Taylor Holiday - The 2026 E-Commerce Masterclass That Will Make You Question Everything

21:09And it's like, you know, we have what we call, we call it a cultural calendar, but it's going to be very relative to your business and your ICP. Literally all you have to do is like go and chat GBT and say, this is my ICP. What are the culturally relevant moments? And that's it. I'll give you two examples because I think this is super important. We work with a band right here in LA for a long time called APL. I've got them on my feet right now. Awesome shoes. They had generally speaking two peaks a year. They had Black Friday, Cyber Monday, and they had Mother's Day. Okay. Those were kind of built into the calendar.

21:37They needed to find what we call, we want four peaks a year. We want them one in each quarter that helps balance cash flow, helps keep you in a consistent rhythm. So we looked into March and we said, what could we own in March, International Women's Day. We turned International Women's Day into a moment the brand could own. We would tell stories of incredible customers, highlight cool influencers, go all in on highlighting a celebration of women on this day, highlighting the best SKUs. Now that's a peak in their calendar every year. Maybe even a customer product too. Exactly. So you build on

22:05Taylor Holiday:top of it, find a partnership, do a charity, whatever it might be. I'll give you another example. We work with a brand called Born Primitive. Born Primitive is an amazing fitness an apparel brand, the founders and Navy SEAL. And they were looking for, they generally, they sell leggings as their core skew. The problem with leggings is it peaks for sales in winter, dies off by the summer as generally people aren't wearing long leggings. So the natural cycle of sales of that. So they were looking for an opportunity to create a moment in the summer. Okay. They had launched a new product category. Category extension is a big piece of this into footwear.

22:37Taylor Holiday:Footwear is pretty flat annually. So it doesn't naturally create a summer peak. But what they found was two years ago was the 75th anniversary of the invasion of Normandy, D-Day. It was coming up in the middle of June and they were able to sponsor. They did a promotion where for three days, all the money raised went to fund the last veterans that were alive to go back on their trip to Normandy to celebrate the 75th anniversary. and they created this limited edition D-Day SKU, okay, like 500 of them, high price point, short-term drop, cool. It comes in like an ammo case. You've got a baseball card of every one of the veterans.

23:17They had on the day of the event, the military members that were jumping out of planes onto Normandy were all wearing the shoe, incredible content. Bayer is a former Navy SEAL, lots of credibility and authority in that moment. In the middle of June, those three days were the biggest days of their whole calendar. It didn't exist the year before. It wasn't there. They manufactured a moment connected to a cultural story that allowed them to create disproportionate value capture for themselves. And now he's finding every single relevant date that's about to that. So he follows up this year, Veterans Day.

23:48Okay. The first week of November, he came up with this brilliant idea. They're going to pay off$5 million of veteran medical debt. You can buy up medical debt for a pretty cheap price. So it's not a one-to-one dollar capture. So for three days over veteran medical days, every dollar they raised is paying off veteran medical debt. They got on Fox and Friends multiple times. They generated, like they ended up paying off $10 million of veterans medical debt. This is Instagram, they're recording calls, calling veterans that have been carrying debt for 50 years and saying, it's gone, we paid it off.

24:19The emotion, again, figuring out the cultural moment, how does our brand fit into it? What's the story? How do we benefit? And guess what? All those customers, because there was no money, they gave it all to charity, but guess what's coming up in three weeks? Black Friday. So now you have a massive influx of new customer acquisition. You didn't make any margin because you gave it all to charity, awesome, cool, but didn't help the business financially. But all those people three weeks from now lead to the biggest Black Friday company history. That's how peaks become a progressive amplification of the business in total.

24:49Yeah, and if you storytell properly, which we're going to get into, you're getting all that amplification of, you know, probably UGC created content. People are very excited about that from a distribution perspective. I mean, think about the PR, The earned media that they're getting through that. And that's like what brands need to think about more, whether it's an ad or it's PR, what's a story we're sharing? What is the story that gets sent between DMs with people? That's how we communicate with one another, right? And so who is your customer? What are they going to be proud to say? Like a brand's not going to be proud to be like, check out my, or an individual, or not like, check out my cool new pans.

25:23Like that's not my content, right? But if I cared about, if I was a veteran or I had been injured, that story is something that I want to show off, like that I could be proud to participate in. And so those kinds of things, you want to give people a reason to share their identity. There's a great group here in LA that does called First Media that back in the days when like Facebook content was ways that everybody, organic Facebook content was the big hurrah. They used to talk about creating for your audience's audience. But the idea is I'm not creating just for the end watcher. I want to give them something that they can say about themselves to the world.

25:57And so they would make this content that was all about like dinner hacks. So it'd be like, if you have a crock pot, here's 10 cool recipes to show off to your friends, right? So when they think about that, what they're saying is, okay, somebody's gonna buy a crock pot and they're gonna have a house party. How do I make them a hero in their world? How do I help them create for their audience? Guys, this is deep right here. You gotta listen to this part. You're enabling them. That's right. Make them a hero in their world, right? And so with content, so that's the idea. Create for your audience's audience.

