Ecommerce Ins and Outs for 2024

[00:00:00] Richard Gaffin: Hey folks, welcome to the e-Commerce Playbook podcast. I'm your host, Richard Gaffin, Director of Digital Product Strategy here at Common Thread Collective. And of course, I'm joined today by our CEO Taylor Holiday. So that intro was slightly different than the one that I did every single time last year.

So again, keeping up with the 

[00:00:16] Taylor Holiday: it, what was the difference? 

[00:00:17] Richard Gaffin: a touch. I didn't say. Common Thread Collective. CEO, I believe is the way that I usually lead into it. So,

You know, working on it. You know, chipping away every day. So my ring light is broken today. Taylor's still in the office, so, you know. In a week or so, we're gonna finally maintain some broadcasting standards around here.

But so what we're chatting about today is last week we talked a little bit about some big swing predictions for 2024. And this pod's gonna be somewhat similar, but it's it's e-commerce ins and outs, which is, you know, sort of the way that people are doing the resolutions these days. So for instance, I think last week I said my resolution was, you know, 15% body fat, 185 pounds, that's what I'm shooting for. So, I guess outs would not being that and ins would be being that, I don't know if there's a better way to phrase that, but, so for e-Commerce, Taylor back in, lemme see you, you made this list in late December, December 27th of last year uh, gave us a list of 2024 E-commerce ins and outs.

Beautifully arranged in I don't know what you say, sending length of. The line, you'll just have to, we'll drop this in the show notes so you can look at sort of the visual beauty of this tweet. But anyway, what we wanted to do today was call out some specifics from. That list and kind of talk through a little bit about how they're going to affect everybody's year this year in 2024.

So Taylor, let's we, before we hit record here, we kind of talked through a few of these. There's a number of them. I didn't count how many, but it's like 15, 16 of each ins and outs. But first off, maybe let's talk about like, what, what drove you, compelled you to compile this list?

[00:01:50] Taylor Holiday: Well, you know, we're always trying to tap into the side

geist around here, and it was what all the kids were doing on TikTok.

So I figured I'd I'd try and go into it, but I, I think that I'm gonna draw a distinction here between the last episode we did, which we're, when you make sort of predictions or for the year, you're sort of putting yourself way out there in a way that's like highly unlikely to be true.

[00:02:09] Richard Gaffin: Mm-Hmm.

[00:02:10] Taylor Holiday: This list, I think is much more experientially what's happening right now. So it is much less about like trying to guess at will, you know, meta acquire Shopify because you know, Toby and Zuck went dirt pike riding together this weekend. It's much more like, this is what I see happening, this is how the earth is moving under our feet today. And what the consequence will of that will be. So this to me is much more like if I were to look around the landscape of our customers and their behavior, this is what's happening. And so that's, that's I think the difference in the ins and outs versus last week's. Like, Hey, let's throw some, throw some ideas against the wall and see what happens over the next 12 months.

[00:02:51] Richard Gaffin: Gotcha. Okay. And so in a sense, this is less resolutions as much as it is just observations about things that are actually happening. So let's, let's start with the first one that we discussed in for 2024 COOs. Now, presumably COOs have always been around. So in what way are COOs in this year?

[00:03:09] Taylor Holiday: So, so this, this was born out of a trend that's like, again, something that's really happening is that Etsy let go of their CMO and folded the role into the CLO position, and then also Walgreens. Has not named a new CMO after firing theirs, but instead redistributed the marketing function through other executives. Okay, so this is like really big companies that have taken the CMO role and just basically jammed it into an operational function. And what it tends to signal is that when growth and revenue growth is the governing principle of the organization, marketing. The engine for that tends to move up in influence and authority in an organization when those budgets get slashed and costs and the management of costs and profitability become the driving force, operations and finance move forward. And in particular, operations tends to control the mechanism by which the costs are managed. And so you're seeing marketing become subordinate to operations. And I think that that is a signal. The level of authority granted to COOs in the organization is gonna go up

and in e-commerce, this is in particularly true because product is the needs, a deeper connection to the demand creation.

