Growing Profitability ft. Steven Borrelli of Cuts Clothing

[00:00:00] Taylor: Welcome back to another episode of the e commerce playbook podcast, where we are interviewing those GQ giants, the brands that we are all aspiring to learn from and to become. 

And today I'm excited to be joined by one of my secret Twitter DM friends. Me and Steven get a lot of time together in the Twitter DMs, just trading ideas.

This is a incredible intelligent founder of an amazing DTC business. He's also a SoCal guy. So I also liked that we get to trade on that, but Stephen stoked to have you, man, glad we could finally jam it out in person on the podcast.

[00:00:31] Steven: Yeah, I'm stoked to be here. I'm a a huge uh, uh, disciple maybe is a good word to use of the, of kind of your learnings. They've echoed a lot of the stuff that we've learned the hard way. So I, and I actually, I don't know if you've, I sent all of like the young entrepreneurs that I talked to that are starting an econ.

I'm like, go watch his YouTube videos. It's there. They're really informative. I still listen to him cause 

[00:00:54] Taylor: Well, it's funny, man, like you probably similar to me. I get this a lot where when I meet people in person, they're always like, dude, you're way nicer than I think you are on Twitter. I don't know if you get that a lot, but that was my experience. I was like, dang, this guy's got some edgy opinions. And then I got on with you and I found you to be an incredibly humble, kind, considerate, awesome human.

And so, I'm excited for hopefully more people to get that experience today. But you, you just touched on something that I think was really the genesis of us talking was like, You talked about challenge and you talked about the journey that cuts has been on for how long you guys been around now, seven years.

Like what, give us the, give us a little bit of the story. Okay. So give us a little bit of the story. And then if you could focus on, on the post COVID era and what has really been changing for you guys in this next season.

[00:01:36] Steven: So we, we launched end of really, we, we did like a 180 K uh, in, in 2017 just, just started. And then we quickly got to 10 mil like overnight essentially, but, we launched in and we really predominantly focused on just the men's t shirt. I was working at advertising agency at the time and my boss kicked me out of a meeting and he said that that little lemon shirt isn't formal enough for the work attire.

So I wasn't able to present the presentation. At the time I was really good friends with the movement watches founders in the Pura Vida, but they were one size fits all, whereas watches and bracelets. And I thought, huh, I wonder if just a simple black work t shirt is, is, you know, I haven't, I hadn't seen anyone do it. Maybe this is my opportunity to take a shot at e commerce. So I did what any other, you know, college, you know, recent grad did. I moved home, teamed up with four guys. I teamed up with an accountant, a photographer, a videographer, and an operations guy. And we said, Hey, let's, let's start a e commerce brand.

And we were going to call it cuts. And the name came from we were at Lululemon and the scoop. T's elongated. T's were really popular at that time. And I thought, Oh, I wish this T didn't have the logo on it and had the scoop and that would be perfect to where to work. And it didn't wrinkle. It didn't shrink in the wash. And That's where the name cuts came from. And, you know, we launched on Kickstarter did 44 K. And then, you know, quickly, like a year and a half in we had four guys doing 10 million with the, With with no full time employees and no office and we use all of the revenue to fuel the business. And today we're you know, we, we you know, have sold, you know, hundreds of millions of dollars worth of cuts and It's still learning and it feels like we're just getting going.

[00:03:20] Taylor-1: Amazing, man. I really incredible story. And it has been for many brands a wild. Amidst that seven year story in particular in apparel, the last three years for a lot of the partners we've worked with have been an incredibly challenging time for a few reasons.

One is we all know the sort of demand that COVID created. I'd be curious to hear about that, what that was like for you guys, but. But then on the back end of that, there was this challenge, which is that the lead times for production on apparel tends to be a little longer as the demand was going crazy, there was large POs that had to be made.

A lot of businesses ended up in a challenging inventory position and had to work through that as they got to the other half of the year. Did you guys experience any of that? What's it been like for you guys for the last three years in particular?

[00:04:05] Steven: Yeah. Up to end of 21, it felt like we could do no wrong. We were a single SKU brand, which is a big part of what, why things not went wrong, but became a lot challenging. And the worst thing that happened was we launched joggers and we absolutely killed it you know, without using numbers, we, we sold, you know, An incredible amount of, of of joggers, but secretly that was maybe the worst thing that happened because it was the second product.

And we were like, Hey, we can, we can turn on a new product and do you know, make it a. Six figure day almost immediately. And, but you know, the third and fourth and fifth product are going to have that same level. So just to summarize, we 2021 happened. We were 10 monthly times. We had to order everything sight unseen.

And you we aired stuff in, which is a key part of this because you, you, what you. which was significantly cost because our, we had one ship that was stuck in the LA port for, you know, almost like four months. So then we aired stuff in. And then by the time we aired it in demand started to kind of slow down in 22.

