Top of Funnel is A Scam: A Nuanced, Thoughtful Take

[00:00:00] Richard Gaffin: Hey folks, Richard here. If you've been listening to the podcast for a while, you know that generating profit is the name of the game right now, but doing that reliably is hard, and knowing how to actually grow profitably is even harder. That's where CTCs profit system comes in. It's our growth strategy service, specifically designed for e-commerce brands generating between 10 and a hundred million dollars in revenue this year.

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[00:01:14] 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. Now joining me from the brand new CTC podcasting studio with well, the audio's kinda locked in. I don't know about the lighting, but Mr. Taylor Holiday, CEO here, Taylor, what's going on, man?

[00:01:33] Taylor Holiday: hopefully you can hear me clearer than ever before. So big, big up to our client, skull Candy. We share an office with

[00:01:39] Richard Gaffin: Mm-Hmm.

[00:01:39] Taylor Holiday: of you don't know, and they built an awesome studio here, so we're just gonna see this hopefully continue to improve and improve as we get to participate in the Skull Candy Studio.

So, better audio for sure. Great headphones.

[00:01:50] Richard Gaffin: Mm-Hmm.

[00:01:51] Taylor Holiday: to them. And the video and backdrop and all of that, that's coming soon too.

[00:01:56] Richard Gaffin: Yeah, right. I was gonna say in the meantime, on my side I've duct tape, a new ring light to the back of my computer, so. I'm improving as well on this, on this end of the things. But yeah, I was gonna say the lighting kind of looks like, like when somebody gets like abducted by aliens or something like that, the bright light comes down from.

[00:02:12] Taylor Holiday: which is a little bit of the vibe I'm going for. I want you to maybe wonder if I have been.

[00:02:15] Richard Gaffin: Yeah. Yeah. There you go. Okay, cool. So, so for this week's episode, I think we're gonna do a classic, sort of defend that tweet segment here. So recently this would've been, what did you post this? This is in, at, near the end of December. Taylor. You sort of caused a bit of a, a brouhaha on Twitter around this particular tweet, which I'm about to read out to everybody.

Okay. So here we go. Quote, top of funnel is a scam. It's a phrase invented by shitty ad platforms to convince you to buy poor performing inventory. Don't fall for it. Demand that every dollar you spend generates incremental profit then have a product. So good that people talk about it. And of course the immediate response was tons of pushback from various corners.

But I think like one thing this maybe illustrates is like, this is definitely. A tweet intended to get a reaction, but there's obviously some more nuanced thought work behind it. So why don't we gimme sort of the background behind this tweet and then some of your thinking to expand on it, I guess.

[00:03:10] Taylor Holiday: of my tweets are a byproduct of my lived reality. So much so that yesterday I had to explain the two of my executives that a tweet I sent yesterday wasn't about them. Resolve some of that concern. But of the experiences I had towards the end of the year we're working on setting ad budgets.

A lot of clients are making decisions about agencies, et cetera, et cetera. that. If there were brands as they thought about their next year's plan, who were making a lot of requests around channel expansion, about trying this thing that they wanted to do I had some interactions with people in that space what I found was. A common theme that I've encountered over many years in advertising, which is that there are organizations and I say this, being responsible for sales, having a lot of respect for people who actually do believe in their product and wanna sell it. But whether these, these things that rise up. a salesperson makes a very compelling idea about the value of their product without having the clarity of the state of the business at the level of intimacy that maybe we do, and us having to then joust with that, contention in order to move the brand towards what we believe is in their better financial interests.

Now that's a totally reasonable process, but in particular, there's two things in there that I, that I see. And the reason I use the phrase top of funnel is a scam is because top of funnel is an idea that brands are led to believe they must have in order to succeed. some channels have co-opted. The idea of top of funnel saying that their channel is a top of funnel channel and therefore it's justifiable that you would spend with them and measure that return differently than the way that you measure dollars on something like meta. And, and look, meta's guilty of this in their own way with some of their own out of products.

'cause it's not just about channels, it's also about inventory. Right. Where. People don't think about the like this very often, but ad platforms have inventory too, and they have to sell their inventory. And if they only sell the most premium inventory, then they have a supply problem and the price becomes less valuable. And so they have to come up with reasons for people to buy all of the ad inventory. think of this as a critical issue related to the Google display network. It's where you saw organizations like Criteo Live for a really long time. It's an issue related to some of the objectives on meta.

