e commerce, aggregators, products, months, amazon, brand, business, year, clients, talking, bit, supply chain, company, people, sold, happening, margins, interesting, amy, cfo
Tyler Jefcoat, Damon Pistulka
Damon Pistulka 00:04
All right, everyone. Welcome again to the faces of business. I’m your host, Damon Pistulka. And with me today, I’ve got Tyler Jeff CO from seller, accountant. Tyler, welcome. Thanks, Damon. I appreciate you having me today, man. Oh man, I am excited. I am excited because a you work in the world of e commerce and you work with numbers. So that’s my world.
There were like strange kindred spirits from across the country here, right? Yeah. Yeah. Only I went to school for engineering, which has nothing to do with accounting. No. But the the thing that’s cool, man is is that, you know, you’re helping ecommerce companies solve the accounting challenge. And I think when we look at e commerce, the accounting challenges for e commerce and the solutions. It’s always interesting to talk to an expert like you that that as is in there doing it.
Tyler Jefcoat 00:59
Well, thank you, man. Thank you. Yeah, I mean, I mean, you know, we talked about this for a second in the past, but the data sets coming out of these e commerce, platforms, marketplaces, sales channels are, are just complex and hairy enough that something like 99.9% of accounts in the world hate it, right. They want to avoid it like a fiery passion. And that’s all we do at cellar account.
We decided let’s just niche in here. It’s funny, you’re talking about engineering, and now you’re kind of in the m&a helping people exit space. You know, my first company I built was a healthcare company. So I’m, I’m an accountant with a finance MBA that decided let’s build a healthcare company, and exited that a few years ago then started this this brand seller, accountant, and I’m kind of back home where I’ve actually have some ability to add more value than go help that person. Yes, yeah. It’s been a good pivot back into my education, honestly.
Damon Pistulka 01:47
Well, let’s talk about that a little bit. Tell us about your background. I mean, you got an interesting background, you bought the you built, the company sold the company, but this give us some history here, and then how you kind of ended up doing what you’re doing today?
Tyler Jefcoat 02:00
Yes, I mean, the quick story is I’m here in Georgia, you know, the, the other was that UGA, the Harvard of the SEC or something like that. But yet studied accounting. I was not a traditional accountant. I like I like people a lot more than your traditional accountant does, and ended up starting joining a startup to build a home healthcare model. Few years, went back to grad school and kind of launched out of the MBA program in Georgia. And we had a good run zero to, you know, about 100 employees and about four years and yeah, man, it was more than I wanted to manage as a CEO. I was not I was I was outside of outside of my gift blend because I’m, I’m more of a visionary sales guy.
What we really needed in that company was a manager, somebody who could hold people’s feet to the fire. And so we sold the company. And it has since I found out last year daymond sold again to a national franchise. So the the concept that we built from scratch literally had a focus group of 30 people in a room that helped us build the brand and the essence of our company, that concept has now officially gone from birth to death.
It doesn’t exist anymore. And so it’s kind of an interesting moment. So I sold that company in 2017. Started seller account because I’m an e commerce junkie. It was kind of a Yeah, a scrappy eBay seller guy, even when I was in college. I hate to say it, I don’t I’m not proud of this. But Bezos does control my life. I get everything on Amazon. Right. I work. Yeah. So building a company that kind of niches into e commerce was pretty natural. I don’t know much else we did finance.
Damon Pistulka 03:30
Yeah. Yeah. Huh. That’s cool. So are your sellers, primarily somebody that’s going to be on an Amazon only platform? Are they on multiple platforms?
Tyler Jefcoat 03:41
Now? Yeah, so it’s for us the niches e commerce. So they, for the clients they’re going to choose to pay for kind of a higher level of accounting are normally not you’re kind of old school retail arbitrage sellers. We’re normally having some connection to the brand, whether it’s private label, or we may even have some manufacturing shops name and like some of your clients do. And then beyond that, we it’s not that there’s zero bricks and mortar.
Some of our clients do have some traditional wholesale accounts. But that’s not the bread and butter of their business, our core customer is, you know, has an Amazon or other marketplace strategy, and maybe one more wayfair in the like, and then they also have a clear direct to consumer strategy executed through Shopify WooCommerce and that kind of thing. Okay.
Damon Pistulka 04:25
Okay. So they are the your your clients are on multiple platforms, right, trying to trying to hit everybody everywhere.
Tyler Jefcoat 04:33
Yeah. And that’s kind of the challenge, right is how do you manage your precious resources to know how many buckets Should I stick my feet into? Right, and I think that’s really been an interesting challenge for our especially the CFO client. So that half of our business that I’m most involved in is really kind of a CFO advisory service for these brands. And yeah, and it’s interesting because Amazon is an entirely different animal than Shopify, right? The funnel is different. The expenses are different, profitable.
He’s different in some products are never going to make it on a Shopify site doesn’t matter how good you are at advertising. And some products are never going to make you any money on Amazon because the fee structure is too high. And so just understanding your product market mix, in kind of having a coherent, I think it’s something I’ve heard you say before Dame is having a coherent strategy for your catalogue. Yeah, there’s kind of this is paramount, you got to have that. And so that’s kind of one of our roles is to help our clients develop that strategy. Yeah.
