think brands would be, are much more interested in 15% growth with 85% certainty.

And so that's a lot of the way I think about our service is that I wanna be able to offer to brands certainty,

confidence. And if you think about what e-commerce really is, is it's a bet on your ability to buy a physical object from your manufacturer to be produced. To have that delivered to you on some expected timeline, then to sell that to a customer and realize the cash and some ability to predict the amount of those things you're gonna sell and the time it will take to sell them. And the more that you get those things right, both the volume and the pace, more predictably you can turn money into more money

And if you get any of them wrong, the pace it takes longer than you think. It's faster than you think, or you get the volume wrong. There's more than demand than you think, or less demand that you think It deteriorates cash in all directions.

Now, if you were to sort of make an XY matrix of too much, too little, too fast, too slow, there's some quadrants in that XY matrix that are riskier than others. Like if you have too much inventory and you sell it too slow, that's like the highest risk of death, the most deterioration of cash. But if you have too little and you sell it too fast, Also is gonna create risk.

'cause that means there's gonna be a gap in your earning before you can make more. And it might mean that you have to pay to rush inventory that deteriorates the margin on it. So like the sweet spot is the right amount at the right pace. And that's a hard exercise. It requires the connection between demand planning and demand creation to be really in sync in ways that they haven't been up until this point. So I think right now, everybody's coming out of a, the last three years, which were extremely volatile. A lot of brands almost died of indigestion,

meaning they got too much stuff and they couldn't process it through their system fast enough. And their balance sheets got stuffed with inventory that they couldn't turn into cash and then they had to liquidate.

And it was just this wild upswing that the idea that they could look out next year and with say, with immense certainty, we are gonna grow this smaller percentage, but in a way that we can predict and plan and execute against, is a really compelling idea in many cases.

[00:09:03] Richard Gaffin: Yeah. So yeah. Another way to put it maybe is like what we're selling is rigorous. In smart goal setting. Basically that's what we're selling to people. It's like the ability 

[00:09:12] Taylor Holiday: Yep. And then the execution against it. Yeah, 

[00:09:14] Richard Gaffin: take the time to, yeah. A combination of the goal, like the forecast, which is we talk about a lot, is you build a model, the model breaks, you build it again, you try to execute towards it, that kind of thing.

[00:09:24] Taylor Holiday: That's right. And so, so we would call it like, so if I think about the first three slides of the CTC methodology deck, slide one is, We exist to help create predictable, profitable growth.

[00:09:35] Richard Gaffin: yeah.

[00:09:36] Taylor Holiday: Slide two is profitable growth is a function of great strategy raised to the power of execution. I write it in a formula, so growth equals strategy to the power of execution. Then we go into, okay, it's a Richard Rummel quote around what is great strategy, and he would describe it as a process that involves diagnosing the problem, building a plan to solve that problem, and then building a set of actions that execute that plan. And that sort of leads into e-commerce diagnostic into the CTC growth map into what we call the P3 system.

And it sort of sets up, okay, how do we do that? But that idea strategy raise the power of execution is really the key.

[00:10:11] Richard Gaffin: Gotcha. So, one thing that everything alright. Alright. Just office shenanigans. Okay. So one . One thing that or, or rather let, let's start it here. If you're an avid listener of the pod, like none of this will be particularly new to you because we've, we've talked about it before, but one thing, maybe a way we can expand on this here is obviously the, the title of the panel that you were at yesterday was 2 20 24, the Euro of Blank.

How'd you fill in that blank relative to this specific thing? So what does 2024 look like relative to how people think about growth and forecasting and profit and growth? Yeah. All that kind of thing.

[00:10:48] Taylor Holiday: so my answer was 2024 is the year of margin innovation.

[00:10:52] Richard Gaffin: Hmm.

[00:10:52] Taylor Holiday: So what the heck? What do I mean by that? Well, All of the innovation in our industry, so let's just use e-commerce as an industry. And innovation being the technology and tools and services that all develop around what the industry wants has a different driver in different seasons.

And I would say in the last three years, we were in a revenue innovation period. And so the tooling services and systems were all predicated on helping brands scale.

