How to Scale From $1M to $20M with Andrew Faris

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[00:00:18] Richard Gaffin: hey folks, welcome to the E-Commerce Playbook podcast. I'm your host, Richard Gaffin, director of Digital Product Strategy here at Common Thread Collective. And at this point, I would say I'm joined, as always by Taylor Holiday, but Taylor is in fact, on vacation this week, a much deserved break. And instead, I'm joined by former Playbook podcast host Andrew Faris.

Now of what's the name of your gig right now, Andrew, ajfconsulting, something like that.

[00:00:46] Andrew Faris: I appreciate the serious prep effort you went to, to make sure to get your guest right. You know, that's really good. No, ajfgrowth.com is where everything is. ajfgrowth.com

[00:00:57] Richard Gaffin: ajfgrowth.com

[00:00:58] Andrew Faris: I'm not, I'm totally joking. It's fine.

[00:01:00] Richard Gaffin: Well, I literally had it pulled up on the screen, but for some reason my brain just didn't make the connection. But anyway, yeah. 

Joining us again, we're gonna talk particularly about some of his work in growing businesses from one to 20 million and all of this secrets involved there.

But yeah, Andrew, maybe give us give us the folks a little update on, on where you're at and what you're doing and, and what your work entails.

[00:01:19] Andrew Faris: Yeah. Well, mostly I'm pretty sunburned. It's July 5th when we're recording this. That's probably the biggest update. I was thinking actually it would be, it would be like, July 5th has to be like the aloe vera Black Friday for like a retail stores, right? It's gotta be like the day where you sell all the, you know, massively disproportionate amounts of alo vera.

Cause I'm pretty sunburned. Other than that, what I'm doing besides tending to that is is I'm growing e-commerce brands with AF growth. So, you know, about a year and a half ago, I left for by 400 and wasn't sure what I was gonna do. Ended up starting the consultancy of my own. Kind of had a couple clients fall into my lap and suddenly I was a consultant, a freelancer.

It's been a great fit for me and I love it. And and so having been chronicling some of that and some of my thoughts separately after this podcast, which is funny by the way, I, when you said the E-Commerce Playbook podcast, my immediate reaction was to be like, oh, gotta re-record that. It's not called that anymore.

Cuz I have had to get used to not calling my podcast that anymore cuz now, now it's the Andrew Ferris podcast separate from this. But no, this is the E-Commerce Playbook podcast and I'm back. But yeah, I've been, I've been growing I've been working with e-commerce brands and, and really Actually, the thing that's been Interesting.

I've been sort of landing on you know, when you start your thing in a consultancy. I think there's like a temptation to take on lots of different kinds of stuff and not even just like, Take on any work that comes to you that wasn't so much it as it was just going like, oh Yeah. I could do that, I could do that.

I think this would be good. And what I've landed on is like there's a kind of client and a kind of part of the e-commerce journey that I love the most. And this is, this is tied a little bit to the four by 400 journey. And a lot of things I got wrong and right in that pa in that. Journey. And just at, you know, a lot of my clients at CTC when I was there which is what I've come to realize is like, I love growing e-commerce brands, working with like, entrepreneur entrepreneurs.

So, like, my favorite clients are the, the client who started the business themself. I, you know, the director of marketing at or the director of e-commerce at a, you know, bigger business is. Probably really smart and fun to work with in their own way. But that's not my favorite kind of client to work with.

My favorite kind of client is I like going straight to the entrepreneur who's taking the risk, taking the leap, building their own business and has gotten past the earliest stages. So, we're not talking about like, I've got a hundred thousand dollars in revenue and maybe I have a thing here. That's a little too early stage for where I like to be.

Right now. My favorite is like between, Probably one to 5 million showing real signs of life and wants to get to like 20 plus. 

That, that stage of the journey is super fun to me. And then making meta ads the, the primary. So I end up doing like a lot of coaching in that stage cuz there's a lot of, there's a lot of that growth journey that that is requires like understanding some of the financial elements of growing your business along those ways.

It just changes so much from. The way you manage a business that's sort of right around seven figures to to, you know, low mid eight figures. A lot changes in that journey and, and so I like coaching that side of things and then making my main execution tool, meta ads for that. So there's, there's lots of other things you need to do to do that, but the thing I like to work with where I'm actually getting my hands dirty in the business besides just coaching and, and helping with forecasting and stuff like that, is actually in the execution and creative on, on meta.

So that's what I've landed on, that's what I'm doing right now. And I've got a few clients that are kind of right there and it's really fun. 

[00:04:38] Richard Gaffin: Okay, so maybe you've already answered this, but, but what is it about, so beyond simply like the, the client being different, what, what is it like in terms of the actual day-to-day execution of that growth period, from one to five, from five to 20, whatever that you find so exciting or enjoyable?

[00:04:56] Andrew Faris: I think it's that you can make, you can take giant bites fast. You know, you, you see huge impact suddenly, you know, new ads hit and and. You double your revenue. Like it's like it's just, you know, whereas like once their business gets to a certain point, I was working with one business for a little while that was like, that was already at like 30 million before I started with them.

And I think I did good work for them and it probably helped them grow 5%. You know, and that's great. 5% is a lot at 30 million, so that's a million and a half bucks. Like, it's like, it, it's, it's really good. And maybe it even got to 10% and that's, that's awesome. But it's just, it's a lot harder to feel it and it's a lot harder to have the energy around it.

As that. And then I also, I also just love teaching and I find that in that stage of I just think it's so fun to, to take a concept, pass it off to somebody else and watch and see them internalize it and get it and do it. So a lot of my content is basically me trying to do that as much as possible with people.

