Firing The Man
THANK YOU TO OUR 25,000+ LISTENERS! We are so thankful to be one of the TOP E-Commerce Podcasts delivering high-quality authentic content to you! Serial Entrepreneur’s David Schomer and Ken Wilson share tips, advice, and insider knowledge about all things Amazon FBA, Walmart WFS, and E-Commerce. Discover how you can create multiple income streams by selling physical products online so that you can have the time and freedom to do what you love - whether that is spending more time with family or traveling the world. Ken and David have successfully created several six and seven figure online business ventures. During the journey, they have had major wins, losses, and lessons learned. This podcast will teach you about selling physical products online through platforms such as Fulfillment by Amazon, building a team, outsourcing, listing optimization, pay per click (PPC) advertising, driving traffic to your listings, and productivity tips / life hacks that will provide a path to be successful in building your online business. It’s a mix of interviews, special co-hosts and solo shows from Ken and David you’re not going to want to miss. Hit subscribe, and get ready to change your life.
Firing The Man
Why Net Income Matters More Than Revenue with Taylor Holiday
Behind every successful e-commerce business lies a crucial truth that most founders miss: profit matters more than revenue. Taylor Holiday, CEO of Common Thread Collective, knows this firsthand. After transitioning from professional baseball with the New York Yankees to the world of e-commerce, he discovered that building sustainable online businesses requires a fundamentally different approach than what most marketers preach.
The harsh reality? The median eight-figure e-commerce business operates on razor-thin 6.5% profit margins. This creates a brutal catch-22: growing businesses need capital for inventory, but their margins often don't generate enough cash to fund that growth. As Taylor explains, this is why so many entrepreneurs find themselves with impressive revenue figures but empty bank accounts.
What separates thriving e-commerce brands from struggling ones? Taylor identifies three key leverage points that the most successful companies exploit: organic audience reach that reduces customer acquisition costs, exceptional lifetime customer value that justifies higher initial marketing spend, or supply chain advantages that enable nimble inventory management. Without at least one of these advantages, businesses inevitably face commoditization as competition drives margins toward zero.
Taylor's "four-quarter accounting" framework offers a practical solution for e-commerce operators. By dividing the P&L into cost of delivery, customer acquisition, operating expenses, and profit—and aiming for roughly 25% in each category—founders can quickly identify and address imbalances. Most importantly, he advocates tracking contribution margin (gross margin minus ad spend) as the north star metric for evaluating marketing performance.
Whether you're struggling with cash flow despite growing sales, wondering why your marketing efforts aren't translating to actual profit, or simply looking to build a more sustainable e-commerce operation, Taylor's insights challenge conventional wisdom and provide a roadmap for building businesses that don't just generate impressive revenue but actually put money in your pocket. Isn't that the whole point?
How to connect with Taylor?
Website: https://commonthreadco.com/?utm_source=chatgpt.com
Tiktok: https://www.tiktok.com/@commonthreadco
YouTube: https://www.youtube.com/channel/UCjtbFqsqVORPBJMein0zLWQ
Facebook: https://www.facebook.com/commonthreadco/
Linkedin: https://www.linkedin.com/company/common-thread-collective/
Instagram: https://www.instagram.com/taylorholiday/?hl=en
Twitter: https://x.com/taylorholiday?lang=en
Ready to scale your Amazon business? Click here to book a strategy call. https://calendly.com/firingtheman/amazon
Welcome everyone to the Firing the man podcast, a show for anyone who wants to be their own boss. If you sit in a cubicle every day and know you are capable of more, then join us. This show will help you build a business and grow your passive income streams in just a few short hours per day. And now your hosts, serial entrepreneurs David Shomer and Ken Wilson entrepreneurs David Shomer and Ken Wilson.
Speaker 2:Welcome to Firing the man, the podcast for entrepreneurs, brand builders and e-commerce operators poised to move beyond the hustle and into ownership that scales. I'm your host, david Shomer, and today's guest is the kind of founder who transforms his backstory into a blueprint for generational level growth. Meet Taylor Holliday, the CEO and co-founder of Common Thread Collective, the e-commerce growth agency that's earned a reputation as the CFO's favorite marketing partner favorite marketing partner. He's built his company from a small office above Blue Frog Bakery into an influential full-service profit agency focused on Reddit-free, data-driven growth. Taylor helps brands scale profitably with precision, not guesswork.
Speaker 2:Before marketing became his headline, taylor played college baseball at UC Irvine and even had a stint with the New York Yankees, so he knows a thing or two about teamwork, pressure and precision. Under his leadership, common Thread has pioneered standout programs like the Admission Membership, the D2C Index Data Tool and the e-commerce playbook podcast, where Taylor drops no-nonsense strategy straight from the front lines. Today we're diving beyond the curtains of ad spend and fluff into how Taylor engineers scalable systems that boost both profitability and longevity, feeding your business growth while preserving vision and culture. If you're done chasing vanity metrics and ready for growth, that pays the rent and then some. This episode is for you, Taylor. Very excited to have you on the show. Welcome.
Speaker 3:That was impressive, David. I might need to copy that, and just so that anytime I get asked for a bio I could just send them that. So thank you for saving me a lot of time.