26:25I wanna give you a piece of content that you want to go show your friends that makes you cool in the group chat. And if I can do that, or like for me, it's all about like, how do I create a piece of content that I want them to show to their company? So when I think about creating content, I think I've got a CEO, I've got a CFO that I want them to drop this video in Slack to their marketing team, creating for their audiences, audience. And so for me, that's how I think about it. It's like, who, how do I give them something that if they can take to their people in their world, I've created value.

26:51Yeah, you're like disguising sales as marketing. You want the people that buy your stuff to market your product. I love that. If you are only building on social, you do not own your audience. You are borrowing it. The algorithm decides who sees it. That is a bad business. Beehive changed that for us. It's where Open Residency runs our newsletter and growing our newsletter is the number one initiative for us this year. One place to grow, engage, and monetize with zero platform fees. They even have a built-in ad network where sponsors come to you directly through the platform. Guys, I believe in Beehive so much that I put my own money in as an investor.

27:24The team is elite, the vision is world-class, and the product is built for operators, not amateurs. If you want to give it a try, head to beehive.com slash openresidency for 30 % off your first three months. Make sure you enter the code mark30 at checkout. That's B-E-E-H-I-I-V dot com slash openresidency mark30 at checkout. Stop renting your audience. Start owning it. I got a million different questions. I want to dive back into the numbers. We're going to talk about storytelling and content in a bit. You got this hierarchy of metrics. Yep. I think so many people get this wrong. So I'd love for you to walk through when someone is looking through the numbers, what should they actually be looking at?

28:05Yeah, that's a great question. So we've moved as an industry from caring about top line revenue growth in an era where there was an abundance of free capital that everybody cared about making revenue to now we care about the bottom line. We care about actually generating - Don't feel bad about yourself, guys. I was guilty. We were all there. We were all there, right? So the key was, but now is, it's not even just EBITDA operating income. It's moved all the way to cashflow, okay? So if I'm an organization though, the problem with trying to map to cashflow every day is that cashflow is actually a proxy decision for a bunch of fixed costs that don't show up every day.

28:38You have choices of when you pay them. So what I would encourage people to do is the closest proxy that you can look at every single day for what will be ultimately your cashflow is contribution margin. And just to give people context as well, the ultimate, the most important thing is cash flow, but that's a bit more, it's moving, it's a moving target. So you're saying - That's right. As the CEO, you should have a 13 week cash flow. It should be the first tab on your browser. It's the first tab on my browser for CTC is my 13 week cash flow forecast. I want to watch my money grow. If the bank account doesn't grow, something screwed up in my system somewhere.

29:11Okay, so CEO has 13 week cash flow forecast. But the problem with that for a marketer is that you can choose when you pay invoices. You can pay them today, you can pay them tomorrow. So there's human choice that goes into cashflow

29:21Taylor Holiday:that should be managed by CEO, CFO, a subset of people, and that should be their primary thing they care about. So if I'm talking to a founder - We're gonna talk about that. There's a lot of things you can do to get creative there. That's exactly right. We're gonna talk about vendors as lenders, all sorts of ways that you can manage the cashflow. So CEOs, that's what I would say. Your team, the whole organization should worry around a daily view of contribution margin, which I would define as net sales minus product costs, minus variable expense, minus ad spend as contribution margin. Now that number is the one that you should care about growing every single day and that you should have a goal for and then the organization to be tracking and mapping towards.

29:56So when I talk about the hierarchy of metrics built off of sort of like the idea of John Wooden's hierarchy and the idea is that there's metrics that are more important than others. And so the rule is number one is contribution margins at the top. That's the very peak of the pyramid. All I care about is winning that game every month. That's the scoreboard. But the problem with the e-commerce is that that is insufficient. No one metric can actually tell you the health of your business. Because I could be winning at the contribution margin level in a single month, but my new customer file could be shrinking.

30:26I could be experiencing a benefit in ways that is hiding some longer term problem. So contribution margin is at the top. The next layer - The contribution margin is really, let's talk about that 13-a-week cash flow. You know in the near future that you're looking good. I would say another thing in relation to that, I want to let you know what I do, and I'm curious what you do. From a contribution margin perspective, like we know our blended quote unquote daily burn, but you know, we're up and down a little bit. We spend on random stuff. We just do it daily. And then at the end of the month, we'd reconcile.

30:57Is that something you do or are you? So you're talking about the fixed costs. You take your blended fixed costs. So here's the problem with that. Let's say rent. I have an office rent. Let's do some easy math. Let's say it's$30 ,000. And so I'm going to take$1 ,000 a day

31:10Taylor Holiday:and I'm going to put it into my estimation of some people will try and track profit every day. Well, let's imagine that I generated$900 of contribution margin before that fixed cost, and then I subtracted out that$1 ,000 of fixed costs. That signal to you says that I have negative profitability. What I find is that tends to be a signal to people that they need to cut costs. But the reality is fixed costs as a percentage of your revenue go down as volume scales up. So often the solution to a problem like that, assuming you're generating incremental positive contribution margin on your media is actually to increase spend.

