The Prophit System, Part 5: Executing Against the Plan

[00:00:00] Richard Gaffin: Hey folks. Welcome to the e-Commerce Playbook podcast. I'm your host, Richard Gaffen, director of Digital Product Strategy here at CTC, and I'm joined as I always am by our CEO here at CTC Taylor Holiday. Taylor, how you doing today?

[00:00:13] Taylor Holiday: Doing Awesome.

December 13th, just got done working on my living trust, Richard, thinking a lot about my, my impending death. It's just a matter of that timeline, so.

[00:00:23] Richard Gaffin: Well, Taylor, you're I, I don't know if I should reveal this on the pod, but you're pushing 40, which is, know, one, almost two feet in the grave. I mean, I'm

[00:00:31] Taylor Holiday: that's right.

[00:00:32] Richard Gaffin: it, so that's how it

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

[00:00:35] Richard Gaffin: But, all right. Well, speaking of the future, there's a segue for you. So we're talking today this is part five of our five part series on the profit system, which is essentially a how to build a forecast and then how to execute against it.

If we sort of boil it down to it's most basic component parts. So we started as a reminder in part one, we talked about setting business objectives. Then in part two we talked about turning those business objectives into a specific set of business goals. then part three we talked about how we translate those goals into creative output. And then last week we chat chatted a little bit about how we translate that into a channel specific media plan. And now what we're gonna talk about is how once all the parts are in place, how the gears all kind of fit together and drive the engine and make this whole thing work. And really what this is a conversation about. Is about taking a forecast and then turning it into a reality. I think like right before we hit record here, we're having a conversation about, it's easy to think of and prediction as. Essentially just that prediction. It's telling the future, it's Nostradamus or something like that. If nothing, this thing will come to pass.

But of course that's not true. A forecast is something that you work on and think

[00:01:47] Taylor Holiday: Yeah, so let's see what.

[00:01:48] Richard Gaffin: So Taylor, let's, let's kick off our conversation here about talking. Maybe, maybe talk a little bit about your philosophy or how you think about forecasting and then how our execution.

[00:01:59] Taylor Holiday: and this is really, I'd say the most important part is that I'd say of all the work we just did across four episodes, I think that represents about 10 to 20% of the effort to accomplishing what is accurate forecasting. And this is where our role as active participants in the future deviates from a Nate Silver or some political prognosticator who's trying to build a model about something that they have no control over.

You have to understand that you have control over this reality that accurate forecasting in e-commerce is an exercise in execution more than it is in modeling. You must work to be right. Your job is to make the forecast right based on your behaviors every single day, and that this entire system that we've built is not about be accurately guessing.

It is about creating visibility into where we are importantly wrong quickly, so that we can course correct and make it right. That is our job. And so today we're gonna talk about what is the actual workflow of executing against the forecast or the plan such that you are right. More often the reason we are good at forecasting is because we ha are good at execution that brings the forecast to life.

[00:03:10] Richard Gaffin: Gotcha. So then if a forecast isn't a prediction. What, what is it? Let's talk, 'cause element too of like, this is something that is within maybe the realm of possibility,

[00:03:22] Taylor Holiday: Mm-Hmm.

[00:03:23] Richard Gaffin: Describe a little bit more about like what, what you think a forecast is.

[00:03:27] Taylor Holiday: It's an exercise in understanding the possibilities, so, and the inputs to the outcome you're trying to generate. In other words, it helps you to decompose. An idea like revenue into its component parts to understand the bounds of possibility. Because the reality is that any, the amount of revenue that you could generate in any given month is not infinite.

It's truly not. It exists on some distribution curve of probability, and to understand the range of probable outcomes is really important across a core set of inputs that you have control over that generate the outcome that you're after. So understanding the boundaries of the core inputs allows you each day to understand what to look at, what is possible to achieve, and what actions you can take to accomplish it.

So it's really about deconstructing and understanding at the most intimate detail, the atomic units of your revenue and the levers that you pool that affect those units each day. And so the more of that that we can create, and then across an organization, what it does is it creates the metrics that each individual on a team should be looking at and responding to such that they play their role in affecting the overall outcome.

So it creates cohesion across the team about the metrics they should care about and the actions they should take to solve them each and every day of their job.

[00:04:53] Richard Gaffin: Gotcha. So I think we've, we've talked before on this podcast a few times about how the biggest strength of the entrepreneur, the entrepreneurial type, is also their biggest weakness, which is the belief that anything is possible. And

what the forecast does is it puts boundaries on that. So how do you understand then? So I guess what we, we had is some discussion recently about when you build a forecast, What we essentially provide people is this is what will happen if we sort of proceed business as usual, and, but this is what we want to happen. And then this is, these are kinds of the steps that need to be taken. So how big can that gap get, I guess, between what you wanna happen and what we believe will happen or

[00:05:29] Taylor Holiday: That, that is, it's a really, it's a really great question. And I remember Orchid when she joined so Orchid, bertin's our COO here at CPC, and she reported directly to the CEO of Nestle or just one level below the CEO of Nestle, such that she interacted with him a lot. And she said that one of the things he had

This immense gift to do was to set goals in ways that challenge the boundaries of people's present thinking to reach levels they didn't know immediately were possible. And this, especially for leaders, going back to the goal setting, is I think I. One of the hardest dances to hold. And if we were to go back to try and anchor it into, to a statistical reality, should you forecast your business to produce at the 50th percentile outcome or the 90th percentile outcome?