Speaker 2:Absolutely, absolutely. So to start things off, can you share a little bit about your path in the entrepreneurial world?
Speaker 3:Yeah, I hate to sound cliche, but in some ways it was very accidental. Other than I would say that being an athlete which was my first life you described is in and of itself a very entrepreneurial endeavor, in the sense that you are your own business and your career is just a byproduct of what you're able to create for yourself. And especially as you move into the professional ranks, you learn very quickly that it moves from being a team game to one of individual success very quickly, and so there was a lot about that experience that I think shaped me for entrepreneurship more than I was conscious of, because I didn't grow up with that as an ideal. I never sort of really aspired to that endeavor, but when I was released by the Yankees I thought I was going to go to law school. That was kind of the path I thought I was going to go on. So I had a year of school to finish up because I was drafted as a junior in college and I had a friend that was starting a business and I needed a part-time gig to pay some bills and he invited me to come, uh, do the job of printing orders off the website and taking them to the post office packaging them up. I had a little label printer on my desk and this was one of my really good friends growing up as a, as a kid, and so it was really hanging out with my friends and doing a little bit of work and getting paid for it.
Speaker 3:And all of a sudden, that company exploded in growth and and so, very accidentally, I was inside of a growing startup. Um, and all of a sudden I was like, oh, this feels a lot like the locker room, like this is my really good friends working towards a common goal. It didn't feel like work. There was no nine to five, it was just. We were always there. We were all young and single, and so I kind of became captivated by what that could be. And, as that sort of grew, it became this question of like, well, this is like a real job now what are you going to do? And I was like well, I know more about this website than anybody else, so maybe I'll do e-commerce. And there's this new thing called Facebook. I'll set that up for us, and I know some famous people from when I played back in the day. I could send them some products so pretty quickly. I was in charge of e-commerce, social media and influencer marketing, and it just so happened, that's where the world went, so I got very lucky in that sense.
Speaker 2:I love it. I love it. Now, one thing that stood out to me and I will share with you I'm a retired CPA, and so this really my people my people.
Speaker 2:That's right, dude, it's my spreadsheet. Brothers and sisters, so one of the things that Common Thread Collective does is it comes to market as a profit-first growth agency, and that is putting profit before revenue, before keyword ranking, before a lot of other metrics that a lot of agencies like to focus on. And so can you explain your rationale there and how you handle things, maybe a little bit differently than some other agencies?
Speaker 3:Yeah, I think this kind of is born out of the fact that I didn't grow up as a classical marker. I was never trained on the appropriate proxy metrics of marketing. So when you're a startup who's bootstrapped whether that's as the founder or inside of a company that is that way. All anybody cares about is how much money is in the bank account. So I grew up in an environment and, as a leader, have always felt that like if you're going to tell me you're going to go do something from a marketing standpoint or anything else, the measure of success should be does the bank account grow? And that was just sort of the default way.
Speaker 3:I was sort of raised in this world and so I didn't know any different, and it was seemingly intuitive to me that if you give a dollar out, you'd want more than that back, and so we, from our very earliest days, always sort of were bent to drive towards marketing tactics that produce financial outcomes. And then I would say, as I grew as a CEO, even in my own business, I began to understand that the P&L is the scoreboard, to stick with my sports metaphor, that that is like actually how I would define my own success or failure. And so, as a business, as a partner, I wanted to be able to impact that scoreboard and to do so, I felt like I needed to understand it. I needed to understand the language of finance and accounting, because it really is, the measure of success of business is money. I really believe that, and so I think to understand the rules of the game, to understand the scoreboard and be able to affect it, allows you to be in the position of the greatest influence.
Speaker 2:Absolutely, absolutely. I have often said when I've been hiring or firing agencies you don't buy groceries with revenue, you buy it with net income, and so I couldn't agree with you more. And so I don't know if this. I've been in the e-commerce industry for a while and so I may be jaded by that, but it seems like in this industry, people are very much focused on top line, on your revenue, and when people are flexing on Instagram or Facebook, they're posting their revenue, not their net revenue. And when people are flexing on Instagram or Facebook, they're posting their revenue, not their net income. And I've personally experienced this, and I've met a lot of people that seem to sell at break-even. They may have an impressive revenue number, but at the end of the day, they're just kind of running on a treadmill and not going anywhere. And so what have been some things that you've seen in terms of companies that you've worked with where there has been a hole in the boat, where they are at breakeven and they need to make some changes?
Speaker 3:Yeah. So I'm going to get a little nerdy here, because I think there's an important context for why I think some of this exists the way it does. The business objective that our industry pursues is almost directly correlated to the availability of capital to fund the growth. So, if we look back over the last five years, we're coming out of an era of an abundance of free capital, and I mean free capital in a couple different ways. One is like equity capital.