Helping them get volume. You have. You think about even just something like meta where what you get in a moment like that is broad audiences. Remove all

filters. Don't pre-select any definition. Let us go as wide as we can and get you as much value as we can. Lowest cost broad audiences is a example of a byproduct of a revenue innovation, where the driving principle of the industry is about volume. What I believe we're in now is margin innovation, where the driving principle of the industry is about efficiency and that's, it's all tied to the cost of capital.

It's all tied to the avail availability of capital. But when it doesn't, when capital's not really available, businesses have to produce their own free cash to be able to buy more inventory.

They need tools that they, that create that for them. And so, as an example, alternatively, I just got a DMM from our Everybody's favorite Facebook rep on Twitter. I won't use his name, but you know who I'm talking about, to inviting us into a beta for profit optimization as a campaign objective. Inside of meta, what Meta's gonna let you optimize for profit?

Yes, because that's what the industry demands in this moment. Additionally, all of the service messaging and tooling. Are things like, another great example of this is like port list. Have you ever seen, there's, there's a business called Port List that is basically helping brands do fulfillment directly from China with their inventory. And so what you're gonna see is all the innovation in our space is gonna be about helping brands make more money.

Even even I was at a conference for Sendlane, which is a new competitor, Klaviyo. Their basic business model, and this is a little bit of our simpl oversimplification. I don't mean it to be derogatory in any way, but their basic business model is 90% of the features at 50% of the cost, right?

Like, and the point is they know the market right now.

What they need is not all of the little features that drive more volume and more specificity. They need the basic core product, and they need it at a better price than what Klaviyo has gotten to. And so all of these things are indications that the market now has a different driving principle than it did three years ago. And so margin innovation is what is gonna happen in our space. And the end result is like, we're a healthier industry and I think it's gonna be a really, really good thing for us. 

But there's a lot of pain along the way. These are cost cutting measures. These are cost reduction measures. They're not rapid growth measures, right?

Which likely means all the labor along the way, like I think about labor innovation is.

If you look at all the things like growth assistant and Shepherd and all these things that are allowing people to outsource, oversee labor or even AI becomes a component of this where margin innovation. Just yesterday I saw Harley from Shopify post about how in the shop app now use, you can create an instant 3D render of your product to create product photos inside the app for free.

Like, That all helps reduce production costs. Like these are just all things that are gonna help us create more output at lower cost, and that's what I think the year's gonna be.

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[00:15:01] Richard Gaffin: Yeah. So there's, okay. I have, this is maybe a little tangential, but I'm, I'm curious, so if 2024 is a year of margin innovation, 

[00:15:10] Taylor Holiday: Yep. 

[00:15:11] Richard Gaffin: what, what was 2023 then?

[00:15:13] Taylor Holiday: Yeah, that's a great question. So I, I think it was the year of self rediscovery.

[00:15:19] Richard Gaffin: Yeah.

[00:15:20] Taylor Holiday: Like where we had to reconcile who we were now and we didn't know, like, we're like, what is the world gonna be? Is it this? Is it that? Is it coming back? Is it going away? What's demand gonna be? And I think it was like, it was the year of reconciliation, of acknowledging we have a problem and that we need to reconstruct these businesses and that the path, it's not gonna be like it was anymore.

That curve isn't coming back. We're on a different plane. We've now gotta go solve for profit. The capital's not coming, the loan isn't coming, the credit line isn't coming. And now I had to like, so all year we were wrestling with that. Do I take the medicine? Am I gonna cut? Can I get better? Am I gonna get to that acquisition? So I think it was that, I think this was the year we had to sort of stare ourselves in the mirror. And I, I would say we, I think about CTCs journey, like that was the end of 2022 for us. Like we. And I think we were early in, in some ways to that discovery. But I think end of 2022 through now is about that.

It's about self-discovery and reconciliation to a new reality.

[00:16:22] Richard Gaffin: Right. And so, yeah, the, the key difference then being that like as everybody has come to terms now, the entire environment is about this thing. It was about 

[00:16:30] Taylor Holiday: That's right. That's right. 

[00:16:31] Richard Gaffin: profit. And so it's not just a few pioneers who were thinking about this or suggesting that you do it, it's everybody will now be diving in and trying to take advantage of the fact that this is the new reality. So …

[00:16:41] Taylor Holiday: And all the tools, like they take time to get developed, right?