And I, I suppose it's content marketing for my business and I suppose it's I make some, some ad ad dollars and some stuff like that, but the truth is it's actually not the best return of my time. I just love doing it. So, yeah, when you're kind of deep in a business with an entrepreneur and you're alongside them and you're sort of their most senior person they have on their team, a lot of times in terms of experience it's really fun to go like, Hey, have you set up your cashflow forecast?

Have you. Have you, do you have a really strong cohort model p and l so that you know how to think about how this business is gonna grow. And that way when we run these ads, we know and you have a constraint around your opex. And that way we know you're gonna generate profit at the end of this. And a lot of these things that are like really important that you and Taylor, I think talk about a lot.

That I just love seeing that because, you know, I'll sometimes have a conversation, like, I have one client right now who said, Like, I don't know how I did this before. I had these documents in hand and was doing these things, you know, like, and, and Yeah,

the answer is like, you did a great job and it was really hard work, but like you just need somebody to kinda show you those things.

That's, I think it's fun. 

I also just like love direct response advertising. So meta ads is, is fun for that. 

[00:06:54] Richard Gaffin: Yeah. Well it's, it's definitely like a, I think in my experience too, it's like the stage of growth right before the business grows, to the extent that now they're sort of like policing their own sort of like brand voice and being a little bit more like white glove about like what they try and they don't try.

I feel like one to five, one to 20, you're in a where You know that there's an opportunity to win because something is definitely working about this business. But you also, I think there's also like more openness to doing kind of whatever you want to do to make it work. Which 

[00:07:24] Andrew Faris: Yep. Yep. 

[00:07:25] Richard Gaffin: that's, how we, like when I started CTC five years ago when we were on the same team, like that's kind of what the attitude was like, let's, we'll try anything, see if it works, test, whatever, all that kind of stuff.

And it's like that perfect. Point where testing stuff may actually work, may actually do something huge. But yeah, you're also not at a point yet where people are afraid they'll get fired if they take too big of a swing, you know? 

[00:07:48] Andrew Faris: Yeah, that's right. Yeah. 

[00:07:50] Richard Gaffin: So speaking of that that this growth phase 1 million to 20 million we're saying, but let's say one of five already alluded a little bit to some of the kind of key things about making that work.

But let's talk about, so if, if the premise of this podcast, let's say, or this episode is Secrets for Growing from 1 million to 20 million, let's get into some of those. What do you think are the, most important>

 

[00:08:12] Andrew Faris: Content marketer, clickbait right. there. That's great. 

[00:08:15] Richard Gaffin: Exactly. Exactly. 

So, yeah. What would you say is, is the most important thing?

If you could boil it down to one sort of summary, secret to that growth stage, what, what would you, what would it be?

[00:08:27] Andrew Faris: You have to build your whole, this is gonna be, I'm gonna cheat. It's gonna be?

[00:08:32] Richard Gaffin: Okay. 

[00:08:32] Andrew Faris: two things. But it's all, it's, it's together. I think you have to build a model for how contribution margin. Is generated in excess of your fixed costs and then you have to have a way to execute that. And there are actually multiple ways to do those, to do the second part of it.

The first part of it, I'm not sure there are that many ways to do it. The, there you have to have a clear framework for how you are going to generate. You need to know as clearly as possible how you're going to generate contribution margin in excess of your fixed costs. And and, and you need to un, and what I mean by that is you need to understand where.

The relationship between customers and orders in your business, customers and products in your business. The, the relationship between those two things generates dollars in excess of the variable costs associated with that, and then the fixed costs that are required to get you there. You need to know exactly how those two, how those things work together, and then build your plan and your playbook around actually executing.

That knowledge set, basically. That to me is the game. And if you don't do that well, there are just a bajillion landmines along the way that you just don't see coming. And they, they can come in a lot different places. You, you have to understand that almost every other problem can be solved.

Let's say cash. Cash is a big challenge for growing e-commerce brands, but it.

can really be solved pretty, pretty I won't say easily, but It is very solvable. It's, it's not an, it's not a problem you can't overcome if you are really clear and you are tracking carefully how contribution margin is coming in excess of, of your, of your fixed costs.

And, and so to me like that, getting that right.

and then like I said, having, you know, the sort of one clear mechanism for doing that can work. So the mechanism for doing that can be all kinds of things. Like I, I interviewed Isaac Madero in my podcast who did 10 million in revenue without a single dollar in ad spend by just crushing organic It's the most popular episode of my podcast I've done.

He just, he just crushed organic content. He's incredibly good at it. And he built this entire system, built around that with all of the time and money and thoughtfulness that I would put into about ads. And he, and he's got all of these things. So, maybe, I don't know. I'll send you that if people are interested in hearing how he did that.

Most people shouldn't try and do what he's doing, but but it's one way to do it. Some people should, but most people shouldn't. And I'll, I'll send you the link for that. Richard, you can put it in show notes, that would be one way to do it, Right. You could actually be an incredible search marketer or a great SEO person.

Like I've seen businesses that work this way. Killer insanely long funnels that like start with a click from a paid click, but actually are as much as anything else about like these deep detailed upsell downsell email, like all that kind of stuff. You know, there's sort of an older school e-commerce marketer who does all those things.

There's like, there's, there's definitely ways to do it that are beyond that. You know, meta is gonna be the most. Common for Sure.

But but there, but there are ways to do it. But in all of those plans, no matter which one you do, you have to have some model for how you're gonna generate contribution margin and next to your cost.

And it, and it sounds so obvious, man, but like people, I don't think, think about the fundamental problem with their business that way. They think about all kinds of other things. It's really hard to look through the giant mess of spreadsheets and data and Shopify dashboards and all the things that are thrown at you and like, You know, high volumes of advice from e-Commerce Fuel and Workspace Six and Foxwell founders and admission and, well admissions actually probably exception to this because you have a clear framework. 