31:48But what I find is that the fixed cost often creates a counter signal that gives people the illusion that, oh, we're losing money. I need to cut something versus no, no, no. I'm actually generating positive contribution margin. I have to spend away from the fixed costs. So when you set your contribution margin goal, you should have a

32:06Taylor Holiday:relationship to your fixed costs because contribution margin minus OPEX is profit. Exactly. So when you set that goal, it should be in relationship to those fixed costs. So that relationship really, really matters. But every day, I don't want to trick myself into thinking that I'm negative profitability and therefore need to cut costs. I'll give you another way that this shows up in January. We just came out in January. If you report your media efficiency, MER, marketing efficiency revenue, or ratio, total sales divided by ad spend, a lot of people use this metric. In January, if I report MER on net sales, that includes returns.

32:44The way that Shopify, because this tends to be the dashboard that dominates people's thinking, Shopify reports revenue by default in the dashboard under total sales. Total sales are today's revenue minus today's returns. In January, for most businesses, not in the health or supplement space, but for most people, December big, January small. Okay. What that means is that a bunch of returns from December are going to be processed in January. Okay. And so what happens is total sales might look bad. And so if I'm looking at my daily MER, including those returns, all of a sudden I'm going, oh shit, I'm inefficient.

33:21Taylor Holiday:Pull back. But really you're just having a higher percentage of returns show up on that P &L and you need to get returns either accrued as an estimation or out of the view of the P &L. So there's all these ways that the way you present the dashboard affects the behavior. And what I want to make sure is if I'm generating positive incremental contribution margin on my paid media every day, I don't want any indication that would stop people from spending more money on that effort. But you're saying maybe like 30 to 60 days later, you're, let's just say December, you're going to redo what December looks like.

33:53And probably February 15th under the notion that there's six weeks that people could return the product to get the real, that then that's set in stone. What I recommend brands do is do a returns accrual estimation every month and apply it to the present revenue, not wait and do returns on a cash basis. So what that means. Blend it over how long? Obviously, December is going to be heavier than the other month. Well, your return rate won't necessarily be higher. So let's imagine I have a 10 % return rate as a business. The rate won't. That's right. As a percentage. Yeah. So what will happen is December, let's say you do a million dollars.

34:24That means you're going to use an estimation, which is every day I'm going to apply$3 ,333 of returns. And then I'm going to reconcile it at the end of that month. What I'm not going to let happen is, let's say January, I'm going to do$500 ,000 in revenue coming off a month where I did a million. Now that$100 ,000 of returns, which actually gets processed in January, is going to feel like, wait a second, my return rate in January is 20%. And it's like, no, no, no. It's just lagging from the previous month, but because Shopify reports returns on a processing basis and that people batch process returns in weird ways, you almost always want to use a returns estimation off of the present revenue.

35:05You want to accrue it back to when the point happens. And some of these dashboards, dashboards are really powerful. They organize behavior in different directions.

35:12Taylor Holiday:And so Shopify, if you're listening, please update from total sales to order revenue and get this out of people's eyes because it's one of the biggest problems we face. Drew from Iris is very, very adamant about this issue as well. He talks about it all the time. Drew and I are kindred spirits. Yeah, he's a great dude. So top of the pyramid is this contribution margin. And then I would imagine next you're looking more at like... Next, we call it the business metrics. This is just revenue, spend, M-E-R-A-O-V. So that level still matters. At the end of the day, every business wants to grow revenue.

35:40And while we can say that bottom line is important, I have never met a founder that's happy with their business shrinking on the top line. It's just a reality that businesses want to grow and growth is measured in revenue and EBITDA. But if you have a shrinking top line, the enterprise business of your value will suffer. So it still matters that your top line grows while your bottom line does too. But it's just the sequence of the hierarchy. Then the third layer I would say is oftentimes the most important and neglected inside of the business. I call it the customer level metrics. This is now new customer acquisition efficiency, new customer contribution margin, new customer revenue and ad spend.

36:15So I need to all the time be growing my new customer acquisition because new customer acquisition today is my returning customer tomorrow. And the best predictor of future returning customer revenue is the growth of my active customer file. So a lot of times brands make the mistake that assume that my customer file just grows up forever, right? From day one, I have one customer and every day I add to that total pile of customers. But the reality is most of your customers have lapsed that are never coming back. And if you were to map out the average time between purchases for most brands, you'll see that 80 % of the customers that are ever gonna come back will come back within the first six to eight months.

36:52So once you get outside of those windows, we would consider those customers churned or lapsed. And what we want to look at is the active customers at all times and the size of that file. And when that file shrinks, what that means is that your returning customer revenue in the future is going to shrink too. And so we have to be growing the number of active customers all the time in order for the business to maintain future growth. And so new customer level metrics become really important to have goals around how many new customers I'm acquiring and that I'm not just squeezing the sponge and getting all my revenue off of my existing customer base.

37:24Rinse knows that greatness takes time, but so does laundry. So Rinse will take your laundry and hand deliver it to your door expertly cleaned. And you can take the time pursuing your passions. Time once spent sorting and waiting, folding and queuing, now spent challenging and innovating and pushing your way to greatness. So pick up the Irish flute or those calligraphy pens or that daunting Beef Wellington recipe card and leave the laundry to us. Rinse, it's time to be great. From what you see so far, so so far we have contribution margin at top, then business metrics, then customer metrics. Above that, we have cashflow, which everybody should be looking at.