The demand planning and demand creation need to be unified. And I think that In most organizations, the default is that it's easier for the operations leader to take control of the marketing function than it is for the marketing function to take control of the operations. Now, whether that's true or not, or correct or not. I think that tends to be the trend that exists in an era where costs need to be managed. And so I think that our hope is that we can equip marketers to offset this risk, to give them more authority, to grant them control over cost and product and inventory and planning. But I think the trend right now is that the COO, the operations function is going to. Increase in authority because they're gonna be responsible for managing costs. And if you make someone responsible for the cost, they have to have the authority to cut things. 

And to do that, you have to kind of give them hierarchal hierarchic authority.

[00:05:22] Richard Gaffin: Gotcha. So

actually then a good parallel to this is one of the outs on the list is heads of Growth, which of course was sort of the titled best out on marketers over the last like three or four or Heads of marketing over the last three or four years. So we're saying heads of growth is out and that there's obviously w ways that that connects, but is there anything else to unpack there?

[00:05:41] Taylor Holiday: Yeah, I just think that, again, that's a, that is a ERP role,

a zero interest rate phenomenon role, like, which was like, Hey, we need a person whose job it is. It. It was functionally digital marketing managers that

elevated themselves because there was demand for their service and they got. Inflated title, but reality is like the head of growth is the CEO.

That's who's responsible. You can't be responsible for the growth of an organization if you don't have authority over the budget, if you don't have authority over the product development roadmap. Like growth is a function of all of those things working in unison towards accomplishing a goal. And so really what you had is these heads of growth that we're really just responsible for the media budget and the planning of it in a way that and maybe, you know, also email and SMS and these other levers that are intended to drive growth.

But the reality is like that, that. If anything, that's a mark, that's your marketing leader should be responsible for those things. And then you have these, these channel authority leaders underneath it that I think it's just, it's an inflated title that actually represents the idea that they have control and authority over something that they don't. And so I think the title is just it's a misnomer at, at worst or at best it's a misnomer. And at worst it's somebody with, with too much expectation and too little authority. And it's a deferral of the responsibility of some of the key leaders in the organization.

[00:06:50] Richard Gaffin: Gotcha. Okay. So then this is another related to this conversation about cost control becoming sort of more important as we move into this new era. So the next on the list here after COOs and the ins is fixed fees. So let's unpack that a little bit. Fixed fees, ex explain.

[00:07:08] Taylor Holiday: so what's happening right now, and there's like a literally today it's just ongoing. There's like this warfare around People in particular software companies attempting to move into the variable revenue model, right? You've got tap cart and you know, email

providers that are trying to say, Hey, we want a piece of every bit of revenue that we created, right? You watch TikTok move from two to percent, 8%. Like everybody realizes that the way that Shopify and Amazon and these other brokers get, so Stripe they get so large is they get a fraction of every piece of the pie. They get a little bit of every order. So everyone understands that if you can do that, if you can create a variable pricing model where as the customer's business grows, your business grows too. That's a really powerful model. And a lot of SaaS businesses have been built on this idea that their margin that they're allowed to take, that expands over time because they have a fixed delivery cost on a server basis or on a software cost, true cost basis. But the price they charge, the customer increases as their business grows. And that's like been the underlying truth of the SaaS business model for many, many years. And in a period where everybody's trying to manage costs, that model sucks. Yeah. It's not predictable. It's hard to understand. And it, it, it, it just continues to inflate. You never are able to expand your own margin. So I think this is true for software. I think this is true for service providers. I think this is true for everybody, is that brands want fixed fees. They want to realize the margin expansion, not the the product that they're buying from. And I think that's gonna be the flip, is that margin expansion has been happening on the SaaS side and the service side percentage of spend is another deal that was very common in our industry where Again, the problem with it was, is that your service costs didn't increase relative to your billable. So as an agency, your margin would expand, but for the business, their margin would remain constant. And remember, this is the year of margin innovation for brands. They're coming for all those variable expenses, and there's gonna be some provider on the Sasa service side that's gonna be willing to do fixed fees. And so that margin expansion is coming back to the brands and they're coming back for it.