Like they sort of, everyone starts innovating and then next year we start utilizing all that

reality like you're seeing and really, you know, the calendar year is sort of an arbitrary endpoint. These things move in different phases, like I would say send line, send lane's growth and ascension is sort of symbolic of what's happening in this way.

That's like the same day you have Klaviyo's, i p o, you know, you've got all the e-commerce operators at this conference. For this competitive product that's just cheaper. You know, it's just like, that's like sort of indicative of the transitionary era.

[00:17:14] Richard Gaffin: Yeah. Okay, so speaking of margin innovation, obviously like your second point. Around all production level tasks are on the freight train to zero cost in infinite volume. That's clearly sort of more or less about ai. And clearly AI is, is the most, you know, it's in the general, it's in the zeitgeist and, and it is fundamentally, it is a margin innovation tool.

Right. So let's talk a little bit about that. We've had a, we did a pod before about AI and the future thereof, but maybe the thing I want to call out specifically is this idea that production level tasks are on a freight train. Is to say moving fast, moving hard. How do you maybe defend that a little bit?

Like why, why do you think it's what, what's the pace at which it's gonna move?

[00:17:55] Taylor Holiday: that, yeah, that's fair. I, I think I look at What I've seen AI output in terms of how quickly went from Chat GPT doesn't exist to now. There's, I think, 3000 plugins on Chat GPT to now. 

You watch things like code interpreter and mid journey and all these things, and. It seems like the output is moving out like exponentially in a way that if you fast forward 18 months, it feels really hard to imagine that mid journey can't speak into existence, any product photo you could ever want, you know, like that kind of thing. 

And so I think in that case it feels like we're moving really, really fast now. I tend to be a futurist on these things. I can be the mainstream adoption can lag for sure on some of it, but. 

One of the things I really believe, so yesterday on the panel yesterday was Ben, the president of True Classic Tee. And one of my other things I really believe is that the businesses that are going to win in the future are going to be like, have major operational and labor leverage. And True classic Tees is a nine figure e-commerce brand with a team of 57 people. They win because they can spend like 40% of their revenue, 50% of their revenue on marketing and still pr be really profitable because their opex is like sub 10% of revenue.

And, and that is just such a fundamental advantage. And when he talks about why. He says that they like have, he says it's related to culture and values and the way that they see work and the expectation of work and the lack of bureaucracy and their commitment to AI, like as a, as a corporate strategy for increasing output of individuals. 

And you just realize that, yeah, like if you want to grow fast not having moving slow doesn't help and a lot of people tend to gum up the system in decision making and. Also being able to spend more of your dollars in a marketing and advertising is the way you do. It's sort of the same thing that Ridge does.

They, they spend the vast, and so it, it has me sort of, I think I need to reimagine sort of the general baseline for four quarter accounting in this way. That is like, I think opex more and more. I'm starting to believe that like, Part of the value proposition of e-commerce should be lightweight teams and that it should be technologically forward, and it also should be variable staffing.

This is another thing I think is really important, is that most businesses, 50% of their revenue is made in November and December, yet their, their headcount remains the same all year on an F t E basis. And they don't use variable staffing enough. And I think all of, I think the composition of the labor side of the businesses are really gonna change. I think it's gonna happen fast because I think it's such a competitive advantage if you have it and you're just, you're gonna get wiped out by some of these other businesses if you don't.

[00:20:45] Richard Gaffin: That makes sense. Yeah. 'cause I was thinking, or thinking back to our previous conversation, we had a, a section or whatever where we talked a little bit about like what you felt the drawbacks of AI might be. And so that I would be curious to get into a little bit, because as you mentioned, you're a bit of a futurist.

That's true. But generally speaking, I would say the, the e-commerce community is bullish on this for sure. And it's because for obvious reasons like. There or there's, or rather, this is the most obvious sort of margin innovation that you can have. And it also involves eliminating a lot of creative production work, which tends to be the thing that gums everybody down or drags everybody down and gums up the works.

So where do you see there being maybe like for e-commerce specifically, where do you feel we might run into problems with AI?