38:04Who should be looking at this and managing this? The business metrics, the customer metrics, and then whatever's next. Is this? I believe in transparency for the organization that everybody should see it. That every day there should be a view of contribution margin to goal across the entirety of the organization. And if you could even, if you had the courage to be transparent to the cashflow level, I even think that if you want the people inside of your company to affect the thing that you care about most, show it. Like you can't ask people to affect things they aren't looking at. And so what often happens is I see founders, what they do at the very bottom of this pyramid is what I call channel level metrics.

38:36This is Facebook ROAS, right? Or your triple whale ROAS or your MTA number. This governs most organizations. This is where they force most people to look. Which is the devil, because if you look at it isolated in a silo, you're not. It's a proxy metric. It is not actually correlated tightly to cash flow in most cases, right? There's all sorts of things you can try and do to tighten the relationship between that. But the problem is this governs the behavior of most organizations. And then founders are wondering, why don't I have more cash flow? And it's like, well, because you're asking people to drive Triplewell ROAS or Northbeam ROAS.

39:07And this isn't necessarily against them as a platform. It's that that signal is not what the founder actually wants. So my belief is if I want, especially my executives, if I want to grow the corporate balance sheet, then I should give them an incentive around the corporate balance sheet and I should show it to them every day. I think a lot of times the insecurity to bring transparency to that numbers is either I'm masking my own bad behavior, debt that I've taken on, distributions I'm taking or whatever it might be, or I'm unclear on what it means and I don't understand how to measure it or affect it.

39:36And so I move myself, I watch a lot of founders get stuck at the bottom of the pyramid, just obsessing over Facebook Ross, Google Ross, et cetera. without really driving towards the thing that they care about, where enterprise value is coming from, where their obligation to shareholders actually lives, which is often on their ability to distribute capital to the people who own the equity. I believe in radical transparency. I'm going to get into this ESOP program you talk about, but do you think it's dangerous for people that might be not as advanced to see the contribution margin but not understand the cash flow?

40:05They could see dollars being made in the contribution margin, but it's like we're floating cash. I think this is a huge myth. I think that attribution is a thousand times more complex than cashflow. You ask people to solve for something down here that is part of my language.

40:20Taylor Holiday:It's fucking insanity and complexity, incrementality tests and MTA models and all the things. And we say, do this because that would be too hard to understand. And I just go, no, no, no, no. This is real money. This is reality. This is objectivity. We can actually help people make decisions and understand these inputs. This is way, way, way more complex. and I watch everybody get stuck in this quagmire because there's some trope, and I absorbed this for many years too, the idea that they couldn't understand a balance sheet. They couldn't understand the three financial statements that cashflow or a P &L would be too confusing.

40:53And instead we adopted something way more confusing, way harder to understand. You touched on measurement tools like a triple L or a North Beam. Yep. What place do they hold in this whole entire thing? Do you just think they're one tool on the bottom four of the quadrant right there that should be used as one extra kind of, I'm not going to say it's subjective, but just one more variable to look into the equation. I think the key is that you tie together optimization and attribution. So what do I mean by that? Inside of Meta, we only can optimize for a subset of data outcomes. So what do I mean by that?

41:25Meta's system, the actual allocation of your dollars is based on when you set up an ad account, you select what am I optimizing for? And your choices are conversions. Most often is what you're optimizing for. as measured by one-day click, seven-day click, seven-day click, one-day view, one-day click, one-day view, or now they've introduced engaged view, right? But these are as reported by Meta's systems, as seen by Meta's systems. They are going to allocate your media towards that.

41:52Taylor Holiday:Now, what the MTA solution started realizing was they understand that this is actually true, that you can't affect a number that the Meta system isn't optimizing for. So they introduced things like North Beam Apex, where you can actually set the optimization setting where they're passing back signals to meta to optimize for it. My connection is, one, I think that whatever measure you're using should have some relationship to one of those metrics higher up the hierarchy. So ideally, new customer revenue. So you should try to find the strongest causal relationship between whatever measure you're using and new customer revenue.

42:26And you should make sure that you are optimizing for it in meta. So if you're going to use Northbeam, you better use Northbeam Apex. You better pass that signal back to meta because otherwise meta is optimizing for something completely different than what you're measuring. So I just want to break this down real quick. So you have, we could say meta, we could say Google, we could say anything in platform is one side. The MTA is another side, which is these tools that are the measurement tools. You're saying the North star, what to look for from a data perspective in each is who is delivering the most amount of new customers.

42:57Yeah. I'm saying that whatever setting you just, you, you talked about in platform, that's reporting. MTA models are reporting. I'm talking about the actual algorithm that allocates your dollars. What data is it using?

43:12Taylor Holiday:And in almost every case, they're using meta reported the numbers in here, this attribution view. That's what they're actually allocating your dollars based on. So you can measure it however you want, but whether or not you win an auction is based on the machine's ability to make a predictive model about a conversion as identified by Meta's system. So it doesn't matter what attribution model you use. The actual allocation of your dollars is happening based on Meta's data. So I most often have seen that Meta's data correlates very strongly to new customer revenue, especially if you use seven-day click with good exclusions.