[00:09:13] Richard Gaffin: Gotcha. Yeah. And that plays into, into our, like you've sort of alluded to already our prediction last week of the death of the SaaS company, or at least the slowdown of that industry. Particularly 'cause like the business model that's most or that they sort of desire the most or whatever. There's no longer really a market for it because of the way that costs needed to be controlled.

So this is not, 

[00:09:32] Taylor Holiday: there's just gonna be, there's gonna be software businesses,

obviously. They're just gonna be way smaller and, and they're gonna exist at appropriate margins. I, I just think that what we're realizing is like, wait a second. Why do software businesses get to have 50% gross margin? Why do they get that? Like, it doesn't make any

sense. It's off the back of the same pool of money. And so all that's happening is they're gonna be normalized to much more businesses that are much more consistent with their, the other product or business models in the space. It just is not real that a business should have that price

leverage.

And there's enough competition now, and there's gonna be, especially with ai, the capacity to create increased competition. On the software side such that the, the take rate is gonna come down and the margin's gonna be recaptured elsewhere.

[00:10:18] Richard Gaffin: Gotcha. Okay. So let's go back to the outside of the board here and talk a little bit about this, this sec sort of second out that we highlighted before we hit record here, which was, I believe revenue based financing. So there's, there's some similarities there in the way that the sort of the world has shifted that has caused that to be out.

But why don't you unpack that a little bit for us.

[00:10:36] Taylor Holiday: It's, this is again, the same idea, which is that revenue based financing. The, the trick of it all is that the actual rate that you pay is actually variable dependent on how fast you pay it back. And so it is hard for entrepreneurs to calculate. The actual interest rate on an annualized basis that they're paying because it's variable depending on how fast you pay it back.

'cause they're taking a percentage of your revenue. Yeah. And so it sounds like, like, hey, we're gonna loan you $10,000 and it's gonna be at 4%. But the way that they get that 4% is they take a piece of your revenue every day. And if you pay it back in 30 days, well 4% on money in 30 days. Annualized is actually a much higher rate.

It's closer to the 36%, right? Like the math doesn't work exactly like that, but the general principle remains the same. And so the idea here is, again, it's not a fixed interest rate, it's a variable interest rate, and this idea is that these are all clever ways for somebody else to realize more revenue than is a simple markup on their costs, right? If we think about in retail, there's this very like, well-worn principle, which is keystone prices. Which says that if it costs me XI sell it to wholesale at two x and they sell it at two x from there. So if something costs a dollar, I sell it to wholesale for $2. They sell it to the customer for $4, and everybody's marginal along the way, remains the same. And that's sort of how the industry functions in a way that's fair to every piece of the supply chain. Well in lending or in software, those ideas just got blown out of the water by this idea that like, no, no, no. I have this variable price structure where my costs remain the same, but my revenue increases at some scaling mechanism that I've tied to you.

This idea that like whether it's on order volume or the rate at which you pay me back, I'm allowed to take more margin from you in that process. And I think it's all the same trend where it's just like, wait a second, this doesn't make sense me. The brand wants to recapture more margin. I'm gonna, so I think a lot of that revenue and just so much of it has gotten negative feedback in our industry.

There's a lot more education around it. That said, there's also a lot of desperation out there for brands that are gonna need to find financing somehow.

[00:12:47] Richard Gaffin: Mm-Hmm.

[00:12:47] Taylor Holiday: But I think rather than taking these, this debt that ultimately is not serviceable like, and I think the days like you used to get to be able to get this money unsecured too.

And I think a lot

of that is going away as well. But I think you're just gonna see a lot of bankruptcies, a lot of recaps, and a lot of the thing on the other side constituting a lot less predatory debt in a way that allows the business to actually produce free cash flow.