And then now our cogs weren't as good. So that's really when the issue started happening for us coming out of coming out of 

[00:05:14] Taylor-1: So this such a common thing that I think people miss about sudden changes in demand that are so hard to manage. And is that they create a lot of challenges. One. When you rush the inventory, you create additional costs, right? It just costs more to send things in the air than it does by boat. Two, it's really hard to predict the future demand when there's that much sudden change.

Right. And so I'd be curious, like, if you go back to that moment, pre that launch, what would you have done differently about the pacing following that big initial hit? Like, so joggers hit, What would you have done differently, if anything, knowing what, you know, now, relative to the challenges that got created from that indigestion, if you will.

[00:05:53] Steven: That year, I think we grew just short of 200%. Leading up to 21 we sold out of like our white and black tees in June. And that was like the last period in time we thought we could have to, we would have to place orders because the lead times are So long to get a bunch of new stuff. so We've, we've said, okay, we grow 200%.

We, we cut the growth trajectory down to like a hundred percent for the next year, which was still way too, way too much I think Mike Beckham says this all the time, and he's like one of my favorite founders on Twitter. He's like, growth can be a terrible thing if you're not prepared for it from an operational standpoint.

So I probably would have paid more attention to like the team structure and the growth structure and said. Okay. If we want to grow a hundred percent now that our numbers bigger, you know, are the, the, the, the big, the business is bigger. This is, do we have liquidation options? If we, if we fulfill 80 percent of that 70 percent of that 60 percent of that and make sure we, if on a rainy day, we were still good.

So. One of the, the to me group I'm, I'm friends with and their mentors of mine. And one of the things they did really well that led to a lot of their successes. They've looked at liquidation options and liquidation options can be, you know, sales on your website that are kind of hidden, like Lululemon's we made too much section.

It could be certain wholesalers. It could be out of country options that can take them at cogs. So there's lots of areas that you can be that you can kind of get your cash back Understanding. What you're actually doing when you place those POs, because in our heads, it was like, Oh, Hey, well, you know, we can always sell more black teas later.

We didn't realize how much that could hurt. Now. One of the things we did good during that period was thank God we were a basics brand at that time. Cause we did. Order like 300 days supply of black and white teas and thank God those don't go out of style and that we still sell those teas today. I know a lot of businesses that went bankrupt that were more seasonal items that ended up going under because they picked stuff that was out of stock, was out of trend the next season.

And, you know, that inventory is worth nothing. So I think one of the things we got lucky on is just. The nature of who we are was a brand, which is a minimalist brand with isn't the hottest trend brand. So that, that we 

[00:08:13] Taylor-1: there's so much there that's so important. That is a lived experience that I watch people have to discover, which is this idea of liquidation that you talked about. And a lot of times as marketers, we think about most of our impact driving towards improvement of the P and L. Right, which is an effort to create operating income or EBITDA, which is all about the marginal value of the units that we sell, but there's also a huge part, especially in apparel that I like to call cash based marketing, which is this idea that at some point relative to the state of the inventory, the actions that we take to move a unit.

Are all about turning it back into cash more than it is about just creating margin because that cash allows you to then go reinvest in a better unit with a better timeline that can create that margin. But there's a real intimate relationship that has to exist between marketing finance operations in order to do that.

And so I'm curious, can you tell us a little bit about how you make those decisions? When does a product move from, okay, we're moving from a standard sale process or general acquisition to. Liquidation. And how do you make those decisions and know when the right time to do that is? And how does the team coordinate around those ideas?

[00:09:18] Steven: So even taking a step back, one of the biggest lessons I learned is you have to understand what, what? the product when you buy it will do for you. Is it a growth product? So. Using our black teas. That's an item that we can take a little bit more risk on. Cause it's a growth product. And we're saying, Hey, there's a cheap CPMs.

The tan is huge and it's something that we want to build our business. So, we look at, is it a growth product or is it a seasonal product that will give our returning customers more reason to come back, but we need to order it very low because we know it's not something you can spend a lot of ad dollars behind on.

Because it is a little bit more trendy and the TAM of it is much lower. So starting off, like we always go, is it a growth product? And we very, we actually have very little growth products now that we go really deep in. A lot of the products are very shallow to create a seasonal moment in spring, seasonal moment in summers, you know, August and so forth.

But that, that's how we order products. Cause I think if you get that wrong, you can have, There's nothing you can do really to fix that. So just ordering right. It's really important, but from a cash basis, maybe taking another step one to answer your last question, having a good cashflow model that.

That works in with your growth team and have your CFO and your head of growth really locked in. And as a founder, you have to know that I wasn't very good with that. And we got burned by not having a good cashflow model and had to use debt. And you don't want to use debt because it's just a choke hold on your growth.

And so, I'm kind of rambling, but, you know, understanding a good cashflow model, super important. 

[00:10:47] Taylor-1: Was the impetus. And you said you touched on a little bit of about, you got burned that brought together your CFO and your head of growth. Cause this is kind of the thing I'm always interested in is that experience like yours, Steven, is that that is a by product of something having to be messed up first.