Speaker 3:There was a period of time let's call it from beginning of COVID to 2022, where there was a massive influx of equity capital into consumer. They thought it was like going to be the next big thing. The world was changing, we were becoming China, all the things right. And then you overlay that with really cheap debt. So then you have debt capital that is really cheap and easy to access. And there was this period of like, wildly like. When interest rates at the Fed level are low, it pushes out all the lenders that are built on top of that further out on the risk curve. So they start doing really wild things like lending, underwriting your ad account and lending you money at unsecured on the basis of your Facebook account Like this was happening and there was just so much money sloshing around compiled with an abundance of consumer demand, because retail shut down and there was this only game in town. And so all of a sudden, in that moment, the idea of funding top-line revenue growth without a consideration for the net result on net income or even free cash flow is okay, because you in your head, you're like, well, I could just get more debt, there's more equity capital or there's enough demand that maybe the efficiency is good enough, and so this behavioral pattern gets built into that.
Speaker 3:But what I watched happen is that suddenly all of that got shut off, like, I mean, as fast as it came in, it went out. There was in our industry. We went from, in two years, there was $5 billion in venture capital to the the in 2023, there was less than a hundred million like funded into our space. So that disappeared. Interest rates went from all time lows to really high. All of those lenders blew up, and so you couldn't get debt, you couldn't get equity and you had to self fund your own growth. That changes everything in e-commerce when you actually have to produce not even just net income. You have to produce free cashflow that you can use to buy the next tranche of inventory. The entire business changes and that's what we've gone through over the last really 24 months is it's forced everyone to completely reconsider the game they're playing.
Speaker 2:So, dan, there's so many really, really good things there, and one thing that you touched on that I'd like to go a little bit deeper on is funding that next tranche of inventory, and I will share an experience with you. During COVID, I grew a brand from about $500,000 to $1.5 million. People who've never run a business would look at me and say you must be cashflow rich. However, I've never felt more cashflow poor, and can you discuss that, that cashflow conversion cycle and how companies can get in trouble by growing? That's right.
Speaker 3:So I'm going to again, I'm going to stay with me on those as I walk through these numbers and if stop me if I'm being confusing, because it's hard. This is somewhat complicated to understand. So the median cash conversion cycle for an eight-figure e-commerce business is about 90 days. So that means from the day that you place a PO to inventory until you can sell and turn that back into cash, it's about 90 days, right and so. So what that means is that you are having to outlay capital and float it for a very long time before you realize that money back. Okay, so that, unlike a service business like I'm in, where there's basically a direct relationship between the revenue realization and my cost, it's almost like I pay my people the same. Sometimes I even get the money ahead of time paying the people. So I have some. In some cases I have a negative cash conversion cycle. E-commerce is incredibly complicated because it has this opposite, and so you have this 90 days. That means you're carrying 90 days worth of inventory roughly on hand about a three-month period in order to support that.
Speaker 3:So now imagine you want to grow 50% next year. So let's say you had an awesome year. You just described going from 500,000 to 1.5 million. That's 300% growth. But let's just imagine you want to grow 50%, which would still be incredible. That means that you have to have, if you sold a million dollars worth of product at a cost level not at a retail level a million dollars at a cost level, you need to go buy 1.5 million with it.
Speaker 3:So if your net result of selling that million dollars of retail let's say it's 3 million in retail value, just using some base, that would be pretty good gross margin 66% you have to net 50% on that in order to be able to afford that next tranche of growth. And here's the truth is that the cost of that revenue from an advertising standpoint isn't likely to produce that kind of net result. And so even when you're quote unquote winning on a P and L basis, your bank account can actually be going backwards. And this is this is why e-commerce is so inherently challenging is because it is a very capital intensive business, um, business that demands a lot of financing considered in that process, and then sometimes you just get the inventory wrong. It's really hard to forecast that far out, like there's all sorts of really difficult challenges based on the capital requirements of buying physical goods, having them shipped to you from across the world and then trying to sell them.
Speaker 2:Absolutely, and that was really well put to people that are maybe in this situation. You should rewind and listen to that again, because that was really really well put and it's one of those things that you almost have to go through to believe it and so great explanation. So, moving on, your agency has built some data-driven tools, like the D2C Index, and so how do you see technology and analytics reshaping the way e-commerce founders make marketing and growth decisions?
Speaker 3:Yeah. So there's a lot under the banner of technology and data. So I'm going to first talk about the D2C index, then I'm going to come back to the broader technology piece of e-commerce because I think it's important. I think about my job as an agency as providing context to an individual brand. So what's sometimes hard about having your own data set is you never really know what's good. You're always comparing yourself to yourself. Is my payroll too high? Is my profit margin good? Is our revenue growth okay? How's our gross margin compared to the other people in the category? Am I getting ripped off by my manufacturer? Like? These are all questions that, in isolation, any individual data set makes it really hard to answer. Well, being an agency, we have views into tons of data, right, and so we wanted to create the most powerful set of context for the journey that we could to our partners, and so we built this data co-op across two other additional providers. One is called Veros, which is the largest free available data set of aggregate media performance. A brand called NoCommerce, which does survey data, so layering in some qualitative data and then, alongside our own data set, to be able to provide our partners and the industry with the best view of comparative performance metrics across the e-commerce stack that we could. This also allows us to do a lot of really cool stuff around data modeling and trying to provide a PO view. On the macro economy, like there's always a lot of discussion about is consumer demand soft? What's happening to meta CPMs? Are they rising? And people are always looking for this question Is it a me problem or is it a market problem? And so oftentimes we try and use this data set as a tool to help provide context on that journey. So that's one thing I think about it as an agency's. One of our broader responsibilities is to leverage the mass amount of data that we have. So that's how we do that the mass amount of data that we have. So that's how we do that.