It's an issue related to television and other things where the expectation of return is such that generally speaking, the people on the other side are requesting that you measure it through a different lens than. Short term financial return. There's some other narrative that surrounds it that's convincing you that it's a good idea for your brand to make that investment. And I've just watched this happen a lot, a lot, a lot to people in ways that is actually detrimental to the financial outcome of their business. And only serves the interest of the person selling you the inventory. And so that's, that was what was sort of happening for me. And you're right, it's a headline tweet.

It's not. Intended to be the nuance take, but that's why I'm here today to give you my nuance take on top of

[00:06:31] Richard Gaffin: There you go. So I think like to begin developing that nuance, it sounds like, correct me if I'm wrong here, but if you, when you say top of funnel. What you don't mean is demand capture or, or rather demand generation so much as you mean something else. So it's, which to me sounds like essentially awareness marketing without measurable results or without the ability to connect it directly to revenue.

So is this all that is, or there's, is there other nuance or other ways that you're defining top of funnel or it's being defined that need to be kind of product here?

[00:07:02] Taylor Holiday: on the primary problem, which there is no definition.

[00:07:04] Richard Gaffin: Yeah.

[00:07:04] Taylor Holiday: a word without shared meaning. And when there's ambiguity like that, it creates a lot of room for grifters to grift because they can assign your positive meaning to their poor outcome. So is the idea of top of funnel as defined as net new visitors to your website a bad thing, a scam? No, like of course, not getting new people to show up to your website is a worthwhile endeavor, the idea that the requirement of getting new people to your visit website is that you do so unprofitably, that's the only way in which you can get new people to visit your website. a lie and is untrue and is where the idea of top of funnel often gets co-opted by people and used in a malicious manner in my experience.

And so I think one, one of the problems is we just have to define what we mean.

[00:07:56] Richard Gaffin: Mm-Hmm.

[00:07:57] Taylor Holiday: And I think Connor from Ridge and I have had this conversation both in private and then a little bit on the podcast. And I, I like the that percent new visitors or new visits. the ad platform is generating net new visitors to your website would be an objective way to assess. Top of funnel that I would be on board with and if we could unify it. But what you'll watch is like, I put out this tweet the other day about klo doing banner ads in a CrossFit gym. And people started telling me, oh, see Taylor, you like top of funnel. And I was like, wait a second. Do you know if those people are customers of Klo?

If they've ever been to the website? Does this just mean like. Any non-digital, like, what does this word mean? And the problem is it doesn't have meaning. It's an, it's a, it's a malleable word or phrase that gets used in all sorts of different ways. It makes it very confusing.

[00:08:46] Richard Gaffin: Okay, so is there, so as we think about defining this, like is there a healthy version of, or is there maybe a subset of things that are called top of funnel that are actually good or it's actually useful to use the phrase top of funnel to define them. So I would mention before Demand Generation, but yeah, go ahead.

[00:09:03] Taylor Holiday: Yeah, we're, we are rigorous about ensuring that our ad dollars are driving new visits and new customers to the website. much so that. working hard to exclude all existing customers from seeing your advertising, which a banner hanging in a CrossFit gym could never do.

[00:09:23] Richard Gaffin: Hmm.

[00:09:23] Taylor Holiday: but we are hard excluding all existing customers in many places.

We're still excluding website visitors, although that's less frequent now because it's harder to do from an iOS perspective. But, we are trying our best to ensure that we are reaching net new people all the time, that we are spreading the message further, that reach, that rolling reach over time increases that your market penetration grows, that more and more people are encountering your brand The idea that like the frequency at which you want to expand that, or the rate at which you want to expand that versus the amount of time that you wanna spend saturating the same group of people, I think is a worthwhile debate. And I probably tend to lean more towards, me more ads to in market people than. me ads to non in market people with the hope of turning them in market. But again, a lot of that has to do with the next topic I'd like to talk about, which is the financial state of most of the e-commerce businesses that we're talking to today,

[00:10:21] Richard Gaffin: Mm-Hmm.

[00:10:21] Taylor Holiday: informs how I think about speaking in public.