And so what part of the point of this podcast and the content I create is like, how do we help founders create the impetus for those two people to get in a room ahead of time? And what does that workflow look like now for you guys? Maybe you can talk a little bit about that between marketing 

do those sides of the organization interact?

[00:11:16] Steven: we have a daily similar to what you've built. We, I think we modeled it after we look at contribution margin on a daily basis. So we start overall just on an overall basis. What is our contribution margin? That's going to help fuel. If we spend more, don't spend more from an overall level. And then when we're ordering products.

Understanding contribution margins more important than gross margin because if you think your cash is going to be super high for a product, then the gross margin doesn't really matter. And that's something, you know, we have great, we have great margins, but contribution margin per product differs.

And, you know, especially in the women's space, I'll use an example. Like we had an 80 percent gross margin on a woman's like, Kind of broad piece, but it took, our CAC was really high. So our contribution margin wasn't very good on that. So then we had to lower price and we ended up having a bad gross margin.

So understanding the CAC per product category before you buy it is like, it's a, it's really hard. Actually, we're, we're still not the best at it. But you know, talk to guys like Taylor, do your research, understand You know, you know, other brands, a lot of the data is out there that you can, you know, use to help inform you.

One thing we, we just do is like from a simple basis, you have guys and girls in your website. What is in your, for apparel, what is in your closet that you actually wear the most? We were lucky our first two products, joggers and, and teas, you could wear, you know, a couple of times a week at least. So there's the need for a lot of them.

Versus like our Chileno button up shirt that you could go to Coachella and we, that was one of those products we ordered too many of, you know, if you don't, if you don't, if we didn't get through it by the end of June, that's going to be tough for the rest of the year to get through it, maybe even really the end of May and then festival season is kind of over.

So, and then contribution margin is going to tank on that. So contribution margin has to do with CAC and time period as well, which is how each of them can be a, 

[00:13:06] Taylor-1: You're getting to something so important, which is that every product. Is almost its own little business model, right? So if you think about, you're talking about, whether it's a new customer acquisition or returning product. Okay. And then you're talking about the expected consumption rate and LTV potential of a category, right?

So like you talked about that button up shirt, we have to make sure we make a margin on that initial purchase because you're not going to buy 10 of those. It's just not the way that product is set up. But whereas on the white tee, I could see being closer to break even on first order. It makes a ton of sense because we know that we're going to get a much higher consumption.

Higher LTV off that category. And so this is where as businesses expand beyond their single thing, they have to begin to consider the business model of each category, the business model of each unit and what it intends to do and how you're going to make money off that specific customer persona.

[00:13:54] Steven: Yeah. And also what your goals are too for, for each product. So like in August, we run a anniversary sale. We, we, we took the model from Nordstrom's where we do a sale and we release new products. So in order to spend a lot of money, we need to get our AOV up. So get making products that are going to be.

In that, you know, 120 to 180 range is really important to, so then it fuels. So we, cause we know we want to spend a lot of money. So cash is going to go up. But those products, you know, be ordered to a five week supply at most, not even an eight week or, or, you know, So weeks of supply. And when you order what your forecast is, is super important.

And I think in like, in like three years from now, cause it like, we're going to be so much better at this because e commerce, this is where like, I think the market is undervaluing e commerce companies is once you get this figured out on a, on a science basis, then man, the magic can really start to happen.

And cuts is nowhere close where our, our desired 

[00:14:51] Taylor-1: But you're, you're exactly right. We, we worked with, and you and I have talked about this our, our experience with Ann Taylor and loft. And those businesses at that high of retail level are machines. It is like seasonal product inventory predicted, and they try to maximize the marginal value of every unit.

But at the end of the season, that product's gone. They liquidate it. It is out the door. Cash comes back in, make the next bet, bet again, improve overall gross margin of the season.

get it to cash bet again. And it's just like, It is clear the objective of how you make money in this business model. They execute against the template and yeah, some seasons they got the product more right than others.

They did a better job hitting trend style, whatever, but even if they're wrong, gets back to cash, make the bet again, get back to cash, make the bet again, and they just become so clear on how they make money in this business model. And that's the thing that I've like, notice is a big distinction between Much more mature legacy brands versus the newer startups.

[00:15:43] Steven: Yeah.

we're, we're, you know, cuts is along that journey. We're not quite there yet, but we're so much better than we have. And I think big thing, and it goes back to Mike Beckham's quote of like wanting to grow too fast and ego, I think was something like. Is just like can get bite you in the butt. If we would have in 21 just had lower growth expectations, the problems that we would have still made the same problems, but they wouldn't have been as big or, or I've taken as long to get out of them.

And I, I think understanding. Like just cashflow. You know, I, I joke about it that I wasn't that good of a student in college and my accounting classes, I didn't spend, I was, you know, trying to have fun in college, but I really regret it. I, I now have a, like 10 million balance sheet because, you know, Matt quoted this as if, you know, if you have loans and, you know, you're still a profitable company, but you're having to pay that, that's who you're working for and they are taking a lot of your money.