Damon Pistulka 05:26
Well, the the, I tell you, the e commerce space, I’ll just call it that, in the last 18 months has gone through so many changes, because of, you know, the COVID induced buying frenzy for lack of a better term on on just about every e commerce seller that, you know, is not selling something that you know, isn’t in demand, which I am sure there are things but not very many, because just about everything else I can think of that is sold with e commerce has been in high demand.
And it’s nuts, everything from, you know, new companies popping up to valuations on buying companies to all kinds of things. So just overall, what are some of the interesting things you’ve seen? Or some challenges you’ve seen in your work in the last year?
Tyler Jefcoat 06:20
Yes, I think I mean, think about it from the brands perspective, you’re exactly right. I mean, I always say 80% of our customers had a great 2020 because of the COVID bump the Yeah, they we saw a macro acceleration towards e commerce buyer behavior. That’s that’s one way to say it. In other words, grandma used to go to Kohl’s Kohl’s was harder to get to she finally bit the bullet and set up an Amazon account or finally had the guts to put a credit card into a website. And so the adoption that was already happening, that the curve was already heading in the e commerce direction.
We probably saw three or four years worth of acceleration in that curve last year for a lot of our brands. It but you mentioned this, the other 20% of the brands had a really terrible year, right? I mean, they were selling something related to travel if it goes on Yeah, okay, go. Yeah, something like I was gonna call the guy earlier and multimillion dollar brand really nice set of products. He’s not gone, he’s in good shape. But boy did he take it on the chin last year, because he’s selling products that are often purchased in preparation for business travel or something of that effect.
And, and so it’s really interesting, I don’t know if you’ve seen this also daymo. But now that we’re on the kind of on the back end, I’m not saying we’re on the back end of the pandemic, we’re on the back end of the main noisiness the clients that had the best summer in 2020 are seeing a a de escalation in their growth. There’s almost an anti COVID bump that happened here in July, where I would say half of my clients had a pretty poor month last month. So we’re we’re sitting here talking here in August, and it’s because of two reasons they had a poor month. And this is to kind of get to your question about challenges.
One is we were arbitrarily inflated last July, and we needed to come back down to earth, there’s a little Yeah. And then the second thing is getting a getting a damn container out of China right now is three times what it would have costed my clients a year ago. And, and so those products are just flowing through to their p&l is now right, it’s all of a sudden, you get to July in that container that used to cost me $8,000 cost me $22,000 that’s finally hitting your profit and loss and is creating some compression margins. You know, for the most recent month,
Damon Pistulka 08:26
year, right. And I said someone on last week or the week before a couple weeks ago that was talking about that very thing, container costs from China, just like you said, and they’re in Georgia to like eight to 20,000 or some gardein thing like that. It was just like, Man, this is mind boggling. Because when you look at and that’s just container cost, right? So when you look at it, if I have 100 or 200, or even $200,000 for the product in that container, that’s still I just added a lot of percentage points onto my cost of my product. Yep. And you can’t just go out across the board on everything and raise prices.
Tyler Jefcoat 09:05
Yeah, you’re exactly right. I mean, the the elasticity for our customers, the downstream customers never seems to match what actually you might have. I’ll show you a quick illustration about now. Let’s see, let’s see if you guys are gonna love this. So let me see if I can share your screen. Let’s do this one. Okay, so
Damon Pistulka 09:24
we’ll see it now. There it is. Okay,
Tyler Jefcoat 09:26
so I just went this is just a Google search. I wanted to take a minute and let’s have a pause, you know, Bezos, his wealth over the last 12 months only increased by 4% which results in about $8 billion he may he may not be able to feed his children things are really hard for him right now. Um, you see, underperformed the s&p 500 by a pretty large margin. But but but only if you ever heard of these guys here. Let me let me get over here. Have you ever heard of these guys right here? Yeah, guys had a very good year. Oh my goodness.
So The same chart here where you’re looking at poor bases down there at the bottom, the s&p, which had a 32 and a half percent year. And now you’ve got Merce that is that is more than doubled over the last 12 months. So do you think they’ve actually had their costs go up? I don’t think so. I think they’re able to get out of the system here a little bit, but I just yeah, so you some of the stuff here in a little bit, but I just thought that was so interesting. Those guys are. They’re winning. And here’s what they got to be careful. Oh, by the way, if I’m murse gotta be a little bit careful. Because Bezos does have a track record of like, retaliatory vertical integration.
Damon Pistulka 10:37
Yeah. Yeah. And there’s, and that’s someone that’s got enough money to do it.