43:45You can create a very tight relationship to that causal number. And then your job is, I think the layer there is to then run incrementality studies, geo holdout, and to find out what the actual causal effect was on your revenue and let's say Meta reported a one and your incrementality study said it was a 1.2, then you create what we call a factor, a multiple of the relationship between the platform reported result and the incrementality study and you measure Meta's platform result with that adjustment and you optimize accordingly. But the point is, at the end of the day, whatever attribution model you use is irrelevant because Meta is allocating your dollars based on that system, based on that attribution view.

44:25And that's the one I would care about the most. At what scale do you think people should be using this outside incrementality tool? I think that when you get into multi-channel allocation of your media, you need to understand the distinction of the effect of each channel. When you are in meta exclusively, there should be a tight correlation. You should be able to export your seven-day click ROAS, and it should correlate very tightly to AMER on a daily basis.

44:48Taylor Holiday:So you could just throw those both in a spreadsheet on a daily basis, go equals parentheses C-O-R-R-E-L, comma, the two data sets, and you'll see, hopefully it's a 0.7, 0.8, 0.9. There's a tight relationship. You can assume that meta is driving new customer acquisition. You can map them. You can see it visually on a graph very easily. The second you go, okay, now I want to try YouTube. I want to try TikTok. I want to try AppLovin. What I would encourage you to do is start with an incrementality study of the net new channel. Go into that channel with an isolation of some DMAs or geographic regions to determine the effect of that new channel to start.

45:23And that will give you a benchmark factor in that place. and on and on. The challenge is if you're a brand that already has a very diverse media mix, it becomes almost impossible to sort out the causal effect of every channel individually. And then you have to kind of work backwards to start going through channel by channel to understand the effect and it's much more complicated. Best case scenario, you're in one channel and as you expand, now you introduce that testing to understand the effect of each new place you go into. Explain that a little bit more. I don't know what you mean by DMA, obviously from a geo perspective.

45:53When you say hold out, It's basically you just want to do a split test. You just want to do a test that meta and everything else is excluded. So you have a very controlled environment to see if it works. DMAs are often references to zip codes or smaller subsets of regions beyond states, right? So you're going to take a subset of DMAs where the revenue is modeled to be similar to one another.

46:15Taylor Holiday:So good data science teams will look at the relationship of revenue in different areas. AI can do this pretty effectively. There's lots of tools. We do it at CTC. House does it. There's a bunch of incrementality tools out there. And they're going to get a data science team to model two regions. In one area, the spend is going to be turned off. In the one area, the spend is going to be turned on. And we're going to figure out how much more revenue showed up in the place where the ads were. And that gap in revenue, in the control versus the variable, is going to give you the actual effect of your media in that region.

46:47Makes a lot of sense. From a platform perspective, we just talked a lot about meta. I would say for most people that are listening and or have come on, I mean, I could tell you, like for us, we're 85 % meta and meta is obviously Facebook, Instagram, and then Google kind of is everybody's, I would say is everybody's second biggest one. You have, you work, you've seen thousands of brands. You won 2026. What else are you seeing? So the key right now is actually mapping a relationship between your channel distribution strategy and your media measurement. So the playbook in 2026 looks like this. And I'm going to speak, this is for slightly more mature brands.

47:25If you're sub 10 million, stay in the single channel orientation. You don't need to go beyond meta

47:31Taylor Holiday:to drive growth in that area. I think that's a well-worn topic. I think most people understand the capacity for that channel to drive real growth. So for this section, I want to talk to brands in the 10 to 100 million range. So you're saying zero to 10, sprinkle on some Google, obviously. Sprinkle on some basic search, yep. Yeah, and you should just go really, really hard on meta. That's right. Cool, that's right. Continue. So what I see now is in many of these categories, we have to recognize that e-commerce as an industry post-COVID is growing back to its pre-COVID norms, which is about 15 to 20 % a year.

48:00E-commerce as a percentage of online retail is growing about that much. Many brands, what's happening is the supply, the amount of competition is growing faster than that. And so their category growth is either flat or very small. So their dot-com website growth is stalling. I'm seeing this everywhere. exclusive.com revenue growth is challenging for many brands. So what they're realizing is that the growth mechanism is to expand channel distribution. First step, Amazon. Amazon still represents somewhere between 40 and 50 % of all e-commerce sales. In some categories, commodities like batteries, it's 97%, right?

48:38So depending on your category and how commoditized it is. Wow. The blended average is 40 to 50 % of all e-commerce happens on Amazon. Apparel, which most people is 40%. 40 % of apparel purchases happen on Amazon. And the more commoditized your category it is, the higher that number is. So brands are realizing that like consumers want

48:56Taylor Holiday:to shop on Amazon. That's like a very serious reality for most businesses. And if they want growth, it's usually going to include that. The problem with Amazon is it's almost entirely demand capture, right? In the sense that it doesn't drive incremental net new demand for a category, it takes that and there's some amount of search volume that exists and you're competing for your share of it and you're still obligated to go drive that demand. And it's a black box. Yes. It's very challenging. Okay. But what's happening is, is that if I'm, I'll give you an example of a brand. We work with a brand called Fellow.