Speaker 3:In regards to technology, we just got done with the segment where we're talking about this margin problem. That challenges e-commerce is that you've got gross margin. That's really hard to get too low, because you've got to manufacture a product, you've got to ship it a long ways, you've got to fulfill it to the customer. There's all these obligatory costs on the cog side, and then there's what everybody would refer to as, like the Mark Zuckerberg tax. We all got to pay Meta to drive our traffic to the website or Amazon or whoever you're using to source your demand from, and the reality is is that the net result is not very much margin. The median EBITDA so earning before income tax depreciation or amortization for an e-commerce business of eight figures is about six and a half percent. That's like that is not very high.
Speaker 3:Okay, and so what that means is that this is a business that that demands operational leverage. It demands on low OPEX. You have to be able to drive leverage on your fixed costs in e-commerce. It is not a big employee based business. So what that means is that the brands that I'm watching today in particular drive growth and higher profit than the median seeing sometimes all the way up to 30% are doing it through two key ways.
Speaker 3:One is they're creating labor leverage through technology, and that could be in the form of AI. That could be in the form of just using tooling and the software that's out there to help minimize the amount of employees that you need to run the business. There's a lot that you can accomplish there. And then the second is that they create demand leverage through some sort of organic audience. Usually that could be from, they have a large YouTube account or they're an influencer with some base built in. Those are two ways that the brands that I see produce. Really disproportionately efficient e-commerce businesses have to create leverage somewhere in the P&L. And there's only so far you can go on the cost of goods side, because these are real like atoms out in the world. You can only compress them so much in cost. So that's sort of the way I think about technology inside of an e-commerce business.
Speaker 2:I love it. The EBITDA margin of 6% is staggering to me, and especially Well and think about that when you go back to the growth problem Like you can't.
Speaker 3:That doesn't produce enough cash to fund growth Like that's, and so you're stagnant. It's hard.
Speaker 2:Absolutely Well. So when you've talked a lot about we've talked about revenue, we've talked about gross margin ad spend, leveraging labor in an organic audience, when you look at a P&L, what KPI is most important to you?
Speaker 3:So I have a few that I like. One. I have this very basic framework that I try and simplify down, called four-quarter accounting. So one of the easiest ways to dissect a P&L and to look at it and glance and identify a problem is I would break the P&L into four categories. The first would be what I would call cost of delivery, so this is your product costs and all variable expenses associated with getting the product to the customer. So this is your shipping and fulfillment fees. This is your payment processor fees. Anything that goes up as order count goes up. Okay, that's like light item one.
Speaker 3:The second then is CAC. So think about this as variable marketing expense, your performance marketing using to drive demand. So, and then the third is OPEX, is your fixed expenses. This is payroll, your rent, your software expenses. And then the fourth category is profit. And if you were to use like 25% as the baseline for all of those, I use this visual where I'll sort of draw where you're at in each category and it gives me, at glance, the ability to sort of then dive deeper into why is your OPEX 35% of revenue?
Speaker 3:That's not going to work in e-commerce. Where's the problem here? Where is the profit being eaten up and then, therefore, where can we go and try and solve for some of those challenges eaten up? And then, therefore, where can we go and try and solve for some of those challenges? Because the ideal scenario is we're actually using that marketing line item to drive growth. So volume of growth.
Speaker 3:And so if I have high OPEX and high cost of delivery, I'm not going to be able to fund much growth. I'm going to be really stagnant there. So I've got to solve different problems. So that's one very simple way that I look at it. The next would be, if I need a single metric if you just want me to do it, it's actually a line item I would encourage people to put onto their P&L, but most accountants wouldn't do by default and that's contribution margin. So contribution dollars. So think of this as gross margin minus ad spend. That number is the number that ultimately is the value that I see my business producing on a demand basis. That then helps me orient what I can actually afford to do on the fixed cost side, and so that's a number. It's above the line, so to speak, right before you get to your fixed costs. That helps you look at it and it's what we track with all of our partners on a day in and day out basis.
Speaker 2:I am not just saying this, that if I had to pick a single metric, it'd be gross margin after ad spend, that's right.
Speaker 2:Exactly as you described, and you take a platform like Amazon that really is kind of a pay-to-play platform. That's right. You turn PPC off, your revenue goes down, and so taking that into account is huge, and so I am really glad that you said that. The four-quarter accounting I've never thought of it that way, but I really like it, and so I'm curious, when you're working with companies, which section tends to be an area where they need to focus on? Is it OPEX? Is it COGS? Where is it? That's a great question.
Speaker 3:So, generally speaking, what happens is somebody comes to me and says we need I was literally having this conversation yesterday we need a five to one ROAS in order to make money, and right away a light bulb is going off in my head. That's like wait a second, that's like a 95th percentile outcome, cause I have a contextual data set that tells me like that means you would have to be one of the best advertisers in the world in order to accomplish that result. What is true that makes you believe you need to drive that kind of demand? And so then when I go and look and I look at the cost of delivery, and then I look at their OPEX and what they're trying to solve for in their head is they've got a bloated OPEX, and so they're like oh, in order to maintain all these people that I have on staff, I have to then produce marketing that is disproportionately efficient.