[00:13:08] Richard Gaffin: Gotcha. Okay. Well, speaking of which, it segues nicely into the our the inside of the board here is if we go to, this one popped out at me because I'd not heard about it before, but the 13 week . Cashflow forecast. so I mean, the utility of cashflow forecast is not a mystery, I suppose, but why 13 weeks?

[00:13:25] Taylor Holiday: That's just a default financial term that sort of represents a window in which you can accurately project the actual payment schedule and realization of revenue on a meaningful

basis. Some brands like like you'll run it all the way out. Like we have a cashflow forecast that goes all the way out through the end of the year, but, um. The, the general working document from a finance perspective is referred to as a 13 week cashflow forecast. It represents close to a quarter, basically, right? So if you,

52 weeks in a year, 13 weeks is a quarter of. The year. So you're forecasting that quarter's, a quarter's worth of cash. And forecasting out beyond a window like that has pretty wide error bars. And so for the sake of budgeting and planning, it's one thing, but when you're talking about the management of the money, it doesn't do a lot of good to to forecast too far out to where the error bars are so wide. But this is a thing that It's funny, my brother and I were talking about this of our early days at KLO and like we didn't have any 13 week cashflow forecast, and now we sit with so many entrepreneurs and we're like, how could you not have a 13 week cashflow forecast?

Well, it's like nobody, nobody really knew to think about that idea. But you know, if you go back and think about the hierarchy of metrics video that we talk about at ctc, like the ultimate primary measure of success in a business is, yeah, does your bank account grow? Yes or no? And anything below that that you accept as the scoreboard, even the p and l represents still an incomplete reality about the performance of your business and ultimately your bus, your ability to realize the cash for yourself as the asset holder. If you actually wanna put the money in your pocket, you have to produce free cash flow. The best way then to understand if you're using producing free cash flow is to actually forecast out your pay, your, your cash flows in and out. And that's all a cashflow forecast is, is like it's my inflows when I'm getting the money and my outflows when I'm making payments. And the novel thing is like, guess what? You can move those things around. Like some people have these like principled things that they do for that are like, we pay all our vendors on the first of the month no matter what. It's like, well, hold on. If you negotiated net 15, you don't have to pay them on day one.

And there's actually no real principle that values that other than doing what you said you did would do within the top confine of the time you said you do it. So I think starting to realize that the mo, the movement of the money is something that's within your control. And seeing the things that actually deteriorate your cash, unlock new ideas about how to improve the value realization for yourself as the asset holder.

[00:15:49] Richard Gaffin: Gotcha. So how common, and maybe you've spoken to this earlier, but how common is that having this forecast built in? You just mentioned a Kayla, you didn't have any such thing. Obviously the world is a little bit different, but to what extent do you think people are thinking about actual money in the bank as the bottom line?

[00:16:04] Taylor Holiday: So I think that this is, I would say if I had to guess brand sub $10 million, I bet less than half of them have a 13 week passport or,

and that might be, that might be being optimistic. But what I know is I know right now that there are multiple SaaS products that are working to help brands create this executive. So the tooling that's being built in the system is all about this problem.

You know, I won't mention the two, two brands now, but like, I literally had a, a demo this week with one of the founders, you know, well known Twitter persona who. Is is in the office in finance space, who's getting ready to launch one?

The final team I can mention, 'cause they're already in market, we, we think they're doing great work around trying to give people real time financial views and tooling. So there's just a lot of the, it was attribution and trying to understand that 'cause iOS, but now the cash is the problem. So all the tooling, again, the biggest problem the market solves for it.

So when margins the problem and cash is the problem, the tooling arises to support the primary issue. And right now it's like, where's the money? Do I have enough? Am I gonna run out? How do I get more? Those are all the problems. And so the tooling and software arises to support those issues.