49:26Okay. They sell coffee makers. Awesome. Super cool. High-end coffee makers. They're on Amazon and.com. And for a brand like that if they were to measure the effect of their meta dollars exclusively on the impact of dot-com, what they would see is that as the Amazon business is growing, the perceived effect of their meta performance declines. And so what brands will do is they'll expand the distribution, Amazon, Walmart, whatever, but they continue to measure their media exclusively on dot-com and it looks like it's going down. They pull back and the whole engine stalls. Okay. So what the best brands are doing in 2026 is they're realizing two things.

50:05One is that when I spend money on meta, it drives an effect on Amazon. And the way that I actually get to seeing the signal to drive incremental effect is I measure my media's effect on both.com and Amazon. You can do this using incrementality studies. And then what that allows them to do is unlock other higher funnel channels like YouTube. Okay. So we're sitting here. This video is going to end up on YouTube. YouTube drives as much value capture on amazonazet.com. For every dollar of value that you will generate running a conversion optimized ad on YouTube for your website, you will drive equal effect to your Amazon revenue.

50:44Wow. Meta is more like 20 % of the value will end up on Amazon. 80 % of it will end up on your website. The higher funnel you go, the more of that value realization will end up on the larger purchase volume channel, the Amazon, right? It'll look more like the normal category pie of e-commerce. So as you get to CTV, as you get to YouTube, where it's not a direct click often, it's often a view-based consumption. A large percentage of YouTube ads are watched on TV now. And they're like, oh, I remember this brand. Where did I go to first? It's Amazon. Because that's their normal behavior. So as you move up funnel, in order to unlock growth in those channels to get to media channel expansion, you have to broaden your measurement to include broader effect.

51:25So you have to look at the effect on.com and Amazon. Again, incrementality study is a great way to do that. And all of a sudden that YouTube ad that looks unprofitable when measured just against.com, now suddenly you realize, oh shit, that is profitable. I am making money and unlock scale there. Okay. Now I'm going to give you the third channel that's happening. That's driving this, this effect of the 2026 brand, TikTok shops. Okay. The largest attention channel that we're all spending way too much time on our phones on is TikTok. TikTok ads to direct.com Dog shit. Terrible. Almost never work, right?

51:58So what happens is people go try and run TikTok ads. They try and drive it to their dot com. It doesn't work. They shut it down. That's not the game. The game is set up TikTok shops, build the giant affiliate network, try and run this channel at neutral or even maybe slightly losing money. I'm seeing companies losing on there and doing 100 million profitably, holistically. Drive the effect through the entire digital ecosystem. And so the pyramid of 2026 looks like this. top of funnel demand like YouTube, TikTok shops with the affiliate network at a neutral margin for that distribution. Dot com value realization comes from limited edition, high AOV, high margin merchandising.

52:38True fans. The volume movement happens on Amazon. My core black skew, you're gonna end up with more volume on Amazon as these top of funnel initiatives become a higher portion of your media mix. That's where all the volume is gonna end up. But the overall digital enterprise, we call it, grows. And that's the playbook now. This idea that this is D2C.com exclusive growth, meta exclusive, I run YouTube to.com, you're gonna get sliced to death. Your media efficiency will degrade. The amount of businesses I see that have siloed Amazon and.com competing against each other, separate P &Ls, all the meta budgets on.com, why is.com slowing down?

53:16Meanwhile, the Amazon channel's a hero, look at all this margin, no, no, no. It's one engine that you're creating for your digital enterprise, that's the playbook in 26. Yeah, I think that there's a lot of people out there and you said 10 million. It could even be maybe six, seven, depending on the circumstance. You need to do these incrementality tests. Yeah, that's right. You have to understand. Because Kent was on and it was from NeuroGum and it was 2024 fastest growing brand on TikTok. Yep. And he was talking about the relationship between TikTok and Amazon. And when he shut off his Amazon ads, his Amazon velocity did not go down.

53:49That's right. Because TikTok was driving the top of the funnel and people were transacting on Amazon? Amazon ads are a tax. They are not a demand creation. They are a defense against people overtaking the search. It is Amazon's ability, just like Google branded search, and it's a tax you have to pay to defend your own demand. It's a finger in the hole that keeps your funnel tight, but it doesn't create net new demand.

54:11Taylor Holiday:So oftentimes Amazon ads like Google branded search are gonna be very low incrementality until a ton of competition shows up. And then it's just a tax you have to pay that's gonna be margin destructive to your business over time. That's what happens when you exist in a category with no moat, no IP, no defensibility. All the profits are gonna get competed down. They're gonna compete on your branded search terms. You're gonna have to pay a higher and higher tax. You're gonna get less and less margin capture. That's why monopolies lead to higher leverage, higher margin. High competition leads to lower margin capture, less value.

54:39So, but the key is, as you expand distribution,

54:42Taylor Holiday:and this is even more true, we didn't even talk about retail, but a lot of brands are rolling out retail and they're going like, why is my dot-com efficiency going down? Well, it's because a lot of people prefer to shop in Target and Walmart and Best Buy and wherever else. But your measurement has to broaden with it. When we started with, we worked with Native Deodorant from the day that they were acquired by P &G, five years, okay? The day they showed up, 100 % of their media was on conversion-optimized meta ads. By the end of our run with them, zero dollars were, and the business had grown like 15x, because all the distribution moved to retail.