But like all of these things, no, seriously, I mean, it's, it's one of the reasons people should go do admission is that there's, instead of it just being a lot of different people chiming in with things that work for them, it's an actual framework for how to do it which is a gift when you're in that stage of business.

And you know, Twitter, all these things are all shouting at you. Do this, do that. Run post-it note ads, run like, you know, whatever. Like, there's just like a million different things out there. Trust the algorithm, don't trust the algorithm, like all that stuff. But like, gosh, if you can siphon through that noise and or sift through that noise with some idea of of how you're gonna generate contribution margin, excess of your costs, you can solve a lot of problems for yourself. 

[00:12:28] Richard Gaffin: Okay. So you sort of, I mean, touched on I think the answer to this question, but like what are, maybe for our listeners out there, what are signs, what are potential red flags or that you should sort of become aware of in yourself, that you're in that space where you're following things that will necessarily take you to where you wanna go?

So obviously you talked a little bit about. If there's a lot of noise, maybe focus on specific tactics rather than an overall strategy or whatever. But what else are like characteristic? Cuz again, this goes back to that question of like, so obviously for me, because I host this podcast and work at ctc, it seems very obvious or whatever, but of course I'm like, I'm not in the weeds.

So for somebody who is in the weeds, what is, what's a sign that you are focusing on the wrong things and that you need to shift focus to something else?

[00:13:11] Andrew Faris: I think, I actually think the sign is, do you have a clear framework, including a clear forecast of, and I think like it's this simple, like, The value that you're gonna produce over time. And I would say if that forecast isn't built off of an LTV model and you're running a D TOC brand, then your forecast isn't good enough.

It's, it's like this is an overwhelmingly piece of advice for a lot of people. It really is. But it like challenge yourself to take the, the four hours it's gonna take you to build this and just set aside the time, get the help you need. Join admission. Get help from somebody there, like whatever you gotta do to, to build a cohort model forecast for your business.

And. and. then stare in the face, the number that comes out at the end of your cost of goods and your CAC, and then your operating expenses. And do you have a positive number after those things? At some point in your growth curve, it may not be today, you may be fronting some cash to get your business going.

I get that. But but do you have some clear model for that? If you don't? That is the sign that you don't have, that you weren't there yet., and so another like sort of that's Yeah, that's, that's the thing. That's what I'll say is like you got, if you have that in place, a lot of other things.

It will, it will help you bubble to the surface where the problems are in the business. Because, for example, if your customers are not worth very much to you, if you don't have very much LTV over a long period of time, you will quickly figure that out because you'll project out future value of those customers in that cohort model forecast.

And they will not, the number won't be very big in revenue. And you'll suddenly go, wait a minute those, those customers aren't generating much money long term. So how, what do I do? 

If your ads are not also expected to make a lot of money for you, or your organic content or whatever isn't expected to make a lot of money for you on new customers, in that same thing, suddenly you're gonna look at a cohort model forecast and go like, Hmm.

This number doesn't get very big, and it will actually direct your attention towards the problems in your business. Maybe even to one that says like, you should stop. Like, I don't know. You know, like, it could be, it's actually probably not that. But but it could be that So, yeah, I, you know, I ran at, at different times at four by 400.

We had up to five brands in our portfolio. One of those is still going bamboo earth, and that's the most successful of them. I did not have this in place at the time. We were, I would say CTC Taylor especially was really developing a lot of the details that have kind of come up. And I would say I've been codified in the growth quotient.

What's that tool called, Richard, the E-commerce diagnostic 

[00:15:36] Richard Gaffin: I'm 

[00:15:36] Andrew Faris: Yeah. Yeah. Right. So that, that is, that's exactly the kinda framework I'm thinking about here. And that will show up in a cohort model forecast. And we didn't have that for 400, but it's Interesting.

When you play that back, like we had one brand exit around you know, mid seven figures.

We had, we have one that's still going and is into the eight figures. We had one exit low, seven figures, and then we had a couple that sort of, We're doa and never really made it even to seven figures, I don't think. And when I play back the different routes of all of those businesses through the framework of what I just said about a cohort model forecast, if I would've cohort model forecasted those things out at the time, The information I have now, I would've been able to tell you exactly which one was going to be, which probably in advance and which ones were worth the time and which ones weren't.

I just didn't see that clearly at the time and cost a bunch of money in the process. And so, man, if I could take that back, I wouldn't have even acquired some of them honestly. If that, if that was the case. So yeah, it, it, it would, it would make all the difference in the world. 

[00:16:26] Richard Gaffin: Yeah. Okay. So let, well, let's break that down a little bit. So you mentioned, of course, the e-commerce diagnostic toolkit, 

[00:16:31] Andrew Faris: Yeah. 

[00:16:32] Richard Gaffin: least some of the framework, so, Framework work, let's say that we do on the CTC side in terms of thinking about the growth potential of a business. So maybe let's break down a little bit some specifics of maybe the, of of the 10 metrics or whatever within the diagnostic toolkit of which ones that you find, at least at this stage, what's most important to look at?

What do you find yourself looking at the most? 

And maybe even, which one of these do you wish you could have seen when you were the CEO of four by 400? 

[00:16:59] Andrew Faris: I tend to boil it down a little simpler than the growth growth question does. And then the e-commerce diagnostic toolkit does though, I, I probably should use the, the toolkit cuz there's a couple things here that would be very helpful, but there are a couple things.

Taylor the other day tweeted something like, if you could start a brand with, you know, and you had two out of these six or seven elements of the brand you had. You know, celebrity, co-founder, a bunch of organic revenue or a bunch of organic traffic, like, I forget what the other ones were.