So we've learned that the hard way. And You know, we have cuts, hasn't raised money in, in theory, but we have used debt at times to, to fuel the business and that can get really expensive. And I think as a young founder, you're, you just got so much ambition and that you want to grow, you Really, you know, for, for cuts, I was like, I'm playing with house money.

Like, you know, we didn't raise, like, I don't have any money anyway, so we might as well go for it. And that's really good when you get to, to, to kind of get you off the ground when you're at like the, you know, under 10 million range, but as you, your business scales, now you have something to lose a little bit.

And having that same mantra can, can really put you under. I mean, without trashing this brand, there's two businesses that this one firm was going to invest in, in 21. It was cuts in the Southern and they were transparent. It was this women's brand Taylor. I think you, you know exactly who I'm talking about, but they chose to invest in the women's brand and they gave them a like 25 million check or 30 million check.

And they bought a bunch of inventory. And then, you know, 12 months later, they're. all over, everyone has it and they sold for the value of their inventory. That would have happened to cuts if we would have got that money. So it was the best thing that never happened. Now if, if, you know, we haven't raised money, but I think it would be a different story.

We would learn the, we learned those lessons. And one of my buddies said that the, that the journey of an entrepreneur is just like, can you make more positive choices and decisions before the negative ones Overtake the positive. That's really the

game especially as a bootstrap founder. So, you know, I'm, I'm grateful to say we've made more positive than negative

[00:18:15] Taylor-1: here's

[00:18:16] Steven: of our business out of COVID just being high repeat rate business,

[00:18:20] Taylor-1: here.

[00:18:21] Steven: a ton of seasonal stuff that could burn us, so to speak.

[00:18:24] Taylor-1: to

[00:18:25] Steven: you know, I think at times there, there was year, you know, there's times like, man, this is going to be a big mountain to climb and. You know, we're, we're still, we're still fighting in, in a lot of ways. 

[00:18:34] Taylor-1: thing you said about ego because. I, there were so many times. So my direct peer set of competitors in the agency world, the mute sixes, W promotes power, digitals. These guys have all gone on and sold the business. Every one of them, Steve Weiss from mute six is a good friend of mine. And I remember they were like ahead of us, you know, and they ended up selling the business for a lot of money in the middle of COVID.

And Steve did a great job and he's always been a good friend. We've chatted. I remember when I would go sit with him, I would feel this weird pressure to like overstate. we were at, like, I, like, I needed to be something in this conversation that made me And I would leave meeting with him feeling like I should go change my business strategy because of what they were doing.

There's just something about this. That's so inherent. I don't know if maybe, maybe it's an athlete thing too, but like, I'd be curious, how did you, how has that changed for you? What created your ability to detach from that comparative game? Or is it something you still struggle with? Like, and how have you dealt with that as a founder?

Cause I feel like you and I have had these conversations where been some humbling along the way that kind of gets you to a place where you're like, I'm okay. If I don't. Um,

[00:19:57] Steven: All of the revenue and all of that. And I think having a long term view of like, I still want to create a billion dollar business that's not going anywhere.

Having a more like realistic way to get there and not. I think your ego can want you to go faster than what's possible at times. And that can put you in, into trouble. So it's still like having like a big vision, which I have, but it's like doing baby steps to get there. And it doesn't mean you don't take, there's always, there's definitely times to take, take big swings, but there's also times when there isn't.

And you gotta be able to recognize that. And don't let your ego say, no, we can do it. It's fine. Let's go for it. And I think 22 was that year for us where. We had came off, you know, four years of just monstrosities growth. You know, we had the biggest athletes in the world wearing our stuff and then they still do.

But, you know, whenever we, we, we felt like we were invincible I think I got one call from a, founder who had kind of been one stage above me and he's like, order all you got to go for it. Da da da da. And I, I was sitting at, it was Christmas Eve 2021. And I just called. I remember calling her. Head of growth.

And I was like, we're going for it next year. And that call like is like etched in my brain. Like, man, I wish I wouldn't have said, Hey, let's order all this inventory. Cause it, it, it, it, it slowed down and one cautionary tale is if you grow too fast, sometimes if, if you zoom out and you look at like a 10 year window.

The, the people that grew or that had a down period and then grew again, end up being the same of the groups that kind of took it a little bit more choppy or more like more incremental year over year. And then when you zoom out, it kind of gets you the same, same place. So, just, you know, growth is important.

You need growth, but. Understanding the type of year it is and where the market is. And sometimes your products, you just don't have it. I was talking to a buddy of mine and he's like, I can tell 12 months ahead of time if it's going to be it because the products ad spend and CPMs and none of that matters.