55:16Taylor Holiday:It's deodorants. Where does the bulk of deodorant purchase still happen? Still happens in grocery. It still happens in Target. And so the media mix needs to move in support of the distribution. You can't expand distribution and continue to measure your media exclusively on dot com. So this all goes back to, it's that second bucket, that business metrics. Even if you go into retail, you just, and that, you know, you can argue that retail, you're transacting there, but it's also marketing. That's right. It's just, what is your blended contribution margin across all and do incrementality tests and hold out to see individual channels.

55:49Are they successful? Are they not? That's right. Media exists to drive your business growth, not to drive your dot-com growth. And I sit with founders all the time that are just assuming that this channel expansion is coming from nowhere, that it's just like it's being manufactured

56:01Taylor Holiday:demand somewhere else. But the reality is meta, YouTube, TikTok affiliate, this is the motor for the growth of your entire business in every channel. And if you don't begin to see it that way, you will suffocate the demand because your dot-com efficiency will look like it's degrading really quickly. And it'll give you a signal to pull back on that efficiency and you'll choke the growth of the whole thing. And look, the best retailers will be purely complimentary audiences where they do serve as marketing. Being on an end cap in a great retailer is net new awareness for your business that can drive demand as well.

56:34But I have seen brands that have large scale distribution of dot-com in a geo and then they will open their own store in that geo

56:43Taylor Holiday:and all of that revenue in the store is just cannibalizing.com. It's just the same people buying in the same place for the same thing. And you have to be really careful with that. And that's why like a lot of times I see brands that are like, the retailers are really good at baiting people into this. It's like, oh, Nordstrom's is going to launch with us. Oh, it's going to be.com exclusive for a while. You know what Nordstrom's is going to do? They're going to sit on your brand terms. They're going to siphon your demand and they're going to make you make less money and compete against yourself.

57:12and they're going to tell you it's their value creation. It's not. Value from retail usually comes from being in-store in net new places where you are not in yet, where you can expand awareness for your business

57:23Taylor Holiday:and drive truly incremental demand in those places. Big thing to point out there too is it's what we've done is product segmentation. So we have different art substrates in retail. So then, and that's, it's lower ticket in retail. If they like the designs, they'll come upstream, higher price points, see the brand and get the canvas. So much of this is great merchandising, right? It's having a plan for, like the brand I was talking about, the coffee shop, they are like, how do I get into TikTok shops? It's super high AOV. And I go, it's a merchandising problem. You need to create something to unlock a channel.

57:52Taylor Holiday:You need to have a point of view of how you access the attention of consumers with your product and innovate for the sake of the channel. In the same way that if Walmart came to you and said, we want to write a$10 million PO, but we need a SKU that costs 20 % less, you're going to get with your product team. You're going to figure it out, right? That's no different for TikTok shops. You should be thinking the same way. How do I create some merchandise that works here? Because this is a massive flywheel of attention if I can unlock it. So Meta, Google, you mentioned TikTok shop, you mentioned Amazon, you mentioned retail.

58:20What are those other quote unquote, I'll just call them, you know, paid platforms that are you seeing work? Because you're seeing a ton of brands. The other big one right now. So if I look at share of wallet. Yeah. So the percentage of customers, it's Meta, Google number two, and number three and four right now is a close battle.

58:36Taylor Holiday:TikTok kind of fights in there every now and again. if you separate out Google and YouTube, it might be YouTube, but let's just bundle those together for right now. Number three right now is AppLovin. Okay. This is the channel that has experienced the most growth of late. So AppLovin is a network, an ad network built into mobile gaming. One of the novelties of that ad unit is that it's an unskippable ad. So we've all played mobile games. You're sitting there and you're waiting and ad interjects and you have to watch all of it. So it's forced consumption, which may feel annoying, but it's a high value audience with a lot of whales.

59:07So mobile gaming is a whale audience where there's a small subset of customers that

59:11Taylor Holiday:spend a crap ton of money. Okay. So there's high value consumers in there. It tends to be net new and incremental for a lot of brands when they start there. And I'm seeing it pick up three to 5 % share of wallet for big spenders. It's not going to compete with meta. Some brands have, I've heard those anecdotes, but for the most part there is, and I can, we've run a bunch of incrementality studies that we've seen it be more than a hundred percent incremental, meaning the actual impact is matches or exceeds what's reported in platform tends to be a really good sign. They're doing good work around trying to find more products around new customer optimization.

59:41The team there is highly responsive. They're really engaged. They want to win in this channel. And I'm seeing brands get to a substantial amount of media in that channel. What else? What are the other small ones? YouTube, CTV? So podcast, CTV, let's put Pinterest and Snapchat tend to be even X and it tends to be industry specific. But I have yet to see any of those really consistently across a large portfolio of brands unlock scale. Yeah. So we have a partnership with that. Universal Comcast for CTV. And it's funny because all of this stuff, they are not taking on any client unless they're adamant about the incrementality test.