Tyler Jefcoat 10:41
Right. You know, it was spaceships, it was trucks. Next thing, you know, they already have ships. It’s not like Amazon doesn’t already have. Yeah, a freight ships. But you might be surprised over the next two years to see all of a sudden Amazon has bought 17 additional container ships or that kind of thing? I mean, yeah. Yeah. So
Damon Pistulka 10:58
I mean, they’re, they’re, they’re ensuring their long term success by making sure up and downstream that they’re there, they control it, if nothing else, even if they don’t eventually own it one day, they’ll they’ll have a lot of the if they start it, and do that they’re gonna be owning it. No. Yeah, that’s right. So that’s good. But the so container costs are hitting them now. We’re seeing a low in July. But are your clients generally optimistic about the outlook? Yeah, I
Tyler Jefcoat 11:30
think so there’s a little bit of trepidation. I don’t know if you’ve seen this of your customers Damon, but we so just from an exit standpoint, because out of our portfolio, we’ve we’ve had, I think close to 10 of our clients be acquired in the last year, lots of cash flooding in the space with the aggregator funds, and that kind of thing. And, and a few of these kinds of head just slam dunk very high multiple, like, swinging kind of eggs, it’s really, really, really, really nice exits. Man, a few of those are still happening. But there is a little bit of rising concern, because of not just the supply chain pressure that I mentioned, but also some pressure on advertising has just compressed margins a little bit.
And so we’ve seen a little bit more of the, you know, kind of one to $20 million brand owner saying, okay, either need to exit now. Or I’m going to probably wait nine months and try to get through another q4 and try to see if the supply chain can normalize for me a little bit. Because I’m a little worried I’m going to get whipped if I go to market right now, because the the Smart Money is trying to get smarter. I’m not sure that much of it was very smart. A year ago, it was just throwing cash at portfolios.
So that’s the other thing I’m seeing is I think there is a tie everyone’s for the most part bullish Amazon is not going anywhere. Shopify is for sure not going anywhere. But I think if it was, there’s never been a gold or time to sell that may have been two months ago, or maybe in six months, like maybe right at the beginning of the year. And unless you happen to be one of the favorite brands that really saw double digit plus growth still even through through July and August, and then there’s so much money that’s clamoring for your brand, if that’s you that you may want to consider going a little bit more quickly.
Damon Pistulka 13:12
That is a good that is a good point. And and I think I think you’re right that that it was going so hot for the you know, the the end of 2020 and into 2021 that the money rushed in. And I mean, how many places now if you go to the several these aggregators, they’re still saying, hey, we’ll buy your business in 60 days or 90 days. And you know, they they’ve got it worked out to bing bang boom, if you’re that right size and and, you know, especially if you’re if you got a few products, multimillion dollar brand on FBA. That’s like it’s a no brainer for them anymore.
Tyler Jefcoat 13:51
It’s kind of changed the the strategy a little bit. I mean, David, if you and I were talking 18 months ago, every strategist in the country would say please diversify as quickly as possible. Let’s, let’s get off Amazon, let’s find ways to diversify. And, and then let’s and here’s my magic word, kind of as my number, a rule of thumb as a CFO was, let’s try to get some other channel above 15%. But yeah, we are actually articulating a lowering of the risk profile when you go to market and try to sell this thing.
But in the last 12 months, it’s been completely cuckoo, Damon, if we can get four skews each doing a million a year in revenue only on amazon.com, we want to the A’s we want no infrastructure, please don’t have a warehouse and partridge in a pear tree at least like just so simple, streamlined.
That that almost First of all, it’s exactly where the market is right now, because these aggregator funds are private equity that doesn’t know how to operate the business yet. And so they’re having things that are as simple as possible. I think my concern or maybe my advice to someone that isn’t gonna go to market right away is Don’t forget that common sense normally still catches up to the market, right?
Damon Pistulka 14:57
Tyler Jefcoat 14:57
if you have more than a six to 12 month time Mine, now might be a great opportunity to start investing in those other channels again, and try to have an offering that’s going to be more palatable for a bigger acquirer, maybe. Yeah.
Damon Pistulka 15:10
Yeah. Well, and, and you’re right I was I was really surprised when I started hearing yours a couple years ago now, when they started putting money into the aggregators, and then they really gained steam last year, like amazing steam, but that they would buy a company that is completely tied to Amazon.
And you know, because in that respect that goes against everything that the m&a industry has talked about for years, and private equity and investment is to diversify your risk, diversify your risk, diversify your customer base. I can’t tell you how many deals I’ve been in and they go too much customer risk, because you got, you know, more than 50% and one customer. Right. And it’s like, now they’re just like threw caution to the wind on the Amazon platform.
Tyler Jefcoat 16:00
Yeah, I mean, I think the this the the private equity market has decided to trust Amazon staying power. I think that’s really what’s happened over the last 18. Yeah, and I think what everyone’s waiting for right now, and you guys need to keep an eye on this over the next couple of months is one of the larger aggregators thrass.io rasio. is likely to have some form of an IPO probably with a SPAC here in the next two months. Yep. And I think how the public markets kind of respond to the full Comodo financials of a firm like SEO is going to have a pretty significant impact on how much pucker versus additional private equity enters the space.
So yeah, there’s another firm, I think they changed their name, it was Mohawk, maybe they became tyrian, that that really got crushed last month, because they were, they were a public company that didn’t earn what they what they had forecasted. And so I think thrass CEO is much, much healthier than that company. But we’re all kind of waiting here saying, okay, is another 610 $20 billion in capital going to flood the space?
If the CEO gets treated like Cinderella next month? The answer is yes. Yeah. If there ASIO, then in three months has to release a true q3 earnings or whatever the whatever the case might be. And the public markets say we don’t buy this thesis that you can be very Amazon centric. We’re gonna see a lot of puckering happening. A lot of cars trying to figure out what they’re going to do. And so anyway, for guys like you and me, it’s just kind of like, wow, I’m just kind of excited to get to see what happens.