[00:17:11] Richard Gaffin: Gotcha. Cool. All right. Well also I I'll today, I learned there are 13 weeks and a quarter. Hadn't thought about it that, that way before. Well, there you go. I guess it was like 13 is such a bizarre number, but of course that 

[00:17:21] Taylor Holiday: Yeah. 26 weeks times 52 weeks in a year, right?

26 and a half, 13 in.

[00:17:26] Richard Gaffin: Simple math. All right. Onto the outside. Okay, so this is an interesting one.

Temu Temu out in 2024. Explain a little bit more about Temo here.

[00:17:35] Taylor Holiday: so I don't, I gotta be honest, I don't understand these businesses. They, Temu is, for those of you that know, it's like a Chinese marketplace for products and they are one of the largest spenders, maybe the largest spender. On digital advertising in the United States to broadcast the products.

And if you've gone in there and shop if you've ever downloaded it and played around, it is like, it reminds me of Wish, I don't know if you remember that app, but it's just like, it's like Alibaba came to life in a form of a, you know, social marketplace type vibe. They're doing huge revenue, huge numbers, but on a huge loss.

And I just. Part of it. If you go back to our last podcast, this is Connected. The idea that, I just think that the idea of like selling crap really cheap to people is not a proposition that actually is sustainable. And there's probably some alternative business strategy here that I don't understand that it's more sophisticated than I can realize, but paying tons of ads to sell products were really cheap at a loss. Doesn't feel sustainable. And I think, again, it's a, it's the counter to the movement that we're seeing more broadly I think around quality and authenticity and margin and all those things that I think are on the rise. But who knows? They probably know something. I don't, but I don't get it.

[00:18:49] Richard Gaffin: Okay, cool. Yeah, I was, I was gonna say I was, again, my ring light is broken and I was thinking the exact same thing this morning. Gotta get something that works. So I think, okay. Let's do a, those are kind of the three we talked about before. Let's do a couple, couple of lightning round quick hits here.

I don't think that we talked about this last. wEek. I'm just looking, making sure here, but you'd mentioned here on the ins generative AI creative, so of course, like we've been talking about this all of last year. It was the big news story of 2023 in a lot of ways. How do you see it playing out? Like what's gonna happen with AI in 2024?

What do you think is already happening in 2024?

[00:19:24] Taylor Holiday: There's just no way that we aren't really close to. Upload my brand style guide, upload all my product, library, make me any ad I want with a verbal prompt and every brand. Having that is an as a

resource like I, me and my brother were sitting on the couch watching the football game the other night and playing with Dali on our phones together and. Just like, what could we get it to do while we're just sitting here watching a game? And I was like, my son had playing a soccer game that morning, and I was like, show me a photorealistic image of a brown haired boy in a four green soccer group, soccer uniform, eating oranges after a game in a southern California morning at this weather and da da da.

It's like boom, instant image. It's there. It's like the fact that I can just do that in an app sitting on my couch. It's just like

it's in, it's incredible. It really is. And right now there's this whole set of stuff that's to be figured out about how they're gonna handle licensed and copywritten information like products.

I think products fall into that category in a way that's like, there's gotta be a clear system where you're granting copyright use, but it doesn't end up in the broader AI database and siloing that information. But it's just, it is so coming that every brand has a generative ai. Partner as part of their creative production process.

And it's just like, it's just the capacity is way too powerful to say that it won't exist, and it's going to massively amplify the amount of stuff.

[00:20:48] Richard Gaffin: Yeah. Well, okay, so I, 'cause I think, you know, this sort of speaking out my own ignorance, like what do you think that those, so you've alluded to now the different sort of like. I don't know if you would call 'em regulatory roadblocks to actually using this for commercial purposes, but to what extent do you think that, like do you think that's not gonna be a big deal at all?

Do you think those sort of barriers will come falling down pretty quickly or like what do you see the, as the mechanic by which we start to be able to use this in a commercial capacity.