Well, the answer to that is really about culture. I think as much as it is about math in the sense that, how hard do you want to press people to think, and how risky do you want them to be?

It's also a question of how good the 50th percentile is from a financial standpoint. And I think that belies to the answer a lot too, which is that if the 50th percent percentile outcome is profitable growth in a way that puts more money in your pocket, it increases enterprise value, then you probably don't need to be very risky.

But for many brands, when they come to us, the reality is, is that the present state is actually not profitable,

and so we can't do the thing that they've been doing. The 50th percentile outcome means go out of business. And so we must create a disproportionately improved outcome for the future. So the answer to that really depends on present state of business risk necessity and the capabilities of your people, I think relative to the task at hand and your confidence, their ability to create it.

But I think one of the things that we can often represent is what is the distinction in outcome between the 50th and 90th? Percentile outcome in terms of how much better does it get you? And so where do you need to aim? And then in doing so, how does that set all the inputs that you behave towards? ' cause I think one of the things, like a very simple metaphor here is that Richard, if I told you you had to lose three pounds in the next 30 days.

Or I killed you, or I said, you had to lose 30 pounds in the next 30 days, or I killed you. Your behavior in the process of losing weight would be fundamentally different. Now, the 30 pounds is really extreme. It may not happen,

but your behavior is gonna be correspondingly extreme.

[00:08:05] Richard Gaffin: right?

[00:08:06] Taylor Holiday: And so I think that the reason it's really important to understand what you're trying to create is because you are going to anchor

How extreme the behavior of your organization is gonna be in that process. And what you're attempting to ask them to, to create. And you can push people really hard, the red line version of it for a period of time. But I've found that if you do that all the time, something inevitably breaks in the process.

'cause it tends to be higher risk, more likelihood of things going wrong. So, that's a little bit about how we try to work with our customers. And this goes all the way back to the first episode of like, thinking about . How hard we want to go, but generally speaking, we're taking the likely scenario, let's call it the 50th percentile, and we're trying to create some improvement against that.

Let's call it the 70th percentile, and usually that has to do primarily with the new customer acquisition efficiency and the amount of spend that you're getting at that target. That lever is primarily the one that in a short period of time, a 30, 60, 90 day. You can have the greatest effect on the overall performance of the business because existing customer revenue, the LTV portion of the curve isn't as malleable.

It doesn't change as much. It's not subject to as much volatility. So if you want to significantly alter the dynamics of your business in any period of time, you might be able to do it once with a big sale. That would be like if in a just a 30 day period, I would probably go after the existing customer revenue, but if you told me I've gotta really alter the next 30, 60, 90, even half a year, it's gotta come from either the volume or the efficiency of my new customer acquisition.

And that's where the strategies sort of go into flowing into a set of actions that affect that metric 

specifically. 

[00:09:43] Richard Gaffin: That makes sense. Well, and, and given your metaphor too, it's something like hey, you have to lose 30 pounds in the next 30 days and then keep it off for the next six months, which is again, a completely other set of,

[00:09:53] Taylor Holiday: Yes, totally.

[00:09:54] Richard Gaffin: about as well. 

[00:09:55] Taylor Holiday: Yeah. That's not just for your movie shoot next week, right? Like, you actually have to, you have to sustain it. And those are all, those metaphors are important because they, they really do alter the behaviors and the way you think about what you're asking the organization to accomplish. And in many ways, one of the things that we're in conversations about a lot is that the vision that people have for this financial outcome, that they want

The set of behaviors that are gonna get them there actually move the time horizon for the reality of that out further. Such that in the short term, we have to get to health and we have to build back up to profitability. Especially in this day and age. A lot of this is like short term cut spend, long-term, recreate profitable spend growth over time.

So that goal you had, it's just now a couple years further out, it's still achievable, but we've gotta alter the time horizon of it in some way.

[00:10:45] Richard Gaffin: Okay, so let's, let's move from the realm of the abstract down into more of the concrete. So, we've talked a little bit about a forecast is essentially something that you, that you bring to life. So let's talk a little bit about what the day-to-Day looks like for us in order to bring a forecast to life for one of our clients.

[00:11:01] Taylor Holiday: So once the plan is created in. Our growth map in that spreadsheet that we've referenced in this process, those targets across every day and over 35 different metrics from revenue to new customer revenue to a OV to organic as a percentage of paid to Facebook spend to Facebook, across to Google. All these different metrics are forecasted every day.