[00:10:23] Richard Gaffin: Okay. Well, so let's, then, let's shift to that. So let's talk about so I guess like it sounds, or maybe what I'm connecting it to is the financial state of most of the brands that are, let's say, falling for these, they're not in a position to actually make use of them in the way that a brand that's in a much, much bigger tier would be.

Is that, is that kind, am I on the right track there?

[00:10:44] Taylor Holiday: now we're moving towards, I think, a conversation about specific media platforms. 'cause that gets lumped into the top of funnel too.

[00:10:49] Richard Gaffin: Sure.

[00:10:50] Taylor Holiday: people will say things like TV is top of funnel. Which again, this is just like an insane idea to me. I don't

[00:10:55] Richard Gaffin: Sure.

[00:10:56] Taylor Holiday: any channel could be anything other than. Audience you select to distribute it to.

[00:11:03] Richard Gaffin: Right.

[00:11:03] Taylor Holiday: there's no reason TV can be more top of funnel than meta can be top of funnel than Instagram can be top of funnel than direct mail. It's just about the customer that you select to serve the ad to. And in fact, many of these ad platforms like billboards or TV that people love to call top of funnel, have no capacity to actually isolate the delivery of their ad unit to net new people

[00:11:23] Richard Gaffin: Right.

[00:11:23] Taylor Holiday: the way that you can digitally.

So it's like this is where, again, where this gets really confusing and I don't think people actually have a good grounding. In the language, but let's just about tv. 'cause I think this is, this is an example of a really popular thing that people will call top of funnel. And some cases what people will reference is like, oh, my percent new visit from TV is higher than from meta.

Well, on a percentage basis. Okay. Now there's all sorts of like identity resolution issues there that, that may occur. But let, let's assume that that's even true. percentage new is different than total new. But again, let's even, let's even go out on a limb and say TV is driving more net new customers than, or net new site visits than everybody else. The problem with it and why I am so staunchly advocating for people to be very cautious about their decision to spend money on television is that the value capture is latent. Okay. And the metaphor I want us to think about with this is personal financial investing. If anybody was given the opportunity to buy a cash flowing real estate asset, that over the next three years was gonna pay you back a 12% cash on cash return, but for the next nine months was gonna be cash flow negative. There's only a certain profile of person who

[00:12:44] Richard Gaffin: Yeah.

[00:12:44] Taylor Holiday: to make that investment, and for whom that would be a good investment, whether or not it is objectively a good return relative to the market opportunities. The sequence of how the cash comes back to you is critical that you can pay your mortgage next month while making that investment. TV is a privilege advertising channel in the sense that, and Jeremiah from No, who I debate all the time about this, and I think we've, we're moving towards common ground on the Belief, has done some great data work about how some channels have more latent value capture, meaning customers report, having first seen the, the, the brand in that ad channel later in some channels than others.

And TV is one of those latent value capture channels. Is an investment that will not pay back in short windows, does have the potential to pay back in long windows, again, doesn't make it a good or bad channel for most people, and it doesn't necessarily pay back in long windows, but it almost certainly won't in short ones. And so if you are short on cash flow, you are measuring outcomes in a 30 day p and l basis. It will deteriorate your present cash in almost every scenario. every scenario. Now, there's another scenario I'm gonna rant today, Richard. So I'm

[00:14:01] Richard Gaffin: Go, go, go, go.

[00:14:02] Taylor Holiday: get a ton of words in today,

[00:14:04] Richard Gaffin: It's fine.

[00:14:04] Taylor Holiday: this is important for me.

[00:14:06] Richard Gaffin: All right. Let's see.

[00:14:07] Taylor Holiday: other scenario, the other thing, important thing to understand about channels like and billboard and radio, is that they have no mechanism for immediate interaction in a specific medium. So in other words, you can't click on them.

[00:14:26] Richard Gaffin: Yeah.

[00:14:27] Taylor Holiday: So what that means is that even if demand is created, the realization of that demand is dispersed across the next touchpoint that person is likely to interact with your brand in. So things like TV and radio tend to be really helpful if you have broader distribution. Because the interaction with the customer is going to be a broader set of possibilities, and it is all about recall in the moment of encountering that brand again. And so if you have a business that has really broad distribution, something like television has the potential to make really broad impact. If you are trying to drive all of your revenue through a website, it is so much more difficult for a TV ad to drive that interaction because of just the amount of friction that exists between that ad and the purchase event. You have to find a digital, your phone laptop, a computer, whatever. So you have to search it, which likely means you click on another thing, whatever.