It all, it all about the product. And if the market wants that product at that given time, so cuts after five years of, you know, doing t shirts. You know, in joggers, that was like a, the market really wanted that, you know, at times we came out with the swim short, this festival collection that totally wasn't our brand, but we tried to push it and the market was like, yeah, maybe that's not what's the best.

So I think You know, just understanding what that product is going to do for me, I think is the best indicator if, if, if it's a growth year for you. 

[00:22:20] Taylor-1: this guy on Tik TOK. His name is Jordan Rogers. He used to work at Nike and he always does these breakdowns of sports marketing campaigns. And he has this, like these pillars where. In order for this to work, you have to have this very rare overlap between a superstar athlete, the product, and the media moment that triggers it.

And so he's been talking about how Adidas is getting that sort of holy trifecta right now with Anthony Edwards, where they have a new They have distribution for him in the playoffs and they have this rising superstar athlete, and they all culminate in the availability of the product at the right time as he begins to trend.

But he talks about how rare it is to get all of those things to move together at the same moment is that sometimes you have the right athlete, but there's no, they're not on a platform where something big is happening or there's no real distribution. And it's like that culmination of those things to your point is so hard.

And if they don't, if the trend doesn't move at your back, it's like, It really doesn't matter what else is happening. And if it does, the CPM on Facebook could be 1, 000 and it wouldn't matter. You'd still make money because it's just this perfect moment where that all comes together. And in marketing, we're always trying to create those.

And sometimes it's easy to think we were really bad if we missed it. And we're really good when it happens. But it's so often there's this cultural, cultural underpinning that is a lot bigger than us that sort of wraps around that product and moment that really drives the success.

[00:23:41] Steven: Yeah, Totally.

And I think Nike has always greatly inspired me, but if you think about when they were, you're like 25 uh, when Jordan came around and I think about they did, I think 183 million in that first year with the Jordan one, and. But they, they were 20 years in for that and, and they were ready for that moment.

So I think like having a good balance sheet, it's not like you need a good balance sheet to be ready for that moment, because when that moment comes, you're going to have to take a big risk, but you need to be ready for it. And But if you, if, if Nike wouldn't have had a good balance sheet at that moment, they probably wouldn't have been ready for it.

So, or good relationships with vendors that they can lean on. So uh, like the below the line stuff is something that I've definitely been more and more focused on as the years have gone on because it, it'll help fuel those moments when they come. 

[00:24:33] Taylor-1: true. So you have this billion dollar ambition, and one of the ways that is obvious that you'll have to get there is continue to expand categories. I know cuts has moved a lot into women's apparel. We've talked a lot about the challenges of a brand going from a very core identity around a men's t shirt to now a We're going to expand that and how that takes work and it takes investment and it takes different marketing structures.

Talk a little bit about the categories that you've gone into recently, and maybe how you guys are approaching building a business that has really distinct business units within it. After really being single skew focus for so long.

[00:25:08] Steven: Yeah. This was another one of the problems that it's easier to run a single SKU business. Like when it was just t shirts, we joke about it at the office all the time. There's an argument that that might've been the better scalable route because it's more predictable and that product has the, like the margin and the repeat rate and all that.

It's easier to manage. Now our AOV has gone up So significantly over the years. So that's been through product expansions like joggers and bomber jackets that are 275. But you know, on the marketing side, It's been really challenging. Cause you know, when medic came out with ASC for everyone, that's kind of deep in the Facebook game that just optimizes towards the best products or the best creative.

And it's, it doesn't really care. It doesn't really matter what the products are. And that's another reason our inventory kind of got lopsided where. It would always optimize towards the best t shirt ad or the best jogger ad. But some of these other things we had to focus on, it didn't optimize for. And then the, sometimes the Facebook team, you know, they say, Hey, we're not a merchandising platform where a growth platform, which is true.

So how do you force it? Right. While maintaining efficiencies, that's, that's something that, that's super important. So we've. You know, we've separated our men's and women's account, which was our two business accounts because you want the clean data. We've also started to separate our international camp accounts as well.

And now we're even separating our by AOV. If it's a, if it's a really high AOV like jackets, that's a separate account as well. Now it is against best practices in some ways, but best practices and what's good for the business kind of sometimes can collide. We're just having clean data where, you know, okay.

On a monthly basis, we're forecasting to spend X amount on, on this step set of product is so important for a brand to have success. Because if you can't forecast spend, you can't, you can't demand plan. So that's something that we've, we've had to lean on. It doesn't necessarily mean that's how you're going to be most efficient either.

It just means it's, it allows you to have predictability in your business. 

[00:27:08] Taylor-1: huge transition. And what you're describing is literally, I believe right now. The single most important next frontier that the e commerce industry is facing is that to understand that the driving decision for where you advertise is not efficiency, it's inventory. So what do I mean by that?

When you buy something, you have an obligation to try and sell it at the best efficiency possible for that unit, right? You have to maximize the marginal value of everything you bought from the manufacturer. That doesn't mean that you can just set the ad account up and let it go wherever it wants relative to efficiency.