And those get synced automatically into stats. So Stats is our business intelligence platform that allows us to see what is happening relative to the actual performance, to expectation. And we set it up so that every morning you get dropped in your inbox at 7:00 AM your local time. A report of your month to date performance to plan across those 35 metrics.

And they're green if you're ahead and then they're red. If you're behind. And that is the trigger for the corresponding set of actions that the team members are all going to take, right?

So if I'm a media buyer, I'm looking at my Facebook spend to expectation, my roas to expectation, and I'm either ahead or behind, and I'm going to respond in kind relative to the state of my performance to plan. And the beauty of this is that on day one, day one, you discover ways in which you were wrong.

And that is really the key here is how quickly can I find out, Ooh, I'm pacing behind plan, or, Ooh, that email didn't generate as much revenue as I thought, or, Ooh, my AOV is really different than anticipated. Why is that gonna continue? Do I need to adjust my expectations of weighted CAC very quickly? It's revealed to you all the ways in which you were wrong so that you can go fix them.

[00:12:40] Richard Gaffin: right? So let's say then. Just for the sake of an example here, so let's say one of our metrics is significantly off course. Let's say, I dunno, spend or something like that. What's, what is the sort of chain reaction of events that happens once, let's say the growth strategist sees in the morning that this is an issue today. happens afterwards?

[00:13:00] Taylor Holiday: So we call this process, the Growth Strategist is kind of the conductor of the revenue. Their primary job is to look across all of the metrics and walk down the hierarchy, we call it. So the hierarchy of metrics. If you've ever seen that video from us on YouTube or elsewhere, you can go check that out.

Hierarchy of Metrics, common Thread, collective it. Our dashboard is laid out in the same order as that hierarchy. The very top, we look at contribution margin. Am I generating the amount of profit that I need in this month to hit my target? If yes, okay, continue on. If no, I've got a flag right away, I'm behind somewhere.

The next row after contribution margin is the business metrics revenue spend, MER or ACOs, A OV, right? That level of metrics. What we say is that at this point, the path diverges into very clearly one of two things. I either have a volume problem, not enough revenue, an efficiency problem, not enough revenue, and too much spend.

My MER is behind. I'm not generating enough efficiency, or I've got both. That's the worst one behind on volume and efficiency. So after I determine that, now I could also be ahead of those things. I could be ahead on volume and efficiency. Or I could be behind on volume efficiency if I'm ahead. I also wanna be careful because too much is also a problem too, because I have inventory plans, I have certain amounts of available customer support resources.

So we try and think about plus or minus 10 to target as good outside of that as bad, right? Like, so in terms of thinking about red and green plus or minus 10 to target across anything is pretty good. Outside of those ranges is problematic. I wanna be careful. So, the job here is closest to the pin, not to break it wildly in either direction.

Okay? So as I look through that, if I'm behind on spend, then the next question is, and what we say is that each metric is a trigger to a next set of questions is, where am I behind on spend? So now I go to the channel level and I say, okay, Google a header behind spend. Oh, I'm on target for Google. Okay, meta a header behind, oh, I'm behind on meta spend.

So now I went from, I've got a, a volume problem. My contribution margin's lagging, my revenue's lagging. My spend is also lagging, so I'm not spending enough. Where am I not spending enough meta? Okay. Now on meta, I can go all the way to the campaign level because in their tracker tabs, inside of our growth map, we have every dollar in every campaign planned, every day.

So once I see that meta is the problem, I walk through the meador and I discover that, oh, this campaign is not spending as much as I thought. Now I have a choice. Either that campaign efficiency is ahead of expectation. 'cause it's a cost control, right? That's CT. C universe. I have a choice. I can either incr loosen the cost control because I'm ahead on efficiency and maybe I got my A OV wrong and I have more room to push there, right?

Or I'm capping out my budget, which should never happen, but sometimes it does. So I can increase the budget, I can increase the cost control, or I can launch a new campaign. That's it. So I go from a big problem down to a narrow specific set of actions. Now, I also may look and go, you know what? Over the last couple days, I've had a variable amount of spend.

I actually think tomorrow, based on my day of week pacing 'cause of cost controls, that's often very different. I actually am confident that it's gonna come back. I take no action. So there's some human thoughtfulness that still has to occur in this scenario. The decisions are pretty limited. There really aren't in thousand things to think about once you walk down the line of identifying the issue and then make a decision from there.

[00:16:43] Richard Gaffin: Right. So one thing I'm curious about, and I don't know how often this happens, but like, what's a scenario? Conceivably, there could be a scenario where, let's say on the top level of the hierarchy, everything's green, but if you were to come down into the channel specific level, let's say and efficiency looks great on the top level, but you get down to the, the sort of channel specific level, and you see that Facebook is way down, but Google is way up and they're balancing each other out and creating a situation where on the top line it looks good. What do you do in that

a place where you're like, okay, we have to reforecast or completely change

[00:17:15] Taylor Holiday: no, so I'm fine with that because I, one rule is once you set your targets for the month, you never change the targets. You change the projection all the time. How you get there,

care. I care about getting to contribution margin. That's the rule. How I get there is gonna be different than I thought all the time.