There's just a bunch of friction between the interaction with the ad and the purchase itself. Now, does that mean it doesn't drive visits to the website intently? No, it does. It will, relative to the value, the percentage capture doesn't work in short windows. It's not direct response. Now. There are formats of television, people are yelling, Taylor, what about proactive and late night infomercials and da da, da that are designed for the sake of direct response?

And that's like its own category of things that we have to understand that there are edge cases to.

[00:16:01] Richard Gaffin: Mm-Hmm.

[00:16:02] Taylor Holiday: But in general, when I'm tweeting and talking, we're talking to the seven to eight figure e-commerce brand who's trying to drive predictable, profitable growth on their p and l in short windows. That's who of my audience is. And when we grab the Hex Clads or the Jones Rhodes Beauties, who are the 1% of 1% of performers in our industry,

[00:16:22] Richard Gaffin: Mm-Hmm.

[00:16:23] Taylor Holiday: and we use them as justification for why you should be doing something, it is a terrible decision.

[00:16:29] Richard Gaffin: Right. Um. That's interesting 'cause so one thing that comes to mind that I think we kind of talked a little bit about before we hit record is that this feels like a conversation. What this conversation is actually about is, is a discussion that was happening 10, 20 years ago already, which is this idea of, it used to be the case I.

50 years ago that you just sort of guessed which half of your marketing budget was being wasted. 'cause that's what advertising was. And the only thing that was really close to what we are doing on Facebook now, let's say it was like direct response catalog marketing or something along those lines. And sort of, sort of seems like the, the sort of siren song of those like Big reach, big splash kind of exciting platforms.

That's, people are listening to that again and kind of falling for the idea that I think when you say top of funnels of scam, it sounds like what you're really saying is like aware awareness marketing with no particular way to measure it, that ultimately is the scam, particularly for this size of business.

Right?

[00:17:30] Taylor Holiday: Yeah. Or when you're being told to measure it in a way that isn't your bank account.

[00:17:34] Richard Gaffin: Yeah, sure. Yeah, yeah, yeah. Yeah.

[00:17:37] Taylor Holiday: to you the way you need to, we, me measure. The thing that I'm doing is in impressions, is in reach, is in these proxy metrics. That is when the flag needs to go up,

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

[00:17:49] Taylor Holiday: my question would be is that, are they measuring my payment back to you in this similar fashion? Like here, here's a general rule. Anytime someone realizes value from you immediately and you realize value from them someday you should be on alert. You should be on alert. If they realize value from you right now and I realize value from them, maybe someday

[00:18:15] Richard Gaffin: Mm-Hmm.

[00:18:15] Taylor Holiday: I should be on alert. And that is, that is an opportunity for there to be inserted all sorts of competitive incentives.

It'd be one thing if you paid a TV ad platform as you realize that latent revenue and you got to amortize the cost across the revenue realization in some way that would be very different. But that's not how any of these things work.

[00:18:37] Richard Gaffin: Right. Yeah, it totally reminds me of the discussion around like, like the unpaid internship is essentially what they're offering you. Hey, you can come join us, you'll get experience, but we won't give you money. And this essentially is what's happening here. You we'll give people a, a wide experience of your product maybe, but we're not gonna give you any money right now.

You're not gonna get any money right now, but you'll see it later in your career. And that's. Yeah, you just sort of have to question if that's ever gonna happen and, and you'll probably never know if it does. 

[00:19:00] Taylor Holiday: And, and again, it's not to say that there can't be circumstances where that works, but like, again, I'm speaking to the median outcome here. I'm

[00:19:06] Richard Gaffin: yeah.

[00:19:07] Taylor Holiday: someone wants to use the Edge case to prove the rule. I think again, that's another thing that we should be alert for. What we should be most interested in is, does TV work for most people,

[00:19:15] Richard Gaffin: Right. 

[00:19:16] Taylor Holiday: Like, does it work for most e-commerce brands at $10 million?

Not did it work for Hex Cloud?

[00:19:21] Richard Gaffin: Right. Okay, so I'm, I'm gonna go through, there's, there's a few responses that you got here to this tweet that I think are maybe interesting in pushback. And so one thing that's notable, I think is like a lot of them are potentially like, the pushback is misinterpreting the idea of top of funnel is meaning like we think it's bad to acquire new customers, which is of course is or to advertise to new customers, which is not the case.