Negative cash verion cycle which ones would you pick? And the last two were gross margin and excess of 90% and L T V in one year, in excess, in excess of 150%. And those were the two that I picked. Now there's a lot of reasons for that. It actually. It doesn't matter why I ultimately picked those, but those are, those are two things that I would say I look at for every brand, every brand that I look at right now, especially if I'm gonna work with them.

And, you know, for me, I get paid on a percentage of ad spend at least to an, to up, to an extent when I work with a client. I, I need to believe they have some ability to scale and I think that the brand cannot scale essentially that, like, that, that 20 million is possible somewhere in there. If that, if that, if that's possible, then I could probably work with them.

I just think if you don't have one, and ideally both of those, but even just one of those two things, you are in pretty bad shape. Because you, you need to either be able to acquire customers and generate a pretty good amount of profit on acquisition, which would be the, the low cost of goods, also low cost of goods as sort of the The, the hidden advantage there is low cost of, of, of inventory on hand as well.

So for on a cash basis, it makes your life a lot easier. And then high Lt v the thing that people, I think, don't realize a lot of times is that generally speaking, and anything on a, in this format, it's gonna have to be generality. So there's, there's gonna be exceptions to this, but. Generally speaking, CAC correlates not to L T V, but to aov that is, it's much, it's the cost of acquiring a customer has a lot less to do with their value over the long term and a lot more to do with the value on the first purchase as a general rule.

And that means that if the, if a cu, if there's an extremely high L T V customer, Then you can typically acquire that customer for a pretty similar return on ad spend as you could if they were pretty low ltv. And what that means, there's this huge advantage in their massive ltv. And it also checks a box that you kind of have to have an e-commerce business, which is some organic revenue Now and that's in the diagnostic toolkit as well, some organic revenue.

But when people think of organic revenue, what they usually are thinking of as new customer revenue, like for example, You have a bunch of SEO or like great word of mouth or something like that, and those are great if you have those. Awesome. But returning customer revenue as your source of organic revenue works it works really well.

In fact can even make it so that like then paid media, which is part of why I picked those two, is that I'm. That's one of my strongest areas. So I feel like I'm able to grow the business on meta. If, if I know I have high margin and high ltv, if I have those two things so I can acquire a bunch of customers at some contribution margin on first purchase, and I also get some LTV out of them, and it's a good amount of ltv, 150% plus, like, that's, we know for a fact, you know, you, you've got the standard here and the In the diagnos toolkit as, as a hundred percent if you get a hundred percent growth over the course of the year.

So if I spend a dollar a day, I'm worth $2 to you by the end of the year. That's that's like those, that is a great benchmark. And if I'm at 150%, I'm in really good shape. So that's the starting place for me. And when I'm working with clients, one of the first things I'm doing is working on like the target for them and saying, what is your, what is your paid media target?

Well, it's dependent on those two things. What's your actual. Cogs and what's your actual ltv? If we can start there. Then suddenly what you see when you do that exercise is that if you have low cogs and high ltv, you can pay a lot of money for a customer and have them still be very valuable to you.

And I think it's helpful to think about this almost like in terms of return on invested capital. This isn't a perfect comp, but think about it sort of like, if you put your money into the, into an index fund, just like. Low cost s and p 500 and you expect whatever, 8% a year or something like that on that.

You know, people vary that a little bit, but something like that. Right. Well how does that investment fare versus your investment in a product and customer in your business and sometimes I'll sort of do that comparison and, you know, with high margin and with high ltv, man, you can get like, A hundred percent return on your money or whatever and be just having a whole lot of dollars come in.

That ends up over time also solving the cash problem, which is, which is nice because because unless you're growing insanely fast, what happens is those returning customers are valuable to you over time. And suddenly they start producing a whole bunch of cash in your business that you aren't paying out the door and Facebook ads or whatever to to get, so anyway, so those two things I think are the, are the place I look.

The third, there's one other thing here, which is opex low as a percentage of revenue. It's another thing that's in the diagnostic toolkit. I know, but I think it's so crucial. I'm, I'm now to a point where this is like one of the pillars of when I'm working with a brand. People need to internalize how important it is to keep this constrained.

Because e-commerce businesses scale awesome. In terms of opex, you just, you just, like I, I told Taylor like, you know, the benchmark in the diagnostic toolkit is 25%, opex is 25% of revenue or lower. That's then you're in good shape. That's fine. I think it should probably be 20% or lower if you're, if you're pure play e-commerce if you don't have any other channels.

Like just keeping that opex as low as a percentage of revenue is such a massive benefit of the business model. I think it's core to what makes e-commerce a good business is that you can keep opex really low. It's the advantage of it, the same way that like, you know, LTV is like a core part of the or let's say low cogs is a core part of the business model of SaaS, right?

It's like, like it scales really well against, against cost against, against cogs. So, in that same way, you know, I would say DDC scales really well in terms of opex. So, so yeah, so those, if I've got those three things right, then I'm in, I think I'm in very good shape with the business. 

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[00:23:23] Richard Gaffin: so what do you do if you don't have those three things? So let's say, I don't know, one of those three metrics is well below benchmark. You get a client where, where do you go first? Or what's, maybe, maybe talk me through like what your problem solving sort of step-by-step is. For figuring out what to do first.

Okay, let's say FOV:nCAC, cuz that's something that we see commonly. Like a lot of the clients or brands or whatever that come through that are in trouble aren't profitable on first order. And of probably coincidentally don't really have the long-term LTV to float that.

So that is of course, its own thing. Those things are so connected. But let's say FOV:nCAC is sub-zero. What, what's your solve for that? What's 

[00:24:05] Andrew Faris: Yeah. Okay. Well first, the first. Problem there to figure out. Cause I, you know, so one of the things I'll say is like, this is an area where I disagree with some people, and maybe even I disagree with Taylor. Is that like, I think there's a very good case that many brands should be acquiring customers at a loss as long as they have the LTV to support it.