[00:21:34] Taylor Holiday: Yeah, I don't, I think we know how to ask AI to be useful to us.

So I think what's really hard, I'll give you an a very practical example for stat lists, we right now are always soliciting feature requests from our people about how to improve the product to make it more useful to them internally. 

And recently our media buyers made a bunch of requests for additional mechanisms for filtering. The stats or one of the Facebook overview reports that are like consistent with how you can filter an ads manager, which is their, their experiential, and it's a lot of UI like literal features, like click this button and add this feature and then be able to toggle by these two different filter options. And what Kwa, who's are the developer came back with because he's closer to understanding what AI has the potential to do,

[00:22:31] Richard Gaffin: Mm-hmm.

[00:22:32] Taylor Holiday: is he built basically an AI text-based filtering prompt system. So rather than build the UI elements to add on more ways to filter what AI enables is filter any way you want, as long as you can write it in a sentence and it can immediately sort the data that way. So you could imagine wanting to do like say something like, I only wanna see these four campaigns. So filter by selection, like as an example, is a, is a feature. In ads manager or filter by includes this, but not that.

Like where you would have two form fields and you would click this or not that. And it's like a button you have to push versus typing. me these four campaigns that include this word, but not that word over the last three months and save that report. Click, like, and, and it's prompt based in like filtering and. 

[00:23:25] Richard Gaffin: Fascinating. Wow.

[00:23:27] Taylor Holiday: Yeah. What's hard is that like our people didn't know how to ask for that.

They only knew how to ask for the thing that they had, had, experientially, experientially interacted with. And so one of the problems with AI is that like we don't even know what we're, we can, we can't even conceptualize what we can ask for, you know? 

And so I think you need people who are interacting with it enough and actually, Following the zeitgeist of all of society, learning how to prompt and learning how to ask this, you know, it's funny, I was literally driving the other day, I just stopped my sentence again, but thinking like, if you really had a genie.

[00:24:03] Richard Gaffin: mm-hmm.

[00:24:04] Taylor Holiday: Three wishes, like what would you really ask it to do?

And like, when you really try and figure that out it becomes actually hard to think of. Like, if you could ask for anything, what would you ask for? And you're like, I gotta think of a good question. And that's sort of the problem we're all facing. 

It's like, what do I ask the genie? And I, so I think the drawback, long-winded way of answering your question is we're gonna ask dumb questions and do inefficient things, and it's a, and then we're gonna, and then we're gonna get frustrated 'cause it's not gonna be that valuable and we're gonna dismiss it. And that, I think is, is part of the danger is that we'll waste time asking bad questions.

[00:24:36] Richard Gaffin: Interesting. What would you ask the genie? How, how would you answer 

[00:24:40] Taylor Holiday: I, I didn't, I didn't, I, I thought a lot about like, The experience of my family and the world, and then like my general satisfaction, like creating a permanence to those, some of those things like my kids were experienced, you know, the fullest life that they could or were always joyful or something, you know, and like, or that I, I could become like perfectly satisfied and, and content in who I was, you know?

I don't know. Those sort of weird things, Richard.

[00:25:09] Richard Gaffin: Well, okay. Well, what would you ask the genie of e-commerce, let's say, or like in terms of like the workflow, like, so, say like that type of wish that you just sort of framed for us. If there could be one thing for you, like in terms of the workflow in e-comm, that would be the most, just like game changing, what would it be?

[00:25:27] Taylor Holiday: it, it's absolutely something around creative production process like I am, I I am so sure. 

There is a better way that we have not yet discovered as an industry. I ha I know nobody, nobody that can, that has a like, beautiful, seamless, predictable, creative process.

And this sort of sits in this universe.

It's funny, like one of the panels yesterday was three creatives. So Isaac from Mini Cantana, Zach McMurray from Foreplay, and the guy Daniel who runs Incense, which is a U G C company, and these are like true creatives. Like when asked about ai, they're like, We think this is bad. We represent the interests of the creative and we think there always should be place for humans in this world.

Like that kind of vibe, right? Which is just so hard for me to connect to.