Now I wanna make sure I don't set, I don't get there. One layer where I wanna be really careful is I don't wanna ever get to my contribution margin and wildly miss my new customer revenue

get there by extracting all the value out of existing customers. 'cause that's gonna be a problem next month.

[00:17:49] Richard Gaffin: Right.

[00:17:50] Taylor Holiday: So in every period I'm playing a couple games at the same time. I'm playing this month's revenue expectation and also thinking about the future. 'cause we wanna be thoughtful and good partners and we're not playing short-term games. We're playing long-term games. We wanna win every month for the whole year.

And so to do that, I have to think about the present period as well as the future.

[00:18:08] Richard Gaffin: Gotcha. Okay, so scenario one was let's say most things are green, but something's red. We have to go down and figure it

Scenario two is everything's green on the top and there's a number of red things maybe downstream, but that's okay unless

[00:18:21] Taylor Holiday: Yep.

[00:18:22] Richard Gaffin: And then, okay, what's the scenario where. We're winning too much. 'cause that is something that can happen. then also like that, that kind of leads into the question of like, what do you do to take advantage of opportunity rather than simply to put out a fire?

[00:18:37] Taylor Holiday: that's right. So in the event that, let's just say I'm getting substantially better efficiency than I anticipated, and I'm able to generate a lot more revenue and contribution, the first thing I have to have a consideration for is the inventory position that the business is in. Are we in a position to take advantage of a moment of increased efficiency?

So we have to check operationally to say, can we support this additional demand capture? Or does this create problems for the business in the future such that we're either a, gonna run out of product? Because if we're gonna run out of product, what we should do is basically turn off the spending entirely and maximize the marginal value of every unit we have left.

We don't wanna pay to sell something if it's gonna sell out organically, and we're gonna get a hundred percent of the margin that we realize on the product not having to pay for it. So this is where the connection and intimacy between operation and execution, media buy, demand creation and demand planning is so critical is because in the event that there's a moment and arbitrage happens, pockets of you hit a great ad, all sorts of things can create that.

But I need to have a conversation now to say, can we operationally exceed this? And if so, then maybe we press into that demand capture and going more than plus 10% to target is okay because we're in a position, we have excess inventory, we've got more on the way, we're not gonna run out, we're not gonna mess up January.

1. This tends to be easier in businesses where the product is very evergreen, meaning that like you, you're able to hold months and months of inventory because it's the same skew all year round. And so it's simpler. It tends to be harder in businesses where there's a perishable product or. That there's very seasonal product that goes out constantly.

Those tend to be harder to realize and take advantage of those access moments. But it's really a conversation relative to those. And in many cases, the opportunity in that scenario is to turn down the paid acquisition and allow the organic demand capture, which is higher margin, to then take over and pace off of it.

And this is why, one of the reasons I don't like . Agency relationships with the media relationships that's based on a percentage of spend. 'cause you create a counter incentive in that moment where, in that moment, if a agency has a campaign that's performing really, really well, you know what they're gonna do to that campaign, they're gonna throttle the budget because they're gonna, and, and rightfully so, they're gonna allocate the dollars against the acquisition that's most efficient.

But if that means you're gonna run outta that inventory that's bad for you as a business, and good for them as an agency partner, and again, this isn't malicious, this is just them acting in the incentive structure that you have. Whereas the business incentive should be to turn off the campaign in entirety.

And so we always wanna be in a position to recommend turning downs spend all the time, all the time. It should be a necessary opportunity to reduce spend and capture additional margin when you're in those kinds of opportunities.

[00:21:22] Richard Gaffin: Okay, so speaking of reducing spend, we also had a conversation before we hit record too, about a number of scenarios. So, so this scenario we're talking about is maybe a best, this is a good problem to have

[00:21:32] Taylor Holiday: Yep.

[00:21:32] Richard Gaffin: reduction of spend is, is the exact right choice in this case. There are plenty of other scenarios in which the instinct is to reduce spend, but actually that's the wrong choice.

So let's

what, how that happens, why it's so, ubiquitous or whatever, and then what the right approach is.

[00:21:47] Taylor Holiday: so this tends to be more of the problem when you're behind on efficiency. So you've started out the month and you have a two to one target on for your A MER, and that translates to a meta target of a 1.8 on a seven day click. And you start out the month and your A MER is 1.7 and your META'S at 1.6.

Okay? So you're behind on efficiency. So you're, maybe you're hitting your revenue target, but you're spending a little too much, or you're just behind on revenue and you're on target for your spend. So efficiency is the issue. Okay. The general instinct, when people think about efficiency, they think that there's this perfect inverse relationship between spend and efficiency.

In other words, if I just turn down, spend, efficiency will go up. That is not true always, right? And so what you end up doing often is you create a secondary problem at the same time, which is that you end up getting less spend and less efficiency, and now all you've done is grown the hole that you have to climb outta.