If you have 400%, 500% ltv, you are leaving tens of millions of dollars on the table if you're not acquiring customers at a loss. Because the return on those customers is still so high, you just have to float the cash. But again, that's actually a solvable problem. It's not a, not an easy problem, but it is solvable.

And it's not an impossible problem either. So that's the first thing I'll say about that. The second thing is though, I would just say if I would first ask, is my problem there a meta ads problem? It is possible that somebody's doing a bad enough job. I'm assuming meta Ads is the primary AC acquisition lever.

It is possible that somebody's doing a bad enough job on meta ads that the reason that their F O V to CAC isn't good enough is because, or NAC is good enough, is because. They're just not thinking about their ads, right? Like it could even be a target setting problem to where they've set their target too low and all they need to do is take a little less growth and take a little more margin on first purchase to make that customer worth a little bit more.

That could be it. You know, sometimes people will ask the question like, whoa, what's a good row? Ask, you know, people say two to one. Well, I don't know. It depends if your margin's not any good, if your margin's 40%, then. Two to one's not good enough if you're losing money, you know? And actually if your margin is 50% and you don't have that much ltv, you're probably still not in good shape there.

So I'd first ask that question, like, are my targets set right? Am I doing a good job in meta ads? Am I actually using the tools? The tools, the best way I can use it? This is where I would bring in concepts like bid caps or cost. And, you know, think about my creative and all those kinds of things.

It's also possible that I need to go back to the well with my vendor and figure out if I can get some more margin somewhere. Now it might be my vendor, it might be my three pl. There could be a few different places where I'm looking to go save costs there. But but you know, I've got a customer, right?

I've got a client right now that's about to cut their margin on one of their core projects by like, Or not cut their margin cut their costs on one of their core products by almost 50 more than 50%. And it took a lot of work. They had to read it. You know, I think about we talked about this a long time ago, probably, but Supply Patrick Oos brand, you know, at the time my first interaction with him was like him coming and saying Hey, like, my ad performance isn't good enough.

Richard, you worked with Patrick. I remember at the time my, you know, my meta ads aren't good enough and I remember Taylor said to him, your meta ads are fine. Your problem is your margin. And he worked for like a year. He is been public about this, talking about like completely reworking the product basically to, to massively reduce his cost of goods.

And suddenly he had a great business and then he had an exit and it like went great. And so I, Yeah.

that I would say like, Though that's the question is like, I don't know. Is your margin actually good enough, but your CAC isn't? Well, then you might have a meta ads problem. If your margin isn't good enough and your CAC is pretty good, then you've probably got a margin problem.

It's also possible that your business is not well suited for D toc. And this is another thing I've, I've come across like, the example I think of here is, is simple, modern who I worked with for a while, you know, now Monster brand, but that brand was built on you know, they're gonna, they did, I think, They're going to do, or they did over a hundred million dollars just on Amazon, and that is low margin, but that was built as an Amazon first distribution strategy.

Where they, they saw white space in the market. Again, actually I did an interview with Brian Porter about this, who, who is the head chief e-commerce officer there talking about how they did this and it's sort of brilliant. He was thinking about the distribution channel of Amazon strategically in relation to.

That lower margin product, but massive total adjustable market. Everybody needs a water bottle. Everybody needs a cup. Everybody needs a lot of 'em actually. And so he saw Amazon was a great shopping experience. They did some testing. It was a great shopping experience for that product. So even though it was lower margin they could make money there because they weren't paying for the traffic on meta or something like that.

And then they've brought in meta as a secondary channel with D two C as a secondary channel over time after establishing Amazon and Target and whatever else, so it just depends on a lot of different things and sort of how you're built. But that's the way I would, I would think about that is, is, is maybe, you know, if, if it's not a meta problem, if it's not a margin problem, if you can't win on margin or if you can't win on meta and you can't win on margin, you might actually still have a decent business.

You just might not be a decent D two C business, and you might need to think about a different distribution approach. 

[00:28:15] Richard Gaffin: makes sense. One theme that I feel like is coming out in a lot of what you're saying is this idea of entrepreneurs, particularly at this level, not being sufficiently cost conscious. And I think that that's something that we've kind of seen, we've talked about this several times over the course of the last few weeks and months of, of the idea that like we're moving from.

A sort of broader world state for e-commerce, where like it used to be that money was free, whatever capital was easy to come by, you grow, grow, grow, grow, grow. You don't worry about profit. And shifting away from that mindset seems to be sort of relatively difficult for people or maybe just a difficult thing in general, but maybe give a couple like tips 

[00:28:50] Andrew Faris: Give a couple like. 

[00:28:51] Richard Gaffin: hints or whatever, stories from the battlefield, so to speak about like, Taking that opex number, taking your COGS number, whatever, thinking about costs before you're thinking about other things.

[00:29:02] Andrew Faris: Yeah. Let me think of examples of this. Yeah, well, one, I just referenced an entrepreneur who brought on a supply chain person to help him rework his supply chain and get. Cost down really significantly on a core product. And that will actually launch in a couple months. So yeah, actually here's another, here's another good example of this actually.

It's sort of the reverse. This is, people don't think about this as a lever with, with the cost side of things.

I don't know if this answers your question exactly, Richard, but the, the other possibility here is actually to raise your price. And it's actually, it's actually a much easier lever to pull in a lot of ways.

And And so, Yeah.

I think that's, that's the, that's a, that's a. Possible way to think about this is so actually that same entrepreneur also reworked his product to where in fact the cost will be similar, maybe even a little more expensive over time, but he can charge twice to three times as much for the product and therefore has a ton more margin on it, a ton, and can play with offers because of that and all, all those things.