But, or like when they're asked about briefs, they have this really interesting answer, which was like, I think for an iterative piece of creative, your brief should be very detailed. But if you're looking for net new creative, you actually have to make the brief more open-ended and let someone, and I was just like, wow. Feels like so hard to, to work through and thinking through our system where you're like handing to an outsource designer, you know, this, this thing. But yeah, so I think that AI is going to, like, if you think about this workflow, like I, I put this loom in our slack today that was basically, here's a brand. We just went and looked at creative insights about which ads we're performing and then we, out of that, developed ideas around iterations to improve, like, That should be an instantaneous process.

I think there's a world where the, the AI is doing that all the time,

[00:27:04] Richard Gaffin: yeah.

[00:27:05] Taylor Holiday: and it's just making new variations of this ad based on feedback and deploying them and evolving it and deploying them and evolving it and deploying them. 

And it doesn't need, like, if I think about one of these ads is a, is a meme ad. Okay. And it's for our client heart and Soil, and it's the founder's face. Oh, you know, that meme ad like some controversial statement proved that I'm wrong. And he is sitting at the folding table, you know that meme? 

[00:27:31] Richard Gaffin: yeah, yeah, yeah. 

[00:27:32] Taylor Holiday: he says something like, yeah, like beef organs are good for you, convince me that I'm wrong. And it's like his face on it and massive amounts of engagement. 

Great ad. Well, like, so our, our end output of the creative tragic idea was like, well, let's come up with like 10 more statements that are like that.

Like veganism is making you unhealthy and. Whatever other stuff that would like provoke a bunch of people. Well, all that is, is literally a copy change on an image based on the customer interaction and the brand. Like an AI should be able to do that and deploy those ads instantly, you know, like that. 

And so I think that's the, that's like my, my hope is that no, I don't know.

You're a creative.

How does that feel? Does that feel threatening or weird in some way or? 

[00:28:16] Richard Gaffin: definitely. There's, there's an obvious like disconnect in some ways between thinking about the future of creative in terms of thinking of the future of creative labor and what it's going to mean to suddenly not have jobs for people who do iterative work. And then thinking about creative in terms of like, is it fundamentally a good or bad thing?

Let's say all those people then went off and got jobs and it was great and that didn't matter. Would it be a good or bad thing that creative or that AI was producing ad creative for Facebook or whatever? Put the labor question aside for now. Like that's, I, I don't know. I think the reality is that like, this is just what's happening, so we'll have to figure it out.

But there, there's something like, from a creative perspective that I've, I've certainly learned over the last, you know, six years, which is that the, the mindset of somebody creating iterative advertisements. Like even that, that exact scenario you mentioned where you were taking a meme that already existed that.

Right, that people have done a billion times and then slapping 10 different things on it, like. If you are doing that yourself, you're already kind of doing soulless AI creative in a sense, right? Like that's just something a computer should do. Like there was nothing really that you didn't have to sort of reach into your soul to come up with any of those variations already.

And so in a sense, if the thing that we will have over computers in the future is the ability to reach into our soul and communicate to another person or whatever, like, you're already not doing that if you are doing those production level tasks yourself. So in that sense, I'm like, I'm kind of all for it.

Like if really what you're producing is a ton of iterations of just like a product image on a bunch of different colored backgrounds, it's like I don't think it's removing anything from a spiritually to not have to do that anymore. Like it's already there.

[00:29:57] Taylor Holiday: Yeah. And there's a great distinction between that kind of work, which I think is like using data to make informed decisions in a rapid fashion, which to me is like right up a computer's alley.

Then the novel part is just the ability to create the visual, and I think the AI is getting to that place. Versus Alternatively, I met hanging out with those guys last night and they bring up something that they talk about internally in the office that they call the animal-based glow up, which is this idea that after you've been on the animal-based diet for a while, you just look more attractive.

And that is like, Purely a human machination like it, like they made it up.

It's a, it's a story about an experience using language that doesn't exist in a database somewhere. It's like a truly new set of words put together in an order.

Like I, the words animal-based glow up may not exist in any database of ai ever

in human history. Like, so no LA large language model could bring forth that idea. It is truly novel. And the story of it, even the, the example of the employee that they used in the metaphor of like who they were talking about and is like true generative creative that I think will always exist from a human standpoint. 