Because you may run out of stock on that thing and then what, right? And so in so many ways, what you're describing is, I think for every business that I watch right now is this core chat challenge of deciding and connecting the dots between demand plan and demand creation. So I'm curious as you do this, so you talked about your guys are running separate ad accounts, which I think is novel.

Connor and I from Ridge talked about this the other day. They've done something similar at different times. They've gone back to one. They don't really, they've tried different pixel. Like everybody's sort of trying to decide, like, how do we handle this from your standpoint? So I'm being curious, like.

On the newer categories. So, you know, like the core business, I'm sure you have pretty clear unit economics that you want to hit, but as you're investing in a new channel, how do you think about the efficiency expectations for those categories as you're launching newer things?

[00:28:25] Steven: So. And it goes back to, is it a growth product or is it a seasonal product on the, on the seasonal products? And this is maybe a secret hack, but I really think it's going to be valuable for for us. And we've started to see the beauty is just understanding weeks of supply. so get really granular. Let's say your email list is a hundred people to make it example.

And you're, you're saying on this season item, we think two are going to come. Okay. So two a week. So that's how you, that's how you'd buy those seasonal items. So if it's a seasonal collection that's coming out and you order it towards four or weeks of supply, then it can go into a new products ASC campaign within your legacy account.

And it's going to, it's going to have marginal spend like low, low spend, and it's five weeks of supply. So you really can't be burned that much on it. Now, if it's a new growth product, the way we do it, it has to test. Like we don't take any big bets on, on just cause we, we don't think we can afford it. So it first starts in that seasonal product.

So if we have a cargo pant, for example. And it because there's, there's a bunch of things we need to test on, on the seasonal one. Did like, what was the, the five weeks of supply daily velocity that we saw that helps us? That's a data point. We also look at opportunity costs. What happened to the other category items during that same period of time?

Did the joggers did the, the, did the did our straight leg pants without the pockets? How did they do? Did that happen? So what happened? Do we need to now shift a little bit demand? And, and, and, and so there's a million things we look at, but so then the next season we say, okay, we want this to be a 12 week supply item from August, September and October.

We run a sale on August, September's demands low. And then we want it sold by October. And then we have like a fail safe plan. Okay. If it didn't go well, we'll, we'll. What's the longest we think we would have it, which is the end of year. Are we okay with that? But then we have a plan for the buy of the legacy item.

Cause so for our core items, we try to buy them every two weeks so we can always mess with demand. So during that next PO buy, if that new item Over perform underperform. It could affect the other category, the other category of products in that.

So that's a long winded answer saying there's a lot of things, it's super it's we haven't mastered it yet, but I think over time, we really look at it, 

[00:30:44] Taylor-1: for all the right considerations, right? So one of the things that I said, I think that is so important, especially in apparel is the idea of demand displacement. Okay. So when we think about introducing a new product, it's very easy to go, Oh, I think I'm going to sell a thousand units.

But the mistake people make is that they think all of those are going to be incremental new purchases. And oftentimes what you do, especially if you launch one pant is that you might actually just siphon some demand from a previous product, right? And that's, that to me is actually the hardest part to predict is how much of this demand is going to be net new demand versus is just going to reduce impact on other skews.

So I love the sequence that you're talking about where there's like a period of lower inventory risks. That allows us to get some insight into that reality to better inform a larger purchase going forward. Right. So there's a, almost a phased approach to it. Now, how do you think about that in fashion though?

Because one of the concerns I would have is like, how do you guys think about how trend impacts present and future demand? And how does that relate to that decision for you guys in your category specifically?

[00:31:45] Steven: that's a, that's a million dollar problem. I would hire more merchandisers than designers. We got in trouble with hiring designers that led the product. Team and the designer is more trend focused versus a merchandisers kind of looking in the future from like looking at the category. So just on a simple basis, looking at men's bottoms, what do we think that the demand is going to be for all of them together in the future?

And so versus a designer's like, I want to make the best item. That possible. So just one leading on your merchandising more than your designers to help you with the buys, I think is super important and having, and that might be the best hire we've ever made as a, as a good merchandiser because, you know, designers sometimes get a little they put their hands around products and have a, have too much of a personal viewpoint on, on it when it's maybe not best for the business.

But that's a tangent. So yeah, I think we have a Friday projects, which is a hype machine, but it's allows us to test products to see how they do and understand how many weeks of supply to order. So that's, been a huge process for Friday projects, 

[00:32:53] Taylor-1: that's, well, 

[00:32:55] Steven: your original question was how does trend affect.

PO buys. Luckily, we, we actually tried not to be the most trendy brand on purpose. So if it's a super trendy product, there's a good likelihood that cuts won't do it. We've done it in the past. We don't want to do that anymore. But if you are a trend based business, You're probably going to have to take some risk on product because that's your business.