Speaker 3:But the problem there is not actually a marketing problem, it's an OPEX problem. You have too much staff for the size of your business, and if you were to drive that down, then we could actually probably maximize contribution dollars at something closer to a three to one or 2.8 to one, and so now we went from obligating ourselves to creating a 95th percentile advert and and this is why, like, a lot of people have like a constant churn of marketers or agencies is because they're like, well, nobody could produce this result, and it's like, yeah, because that's a result that is like so disproportionate relative to the expectation that, of course, people are failing at it constantly, and so if we could drive that down actually and actually get to a place where we're producing a 75th percentile outcome or something like that, and you're still making money now, the business can grow. So oftentimes I see this like there's this conflation between what is impeding our growth being marketing efficiency versus oh wait, you're actually like, really wasteful in your fulfillment expense, your shipping costs are way too high, or, hey, your return rate has actually gone from 6% to 12% and we've lost a ton of money, and so we need to solve that problem. It's a product problem, not a marketing problem. You know, there's those kinds of things that we discover all the time.
Speaker 2:I love it. I'm really nerding out right now. I really, really enjoy this and it's bringing to light a different perspective and I'd like to go a little deeper here. So, because you have the D2C index, because you're working with multiple successful e-commerce companies, what are some of the characteristics of the winners? And that may be price point, that may be the markets that they're selling in, maybe it's how they're driving customers. But of the winners, do you see any common threads?
Speaker 3:So we have something that we do called your GQ score growth quotient score where we'll put together a set of initial attributes to determine your growth potential, and then we index those against all the clients we have, and we have the subset of brands that we call duckweed brands. So a duckweed brand duckweed is the fastest growing plant on earth, and the reason it grows so fast is because it can grow at night. It doesn't actually require photosynthesis to grow. It's like weird in its genetic makeup, and so it grows faster than every other plant. And so the idea is these are brands that can grow in any environment. They will grow fast, whether it's a bad economy, a good economy or whatever, and so that's the metaphor we use for these, this characteristic set of brands, and I'm going to give you some examples. So I talked about the idea that you have to have leverage somewhere in your P&L, so some attribute that gives you the opportunity to be more effective than everybody else, and so there's a few places I see this show up. I mentioned one of them, so I'll just repeat it quickly is that you have organic revenue that does not require you to pay for the realization of it, and usually this is because you're an influencer with a huge existing audience. Influencer-led brands have an immediate leverage on the P&L. They don't have to pay the CAC price that we all do to go drive Facebook ads. They can drive it off of their existing audience in a way that gives them a massive immediate leverage point. So that's a thing that I see a lot.
Speaker 3:Two is you have greater than a 100% increase in lifetime value within one year. So if someone pays you $100 on first order, that customer has become worth $200 in one year. So this is often why you see subscription brands in the supplement space do really well on e-commerce Because they generally capture a lot of incremental value over time off of one customer. So they can be at a slight loss or even break even on a CAC basis and then it can still make a ton of money. So they have a higher return on invested capital because they are able to increase the value of that customer substantially over time. That is. You'll see this attribute in apparel brands, you'll see it in subscription brands, not in hard goods, right? That's why that category tends to be really challenging. So that's a second common attribute.
Speaker 3:The third would be you have, for whatever reason, created some leverage in your supply chain, and that could be because you have a manufacturing partnership that allows you to have a negative cash conversion cycle or some way that the terms have been deferred in a way, or there's some relational equity where you can fund growth cheaper than everybody else. It's a leverage point that doesn't guarantee demand, but it is something that I see that brands who have this are able to take more risk on the product side, because net new product creation is often a driver for demand creation, and so by offsetting that risk of trying something new, a new skew, a new color, a new whatever you actually create leverage in the marketing side through your supply chain. The best example I've ever seen of this is a company called ColourPop that sells makeup, and if you think about a category like that, it's so trend based Right. So trend-based right.
Speaker 3:There's something new happening all the time that if you have a really long supply chain, it's really hard to get in that game and like predict ahead of time what's going to be cool four months from now.
Speaker 3:And so what they have is in Oxnard, california, a giant manufacturing facility where they do their supply out of. It's not their primary manufacturer, but what they've built inside of their warehouse is basically a lab that could spin up 200 SKUs of anything really fast, and so the way that they offset their production risk is they are able to build really small batch run production to test the demand for something, something new, really, really fast, and so that's sort of a way of inverting that inventory risk that often for new products is limited because you don't know the demand yet, and so you're guessing do I order a thousand? Do I order a million? How many are going to be there? And that's going back to earlier conference. That's how you die, right, and so creating leverage in your supply chain is another way. So I'll stop there, because I could. I could go on with some more, but those are a few that I see all the time.
Speaker 2:I know I think those are three really really, really good ones, and so let's look at the opposite side of that. What are some of the common threads of the losers? The people that are not going to scale beyond where they're at or will go out of business.