[00:21:16] Taylor Holiday: Going through. Yeah, I think these Mark. Markets have a way of maturing. You know, I don't wanna parrot the All in podcast here, right? 'cause they just talked about this, and I know they all have different views on whether this is gonna be sort of like a free market solution that just, it becomes. Too proliferated to actually manage and there's too much ambiguity around when something is actually a use, a derivative of a copywritten object

or whether everything's gonna be licensed in part of a deal. I don't, I don't, I don't know enough about the industry to say that, but I do think that the idea that I grant specific authority and permission to some tool to create things in a likeness that I control and own is a really obvious. Short term solution in a way that allows me to just take my library and amplify it with permission for the AI to utilize my product photos, my names, my et cetera, et cetera, in a way that allows me to build with it. That part feels really simple 'cause I'm the owner of the ip.

If I, as long as I can protect it from entering the broader data sphere, so to speak, I think it's gonna be at the very least, that part's gonna get solved.

[00:22:23] Richard Gaffin: Yeah. Okay. So, and then kind of the, the flip side of that again on the outside was studio production.

[00:22:28] Taylor Holiday: Brenda, 

Like.

[00:22:30] Richard Gaffin: how do you see that studio production falling off? Like that's kind of every level or

[00:22:35] Taylor Holiday: I think if there's any part of this

journey of the last 12 years that is, I think, amazingly amazing to me, how much complexity goes into pulling something off in ways that I, I think is just so underappreciated. Its creative production, and I think about like we used to own a really nice studio, and I think about what it would take to pull off a photo shoot. From finding talent to hair and makeup, to you know, getting a, a designer on set, stylist on set, how many people were there? The amount of time that it requires, the physical space that it takes, the storyboarding, the planning, the post-production, the managing of the file afterwards to get them from place A to place b to an editor to like that loop is so labor intense. Both just physically from people and space, that the idea that I can recreate that with a verbal prompt is just, it's an incredible compression of human energy in a way that is just so powerful, and it's an area where there's so much energy required right now for the level of output that exists. And so I think that When you think about efficiency and optimization, it comes for those least efficient things first. And so I think there's just, of all the places that has room to become substantially more efficient, that's the one where it seems to me that like the idea that you can replicate models or product photography or every, like I think about we used to, we, we at klo, we, we would do these shoots.

There's, it was a really fun photo shoot, but we would build complex sets. Like we had a set designer that worked in movie studios come

and create a fake living room, and we would put, like, you'd have to literally build with your hands, giant rooms for a picture.

Like, versus I can now create that entirely in a verbal product and then I can insert a human into it is just, it's wild to think of the, the just reduction of complexity and time and resource that, that, that solves for.

[00:24:36] Richard Gaffin: Okay, cool. So I think that that kind of wraps it first. Is there anything else you want to, any one of these that you think we need to call out or identify specifically that's particularly 

[00:24:47] Taylor Holiday: I just, I, I would, I would, I would look at your business through the lens of each of them. Who is in charge of operations in your business? What's their level of authority? Do you have a head of growth? Why? What is the expectation of their role? Do they have the ability to actually deliver on the expectations? I. Have you gotten to some lifestyle inflation? How lean is your opex? Like, just use it as a filter to ask questions about yourself. Are there exceptions to every rule? Of course. Are there businesses where these things don't apply? Sure. All of those things are true, but just hold it up as a rubric and look through it and go, okay, what might be true for us?

How could we leverage some of these things? And that's with all of their just opportunities to explore your business through a different lens. That I can tell you, working with as many brands as we do, these are the constant conversations that we're in dialogue about in terms of the things that they're considering, the actions that are already happening, the things that are at play in ways that if you can get in front of before you realize them, because they're a need inside of your business, you can proactively solve for some of these problems. I think it ends up being a useful resource.

[00:25:47] Richard Gaffin: Cool. All right, well I think that'll wrap it up for us for this week. Short and sweet. We'll uh, yeah, I think I think that covers it we'll we'll see y'all next week. Take care, everybody.