So just understanding who you are. Like, I, I have a friend, this girl who runs a e commerce brand and, and, and she has new, she has so many, her problem is never product it's, or is CPMs. Like she has the, I look at her account and I'm like, How does she have these low CPMs? But she just has so much innovation in her account, but she can't get scale like cuts can because there's a, she just can't order to demand.

So for her business, it's all trends. So she has like 15 merchandisers and her head of growth's like not that important because they just put new products into ASC and they see what. Crushes. So that's maybe not the best answer, but just understanding what type of business you, are, I would say 

[00:33:55] Taylor-1: love that 

[00:33:56] Steven: answer. 

[00:33:57] Taylor-1: Talked about this idea of who gets to decide what gets made. And there's two really important considerations, right? There's somebody has to represent the market, right? And that's what a merchant great merchandisers going to do is they're going to look at category demand across the men's apparel space generally and represent what our customers buying.

And then you have a designer that then thinks about. Who is cuts in that story and how do those things overlap? And I think so often I've seen brands that exist where somebody, and usually it's a lot of times early on, it's the founder who is a product person. They like to make stuff and they're sort of acting out of their own inspiration, which I think early on can be exciting.

And you'll find a small cohort of people that are just like you, and you'll be able to. You know, find this like passionate group, but at some point you have to begin to understand what the market demand is more broadly and use that to inspire product development in a way. And so I think that is a really important way to think about solving for that problem.

In a way that I don't think is it's, it's a maturing process to get to a role like that, that exists. And I think we're going to see more of the core roles inside of an organization. That I believe are going to move out of this head of growth being the most important person to actually, actually it's this demand planning and merchandising is the thing that actually enables growth because without the right product, the right moment, that person is useless.

They cannot make demand for a thing that doesn't exist in stock or is the wrong margin or isn't what the market is looking for.

[00:35:18] Steven: One, I think for.

young founders, like how, how, how you're going to build your business, what products are going to fuel other products and who's going to pay for what? So like our t shirts pay for a lot of failed misses in other items. But if There's a repeatability of things we can count on, like maybe t shirts have come down or gone up and, but there's, there's, there's repeatability in the business.

Building some type of cadence to your business is so important. And products that you can count on because I think it can be really hard if you're trying to reinvent the wheel every season, 

[00:35:50] Taylor-1: There's also sort of like frontier for every. Product category where it's like, okay, maybe you can using meta as a primary demand lever, get men's t shirts to 30 million a year profitably. And then every time you sort of press beyond that, the CAC sort of degrades. So you can like ram your head against that wall infinitely trying to expand it.

Or you can go, okay, no, no, no. a foundation, that's 30 million a year foundationally. Now let's layer on incremental new categories that expand beyond that. Now they're probably not all going to be as big as this one. This might be the biggest one, but might be it's 7 million in pants and then 4 million in sweatshirt, whatever.

You just start to think about how each of those as different businesses add to the incremental story of the whole thing. And then there's some cross sell eventually, but mainly these are like almost net new businesses altogether. got 

[00:36:37] Steven: one thing to. That we've really learned is so January through the end of the year, big T or January through like August, big t shirt season. Then where we, it's also like what, what, what, what time of year the products are going to do most for you So when we try to push t shirts in fall, that's when, that's when it becomes conversion rate dips and it becomes harder to sell it.

So. That piece of information we, our demand planner says, okay, we're going to, we're going to shift down t shirts during that period and go more mid layers and bottoms. So, in years past, we had way too many t shirts during that that phase. So, and our cash was stuck and then we got stuck with those. So your.

Your head of growth and your demand planner need to be in lockstep of what you're advertising so you can get in and out of cash with the right season. And for us, it's like, we'll always have black and white t shirts 24 year, but the colors will go kind of go like this and then come down and in apparel.

It's so important that you clean out your inventory. And find those liquidation channels to get rid of the death by a thousand cuts cuts. We're still nowhere near we need to be. And we'll be, be there in about a year and a half. But at every, any season, get rid of the double XLs that aren't sell selling.

They're not going to. sell on your site. Don't leave them up there. Get rid of them. It may only seem like a thousand dollars and you're like, Oh, It's not that much money,

[00:37:55] Taylor-1: about

[00:37:56] Steven: times how many skews that's where your cash is. so 

[00:37:58] Taylor-1: a

[00:37:58] Steven: finding ways.

To get rid of them,

[00:38:01] Taylor-1: you

[00:38:01] Steven: even at a slight loss, potentially could be better just to not have the problem balloon.

Maybe one of the most important 

[00:38:08] Taylor-1: Well, so I did this episode where me and Dave from our brand bamboo and Mike Beckham are talking about this idea of return on invested capital, where businesses all the time are looking for a way to deploy money for the sake of generating the best possible return. And as a founder, so often you reach the stage of your business where you're a capital allocator.

You're making bets on things relative to their expected value or return for you. And so a lot of times when people do that calculation, they look at a product category and they go, I think we could do 10 million in revenue or off this product category. Right? And so they go, well, I got to spend a million dollars and I could make 10.