Damon Pistulka 17:30
Yeah, no doubt about it. I mean, this this space for me is, is been so interesting for a really for the past five years. But I think that the last like you said last year accelerated three, four years in one year, that the buying the types of buying the way people are buying the way companies are solving, buying, you know, making it easier for customers. I mean, just the app five years ago, you never thought about going to Home Depot, having your products ordered and pull up in them in just rolling into your car then bringing out you now let’s I mean, how many people shop like that now? It’s when you have to go? Yeah, but
Tyler Jefcoat 18:11
I have gotten lazier. Like I don’t feel great about this, but it’s like so easy now to either just buy it on Amazon or be like, I mean, I’m able bodied. I’m in my late 30s. It is not that hard for me to walk into Home Depot and buy the damn shovel. Right? But like now I’m like, well, don’t don’t put it in my car for me. I mean, I guess I’ll sit out here and listen to my podcast and let him do the work for me.
I mean, it’s Yeah, to your point, Dan. It’s amazing how quickly that buyer behavior. And so this is maybe my point, anyone who listens to this, that phenomenon isn’t going away, right? The idea that buyer behavior is going to continue bending towards ecommerce regardless of what might happen with rasio or Amazon Yeah, first or anyone else not going.
Damon Pistulka 18:48
It’s not changing and and I tell you what the big box stores and Home Depot is one of them. I think that realize this and embrace this before 2020. They mean they were starting this early, and a lot of other people had to catch up. But you’re 100% right now you think of the convenience that just that Home Depot, and for someone like me where if I’ve got people working on a yard or my son when he’s home from college, I got working on a project I said here and I’m like, boom, you got a project this afternoon. Just go pick up the stuff. good is that? I mean, this kind of thing that we can do now.
And you look at I look at people that I know now my mother’s in her 70s doesn’t go to the grocery store anymore. She hasn’t delivered it’s like why I don’t need to go to the grocery store anymore. I don’t I and part of it is started because they didn’t want to risk but then now it’s like hey, we like this was a five bucks then deliver it let’s Yeah, it’s so crazy like that or they are they do the drive up and they put the bags in your back like in the back of the car like that. So this kind of stuff i think is driven a a change in buying habits. That have moved us so far ahead. Like you said, three, four or five years ahead. That e commerce to me is this playground.
Because now we’re trying to figure out what what crazy things can we add ecommerce to and especially in the manufacturing and e commerce world where we’re I work a lot, where we’re talking about being able to do things like I just saw an article the other day or not an article, but I was on Instagram and an ad popped up for a, a sheet metal fabrication company in I think it was in Nevada, send us your file with these specifications. And we will give you an instant quote off of it.
Amazing how that configurator like that that understands what you’re giving them and and a completed assembly they were completed component they were going to give you a quote like that. These are things that we would have looked at years ago and discuss your crazy move on. Yep. But now the Amazon culture and I shouldn’t say Amazon culture, but the the the the infiltration of Amazon into all of our lives, has has set the expectations like that for everything.
And you’re going to I think you’re going to be looking at companies that are like, you just pick one Merck Smith and Nephew, medical companies, whatever companies, you want to talk about Caterpillar, it doesn’t matter what it is, people are going to expect to be able to get on, I’ve got you know, 1000 pieces of construction equipment, and the head maintenance buyer is going to expect to get on to Caterpillar and order every damn thing they want online and not talk to anybody not go to a distributor, not do anything, and have it show up.
Tyler Jefcoat 21:50
And then the step further becomes, then they’re gonna demand an API integration where Yep, it’s just real time. And so yeah, it’s so interesting. I mean, that’s, so it’s, if you could somehow take a whiteboard, I got one behind me here. But like, if we could take a whiteboard, I would encourage you guys to do this for any products that you’re manufacturing, or private labeling or acquiring is really plot each of the points in the value stream.
Yeah, I think what you need to realize is that the pressure is for it to be a simpler, smaller supply chain where there are less middlemen less stops on the value journey, and that there’s pressure not only in consolidating the number of kind of squares in that flow chart, but can consolidating the speed with which that flow chart needs to be able to spin so like, theoretically, if I was if I was manufacturing this old UGA cup here, I need to be thinking, Okay, what are the actual steps of a freight forwarder I’ve got a factory, I’ve got this, I’ve got this, I’ve got this. And I now have to be thinking three years in the future.
Half of those middle entities aren’t going to exist, am I one of them, because if I am, I need to do something different and into it really quickly, to pivot the way that I’m delivering my products so that I can accomplish the most you’re talking about where now we can use technology to order something that quickly and have it be maybe customized. And so it’s gonna be interesting to see, um, this is another part of this gonna be interesting is to see if anyone else can figure out manufacturing, which China has. I mean, there’s, I’ve got guys that are working heavily in Vietnam and Laos, and I’ve even got some guys working heavily in Mexico right now. No one’s figured it out yet. Right, Amanda?