But I wanted to pull out a couple people here. So, first. We have Cody, sorry, I lost it here for a sec. Lemme edit this down. Where you got Cody. Somebody's got expanded for somewhere. Okay. Yeah. So Cody Cody's from Jones Road, right? Okay. So Co Cody Plager responds. It's much harder to measure. I do believe one of the reasons we've been able to spend so much on meta manual bids you love so much is the addition of some top of funnel strategies.

Before we were just showing to the same people over and over, to which he responded hard to argue with belief. But why don't you expand on that because I think his pushback is clearly he understands what you're saying. You're talking about top of funnel awareness, marketing strategy. So yeah, when do you respond to that?

[00:20:29] Taylor Holiday: I think that Cody and Jones Road Beauty operate from a position that is different than almost every other e-commerce business in the world. and for them money to till up future soil months and months away, such that you realize that demand capture later to do work around educating the mainstream part of the market because they've sold to so many customers already is a necessary and financially viable strategy. That is not the case for most e-commerce businesses. For most e-commerce businesses, they will die in the process of doing that.

[00:21:03] Richard Gaffin: Right,

[00:21:04] Taylor Holiday: And I think that's, that's the danger of living inside of one data set versus being able to sit and look at across the impact of TV on businesses that are in a singular month, not profitable on their p and l.

And the most immediate obvious solution to solving that problem is to turn off the television ad spend, and it almost universally will solve the core problem of, I'm about to die and run outta cash.

[00:21:24] Richard Gaffin: right.

[00:21:25] Taylor Holiday: The, the thing about it is like, meta's the best top of funnel ad platform in the world. If you wanna reach net new customers and do it profitably, you do it on meta.

There is no, like, I put out a tweet recently or like following this, this debate saying, is meta top of funnel? Yes, no. Or it depends. 37% said yes. 15% said no. 37% said it depends. Okay. idea that you can't reach net new customers on a platform of 2 billion people is insanity.

[00:21:51] Richard Gaffin: Yeah.

[00:21:52] Taylor Holiday: insanity.

I don't, I can't begin to fathom a place where you have more potential to reach new people and to do it in a way that you can directly measure its ability to provide a financially ACC return for you. And most brands. Again, not Jones Road Beauty. I actually think Cody is right. In his expansion should be very careful about the way that they spend their dollars and ensure that it's generating a profit in a window they can afford. I put out another tweet following this, and again, I'm love getting to explain tight nuance that I said. I think there are three circumstances in which you should expand channels and be testing new strategies like this. One is you have creative in some unique form that meets that medium uniquely. I saw an ad the other day for a Apple watch that was a billboard where the the ski lift was a giant finger and it wa it like dragged by the billboard and swiped. The digital billboard and changed it. It was this really cool, interactive outdoor billboard that got a bunch of press. is a, it's, you can't deliver that idea in a different medium. It's a unique creative delivery in a way that has high potential value in return. Cool. Do it. Go for it. The second is when you expand distribution, when you go into retail, wholesale, or, and marketplace and other places where

[00:23:09] Richard Gaffin: Right.

[00:23:10] Taylor Holiday: demand capture, in particularly in the physical world. It is true and I have seen the studies and I, I believe in the, the research that I've seen, that conversion optimized meta ads are not as impactful at driving retail, sell through as other ad formats. Great. When you get to retail, expand to those formats. Consider broader distribution. Think about geo holdouts of different study, like great, go for it. And then the third, what reason that you should expand channels and try more top of funnel is when you have saved the money to make a financial investment in a future payback that you are okay if it goes to zero. It's the same reason if somebody asked me, when should you buy NFTs? The same time When you can make an investment in a long-term asset, that might go to zero.

When should you buy real estate? You should buy real estate. When you can make an investment that has the potential to go to zero and you don't starve to death in the process. Right. And so as a business, of the things I like, I was talking about this with Dave from Baby Worth the most recent episode, saying that I think that IT brands should treat their own financial savings. Like a personal finance again, where they have a savings account where they're saving up to make an investment in something new and novel from an advertising and marketing standpoint. But they do so because that money has a low likelihood of return. You don't know the, the, the error bars on the outcome prediction is really wide if you've never tried it before. And so you need to have a foundation. Profitable growth on which you can build and take riskier betts. And so that's the sequence of this decision making to make marketing investments in new ideas.