And I don't, I actually love that. Like I love our people thinking that way about stuff. But that's not what I see us doing most of the time, and that's not what meta creative ad strategy is most of the time. It's this thing where we're like in this very cumbersome way, opening a data tool and looking at numbers, and then writing a brief and then making edits to a person. And it's like all of that is what needs to get squished down to instantaneous production by a computer system. 

[00:31:44] Richard Gaffin: no, that makes sense. I think like freeing up the creative to be able to do that kind of thought work like that to me is, I think maybe we mentioned this last time that that to me is the advantage and actually the really exciting thing from a creative perspective. 'cause again, going back to your example of everybody having to sit down and create iterations of this one meme format The likelihood that the product of that will feel human is actually pretty low, I feel like, which is why people make fun of ads generally all the time because it is a bunch of overworked people who are, have to crank this stuff out.

And so what ends up happening is that like the, the output of that group, and again, I don't know what the actually output of maybe it was amazing, but let's say like that, the output of that group, especially if they're, you know, don't have a lot of time to do it, don't have a lot of resources, whatever The output of what they produced.

People would probably go on and say like, did AI make this anyway? You know what I mean? Because they haven't been given the chance to actually sit back and think of that kind of, yeah, that net new generative thing. So it's like it, the, the ad industry has been producing stuff that looks like it was made by artificial intelligence anyway for such a long time.

Like we actually have the opportunity to free our brains up to actually think of more innovative stuff, I think, but,

[00:32:55] Taylor Holiday: Yeah. I think the question is gonna be like, how do, like how far does the line move of that looks like it was made by AI? 

'Cause I think this goes to, you know, that research, which is, you know, the people will say things like empathy is a thing the AI will never, you know, be able to replicate. And then they did a study where they had people talking to real therapists and AI therapists and they scored, the AI therapist is more empathetic and like, you know, where like this idea that we think we're gonna be able to distinguish between them is just like, where I'm like, you, no, you have no idea.

It is going to be, I might not be real.

You have no idea. You know, like you, you may not have any idea.

[00:33:32] Richard Gaffin: Yeah. That's exactly right. And I think at a certain point, the, the, the sort of production level creative produced by people will feel more fake than stuff produced by AI because the AI can think better. You know what I mean? Anyway. Okay. So , there's a bit of a tangent there, but it's an interesting topic and certainly like, yeah.

The kind of vanguard of this margin innovation conversation, and it's, it's definitely happening. So then let's go, let's finish this off by going to 0.3 here, which is connecting marketing and finance is the mix. Missing link obviously is pretty clear how that connects to the idea of margin innovation.

But why don't you unpack that a little bit. Like what does, what does that mean specifically,

[00:34:11] Taylor Holiday: Yeah. It goes back to this idea that marketing's job is not to create revenue. It's to create profit

and to drive profitable outcomes. In order to do that, they have to have an understanding of the financial components of the business. And as an example, right now, I'd be willing to bet that if you took. Your 50 favorite e-commerce businesses, and you gave me everybody in the marketing org from the c m o through the media buyer, like everybody in that chain of command, and you gave them a test on the gross margin per skew of the business that you'd get like a failing rate.

Like you'd have less than 60% accuracy of people.

Well, how can that be true if the job is to produce a marginal outcome? And so I think this is a, a problem of data availability inside of an organization. Where does it live? Who has access to it? How intimately are they expected to know it? Data transparency, are they willing to share it? Is it available?

Data accessibility? And so all of that. And then incentives and all of them are disassociated right now in many ways between marketing and finance. Or they're re relative to growth goals on the top line, but not on the bottom line. And so I think. One of our big things that we advocate for is upfront. 

The number one job is data integrity, and that includes things that are seemingly stupid, like what is our revenue definition? Like, you'd be shocked. Shocked at how hard it is to create agreement on When we say revenue, do we mean gross sales? Do you mean discounted sales? Do you mean order revenue? Do you know mean total sales?

Do you mean net sales? Do you mean net sales before taxes? What is the definition that you mean when you say that? Creating an agreement on that, like it is so hard. Just that one single data point. Now that's before you get into What do we mean by cost of goods sold? Just the product costs or are we including shipping in there?