Speaker 3:So a bad combination is a single purchase item, so usually a hard good. Think about this like if I was selling an individual hairbrush. Okay, a hairbrush is a low AOV, mediocre margin, with no recurring purchases. That combination of attributes is almost impossible to sell through your own demand creation vehicle like your own website. A lot of times you'll see that sort of commodity set of goods end up on Amazon where they're just trying to siphon demand capture. They're just trying to put themselves into the search volume for combs and not pay for any of the demand creation. But it's ultimately so competitive there's no barrier to entry and ultimately all the profits sort of get competed down to nothing, right? And so any hard good that doesn't have great LTV has mediocre AOV and no LTV is a really hard e-commerce business. It's really really challenging. And then you could sort of layer on additional things related to TAM, like how many customers are there potentially, and then ultimately like an underappreciated thing in our business is actually IPs, like what's the moat?
Speaker 3:One of the things that's fascinating to watch is how perfect a capitalistic system consumer product is, and if you want an illustration of this, go back and look what happened when mask demand went through the roof. The day before masks were a mandate in the United States, there was somebody that had an organic SEO listing that was making probably a nice little bit of money and then suddenly, overnight the demand outpaced the supply massively and for a very short moment in time that person was making was absolutely printing cash. But how fast those things come back into right relationship, in other words, how fast the supply ramps up to meet demand in our industry, especially in a product with no barrier to entry on a production standpoint that's really cheap, is unbelievable to watch. It is so fast. How quickly the profits will all get competed down to the very last penny of price. Amazon's a great illustration of this.
Speaker 3:One of the businesses that we built prior to my agency was a company called Kalo. We sold silicone wedding rings, so silicone wedding rings. When we started, we were the only one person selling the product. Now what's beautiful about this product is it costs about a nickel to make a silicone wedding ring and we could sell it for 20 bucks. So you want to talk about leveraging the P&L gross margin through the roof.
Speaker 3:But but while that sounds like a feature, the problem with it is it's indefensible and leads to endless competition. That means there's endless room for somebody to make money at $18 and then at $15, and then at $10, and then at $9 and then at $8. And now, if you go look on amazon, remember when I started this business there were zero people selling this product. If you go look on amazon right now for silicone wedding rings, there are thousands of listings and people selling 10 of them for two dollars. All the profits get competed down to zero because it's indefensible, and so that's what you watch play out in almost all of these product categories over time is that without some moat, without some leverage point, all of it just gets competed down to nothing.
Speaker 2:You talked I really like that point about the supply and demand and how the capitalistic society always reaches equilibrium, and this is something I've definitely experienced. For keywords.
Speaker 3:Exactly Search is a perfect example.
Speaker 2:Yes, that comb that say there's $10 of profit margin, your keywords for that the bid will be 50 cents at a 10% conversion, and so I'm not sure, if my math's right, you end up at breakeven and the supply and demand and that really, really tends to kill it.
Speaker 3:So this is why Google is the most billion dollar business in the world is because it's literally a system designed to do exactly that Is that everyone will pay one cent more for the click until they're no longer making money, and so what it does is it extracts all the profits to them over time.
Speaker 3:All the profits accrue to the underlying auction-based ad systems over time. This is why the winner of e-commerce is Google and Meta is because what happens is, every day, somebody looks at the options in the auction and goes am I willing to pay a little bit more, a little bit more, a little bit more, a little bit more to win the purchase, and inevitably, somebody is willing to do it at a loss, which drives all the profit out of the category. And so this is why, like, the underlying digital real estate of the internet is the SERP page of Google, it's the SERP page of Amazon and it's the feed of Instagram Like, and in those environments, they are perfectly designed to extract all the profits to the ad engine. That's the literal underlying design of the system.
Speaker 2:So, knowing that, knowing that let's build out the ideal marketing department, knowing that we can't lean fully on ad spend or pay-per-click advertising, what would be, you know, in that marketing department, what would be the components of it and how would you allocate your costs?
Speaker 3:So I think that this really depends on the product category that I'm in. So I want us to narrow the question a little bit, and the reason is is the primary question I have to ask is is most of my revenue going to come from new customer acquisition or is it going to come from in, like the value of the existing customers that I have? So, really, is it a subscription business or is it a single purchase business? So I'll give you two market examples. Like Ridge Wallets is a business that everybody loves in the e-commerce space. They talk about Sean's awesome on Twitter. If you don't follow him, that is a new customer acquisition engine. They a hard wallet. I'm buying one of those for my whole life, like I don't need to constantly repurchase, and so if you are interested in a new customer acquisition engine type business, go look at what they've built.
Speaker 3:There's two primary things that are at the center of that. One is a paid acquisition team that are killers. The person who lead that team came from CTC. I know him well. His name's Jim. He's awesome. They are amazing at paid social. They are amazing at search. They are amazing at paid media. They know how to create content usually short form, vertical video for that format to drive that demand.