The solution to inefficient spend is not less spend, it's more efficient spend. Okay? So in other words, you have to either tighten your cost controls to take more efficiency 'cause you were wrong in the, the target selection. Or you have to launch new campaigns that can perform at your efficiency target.

Okay? This is, this is like almost universally the pe. What people do in this scenario is they go, oh, it's not working. Turn it down. Panic. But one, if you have a cost control on and it's appropriately set, your past performance is not indicative of your future outcome.

Let it spend, trust the process. It's really hard. Require 

patience. 

[00:23:20] Richard Gaffin: Well it's

we always, I was gonna say like,

of go with the mantra that as you increase spend, always decreases. And so

[00:23:27] Taylor Holiday: Yep. Yep. 

[00:23:28] Richard Gaffin: like intuitive that if you were to decrease spend, then of course the opposite would happen, that spend would kind of pop back up.

But it sounds like that's not necessarily the case.

[00:23:35] Taylor Holiday: Well, and that's not all like, it's not . Like the correlation is not one-to-one such that every dollar of increased spend equals decreased efficiency. It's, it's more like a, a plane or like a, a parabola where at too little spend, you actually might be getting less efficiency than you would get it more because optimization relative to the number of inputs that you get it used.

If you ever look at our spend and a ER models, what you see is a curve that sort of goes like this, right? Where it's like there's a point at which you create diminishing returns and then it goes down. But there's also a point that's too low. Curve too, where you can increase spend and increase the marginal value of the advertising, and then it declines over time.

So you need to find that perfect peak, right? Which is challenging to do, and it's part of what we help to model for people. But if you just, the other way to think about this is just like in terms of weighted averages, okay? If I have to generate a two to one ROAS for the month, or a two to 1:00 AM ER for the month, and I've just spent a thousand dollars at a one.

If I spend my next thousand dollars at a two at my target, my MER is now one and a half it. It's not a two.

in order to get back to a two for the month, I would have to spend my next thousand dollars in a three to one a ER.

So the actual problem with bad spend is that the way out of it is actually now you've created a problem where you have to actually outperform at higher volume in order to get the overall average back up.

[00:25:02] Richard Gaffin: right.

[00:25:02] Taylor Holiday: So, So, you can only actually spend your way out of a hole, not spend your way down into the hole. Now alternatively, you could spend the next $2,000 at a three to one. So like, but, and you could do it at $500 a day. So you could cut the spend down for a longer period of time, but you're not gonna get to the total spend at the total efficiency you need.

So, so often the instinct is, oh, bad spend, just pull back. And I don't put anything in its place. I just pull back and all that does is just create a hole. And so the number one reason I see people miss forecast, the absolute number one, is they have gone many days, seven days in a row, underspending their goal, and as a result of it, they now have a hole that they don't have enough time to climb out of.

And they don't have enough creative plans to get outta that hole or just for additional campaign creation. It's the number one reason.

[00:25:51] Richard Gaffin: So then let's talk about like continuing down the conversation about creative specifically. So let's talk about efficiency solves. 'cause it sounds like this is sort of the biggest. Dragon that you can face in your ad account. And of

remember from my time on growth teams, the solve usually was like, Hey, quickly come up with like, the one headline that's gonna get everybody to buy or whatever. And I think that it's sort of a, maybe a truism that like, great creative is the thing that creates efficiency. But talks a little bit about like what are, what's the hierarchy of decision making efficiency is, is a core issue.

[00:26:24] Taylor Holiday: So one of the things that I want to think about when it comes to efficiency of ad performance is that the customer journey is not isolated to the ad itself, right? So when I think about efficiency, one of the things that I wanna identify is how is all of my traffic converted? So, in other words, if I go and I see that my home page.

Conversion rate, direct traffic to the homepage is constant. In other words, there's been no change in that. My organic search conversion rate is constant, and then I look at my conversion rate on my ad traffic, and that's dropped. That tends to tell me that I've got a a problem related to the ad funnel itself.

There's an isolated issue related to the ads. Maybe the quality of traffic I'm driving or the continuity of the message between the ad and the landing page. There's some problem with that specific funnel. But another case is, what you'll see is that conversion rate is sort of down universally. It's down across every channel.

That tends to be a signal that either there's a site issue, there's a product problem, there's an inventory issue, there's some other signal to me that the overall efficiency of everything that I'm doing has now declined. Right. Another way that efficiency can be off is that I got the a OV anticipation wrong, and so my cost control was set too high relative to the actual A OV.

a OV is one of those things that, especially on sites with lots of SKUs you could get really wrong. There's brands where the A OV varies wildly. All of a sudden they introduced an offer, and so the dynamics of what the A OV was gonna be on that offer. It was hard to predict and you got it wrong, and so now your cost cap is actually set too high relative to what the actual order value is.

