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#SundayThoughts on SCALE when it comes to #ecommerce businesses.

Over the past 2 years, I've been blessed to speak with, listen to, and work alongside some of the most disruptive DTC (direct to consumer) firms in the world. The conversation happens 9/10 times is as follows..
It starts with humble beginnings and a great idea/product/marketing/method of experience or delivery, and they are off to the races (usually growing YoY by 100+%). This is what I like to call the first "phase" (sorry don't have a cooler method name yet).
In this phase, CAC (Customer Acquisition Cost) is healthy, ROAS (return on ad spend) is 2x-4x, and the founder is making more money than they ever have before. "It's time to pour rocket fuel)

But then the desires for more set in and they start looking up at the market leaders 🤩
At this point, the founder is (usually) out of their depth, and they begin to hire internally or retain agencies who "can take them to the next level". Their expenses start going up, but not in proportion to the increase in revenue generated.
This sets on panic and the founder usually starts frantically throwing in new SKU's, applies pressure to the team(s), and spends countless hours wondering why the growth has slowed and margins have shrunk. This is what I like to call "stage 2", or the bargaining stage.
The founder has not yet realized there are levels to scale, and they will most likely mess less EBITA (Earnings Before Interest Taxes and Amortization) going from $5m ARR to $20m ARR than they did at $5m.
This is hard to stomach because the founder has grown comfy with their lifestyle, as has often grown complacent with adding additional product lines, SKU's, testing, investing in content... you know, the things that drive a business. Their CAC/ROAS trendlines have inverted 😅
This is the difference in businesses that want to be the category leader and those that want to be lifestyle businesses. Neither is a bad choice, but they both have equal, yet different, types of pain. This is the decision brand owners find ever-present in the current market
Ecommerce is hard, and it is especially hard when your competition (cough cough @amazon ) doesn't care about making money...at least in the short term. This is also why brand matters so much more than #paidmedia (yes I am looking at myself and all other media buyers)
You see, performance media buyers cannot bend math. Most times math is not going to tell you what you want to hear. The more you scale, the less you take home unless you can reach a level of scale where fixed costs stop increasing (don't be a @WeWork , right @profgalloway ?)
But the brand can bend math, the creative, the influence, the messaging. These are the levers that most matter in 2019 and going forward. #PPC is figured out, programmatic media buying is solved for, and sure there are 10-20% tweaks..but those will not save you
TL/DR; founders of ecom firms need to have a hard look at what they want, and if they want "scale", they better mentally prepare to make less, for the hope of making more later down the road..and o yeah, spend 100X more time on your brand than you do on your math. Math is solved.
Thank you for the RT 🙏
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