Are we including fulfillment? How clear are we on our fulfillment expenses? Does anybody know that? Where do they variable on the basis of what our pay, what's our payment processor fee? Has anybody negotiated that lately? Like the whole stack of variable costs? Who knows them and how that affects then what you can set your efficiency targets at on an ad spend level. For the last five years, no marketer has been required to

know all of those things. It's not been a, it's not been a prerequisite to doing your job, but in 20 23, 4, in the future, it will be, you will be expected to know the gross margin of every SKU and how that informs how you advertise in the ad account and how you think about offer design and, and then connecting that to inventory.

And it's just the sophistication's gonna go way up.

[00:36:48] Richard Gaffin: Well, yeah, so it kind of strikes me that. Points one and two. So one is predictable, profitable growth is the most valuable thing. Two is all production level train tasks are on a freight train to zero cost. Those two things are sort of in, in a sense, present realities. Those are things that are already happening, things that are already happening to the market.

But that third point that you've just made there about connecting marketing and finance, you even frame it in the, in the tweet as the missing link, in a sense, one and two, they're already happening. They're already here. But in order to navigate that world, you need number three. That's sort of the way to

Achieve number one and to manage number two. So in that sense then, you've already kind of answered this a little bit, but so what, what specifically do you feel like the future holds for that? So you, you mentioned like you'll, there's gonna be an expectation to know that. Do you think that expectation is already there or do you think that's something that needs to be developed 

[00:37:39] Taylor Holiday: I think in, in certain places it is, and it's the people that are succeeding. And so what happens is people follow the successful people. And so if you look at the heroes of the first Era, or I don't know if it was 2.0, whatever the you know, all the groups, the Pelotons and Allbirds and you know, away and cast, like none of these people made profit

ever ever. But they were the heroes and so we all mimic their behavior. Well, we've got a new set of heroes now. It's simple, modern, and hex clad, and. And true classic tees. And guess what? They're all

profitable. And so as they begin to share their tactics, what they share is about this stuff. They share about

focusing on contribution margin and they share about that.

And so, That begins to create then the behavior that everybody mimics. And so that's what they talk about in conferences and that's what gets shared on podcasts, and that's what we're, and that's what the service providers then start to mimic.

Like the amount of service providers that I've watched start talking about contribution margins suddenly over the last like seven months

has been, you know, like, it just follow, it's just a trend.

And that's what happens. And so there's a new set of things. And then if you think about like an early curve of adopters, like we're maybe getting closer to crossing into the, you know, like the From the, you know, I don't, I forget the exact terminology for all of them, but getting closer to mainstream with some of these ideas.

And I think that's what's gonna happen over the next year, is those ideas are gonna move into the mainstream. Where it is organizations are, it's gonna be by default that they report on contribution margin,

not like a novel set of thought leaders do.

[00:39:07] Richard Gaffin: Gotcha. Yeah. So I guess another way we could say it is that connecting marketing and finance, not only is the missing link, it's also the common thread between a lot of brands who are doing really well right now. So, 

[00:39:17] Taylor Holiday: There you go. 

[00:39:18] Richard Gaffin: yeah. So I think we're running off on time here, but Taylor, is there anything you wanna hit before we get outta here?

[00:39:24] Taylor Holiday: Shameless plug, like I think that we at Common Thread, collective heads have spent more time thinking about this than most people And we have a system that is really predicated on helping you to do this, and whether you use us as the execution side. So think about that equation. Predictable growth equals strategy to the power of education or power of execution. Whether you use us for the strategy and execution side or just the strategy side to help build an internal system for you to execute against this. If you're going like, yeah, we don't have data transparency and we don't have clarity of costs

and we don't have marketing goals related to them and we don't know exactly how to execute against this, like we built this, it exists, it's there for you.

And we'd love to help. So whether it's system or execution or strategy or execution, we can, we can provide support in either way, but I, we are passionate about this. I want to help rightsize your p and l and put more money in your pocket, and so we'd love to chat.

[00:40:14] Richard Gaffin: Love it. All right folks. Thanks again for joining us and we'll see y'all next week. Take care.