It’s China’s still King. And they’re, like, 17 years ahead. It seems like but I think in technology years, we’re gonna see some additional pressure to whether it’s 3d printing, or whether it’s something else to make more of a, I mean, think about that, that Nevada company are talking about their ability to take what’s probably a CNC router based steel cutting system, and basically pull a software piece where they got a guy at a table. Like, here’s the next one. It’s round. Let me cut it. Here’s the next one is triangle. Let me cut it. I mean, that’s amazing. Yeah,
Damon Pistulka 23:57
yeah. Yeah. And there it is. And when you think about it, you’re you’re exactly right. I think this is going to be the the demand now is faster, compressing that supply chain and customization. That’s right. And want to Yes, there’s always gonna be some standard products. But when you look at companies, well, one here, we know kind of what this this company come from, where it comes from. And even they customize their stuff now.
And it these are the kinds of things that I think people are going to want and I think there’s an opportunity here to this is where domestic producers, more premium products can really stand out because like that company I was talking about in Nevada, they if they can instantly quote something and then produce it say in three days, you can get it back out to somebody and say seven days.
Now Now we’re talking because I actually was talking with a with a client about this last week in their in their in a in, in an industry and have domestic production that this would make a difference. And I said what if you could customize color combinations size, whatever it is that you’re working on and customize you know someone’s name on it or whatever you want to do. And do it in three days.
Instead of instead of this, this whole production being okay, we want to get some volume on different kinds of products, blah, blah, blah, let’s, let’s figure out how to get volume. But let’s figure out how to customize each one for and, and the what that does the speed, the the value of that speed. I mean, big companies have been doing forever. And here in Seattle, we pack our they build semis, right, they miss the semi trucks, each one of them is come can be completely different from the one right behind it. You can do it if you figure it out. So when we can put these into more everyday products that are consumer based or like you said, even b2b based, that’s going to be something.
Tyler Jefcoat 26:06
Yeah, be really cool. I think that’s probably where things are headed. And I think you’re exactly right.
Damon Pistulka 26:11
Yeah, yeah. But yeah, like you said, it’s gonna take there’s going to be people in the middle I think that are going to scoot squeezed out on it. But what else are you seeing? That’s interesting, man, because we’re, we’re, you’re off to talk to where are you gonna be talking about? You said, You’re talking like this week?
Tyler Jefcoat 26:25
Well, I so so there’s a conference coming up in a few weeks called resonate. They’re going virtual this year. So I was I was I was live in Vegas a couple months ago at prosper. But this is resonates a good show used to be live in Atlanta. Now. We’re gonna be nice. And then I’m speaking, you know, you and I do the same thing. tour the masterminds in the podcast. And yeah, just try to figure out so I guess a couple of interesting. I’ll do them one at a time in case we run out of time we can if we run out of time, we can we can look at it later. But here is
Damon Pistulka 26:54
all right. I’ll put her back on screen here.
Tyler Jefcoat 26:56
Alright, so seller account is trying to do a better job of keeping up with, you know, kind of what’s happening in datasets across across e commerce. So taking really right, you go to a conference, you go to a cocktail party, everyone wants to talk about their sales, sales or vanity, what are they really doing in terms of profitability, and I’m an accountant. So this illustration is awful.
But I wanted to show you what q1 profitability looked like relative to q2, and the the top left hand corner, the kind of darker brown that’s the profit that’s tagged post advertising gross profits. So as a as a CFO in the space, what I really care about is how can I have my after ads, I’m thinking about cost of goods sold logistics marketplace or merchant fees.
And then my advertising, what is the contribution margin of my portfolio? Yeah, and that’s the the circle, the red circle, I want it to be as high as possible. And then everything else that might be on my p&l is just overhead, I want to keep it as low as possible, right. That’s the game. And so just stopping at that tagline post advertising gross profit, you can see that we had a better q1 and q2. And the differences are obvious that tripling of the containers I talked about a few minutes ago, is finally starting to hit those p&l.
And so we saw the landed Cost of Goods Sold factory just go up by about five points across a pretty large set of data. So I thought that was pretty interesting. What do you do about it, I think what you do about it is you hold tight because I think the container log jam is going to come on log jam here in the next few months, I think you’re going to have to spend more on advertising, I think you’re probably going to have to accept a slightly lower margin for a few months, q4 is going to be great. But just if you felt like July was kind of crap, you weren’t the only one.
So let me I just wanted to mention that. And really, even before July kind of in May, going into June. The next thing I want to show you is this. This is like the way that a lot of least Amazon sellers are feeling now with like this aggregator phenomenon, we feel like we’re, we’re playing against the Superman version of us all of a sudden, like, how are we going to compete with them? Yeah, and I guess, I just want to make you feel a little better for a second.
So I’m just gonna skip the slide here. This is the most recent quarter. And what I thought was so interesting is that the left hand side over here, all of us are actually still performing a little bit better than the aggregators. So where it’s close, we tend to be a little bit more efficient with our advertising. They haven’t quite figured out how to advertise at scale yet. And we tend to be a little bit more efficient with our logistics because we’re leaner operations.