[00:24:48] Richard Gaffin: Gotcha. So I actually, lemme clarify then. So it's, if all three of those characteristics need to be in place before it makes sense to expand or just one of the three.

[00:24:55] Taylor Holiday: I, I think one of the three. I mean,

[00:24:56] Richard Gaffin: Okay.

[00:24:57] Taylor Holiday: all three are present, then absolutely. I think the third one probably is a necessity. You need to have,

[00:25:01] Richard Gaffin: Yeah.

[00:25:01] Taylor Holiday: need to have the financial wherewithal to make in channels that pay back slower. Like, that's just cashflow management. the other ones I think are, are more opportunities that could be realized in a one-off basis.

[00:25:15] Richard Gaffin: Yeah, I was, 'cause I was gonna talk about the, or ask about the creative one just because that example was from Apple, but like what's a version of an e-commerce business that's at whatever, 10 to a hundred million or whatever, making a creative decision or having a creative idea that's strong enough to actually justify the spend against that platform.

[00:25:36] Taylor Holiday: I think that there were there's examples in our industry. Dr. Squatch, I think is one that gets referenced a lot, where there was a creative idea to develop a character and video and asset that lent itself to 16 by nine form YouTube or television style advertising. And that asset was great for that medium in a way that did help them generate incremental revenue immediately. Is unlikely to exist in your asset library right now, but somebody had inspiration or experience or, maybe it was just a wild idea to go after something in that way. so that's, that's one that comes to mind. I had, I, I, I could spend some time thinking about are there other

[00:26:16] Richard Gaffin: Sure.

[00:26:17] Taylor Holiday: done really cool sort of PR stunts that were smaller? You know, a classic example is that Airbnb in the early days made those like Obama owes and passed them out at an event that drove a bunch of attention. Like there's, there's these ways in which these PR based stunts can create attention. At an arbitrage where you're getting more awareness at a price that actually does pay back relative to the effort that you put into it, because it doesn't have to be expensive.

[00:26:42] Richard Gaffin: Yeah, and I was thinking too, like as you're saying, like that's such a high threshold too, like to have a creative idea that's so innovative and transformative that you can take a risk on a new medium is so rare. And like the likelihood that you actually have one of those sitting around is, is incredibly.

[00:26:54] Taylor Holiday: Totally. It is incred. It's incredibly the edge case, which is why like, I think all the scenarios in which making big investment in top of funnel should be the edge case, right? Like and it is like, this is the other thing is like don't feel pressure that people are spending a much of money in all these channels.

Go look at any channel breakdown where someone's showing you media mix from that can, that has visibility into a large data set like a Vero or a North Beam or whatever the mix is, 70% meta, 25% Google, and the rest is just split up amongst everything

[00:27:21] Richard Gaffin: Mm-Hmm.

[00:27:22] Taylor Holiday: that's. the reality for the bulk of the industry, there's a reason why the money flows to value.

It just does, like that's, that's what happens.

[00:27:30] Richard Gaffin: Right. Okay. So let's talk then about we, and we discussed this a little bit, I think in our very first episode of the year when we talked about our five predictions for 2024, but. Why do you think, or maybe articulate why people are tempted by this? I think that's an important thing to talk about. Like why is this so attractive and what can people watch out for in terms of like things going on in their own psyche to make this type of decision.

[00:27:55] Taylor Holiday: Same reason that the lottery is attractive and the same reason that gambling in Vegas is attractive, and the same reason that people think that they are one magic ad away

[00:28:04] Richard Gaffin: Right.

[00:28:05] Taylor Holiday: making all the money on meta is because. It has happened. And when it does, the reward is really great usually. And those stories get perpetuated and told a lot. Whereas like, you know, like everybody in the world has heard of uh, um, dollar Shave Club 'cause they all saw that video. And so the idea of being that person is really compelling

[00:28:26] Richard Gaffin: Mm-Hmm.

[00:28:26] Taylor Holiday: it's far less interesting to just be financially rigorous and disciplined and spend dollars where they return to you.

And like, there's not a lot of PR stories about that. And so. we all, we love mental shortcuts. We love the idea that there would be easy effort and high reward. That's the dream for everything. I wish I could work out for an hour and get a six pack. Like

[00:28:45] Richard Gaffin: Sure.