That can be a common problem. So there's lots of ways that efficiency can show up besides like just launch another ad campaign. Now, launch another ad campaign is also part of the solution often, which is like that one didn't work. Okay. In our world, we expect most of 'em aren't gonna work. We know that 30% of ads get spent at Target.

So not surprising that, that we actually have the next one planned. Turn that one on. Maybe this one will get efficiency, but it's important to consider all the different levers that affect the customer journey from the website to the lander, to the inventory position, to our certain vari are all your mediums out of stock in a way that you didn't anticipate.

And so now that drop dipped conversion rate, in fact the performance of the ad, another one that often shows up is like, I'll go look at the serp, so the search engine results environment. And you might see that like, oh, your primary retailer selling your product, just put it on discount for 30%. So now there's like this hole in your funnel where the product is available for 30% cheaper at somebody that's offering free overnight shipping.

So you're like, oh, crap. Well, the reason we're getting a smaller take rate on our offer now is because that's sa we're driving demand and it's being captured by a comp uh, a retail partner, you know, or a competitor. So the dynamics that contribute to the ad performance, and this is why . . You know, right now there's on Twitter, this big argument about CPC and all the, this is why no individual metric matters.

Like there are too many dynamic variables that contribute to the environment in which an ad is served for any single metric to be predictive of results. And so you can't go after it with a singular dogmatic view of any metric. You have to consider the entire context of that ad is being served in and how to improve the environment for it to succeed.

[00:29:47] Richard Gaffin: Yeah. And I think that's another reason that we have 35 daily metrics, because if,

[00:29:51] Taylor Holiday: Exactly. 

[00:29:51] Richard Gaffin: modeling is about knowing where you're importantly wrong, well here's at least 35 ways you can be importantly wrong and.

points you have, the sort of richer or more robust, your understanding of the issue and how you're wrong will be

[00:30:04] Taylor Holiday: Yeah. And, and this is one of those things where people crave synthesis of information to where they're like, just show me one thing.

Just gimme a metric. And I, I would just really invite you into embracing the complexity of generating predictable, profitable growth. This is not, there is no one metric that will indicate to you whether or not you're going to be able to do that.

Not even contribution margin. 'cause contribution margin can hide the amount of new customer revenue that you're generating in any given period of time. And so there is no one number. And if you go watch our Hierarchy of Metrics video, you'll get this. You'll hear me say this right from the start. There is no one metric.

It truly is a hierarchy, and you have to embrace the understanding of what each is telling you about your present health and your future health.

[00:30:47] Richard Gaffin: Yeah, I think like, one thing that's been helpful to me thinking about this is there's no one metric that's important, but groups of metrics can, can tell a story about what's happening and sort of bringing those things together and, and it's detective work, basically. It's like

evidence. You don't just walk into the crime scene and see one thing and say like, oh, he did it. You know, you have

[00:31:07] Taylor Holiday: That's right. 

[00:31:08] Richard Gaffin: gather all of the pieces of evidence together from those pieces of evidence, you pull out threads that are maybe not simple, but they do tell maybe specific stories about things that are actually happening and, and then you can go out and solve them.

[00:31:21] Taylor Holiday: That's right. We'll often call it investigative journalism like that you're, you're building, you're writing a story and you need to go do as much research. And so, so let's talk a little bit about, let's go back to the practicals of daily workflow here, because again, part of this is a system for your team and how they should work.

1. Okay, so what we have, in addition to the email that gets dropped in every day, media buyers are required to do what we call map notes. Okay? Map notes are every day the meta buyer shows up. They go to their tab. In the, in the map. They look at what happened yesterday, across every campaign they write in a cell, a note to the team and to everybody else, to the client, to everybody.

This is what occurred yesterday. So the what happened? This is what th believe that's telling me the so what, here's what I'm doing next. That's the now what, right? So what, so what now what? And then that, now what is, they go through and they update the projections going forward. So this campaign, I actually overestimated how much it's gonna spend.

I think it's gonna spend this much. And they make sure then that they have enough budget planned based on what they've seen occurring to reach the spend and efficiency target. And if they don't now. Ooh, crap. Like that campaign I thought was gonna spend $2,000 a day is only spending 400 a day. With my cap, I now have a deficit that I have to go solve for.

I either am going to build a new campaign and launch it because I already had that planned for, or I'm gonna bring in my creative team and say, Hey, we're actually short on creative. We need to plan a new campaign to launch. We're gonna go into the concept log. We're gonna design a campaign together.

We're gonna pick a go live date. We're gonna assign a budget. I'm gonna plan that budget, and I know I'm getting back on course. So every day, that's the dance that every me and every media buyer in every channel does that. And then likewise, the growth strategist gathers those notes. So they receive those on a push basis.

Those are coming from their team to them, and they're synthesizing that into an overall set of actions they're communicating to the customer. And I would force your team, even if you're not an agency, if you're an internal team, force them to write those notes to themselves and to you every single day, whether you read them or not.