Yeah, and yet it and yet, if you were to look at the actual p&l for the aggregators, you’re gonna see a bottom line profitability of like 20 points because they don’t have any overhead, they’re able to slather that huge overhead across 100 million in sales. And that’s made them that’s why you’re going to continue to see more of this happening more and more and more is that they are fundamentally there are some real economies of scale. In being you mentioned, Home Depot. Being Home Depot has its perks, right? Oh, yeah. So anyway, I thought that was one thing I wanted to share. But you have any comments or questions about that? No, I
Damon Pistulka 29:59
think that’s Awesome that because people are less than my might get, you know, like you said you get intimidated by okay now these these five brands that I know and may may even be friends of yours because a lot of people know each other in the in the industry, right? So they got bought by these aggregators and we used to be, you know, friendly competitors.
Now I’m competing against the behemoth, and I’m not ready to go yet. Alright, for whatever reason, you know, this great to understand that. And I think to as you said, I don’t know if I might have been before we got on we were talking about the aggregators, I think the aggregators honestly, are going to find that they spent a lot of money that maybe they shouldn’t in a rush to invest. And that that, because of the fact that there’s nobody that can die that e commerce has had a very nice run for the last 12 plus months. And a lot of these deals have got done done in the last 12 months. And we’ll see what the long term play on some of these brands really is.
Tyler Jefcoat 30:58
It really is interesting that those those two phenomenon collided, it was it was because COVID accelerated e commerce that the private equity world decided that this was a worthy venture. At the same time, you’re exactly right, and that there was a bit of a gold rush mentality, and still is really where Yeah, yeah, I think this is something you can speak to, for your clients, very few of these ecommerce based deals have actually gotten paid all the way.
Yeah, right. Most of them haven’t earned out stability. They need these guys to execute for another 24 months in order for them to get all of their money. And I think you’re right, I think it’s going to be and so but here’s what it’s going to mean, I do think there’s still some advantages to first mover.
So a lot of the early guys are going to do well. Yeah, purge heyday through SEO and the like, I think they’re going to do pretty well. But then there’s going to be a bunch of these medium small funds that are already trying to find a thread to to buy them already trying to find a heyday to buy them, because they realized, actually running these businesses is a lot harder than I thought it was gonna be. And so I don’t know, it will be interesting to see what happens over the next few months.
Damon Pistulka 32:03
Yeah, definitely. Definitely. Well, but I think that the you know, it’s it’s great to get your perspective on it. Because there’s a lot of unlike most, most industries, most businesses, business owners tend to tend to get up in the morning and look in the mirror and make decisions. That’s where they really talked to a lot of times, and it’s great to get to hear your perspective on that. Awesome. Awesome. Well, what else you got for us today? Man, this is the I just I haven’t like I said, you’re talking to an engineer. I love hearing this stuff. So what else we got going on?
Tyler Jefcoat 32:36
All right, let me give you one more kind of nugget here. This is going to be pretty actionable for your for our audience here. So I think if I were 1,000,010 million dollar brand, right, now, I’m going to really start focusing a little bit more on pag, which I’ll talk about a little bit. And on another metric called return on working capital, which I’ll show you in a second. And I’m going to start focusing a little bit less
Tyler Jefcoat 33:05
other vanity metrics, like just sales growth, or just cost of goods sold. And so if you look at this small case study, Amy and Brian both have brands, they’re both a million a year in sales, they have the same cost structure for landing their product. Amy actually is a little bit less efficient in terms of her advertising and Amazon fees or whatever.
It doesn’t have to be Amazon, maybe its logistics, maybe she has a piece of furniture, maybe it’s just harder to ship, whatever it is, her profit margins after ads are 20%. Whereas Brian is 30. The last 18 months has seen Brian, at least in the beginning, Brian was getting a higher valuation than Amy. Because Brian is more profitable makes sense. His profit margins are heavier. What we’re starting to see though, and I hope this slide shows up, okay, here is they the investors are getting smarter.
They’re realizing that the amount of net working capital that I have to have tied up in this business asset actually matters a lot. And so when you look at the fact that on average, over the course of a year, Amy has about a quarter of the inventory. That means she has to borrow a quarter of the money or invest her precious cash. And so now what you’re doing is you’re taking annual profit for me 200,000 divided by I only had to put 75,000 chips on the table. And as a result, my return 200,000 divided by 75,000 is 2.67 means for every dollar I borrow beg, borrow steal, put in the business. I’m getting a benefit of 267 Yeah, yeah.
Whereas Brian, who appears more profitable at first is having to keep four times the inventory in his supply chain. And I’m talking about units. I’m talking about dollars. He probably has worst terms with his suppliers probably has a broader catalog of 50 different products. Maybe Amy has four Don’t know what the actual differences. But my argument and something that you guys should start looking at is that Amy’s business is two and a half times better. And not only that Brian’s business is two and a half times riskier than these, because the amount of capital that he has, has to risk is so much higher. Does that doesn’t make Does that make sense? Damon
Damon Pistulka 35:18
does. And actually one of our larger clients that we were working with, a few years ago, this exact thing came up. Because as the company grew, the owners were not able to keep the return on working capital the same, and it should have been, honestly should have been. And it was, it was because of logistical challenges. But the inventory grew at a much faster rate than it should have. And when they look at the working capital, it’s all part of it. And and that’s a big deal when you’re especially when you’re doing you know, 2030 $40 million deals. So that’s a lot more money that they have to put down over the term to run the business. Yeah, so
Tyler Jefcoat 36:01
a couple things here. One is both. In both of these scenarios, you’ve got to have these in books, right. So obviously, bookkeeping, but you’ve got to be able to, you have to be able to answer these two questions. How much profit? Did I actually make on an accrual basis over some amount of time? And in? The second question is, how much inventory did it actually take me to generate that profit, you got to be able to put your hands on those two variables.