[00:28:45] Taylor Holiday: are compelling. They intrigue you.

There's something about it that would be like really high levels of dopamine for very little cost, you know,

[00:28:53] Richard Gaffin: Mm-Hmm.

[00:28:53] Taylor Holiday: tends to be less real. And so it's another thing that I would actually just like flag up if it's, the story is. An anecdote about an individual suc success case versus most people are experiencing this when they do it, they're just different, different things.

[00:29:10] Richard Gaffin: Yeah, well you're bringing up the, the ad thing. So you actually posted just today this thread about the secretary problem, and we could probably get a whole episode out of this as well. But just to summarize for people like the idea here is that this idea that people have that the next ad or they need to create a brand new ad that is going to win or beat the field in terms of like average performance over the past, you know, X number of years.

Right. And your point that you're making in this particular thread is that. New ads are highly unlikely to outperform existing ads. And so this, it's sort of a, a similar scenario where your ability to come up with something brand new that's going to be something that's worked in the past is also relatively slim compared to something else or the past ad working well.

So what?

[00:29:57] Taylor Holiday: there, there's, this probabilistic thinking is hard.

[00:30:02] Richard Gaffin: Yeah.

[00:30:02] Taylor Holiday: we, our brains don't that. Well, mine doesn't. It's not a you problem, it's a me problem too. It's just we don't. Understand the idea that if I have made 2,400 ads, like if you look at the Bamboo Earth graph, what's, redid this by spend because I think Bamboo, the doing it by contribution margin was a little misleading.

'cause Bamboo tries to drive all their ads to break even.

[00:30:22] Richard Gaffin: Mm-Hmm.

[00:30:22] Taylor Holiday: in theory, break even is successful. So I went back and I reran that graph with spend on the Y axis. And the mean. Volume of spend per ad. What do you think it is? So, ba, bamboo, earth, since, you know, in the last four years has created 2,600 ads.

Okay. what do you think the average spend per ad is?

[00:30:41] Richard Gaffin: I'm gonna say price is right style. A couple hundred bucks, maybe less

[00:30:46] Taylor Holiday: It's $2,400. Okay.

[00:30:48] Richard Gaffin: All.

[00:30:48] Taylor Holiday: average spend per ad over all those years, the, what do you think the single best ad has spent?

[00:30:56] Richard Gaffin: Oh man. Let's say so five figures at least.

[00:31:00] Taylor Holiday: $670,000. Okay, so the best ad is 300 times the mean.

[00:31:07] Richard Gaffin: Yeah.

[00:31:08] Taylor Holiday: In that scenario, and I bet this is the case for a lot of brands where some product that if you just think about like the normal distribution of anything, if you do something 2000 times, one of the results is gonna be an extreme outlier to the rest of the results just on a mathematical, unless you're flipping a coin, right? If there are potentially many outcomes and you try, many times, you'll get a really wide variety of results. M. The problem is that AD $622,000 spent, the next best ad was $300,000 spent, so it was two times as good as the second best ad ever, and that's one out of 2 2400. Let's do some quick math real fast.

On my fancy calculator here, one divided by 2,400 is 0.000. 4% of ads spend $600,000. so if I enter into the process of developing creative with the goal of beating that ad, I am playing a game that is as likely as winning the lottery or as likely as being struck by lightning or whatever extreme metaphor you want to use. The point is it's not gonna happen, it's incredibly unlikely to happen. And yet so often brands are frustrated by the fact that I've got this ad in my ad account and I just can't beat it. you new agency beat this old ad that I made when I was the founder and dah dah? Well, it's because it's the outlier ad.

It's one of the best, it may be the best ad you ever make. No one will ever beat it, and that should not be the goal at all. The goal should be to produce above average results consistently in a way that produces profit. And if you can do that, then it should work. And the way you create the circumstances where average ads work is you improve your margin, you improve your organic demand, you improve your LTV, you design better offers. All of that allows for average results to create positive outcomes.

[00:33:00] Richard Gaffin: Yeah, so I mean obviously like there's, it's clear the way that that connects back to this idea of expanding into new platforms, which is almost this, this concept rid even larger. Like not only are we trying to beat our ads, we're trying to make a brand new type of ad on a new ad platform altogether. And again, like that's, I.