Speaker 3:And then the second thing they have is new product development. Is they recognize that eventually you have to launch rings and then luggage and then other things, because the wallet business isn't going to grow forever, and so those become the core skills paid acquisition and product development. Now juxtapose that with a customer of ours. Like we work for the business called Carnivore Snacks for a long time, they have one product, it is meat chips, dehydrated meat chips, and it is subscription. And the bulk of the revenue today 85% to 90% of it comes from the existing customer base, and so it is all about curating the experience and the ongoing relationship with people that are already in your business. That leads to an organization that's more focused on retention, that's more email and SMS based. That's building community and relationship. So you'll end up with different organization relative to how you monetize the customer side.
Speaker 2:I love it. I love it and I do think it is definitely appropriate to break it out into. Are we acquiring first time customers or looking at repeat customers? And that's something that you should be thinking about to all of our listeners.
Speaker 3:Now, when you start, it's always new right. So to start, it's always going to be a new customer acquisition, but I think having an eye for what kind of business am I building long-term will get there. And then I think the other thing is what kind of gross margin do I have? Am I going to be able to fund this organically or with paid? That would be the second tranche is that if I have to have new customer acquisition, am I going to be able to do this through paid media and that usually means I have high gross margin or am I going to have to build an organic demand engine, and in which case those would lead me to different paths as well relative to the state of my business?
Speaker 2:Okay, you've talked a little bit about influencer marketing and how that may be a great place to put some resources, and I think one thing that attracts some people not all, but some people to e-commerce is it is kind of a nameless and faceless transaction. Faceless transaction, and so oftentimes I find that, like really good e-commerce operators are not people that are going to get in front of a phone, record a selfie and talk about the new product that they're launching. And so for those types of brands and speaking to those operators who don't have an organic audience, who've tried social media but isn't really good at it, what are some ways that they can leverage the following and influence of others to get the same results?
Speaker 3:Yeah, so I think that if we just sort of break down, the challenge here is the question is how do you access audience at a price cheaper than your competition? This is like a very simple question, right? And if we both are going to market and paying full freight for it on Meta, I have no leverage over my competition. So the question is how could you? Potentially? Now I'll give you an example of how we did this in the very early days of Kalo, so Kalo, silicone wedding rings.
Speaker 3:One of the core use cases that we found was that there was these certain sets of professions that had to take off their ring when they went to work. Okay, because it was a safety issue. They would literally suffer for something called ring avulsion, which think about getting your metal ring caught on an assembly line and having it ripped off. Like don't Google that, because it's disgusting, it's a real thing. So, and one of those is, uh, firefighters. Okay, so you could imagine, um, firefighters are dealing with all sorts of grabbing things with their hands moving very quickly and they don't wear metal wedding rings. It's a, it's a safety risk to their job. We found, okay, so we have a very clear problem use case um, it also is an industry that suffers from one of the highest divorce rates in the world. Um, very high stress. So you have this community that's been built.
Speaker 3:We found this woman called ran a blog called firefighter wives. Okay, um, so right now we're a brand new business. We have no relational equity or trust or access to the firefighter community, so we could go advertise on meta to firefighters and we would do that, and that's not to say that that couldn't be valuable. But here was someone, firefighter wife, who had a community of married firefighters, who had our problem and had our audience and was a not a huge blog, but we were able to build an affiliate based relationship with her where she would talk about the product she would promote it.
Speaker 3:Where she would talk about the product she would promote it. She'd talk about how her husband can wear a ring on the job for the very first time and share it directly to a set of customers at zero upfront cost to us, zero initial risk. And by accessing that audience we built one of the first foundational pipelines of customers for the business and we built content and use case and other stuff that we could parlay into more effective advertising. But that's an example of like sort of a micro influencer that owned our audience, had authority with them and could help us to access it at a price that was $0 upfront right. It would only only paid her in the event that there was a sale driven. And so again, invert that cash conversion cycle we got our revenue, then we paid her, not the other way around With Meta you got to pay them and then you hope you get your revenue in return.
Speaker 2:I really like that and I'd like to dive into the economics of the commissions of the affiliates that you're paying out. So say, you have a brand whose post PPC gross margin is 30%, and in this case there's actually not PPC, right? Right, if we're, just how much of that margin would you be willing to give away, and what tends to move the needle?
Speaker 3:So I think that the question there is if we translate the percentage into dollars, you're going to get a helpful directive on the answer. So, in other words, if I'm selling actual engagement rings that are $1,500, giving someone 10% of that is $150 every time they generate a sale. If I'm selling a $20 wedding ring and I'm giving away 10%, it's $2. Well, what's the incentive for the person to work? So, rather than the, I would take a step back and I would try and think about what would incentivize this human to work for you, like, what would make them want to go work hard to drive it in a way that still produces a monetary outcome for you. So that's a question of how much volume do I think that they can produce? What am I willing to do for the initial margin? What's my cash position? What's my LTV Like?
Speaker 3:There's all these parts of that question, but the key is you want it to be valuable to them. It's the same thing, like I tell people when they hire me is that one of the mistakes people make when they negotiate with an agency is that they, like they want to grind them down to the lowest possible price. And I just say, like it is actually counter to your incentive to not be valuable to me. If you are not valuable to me, you will not get my best and brightest and our tension and energy of the organization. I would say the same thing with affiliates. You want to be the most valuable partner you can to the most powerful affiliate that exists. Now you obviously want to do that. You don't want to do that at a loss. You want to make money but you want people to work hard for you and to do that be valuable to them.