And therefore is going to going to be in potentially a much better position from a finance perspective. So he's actually not really reducing cost per se but as a percentage of revenue he is. 

[00:30:10] Richard Gaffin: Mm-hmm.

[00:30:11] Andrew Faris: And that is just as effective. Theoretically we'll see it rolls out in a couple months, but I'm almost sure it will be cuz he, he thought he is got really thoughtful about it and he actually did that, this is probably a good word here, which is like, he did that in a way that was really thinking first and foremost about how to make the customer experience better.

And so he, he, he worked on the product to make sure it was awesome. And and, and now he's got a new version of the product that is more awesome and that that he can charge more for it at the same time. And I think customers are gonna be happy to pay more for it because it's a great experience and it's a, it's a good use of their legal tender in exchange for value, you know?

So, so yeah. So that's the, the. Outcome there? I think. I think that's it. The opex one. Yeah, well I've seen another one recently and I actually heard Taylor talk about this concept of sort of like lifestyle bloat. I think it tends to actually happen a little bit later than like, let's call it past 10 million.

Here's what happens. You start getting to this thing where you're at or about to be at, or you know you're gonna be at 10 million plus and suddenly you start seeing all the things that were just fine when you were at 5 million and you were okay with it, and you're like, wait a minute, we gotta do this, we gotta do that.

So you bring on agencies all over the place to do all of these things in like, Quote unquote, optimize them. And, and, you know, wouldn't it be great if we could convert 2%, 3% more traffic now that we're driving a lot more traffic? So you bring out a CRO agency and you, you know, whatever, and your email flows, they've all gotta suddenly be better.

And it's like, well actually they don't have to be better. You're growing at a just fine pace without doing those things, and you'd be much better positioned. And you'd be, you'd be much better off by By, here's the answer, forecasting your opex as part of your forecast and then holding yourself to that.

So when you do your core model forecast, if you get to that 12 million number or something like that and you're on that pace, then the way to avoid e-commerce lifestyle bloat is to make sure that you have an opex number in there and hold yourself to it. And as long as you do that, and as long as you hit the other parts of your forecast, guess what?

The profit number on the bottom's gonna work. So there's other things too that happen, which is like, you get a nicer office if you have in person or like suddenly like you start eating better food or something like that at the o, you know, whatever. And so I've watched at least one brand have to walk back and this is, this is like a really common part of the growth process.

The same way that sort of like learning to ca to cashflow forecast is part of the growth process for a 5 million brand. Learning to control your opex is part of the growth process for like a. 10 to 30 million brand or something. And, and so it's, it's a normal problem to have, but I think that's probably a, a way I would think about it.

And I, this is where I also come back to like, man, so much of the work here I got this from a I got this idea from a partly from ctc who does a great job with this, with daily forecasting and daily you know, making sure that you've got like a daily number to hit. I actually like thinking about this on a weekly level better, but I have a, a client who, who actually was showing me that he was tracking his, he was acquiring customers at a loss.

Because his LTV was so good and his way of making sure that he didn't get himself into trouble was doing that, is that he had a returning customer revenue number that he forecasted and tracks every single week. And he knows the moment that number turns the wrong way. As long as it stays the right way, he's in good shape.

His forecast, that means his cohorts are coming through. There's valuable as he wants. So like I think that kind of approach to growing a business is, is really right. Like think about that metric and then do the same thing with your opex. Hey, is your OPEX number actually what it's supposed to be relative to these values?

Great. Forecast it, track it. Maybe, maybe opex you don't have to do every week, but like every month just go, did it actually hit the number that we want? It's just easy for things to trickle. Suddenly, Klaviyo wants twice as much as they did before. Well, all right. Well, is that, do we need to switch to Sun Lane?

I don't know. You know, like, so it's like, The, those are the kinds of things I think that you can do to, to keep an eye on that. But yeah, I think the opex thing happens a little bit later. 

[00:33:38] Richard Gaffin: Yeah. That's interesting. Yeah. I mean, it sounds like in summary a little bit, it's, it's like there's, there's a certain mindset at this phase where you've been winning, so you're trying to optimize at the margins or optimize incrementally rather than, Thinking about down on the fundamentals or something like that.

[00:33:56] Andrew Faris: 100%. Yeah.

The other thing people do is they start like, oh gosh, you know, we've kind of tapped out meta ads and so it's time to go over to TikTok, or it's time to whatever, and it's like, no, no, no. You, you probably, if you're not at 50 million in revenue, I bet you haven't taken med ads as far as you can take it.

And it's possible you could take it farther still. Like, don't, like, don't diversify your ad spend too fast. That ends up being a cost center in your business. Don't do it. Instead go think about you know, go think about like, how do you keep making that channel better and better and better? There's probably more to do.

It's exactly what you just said. Like that fundamental is still there. Keep doing it. Keep going. Until you're really sure you've, you've sort of squeezed it for all it's worth and that you probably can't get more out of it. And I think 50 million is, is a pretty good number to hold yourself to. It's a generalization. 

[00:34:38] Richard Gaffin: That's interesting. Yeah, I think it's, it's part of the, the sort of mindset. I think there's a certain My, my, or what I find rather is like people in the e-com space tend to be, and the business world in general tend to be sort of allergic to the idea of. it ain't broke, don't fix it. This idea that like you could always be doing more, you could always be like finding some opportunity here or there.

obviously what happens when in that mindset is that you forget about the thing that was working and then the thing that wasn't broke does actually break. And so I 

like a, this is to go back to conversations we've had many times. David Ogilvy talks about if an advertisement is working, don't, the, tendency of the marketing department is going to be to try to fix it, to tweak it, to make it better somehow.