Yeah. And, and one, one difference there is like in the, in the world of ad creative, you need to keep making ads. You need to keep trying. Whereas in this, it's like maybe eventually you need to try this, but right now is not, probably not the right choice or the right time for you to make this the switch.

See.

[00:33:30] Taylor Holiday: and the, the last thing I'll say is I another, since we're just sort of diving deep into my tweets here,

[00:33:36] Richard Gaffin: Sure.

[00:33:36] Taylor Holiday: I had probably my most viral threat ever lately around this story about kalo. And I could see somebody. You reading this and saying, te this is entirely a thread about top of funnel. And the point was, it's a story about how at Kalo, the way we made our ads so successful was we had a clear audience in mind and we surrounded that person with touch points that would affirm to them. product was something that they need, want, and should have prior to even them even seeing the ad or in relationship with them seeing the ad or immediately after they see the ad. And it was because we had a clear understanding that we had a customer CrossFit, married, engaged CrossFitters. We knew where they existed physically and digitally, and we put inferences in front of them.

And I, I used this clip from the movie Focus with Will Smith, where, there's a, there's an episode where he uses priming, which is a technique that a lot of like mentalists use, which is like, they show you a number a bunch of times subconsciously, and then ask you to guess a number, and they've primed you to say something without realizing it. And that advertising is sort of the same thing, which is like, we're going to prime to do that as well by showing you the product a bunch of times subconsciously. And then when you see it, it's like closing a mental loop. It's like, oh, aha.

[00:34:47] Richard Gaffin: Mm-Hmm.

[00:34:47] Taylor Holiday: There it is. So all of that though is done on the, the part of your p and l that I would put as like an operational expense, which is marketing.

Now the idea that I think that the only marketing you should do is Facebook ads. I just want to dispel entirely. I don't think that at all, and in fact, I think there is. I. Absolute merit to so many different kinds of marketing, when you do go to spend a dollars, they should be accountable to driving a profitable return.

I just want to alter the circumstance in the context in which those ads are served. By having influencers and being at physical events and participating in, you know, retail that matters to that event, that's how you create the most effective ads.

[00:35:24] Richard Gaffin: Gotcha. So maybe, maybe to wrap it up, we can talk a little bit about. What, so what are the ad platforms to avoid? Like what's, what are the ones that we wanna mark? So TV obviously, like what else? What else is like, would you warn people against, you know, monsters here.

[00:35:38] Taylor Holiday: is the likelihood of success for e-commerce brands by platform in a short period of time.

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

[00:35:44] Taylor Holiday: I, it just goes like meta, Google, TikTok, everything else is sort of like. in that sense. You could lump Pinterest, television, YouTube. A similar set of circumstances in which there are success stories you can win, but most don't in a short period of time.

[00:36:05] Richard Gaffin: Hmm.

[00:36:06] Taylor Holiday: treat each of them constantly, and again, if you want to try to be the outlier. By all means, pursue it with eyes wide open that that's what you're after, but behave abnormally. Behave like an outlier because you can't go copy someone else's video in a platform where most people fail and expect that that's going to produce a result that is in the 95th percentile.

[00:36:28] Richard Gaffin: Awesome. Cool. Anything else you wanna hit? Any, anything else to make sure that the rant is fully off of your chest?

[00:36:35] Taylor Holiday: No, I, I, I think I, I think in this moment, saying this moment, it is January of 2024 and have talked to so many brands that are running outta money where

[00:36:45] Richard Gaffin: Yeah.

[00:36:45] Taylor Holiday: are happening. And I think we should be cautious about understanding that not everybody's in that circumstance and those big brands that are hyper successful.

You should be making long-term investments. Like go listen to the episode where I talk to Mike Beckham about return on invested capital and how to think about that as an effort of what you do with your money. Like television is something that fits into that. Bucket. It's a, it's a balance sheet investment with a long-term payback in my mind. if you're a business and you have debt that you're being, that's you're servicing such that you have to produce cash flow, you're running out of money, you're in some financial distress, like you aren't going to solve it with top of funnel advertising, no matter what any salesperson tells you.

[00:37:23] Richard Gaffin: Awesome. All right, cool. Well, I think that'll wrap it up for us this week, and thank you all for listening, and we will see you next week.