And then the second thing I’ll mention here is if Amy was my CFO client, like I’m coaching Amy, I would say, Amy, your velocity is unbelievable, you’re turning your inventory four times a year, I’m happy, this is great. Let’s take the next quarter and focus on your advertising campaigns and on your assets that are going to help you get better return on adspend. Because your margins are a little bit low.
Whereas so this is for you guys are watching us. If I’m Brian, and I’ve got low velocity, I’ve got that I’m going to say Brian, PPC is doing great buddy, you’ve got great margins, your products, I need you to get more at bats per year, right now you only get one at bat per year with every dollar you borrow. I need you to get more. And there’s a couple of ways you might be able to get more obviously, renegotiating your supply chain, guys, every week, you can get your supplier to wait for you to pay them is seven full days worth of your cash cycle that you get to keep?
Yeah. And so finding ways to restructure debt, finding ways to make sure you’ve got the right three POS in place that you’re I think you’re saying this earlier, I think some of your prior episodes have been about supply chain, it matters. Oh, yeah, I was broken in your supply chain. And you might be able to if you’re Brian, take a business that’s kind of underperforming and turned around pretty quickly by making eight or nine phone calls. You know, that kind of thing?
Damon Pistulka 37:36
Yeah, yeah, you’re right. And that that supply chain, especially if you’re if you’re someone that’s importing products from China, there there, there are a myriad of ways to adjust that, to take that number from where you are looking at it from a one, two, maybe even a two, just with some adjustment. That’s right, and doing what you’re doing and coordinating and because it is it is a challenge.
I mean, if you’re if you’ve got a if you’ve got just say you’ve got 100 containers worth of product, that’s inflow any given, you know, time a day, day of the year, it’s a challenge to make sure that there’s not you know, you didn’t just get 20 of them, when you shouldn’t, you should only got five, especially when you figure that out, and combated with today Now, that’s even worse, because they’re sitting in the water now and they’re just stacking up on the other side.
Well, a lot of that they want to get paid for the sitting in the water, which is even worse, because it’s I can’t even sell it if I want to. But those kind of Herky jerky that happens. I mean, they’re not they’re not 50,000 Herky jerky, this is like $750,000 hits, and you didn’t know. And you’re like, well, we knew it was on the water, but we didn’t, you know, whatever happened and just hits all at once. It’s like these kind of cash cash flow challenges, again, drives up the cost of running that business. And like you said, the ways that you can adjust that are are many, and you have to look at it.
The buyers are getting smarter. It’s it’s this the same thing was selling the business 30 years ago, 25 years ago, and I wasn’t in it, I’m old as hell, but I wasn’t doing it that. So when you look at that people didn’t have the data that they have today about valuation of business. It’s simple things like this that become common knowledge over time. And you know, these, every buyer is going to get smarter as the as it goes on. And as business owners, we’ve got to get better on in these businesses.
Agreed. Yeah, that’s so cool, man. I’m glad you’re glad you showed that and talked about it because it is it is something especially and I mean, when you look at it a million dollar brand, it’s it’s a fair amount of money. It’s a fair amount of product. But there’s a lot of million dollar brands on Amazon, you know, and if the million dollar brands would do like you just said look at where I’m really at and make the changes I need to it can make a significant difference.
Tyler Jefcoat 40:02
Really good. And for bonus credit, I think if they did that same math problem per product line, so what was the profit for my product divided by how much of that product I
have to have tied up
Tyler Jefcoat 40:12
my capital in. And then just kind of I hate to say it’s a bit of a survival of the fittest, which products in my catalog are killing me right now. And those are going to have to be on probation for 90 days. And if they can’t fix it, I’m going to have to kill them. And so I think, I think as a brand manager that’s dealing with the realities of our current supply chain and e commerce environment, you have got to up your game when it comes to managing the catalog level, which is kind of what I showed you, and then the level of your return on capital.
Damon Pistulka 40:42
Yeah, yeah, you make a great point to catalog. And it’s not adding to the catalog, because everybody loves to add to the catalog, right? But taking it out, it’s always that we can add new products like crazy, but let’s take the ones out that aren’t performing and, and then just see what they are or even or even for that matter, figuring out where they could perform. I mean, there’s, you know, I look at, and this is, I don’t want to get too far off on a tangent. But oftentimes, if I’m, if I’m running a multi category, brand, I am really strong in one category, right.
And I know because that’s where I started, I know my pricing in that. And while I moved into an ancillary category, that’s pretty good. Just take, take the something like backyard stuff, right? The whole home want our furniture, right? You just do that. There’s all these different pieces, while I might have been really good at the table and chair set up, or something like that, but now I’m going to make couches, or I’m going to make, right whatever it is, and it really good at I know the margin on this.