But if an ad is working, of course this is, you know, in the time of magazine, so, so optimization wasn't quite the same thing. But if it's working, don't change it. If the messaging works, don't change it. If the Energizer bunny is the mascot that everybody loves, don't change it from the Energizer Bunny. You don't have to do it.

[00:35:31] Andrew Faris: Yeah, that's interesting. 

[00:35:32] Richard Gaffin: And I, I find that definitely happens, I think in terms of, of e-commerce growth on a more tactical level of like, yeah, we have to expand into Pinterest or whatever. But do, do you actually, do you really have 

[00:35:43] Andrew Faris: Why, why? 

[00:35:44] Richard Gaffin: Yeah, exactly.

[00:35:45] Andrew Faris: yeah.

If, you know, those channels are worse. That's, that's the whole reason you didn't use 'em before. The whole reason you didn't use it is cuz it's a worse channel 

and this is why. Yeah, that's right. Yeah, I think that's, I think that's really good. Yeah. you, you stay on those things and stay disciplined on those.

And again, like I think this is where like having a forecast that you hold yourself to is just so helpful. Because here, the reason why that happens, Richard, is that somebody is out there talking about the win they had on it, right? 

Somebody made Pinterest crush for them, 

[00:36:09] Richard Gaffin: Mm-hmm.

[00:36:10] Andrew Faris: I promise there's somebody out there who's doing awesome.

Someday. Someday I'm gonna make display ads work for an e-commerce business, and then I'm gonna tell the whole world about it. I'm gonna just like a giant victory lap on it. And when I do, you should not listen to me. You should shut me off and you should like just go like, Nope, I don't care. I'm gonna keep investing in meta. 

[00:36:27] Richard Gaffin: That's, 

was gonna say, that's like an interesting like cure for that thing that you were talking about earlier of just being like inundated with all of this noise about what the next interesting tactic is. If you have that fundamental down of like, this is what needs to work for us, this is what it looks like for us, 

and you're able to have some understanding of like, in this business, things work, then you don't have to, you can sort of dismiss all of that.

Cuz I was thinking about in terms of somebody winning on Pinterest. I, I think the tendency is like, I hear about this person winning on Pinterest, but this person actually has like a, a jewelry business or whatever that to totally 

[00:37:00] Andrew Faris: Right furniture. 

[00:37:02] Richard Gaffin: business is something else entirely. You know, you're selling 

[00:37:05] Andrew Faris: Yeah, 

[00:37:06] Richard Gaffin: whatever I, I, you know, sea salt something, 

hey, maybe that would work on Pinterest too.

I don't know. 

But the idea is that like, just because something worked, like your business is unique. It might work for you. It doesn't mean it won't, but you have to 

account the sort of unique factors that make your business up, the 

that you're shooting for, then you 

call about what tactics you wanna pursue, you know?

[00:37:29] Andrew Faris: And that comes back to people not knowing what they're trying to do. A lot of times, this is another, this is another insidious problem, is that like you build a business and you're excited cuz your like goal is to quit your day job and have your business and you wanna be an entrepreneur and that's great.

You've completely, you've achieved that goal, but now you have to actually create a new goal because if you don't, what will happen is the only goal will be to make more money all the time. And every time you hit that goal, you will go, wait a minute, what if I made more money? It's like the, the bar just raises the, the moment you're Shopify Graph hits the highest number it's ever hit before you go like, okay, how do we beat it?

It's, it's so, it's such a hamster wheel. And so the, the an the antidote to that is having a sense of what you're actually trying to do and trying to get outta your business. I have, I've have one client who is certain that they want to build a nine figure business, nine figure, nine figure valuation, and have an incredible exit.

Fantastic. If you're certain about that. I can try and serve that goal. I have another client who's certain that they do not want to build a nine figure business because it'll be too much management for them and they want to you know, ski a hundred days a year. And so it's like okay, great. And those constraints then generate how you respond when major opportunities change or when you need to get more volume or whatever it is cuz like, Well, I don't know, should I like push the gas pedal all the way down and try to acquire customers at a loss and squeeze out 30% return on invested capital over the course of a year at a big loss for nine months or whatever, you know?

Well it depends If you're trying to build a nine figure business, maybe. Maybe you need to do that, and you need to be, you need to be willing to take a bunch of risks, especially depending on the timeline that you're trying to do it on. If you're not trying to do that, then no, you shouldn't, you, you're just gonna stress yourself out.

You should take more margins sooner and have a bunch of cash and sure your business won't get as big. That's okay. So there's just trade offs with all those things and having clarity about what you're trying to accomplish is, is really helpful for thinking about how you, how you approach those kinds of problems.

That's much easier said than done. This comes down to, like I said, like. One person's giant exit and another person's skiing a hundred days a year, or actually have nothing to do with business . This is like down to like your human desires and what you think will satisfy you in life. So, that's, that's a, a very separate problem.

It's very hard for me to answer for somebody. Perhaps. I probably can't. 

I have an opinion, but but, 

I probably can't answer it for you. So, Yeah. 

[00:39:36] Richard Gaffin: It'd be interesting to at some point do like, Cause I feel like you could break down, like if your goal is X, the best business for you to be in is y I'd be kind of interested to do something like that. So, so for instance, I mean, you've, you've seen a lot of different businesses.

You've operated a lot of different kinds of businesses. If you are pursuing that nine figure exit, what industry should you be in? Is there an answer to that?

[00:39:56] Andrew Faris: Well, I don't know about industry, but here's what I will tell you. I actually told this person that this client that I told this person They were, they actually had an offer for their business at one point, and it was a good offer relative to the value of the business. And so we were discussing should they take it?