Speaker 2:That's a really really good answer.
Speaker 3:I was thinking you were going to give me a flat number.
Speaker 2:Sorry, no, no, no, Rarely going to get the short path. For me that's really really good and the price point on $150 item versus $20 item totally different, and so, yeah, that is really really good. Can you talk more about Common Thread Collective? What types of brands do you work with?
Speaker 3:Yeah, so we work with what we call the early and mid-market consumer e-com. So if you sell something on the internet and you're between zero and a hundred million, that's our sweet spot is that we don't work with the enterprise, we work with the little guy. Our goal is to sort of bring enterprise level tooling to the early stage e-commerce business owner and help them grow predictably and profitably. So that's that's our sweet spot. We don't work in B2B. We don't help you sell air conditioning or services. But if you're selling something on the Internet and you're in sort of that early to mid market stage, we want to help.
Speaker 2:What kind of problems do you often have clients showing up with that you're?
Speaker 3:helping them solve those problems. So our sweet spot is helping brands connect marketing and finance, as we've talked about. You probably get that sense through this episode is that we're unique and that we do FP&A for all of our customers. So if you want to build a great financial forecast that connects to your marketing calendar, that allows you to see every day what the expectation of your marketing team is and how it ladders up to the overall financial goal of your business, that's the system that we've designed. We've designed something called the profit system, which is a way of working for brands that brings those things together so that operators can be really confident that the work that our team is doing is driving towards the financial outcome that they care about.
Speaker 2:I love it. I love it. I will mention to the audience over the years I've probably hired and fired 15 to 20 agencies. Oftentimes, the common reason is profitability. When I'm running a business, I want to put a dollar into the machine and get $1.20, $1.30 back, and so, yeah, I love that you're profit first and yeah, that's absolutely great. So, to wrap things up, we have something called the fire round. It's four questions. We ask everybody at the end of the interview you ready, let's do it? All right, what's?
Speaker 3:your favorite book? It's this one right here. It's called the Carrot Seed. It's a kid's book and I think it's the best book on entrepreneurship ever written.
Speaker 2:Outstanding. I'll add that to my. I've got a five, three and one year old, so oh perfect, Get them started early Awesome. What are your hobbies?
Speaker 3:I coach my kids. I have twin boys that are 11 and a daughter that's eight, and it is my current joy to figure out and learn how to be a coach. It is so different than being a player. I was not good at it when I started and I'm trying really hard to be good at it, but, man, this feels like just such a precious time of life with them. I can feel them moving away from me towards their friends. I feel like I have this very narrow window that I'm never going to get back the rest of my life, and so so much of my mind and energy is occupied by that challenge outside of my day-to-day work.
Speaker 2:That's outstanding. What is one thing you do not miss about working for the man?
Speaker 3:You know it's funny. I don't know that I ever had an experience that I would call too much working for the man because, again, the closest example was probably, honestly, the New York Yankees. Felt very corporate to me, oddly enough, and there was a lot I learned about that process. Learning what it meant to be inside of a business that cared about money was a lot I learned about that process, learning what it meant to be inside of a business that cared about money.
Speaker 3:But I have always greatly appreciated the freedom I have to take ownership and responsibility for all my problems and outcomes, and there's something really empowering about that that I don't ever feel that I'm stuck. I feel like I make mistakes and I screw things up, but at the end of the day, I have immense autonomy to change it, and if something doesn't work or I don't like my life, I get to decide to change it. If my wife needs me to pick up the kids at three, or if I have to stay home with them, I get to do that, and so that level of control is really empowering and I think that it gives me a good sense of responsibility for the life I want.
Speaker 2:Love it. And final question what do you think sets apart successful e-commerce entrepreneurs from those who give up, fail or never get started?
Speaker 3:Yeah, man, such a great question. I think a lot of people don't start with a financial background and they hide from money. They don't want to stare it in the face and they don't want to deal with it. They would prefer they have these stories they'll tell themselves about. I'm not this.
Speaker 3:I'm not a finance person, I'm not an operations person, and if you decide to be in e-commerce in particular is one of the hardest financial businesses in the world I think that you have to decide and tell yourself today that you are a finance person, starting right now. You are a finance person and here's the thing you can do. It Like marketing attribution is more confusing than a P&L. Like you can figure it out and if you embrace that, you can actually get a really clear understanding about how that business model works and how you can make it work for you. I see so many business owners that are even doing like $50 million in revenue at 20% EBITDA, that are broke, that have never been able to make their business produce cash for them, like really like no liquidity at all, and that is the danger of e-commerce, and so learning how to make it, make you money, put money in your pocket, is a real skill that you should embrace.
Speaker 2:Absolutely Now. If people are interested in getting in touch with you or getting in touch with Common Thread, what is the best way?
Speaker 3:Commonthreadcocom is our website. Come there, check us out. We'd be happy to chat. And then I'm on X. There's an amazing D2C community there if you're into e-commerce. I'm at Taylor Holiday on X. My DMs are open. No-transcript.