The note is as much about forcing the individual to go in and look and consider and be thoughtful every day about what they're doing as it is about the actual distribution of the information.

And at first, people will be very resistant to this. It will feel like minutiae and micromanagement, but it is not.

It is a critical habitual behavior of being thoughtful every day about is what I thought was going to happen happening, and what should I do to change it, if anything.

It doesn't require that you do something every day, but your thoughtful writing is a synthesis of the brain. It puts it onto words, it documents the history.

It creates commu, clear communication amongst the team of people, especially in a remote environment. And so I would force that action every single day of the week.

[00:34:08] Richard Gaffin: Yeah, so I, yeah, I think that that's like an important. Important topic to continue to sort of, explore when it comes to how, how we make this thing work. Because yeah, communication's really important. I mean, there's been many iterations of our growth team and how we've done it, and I think it seems to me that we're, we've kind of hit on a very something that's working right now.

So like one thing, for instance, like the map notes you're talking about, yes. It forces people to, actually consider every day, but it also takes important information out of the head of the person buying it. it sort of publicly available. So if somebody, if, if somebody needs to like pinch hit for that person because they're out sick or whatever, there's like a clear understanding of what happened in the ad account, what changes were made. It's well documented and they can go in and sort of take over as if that person was, was actually themselves there. So what are

elements of communication and sort of systemic

[00:35:01] Taylor Holiday: So one of the big ones we, I'm sure you talked about on the creative episode, we have the midweek point called Wayfinder Wednesday. This is where the creative and media buying teams get together to specifically discuss the creative planning process. This is the background production system that is big and slow sometimes, and working constantly, and so having a meeting in the midweek dedicated exclusively to that where the media buyer comes and shares, here's where I'm at relative to my plan.

I either do or do not have enough creative. If I don't, what do I need? And then they look forward to the next month, they look through the marketing calendar, we update the expectation of deliverables. This is behind, this is ahead, this is what's working. Here's what I'm seeing. And we keep planning further and further out on the creative production process.

That is the central motor. Think about like

the ads that you put into the ad account as gas for growth, right? And so the central development of that ongoing fuel for the motor of growth is the creative workflow. It should sit at the center of this process, and it should be intimately connected to the forecasting and planning.

So this is how finance, . Meets creative production meets media, buying meets operations, like they all sit at this central point. And that, that that element, that wayfinder meeting where we work through the marketing calendar concept log and spend plan is a, is critical to success of the system.

[00:36:22] Richard Gaffin: And I think one thing to point out about Wayfinder Wednesday too is with some exceptions, obviously we try to make it a day that's blocked out for thought work, essentially, right?

[00:36:31] Taylor Holiday: Yep. Yep.

[00:36:31] Richard Gaffin: think there's two elements or interesting Contrast here. One is like making the map notes, like the daily notes. Is it a one type of thing that people will tend to push back on?

'cause it feels like busy work. But then the Wayfinder Wednesday piece is another thing that will tend to push back to on the sense that it feels like a waste of time because you're not doing something for the account right

[00:36:51] Taylor Holiday: That's right. That's right.

[00:36:52] Richard Gaffin: there's a, there's a sort of of forcing people to step back and take a moment.

But because creative has to be planned out so far in advance, it's

important that you take that break.

[00:37:02] Taylor Holiday: Yeah, that's a great call. So, so much of this is about today. Today, today, today. Action. Action. Action. And then we stop in the middle of it and we go, okay, now zoom out of that and let's look as far forward as we can, and let's see how far out into the future we can get in order to ensure that.

When the inevitable failure of some campaign occurs, we have somewhere to go immediately, and we're not trying to restart the creative process at that time because the creative process is not something, from my experience that you can just turn on and off. It will. It just doesn't work that way. So having this space that's dedicated to be a little bit more open-ended to be a little bit more, in some ways frivolous than, what am I doing right now is actually critical to the sustenance of the whole thing, in my opinion.

[00:37:47] Richard Gaffin: Yeah. So, I guess un, unless there's anything else that you wanna hit specifically on kind of the things we do on a day-to-Day basis why don't we sort of summarize, so, I mean, I'll sort of take this opportunity to say that this system that we've just laid out for you the last five weeks is something that we can build for you, we're happy to put these things in place for you and sort of show you how to run it. that's a service we offer. So please, if, if you wanna reach out to us, we have a few slots left you can check us out, comment thread code.com click the hire us button and get in touch with us. Now, for those of us for whom that's maybe not an option, can we summarize, and I've been having everybody do this, like summarize what is like the one thing about what we've talked about today in terms of execution and communication that you can put into practice right now to make the way that you're executing against your plans better.

[00:38:36] Taylor Holiday: Invite more people into the forecasting process.

[00:38:39] Richard Gaffin: Interesting.

[00:38:40] Taylor Holiday: So Corey, turn on the TikTok camera here. This is a Bill Simmons moment. If you, as the finance leader are creating a forecast and you do not in the process of building that forecast, have conversations all the way down to a media buyer level, you are creating a system that is less likely to succeed than it could be.