And what they told me was, I want a much bigger exit than this. Do you think I can achieve it? And I said, my concern is that you don't have the LTV to achieve it. That you, it's gonna be very hard to build a nine figure e-commerce brand business without meaningful ltv. And so we talked about and evaluated and looked that really, really closely and ultimately decided that maybe, maybe we do, maybe we do have the LTV to achieve it because it's just, if a customer's not worth that much to you, it's possible you can be rich and you can be like the greatest, incredible advertisers in the history of the universe who are like, have this.

Absolute 95th percentile, maybe 99th percentile elite digital marketing skillset and, and build a big business without huge ltv. If, if I, I mean, I'm assuming some things about their business right now. I haven't looked at it personally, but from, from what I've heard them talk about. And, and you could do it, but it's just really, really hard and it's a, and it requires some different things.

And so, So, Yeah.

so I would say like if you want a nine figure exit in e-commerce, then you have to have that, and you probably have to be thinking omnichannel. So you have to have a meaningful pathway into at least three revenue channels probably to get to, to nine figures. It's gonna be pretty hard to do that, just e-commerce.

Now, again, you could be rich and do it. It's possible. It's just, it's not. We're talking about what's likely versus what's possible as two different things. So I would be thinking about can you get one big box? Can you have a big Amazon business? Can you have D to C? And probably can you have international?

Somewhere in there? Three outta the four of those is probably what you need to make it happen. And and it's possible. It's totally possible as long as you have a few other things there. 

[00:41:31] Richard Gaffin: Makes sense. Cool. All right. Well I think we're you know, we're almost at time here. Do you, is there any last thoughts that you wanna leave with with your former audience and perhaps current audience here at the e-commerce?

[00:41:41] Andrew Faris: I know that's, Yeah, I wouldn't be surprised if there's a lot of.

crossover here. Last thoughts? I, I think if you are hearing this and you want a You didn't ask me to say this. In fact, you told me you did. I didn't have to say this. But if you are, if you are hearing this and you're in that stage of business and you want the beginning steps for this, there is a lot of noise and there's a lot of stuff telling you what to do at the stage of business.

My personal strong recommendation is that you, you. Double up on admission and the e-commerce diagnostic toolkit, you use those two tools as the place to start in that stage. So if you're five figures or less, or not five figures, 5 million or less, and you're trying to figure out how to get the 20 plus, those two will be a serious guide to you because you'll have some ongoing coaching support from.

Absolute top tier sort of execution tools and admission plus a community and, and ongoing coaching in there mixed with like a framework for how to do it. You do those two things. You're gonna be in very, very good shape and you're gonna be guided, really. Well try to shut out the rest of the noise.

Like, honestly, turn off my podcast. If you have those two things and those are the things that you're gonna listen to that, that will probably help you. So yeah, 

[00:42:41] Richard Gaffin: All right, well done. 

[00:42:42] Andrew Faris: I don't know. I mean, listen, listen to me too, I guess, but

[00:42:44] Richard Gaffin: No, no,

I'll, I'll plug you in return. Please. Go listen to Andrew. He knows exactly what he's talking 

But yeah, the, 

starting with the diagnostic toolkit, I think like part of the reason we built that was to give an easy way. To build that framework and then to see where you stand relative to benchmarks that we believe to be.

so maybe even an answer to my question about like, what kind of business do you need to be in to build a nine, nine figure 

It's like a business where you're hitting the benchmarks on those ones that you were pointing out, F 

[00:43:11] Andrew Faris: that's right. 

[00:43:12] Richard Gaffin: ltv, you know, when you're LTV, nac, whatever. Basically like what, what you can do with that tool is discover.

Your growth potential, where you stand now, and where you need to go and, and how you need, 

you need to bring up. But cool. Alright, Andrew, is there anything that you wanna plug before we get outta here?

[00:43:29] Andrew Faris: I do, I actually am not taking on like growth clients right now or anything like that. So I, I'm, I'm all full up there. So, you can go get wait list kind of things and all that and see what I'm working on@aagfgrowth.com. But the actual thing that I would love for you to check out is the Andrew Ferris podcast, I have an episode coming up. That is very relevant to this conversation and that is the hardest, or this is the episode that I've worked the hardest and longest on of any episode of anything I've ever done, including on this show, the e-Commerce Podcast or Playbook. Podcast, sorry. Ctc. What it is is it's called it's gonna be called opening the books with a business that An awesome entrepreneur who was building a really cool business in this exact stage said, Hey yes, I will come on your podcast and show you exactly like the metrics and finances and all of these things in my business, and we, if you'll coach me for free, basically.

And so that was the trade off. I basically, I, I think I said it to her. But anyway we, we basically made this exchange where she said, I'll show your listeners exactly what's happening in my business and then if, if you'll just trade me some of your time to coach me for. Free at this stage, and maybe it'll help them as well.

So, subscribe. It'll come out in the next month. It's not out quite yet, but subscribe to the Interface podcast on YouTube. Probably is the best place to do that. Cause that one's gonna have a bunch of screen share. YouTube slash Andrew Ferriss podcast. It's gonna be really cool. It's, it's, it's pretty long, but it's like we got into the details of this business and basically applied this exact thinking to a real business in real time.

And I told her, here's what I, you should do at this stage in a cohort forecast and all those things that we just talked about. So if you wanna see how this would play out with a, with a business not just us talking about it, but in an actual business, that will be really helpful to you.

[00:44:56] Richard Gaffin: Awesome. Yeah. All right. So check it out. Check out the Andrew Ferris podcast. It's gonna be valuable to you. That is exactly the type of episode that you should be listening to, the type of content that's super, super valuable. Just to see it in action, to see problem solving. Happening live right in front of you, I think is like super, super valuable.

So go check it out. Check out Andrew. Andrew, thanks for joining us and we'll see everybody

[00:45:16] Andrew Faris: My pleasure. 

[00:45:17] Richard Gaffin: Alrighty. Take care everyone.