Okay. There's some expected value in that calculation, but the part that they miss about how to make that a better bet. And you're hitting on it now is the way to improve the expected value of any bet that you make is actually to decrease the risk. So if you think about it, if in this process, when you make that million dollars bet, if you don't have a liquidation mechanism, maybe your risk of loss is like almost all the million dollars, right?

Cause it would just end up sitting and go bad and you couldn't liquidate it. But if you can create a liquidation mechanism that says a worst case scenario, we could sell it all for 250, 000 bucks. Well, what you've done is you have, you've actually significantly improved the odds of that investment by raising the floor.

that as a strategy is massively underrated from an investment thesis. If you can raise the floor of every bet that you make, your odds of success go way, way up. And so I think you guys are discovering that. Yeah.

[00:39:36] Steven: Another way to raise the floor is size like how you buy sizes by seasonal collection. So like, For certain colors of the that we put that are seasonal, the smalls that like the cliff hanging sizes, which is small and double XL, or in women's, it could be double extra small or large.

We're going to order those like one week or two weeks of supply. Cause we just have zero risk for those. We know we're leaving stuff out, but we know if a large is left on the site, it'll eventually sell. So. Just understanding weeks of supply by size on a seasonal collection. Cause that's where there's a ton of risks where it can't stay forever.

Is, is where we've gotten better. So we, we don't not, it's not just sticker, you know, weeks of supply by size size. And then when it's size and seasonal color, it's even lower. 

[00:40:18] Taylor-1: is, this is so good. I think that is no more complex financial system than an e commerce apparel business. It is about as hard as it gets, it is level nine or 9. 5 on the complexity scale. And everything that you're describing are the ways in which. You take a business that the beautiful thing about it is people love clothes.

They buy the heck out of clothes. And so there's so much market. There's a huge Tam and so much opportunity to do rad stuff, but the mechanics of actually turning it into a business that produces cash is a challenge and you are on that journey and learning a lot that people can benefit from, man. So any last things that you would leave for an aspiring young e commerce entrepreneur in the apparel category?

[00:40:58] Steven: So this is like an ego one that you'll love Taylor. And I, we, we've talked about this before, but when, when cuts was Growing really fast. I had a lot of aspirations to have, you know, that fancy office and all these employees and kind of like, I loved, I loved a suits, right? When you walk around, it was just so cool and all that.

And, but I, I forgot, I lost touch. What made cuts great. We could keep op X pennies, like nothing to run a really large scale business, but we gave away our Like it's, it's an asset to be able to spend 30, 40 percent of marketing on revenue. If you can do that profitably, don't listen to the people that say you can't.

The only reason you can is if you're OpEx now balloons and it needs to be more, more manageable. Sean at Ridge is a good example where they have a really low. almost at 50%. So that can be an asset. So just don't let these other things, these shiny new toys get in the way of like what actually drives value for your business.

We've, we've been there. You know, it often means finding You know, talent that can do a lot and you don't need a new role for everything you need to do, which was just something that we got in trouble with. You don't need a nice office. You don't need all those meals that you, you got used to on the corporate card.

The better thing is just having a good balance sheet that really drives a good valuation for your business So, you know, learn from this conversation and just go about it 

[00:42:23] Taylor-1: business that's about operating leverage and what I am constantly blown away by people's capacity to develop novel solutions, to workload problems, right? Like, and so often we want to insert a human in there. But in many ways that can such. Be such a limiter on the business's necessity to solve for it systematically or operationally in a way that doesn't actually require a person.

And you're right. If you have the ability to be lean on the people in OPEX side, you get the fuel growth and we call it fuel profit. It's the dollars left over after your cost of goods that you have to put into marketing and the leaner your team is, the faster you can get after it. Steven, you're the man.

Where should people follow you? What's the best place to keep an eye on your journey?

. At Steven Borelli on Instagram, on Twitter. We just launched the Stephen Braley podcast where we interview founders and CEOs, athletes. Check that out. And listen to Taylor. If you're, if, if You're running a new e com, his, his YouTube , is better for really nuanced advice. I would definitely recommend that. I still, like when he, I'll, I'll. I'll DM Taylor still when he comes out with a new P& L, he just came out with a P& L of how you. want to see it. He updated it. I sent it to our accounting manager. I said, I need to see ours like this. It needs to be like this and our numbers better be what he says is 

[00:43:37] Taylor-1: You're man dude. 

I appreciate you. I'm excited to cruise up and check out the spot here soon in LA. This, the production on the podcast is sick, by the way. I've like, you guys are, you guys are doing good work with that. I love the episode. I've seen all the clips with you and Sean. I'm excited to jam into that, but dude, I appreciate you.

Appreciate your candor and your willingness to share. And we'll see you on Twitter. 

[00:43:55] Steven: Thanks Taylor. Appreciate you.