And so what I would say is that everyone in the organization should have a role in forecasting.

[00:39:08] Richard Gaffin: Gotcha.

[00:39:09] Taylor Holiday: And that to me is where the opportunity is to say, right now, who's doing this? To ask yourself, who is making this number? Where does it come from? Who has input on it? And how could we invite more connection to it?

That would be because again, it's an extra, someone has to go do it, and if they don't understand how it happened, I see this all the time where people are like, I don't know where this goal came from. I'm just, I'm just like being asked to achieve it. I have no idea why. It is what it is. It's not achievable.

I don't think it's real. I don't have any belief in it. I had no say, my voice wasn't heard. How can we make sure that everybody goes, yeah, I believe in my part of this and how that affects the overall number. Let's go make it happen. So now we're all accountable. We're all accountable.

[00:39:47] Richard Gaffin: Yeah, no, that, that makes sense. I think there's, there can often be a fear of I as the leader want to set this goal. I want this to happen. If I bring other people into that conversation, they're gonna tell me that it can't happen and I don't want to hear that right now.

[00:39:59] Taylor Holiday: That's

[00:39:59] Richard Gaffin: something that you're gonna have to face is that

[00:40:01] Taylor Holiday: That's right.

[00:40:02] Richard Gaffin: the people who are executing are going to be the ones who have to execute. And so bringing them them into that conversation will give you a better sense, just frankly of like what's practically, what, what's available for you to actually do.

[00:40:15] Taylor Holiday: I'll give you an example of like this year, so CTC, we're in the middle of build, building our forecast for next year as an agency. And I'll give you the sort of way in which I, we've walked through this that I think is replicable at a brand level too. I think my job is to define, define the principles.

Of the business goals for next year that affect the primary expectation of me, which is shareholder value, I think of, of all things. My job as the CEO is to increase the value of the shares for the holders of the shares. Like that. Above all else is my fiduciary duty, and so I think of that as a creation of increased TTM ebitda, but I also know that there's a set of inputs that lead to a higher perception of value in an agency world.

And one of the big parts of CDC C'S story is like many brands, we came off of a year in 2022 with really massive top line growth. And then this year we're actually down top line, but up a bunch on the bottom line. We had to reset our profitability relative to a new season of growth. Like many brands, we follow the same, same system.

So I know that now what we need to prove in the market to improve the value of our shares is that we can now grow again, so that we can generate top line growth while maintaining this new . Margin profile that we've created. So when I say to my leaders is like, the principle of my expectation of where we're headed is show me growth while maintaining or expanding the bottom line.

Now each of you under that constraint, go tell me what you believe is possible in order for us to get there. And that happens and each department leader controls a p and l. And so I could imagine a CEO and an agent or a brand saying something similar like, Hey, you know, we just came off of a year where we just reset top line growth.

We want to reset to healthy top line growth. I want you to tell me how much you think is possible, but we can't sacrifice the bottom line. And so now under that banner, the person who's in charge of acquisition, show me what you think we can do on new customer revenue. At what efficiency person in charge of existing customer revenue or retention.

Tell me how much you can think we can get out of our existing customers. Let's put those together to figure out what we think that that is then possible so that the actual numbers come from the people themselves. They are providing an ownership of the specifics of the forecast where you are guiding them principally.

And I think that's gonna allow for more ownership. I'm experiencing it for my leaders where it's like, I think I can, I think I can go do this. And you're like, oh, really? Like that sounds pretty awesome. Now it's their idea. They, they feel connected to it. And so I think as we talked about in that first episode, that sets up then this collective ownership of the goal that we're after.

And not this way, that it's an imposition that was placed on me. That's this burden that feels unfair or not thoughtful or I don't understand, which tends to be very discouraging.

[00:42:59] Richard Gaffin: Right. Yeah. The, the amount of sort of senioritis almost, or like malaise that it creates when somebody who does not get what you're doing has given you a goal to go out that you know is impossible, is like,

hard to overstate that, but,

[00:43:10] Taylor Holiday: Yeah, totally.

[00:43:11] Richard Gaffin: All right. So, anything else you wanna hit on this?

[00:43:14] Taylor Holiday: No, I would just, it's, it's a cha, it's a reframe. I think a lot of how your team works and how everybody drives towards that financial metric and understands how they're committed to it, they have say in it. And I would really think about forecasting not as an exercise that happens in finance once a month in a spreadsheet.

It's an exercise and a system for how you work every day. That's how you get to predictable, profitable growth. It's planning to the power of execution. That's like in our first side of our deck, there's a little formula that says profitable growth equals planning to the power of execution. And so that's really it.

You gotta have a great plan, but it's amplified and exponentially delivered on by the level of execution that you can get to as a team.

[00:43:52] Richard Gaffin: That's right. And if you'd like us to put that formula to use for you, remember you can hit us up@comthreadco.com, and we can build, we can implement this profit system for you. .Alright folks, see you later.