And we’re just gonna apply that margin over to this other product line. But that made me more competitive, less competitive, and really, they they miss out on sales, because they go well, it’s not our normal margins, and it’s not selling, so it’s no good. But maybe they needed to get a little more competitive. Maybe they needed to change the way you know, there’s just so many other things that could make those products. Good. And then it sits there and just languishes.
Tyler Jefcoat 42:17
Yeah, I think that’s right. I mean, almost every business I’ve ever worked with has at least one skew that is killing them. And if you have enough good skews, you ignore it to your own peril. And so I think that’s the point is extremely well said. I mean, there’s a reason that Procter and Gamble has a separate brand management team for each of the brands right? Because they have to specifically understand who the avatar of the buyer, what does she look like, what does she prefer, and I’m going to build my value offering my pricing, my supply chain, my marketing strategy, everything around the customer.
But standpoint, I’ve had so many brands exactly like you just said Damon, where they really figured out this customer, but they also like had a cat and wanted to make a cat product. And then next thing you know, they’re they’re much, much less efficient at the second product. They weren’t the first and and again doesn’t mean you don’t expand, expand. Just be ready to invest in understanding your segment a little bit better. So you can be Yeah,
Damon Pistulka 43:11
yeah, good stuff. Good stuff. Well, man, I just I enjoy talking to you because it’s it’s a geek out on this stuff. But you’re such a good source of knowledge for the industry and where people can really learn from what you’re saying. So any any last thoughts? That you know, the the people that are looking at their e commerce and going, man, my accounting is sure a mess? What you know, what are some things that that, you know, tips you could give them?
Tyler Jefcoat 43:42
I think if you can’t answer the question within maybe 10 minutes of pulling up your accounting system, how much money did I actually make last month versus the month prior? Then I think at a bare minimum, it’s time to take a second look at your books. I don’t know if this is a hobby. If you’re doing $10,000 a month in sales, treat it like a hobby, but as soon as that becomes a business business, you know, biggest errors are the ones you guys have all heard of.
Don’t run your personal expenses through the business, make sure it’s clean and separate. At some point have Are you still there? diamond? Yes, I am. Yes, the video froze up. I’m like, Okay. Okay. Yeah, make sure that you’ve got, um, you know, a dedicated credit card. And yeah, just do the work to make sure that you can put a name on every dollar I hates that you can hire a bookkeeper.
Obviously, we do bookkeeping, for e commerce, we’d love to help you. But I think putting a name on every dollar and then as you get closer to that 100,000 a month mark, it’s time to implement a pretty decent inventory management, Cost of Goods Sold system that may require you to get an expert involved and that’s another week potentially help you but yeah, I just think it’s one of those things. Listen, I’m a sales guy. I have an accounting degree. my MBA is in finance, but I’m fundamentally a people person. I don’t like looking at spreadsheets all day long.
Thank God my business partner and the team do. I think if I can afford myself as an entrepreneur, I’m optimistic The grass is always gonna be greener tomorrow, if I can force myself to spend one hour a week, taking a deep dive look at my finances, and forcing myself to follow the data and make choices based on the data, instead of kind of being like, it’s probably fine. I’ll check it later. If you’ll just give an hour week, I think you’ll see significant improvement. And here’s a great example.
This is just for my business, right? I’m, for the first time now, three and a half years into this business, measuring our sales funnel, never did it before, like how many leads actually come into the website, how many of those book a call how many to convert to a client, and I was like, Huh, we got two runs in this value chain that are broken, I would have never known that I would have never been able to take action on fixing that for my company, until I could see it. And so I think for you making sure you can see your numbers so that you can drive the ship better is kind of
Damon Pistulka 45:49
it’s funny, you say that because one of the first things we usually do with our clients is we implement a weekly performance dashboard, where it’s super simple. But listen, we want to know the gross margin every week. And I want to know how my channels performed to the gross margin line. And and it is it is so good. Just to get that and then make sure you’re like you said make sure you can figure out how you are on a monthly basis or whatever. But measuring that performance and taking that hour every week will make a big difference. Agreed. Yeah, awesome. Well Tyler someone wants to get a hold of you what’s the best way to do that?
Tyler Jefcoat 46:27
So seller accountant and kind of see behind me which way is it here? Here it is. cellar Calm, calm seller, accountant calm. You can find us there. Any way you want to get a hold of us. You can get through the website. And yeah, David, thank you so much for having me, man. It’s been great.
Damon Pistulka 46:40
Oh, it is awesome. I so excited about it. Just being able to talk to you about it. And then you just blew it out of the water with the the grass and the information. Just thanks so much. You’re welcome, my friend. All right, everyone. Thanks for listening. Thanks for joining us again for another faces of business. Hey, this week on Thursday. It’s funny that we are talking about the things you’re talking about.
Because on Thursday, we have Kristina Harrington from Gen alpha. And what they do is they’ve got an e commerce system that’s made to put on OEM manufacturers to help through the entire supply chain, take out the catalogs at the distributors and repairs. It’s going to be fun, and we’re going to talk about that. So thanks, everyone for joining us. We’ll be back again on Thursday.