1:00:14That's right. Because then you're not actually understanding and knowing their performance. That's like a non-starter for them. And what I would say is CTV should match when you have broader distribution to capture the value. Because again, when there's not a click directly,

1:00:26Taylor Holiday:the ability to realize the value on that ad dollars is predicated on showing up into the person's life at another point that they already interact in. So it's being in retail and they're connecting the dots to that ad that they saw. It's being on Amazon when they're browsing, whatever it is. So if you have.com, Amazon, and retail, CTV is really powerful. If you're.com exclusive, it's really hard to get it to pencil on exclusive.com. It's possible, but it's much more challenging. What I like about it is going back to kind of that culture calendar is you can actually pick. Yes, you can show up in moments.

1:00:56They do like the Olympics. That's right. Like imagine if you're speaking to that cohort and you're, you know, you get hit here, here, and here, and then you're watching TV. That's right. Right. And if you're going to be selective about trying to show up in the places that matter to your business in coordination with a moment, let's go back to that Veterans Day moment. If

1:01:10Taylor Holiday:you're going to go into CTV on Fox on those days, like that all makes a ton of sense is to try to amplify and attach to those cultural peaks. CTV can be really powerful for that. Guys, quick break. This episode is sponsored by Universal Ads, a division of Comcast. I've spent tens of millions of dollars on meta ads. At one point, it was 95 % of my marketing spend, that is super dangerous. With one algorithm shift, your whole entire business can stall. A great option is layering in advertising on streaming TV. I thought it would take weeks to set up and a big agency to maintain. Guys, it took five minutes.

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1:02:22Platform dependency is dangerous. Don't make that mistake. Link below for more. Um, let's get a little bit into kind of scenario planning. You have this four quarter accounting planning process. Why don't you break that down? We talked a little bit about how we saw the hierarchy of metrics. I want to talk about this four quarter accounting. Yeah. What is it? So I want to make it easier for business owners to understand their P &L. So we came up with a very simple heuristic. I call it four-quarter accounting.

1:02:48Taylor Holiday:The idea is that you can break any P &L up into four categories. The first category is what we would call cost of delivery. So that's your cost of goods plus all those variable expenses that we talked about. The second is CAC. This is your marketing expense. These are all the dollars that go towards driving a direct response on your media. Okay. The third is OPEX. These are your fixed costs, right? So this is your rent, your labor, your software, whatever goes in the category. And the fourth is profit, okay? And in an ideal scenario, if you were to build the way that we draw this graph and we'll throw one of these up there, hopefully good tag to the editor here, is imagine that you have all of these at 25%, okay?

1:03:26Taylor Holiday:So 25 % COGS, 25 % OPEX, 25 % marketing, 25 % profit. I think if anybody's running a business and they got 25 % profit, they're feeling great. So what tends to happen is that profit gets eaten away in one of these three categories. E-commerce, the traditional mix looks more like COGS are probably 60 % or 40 % is more of where they land. So 60 % is your gross margin, 40 % is your COGS. OPEX should be lower and that's where all the innovation is happening. That should be going down, down, down, down, closer to 15 % and CACs, it's somewhere between 25 % and 30%. And then you end up with a 15 % to 20 % e-commerce business, you're killing it.

1:04:03But if you were to just take your P &L and what I encourage people to do is ask your accountant to build you a four quarter accounting chart. Just show me those four categories every month. Just break it up. I don't need to see every single line item. It's so confusing where they all are. It's hard to understand. Show me my total cost of delivery, my total OPEX, my total CAC, and my total profit and see where is my profit going? Which of these can I go and create leverage against? And that's the problem to go solve. And you'll find all these areas where it's just, oh man, this is like, why am I so much worse here than everybody else?

1:04:32It's so crazy, man. I didn't start doing this. And I see this from a daily, but I look at it more from a monthly perspective. I didn't start doing it until four or five years in the business. And again, in conjunction with 20 and 2021, just like everybody else, I saw my OPEX was way too fucking high. Yes. But I want to go through each of these. So cost of delivery is the product of all those little small things. For people out there, like really think through, you know, the 3PL charging you 15 cents to write the handwritten note on the card. Yes. So let's go through each one because I think it's important to understand some benchmarks within each one.

1:05:03Yeah, benchmarks too. Perfect. So cost of delivery is usually two primary components, that your product costs and your shipping expense. Okay. As a general rule, one of the things that brands do way too often on their dot-com especially, and this is, again, I'm thinking about a channel strategy,

1:05:17Taylor Holiday:is they give away free shipping. And so they are net negative on their shipping dramatically. And so if they look at their cost of delivery, it should be that product costs usually actually aren't that expensive for most brands. They're somewhere between 10 to 20 % of revenue is actually product costs. Shipping, I see, also can be as much as 10 to 20%. If your shipping is 20 or 30 % of your revenue, something is wrong. Either you're not charging enough for it or you're getting just destroyed by your 3PL or there's something happening there. Now, there are some products that have bad, what I call value to weight ratio.

1:05:51Taylor Holiday:We work with Igloo coolers. You're shipping a bunch of plastic air. It's a bad product for e-commerce in many ways. It's bad value to weight ratio. Shipping's always gonna be a high component. Jewelry, alternatively, has great value to rate ratio. Guys, for people out there listening, this is a highly underestimated part of the conversation. I think I talked about this with Sean. Yep. Same thing with me with Art, bro. Over 39 and a half inches on one side, it incrementally jacks up the shipping. It's the absolute worst. Get a little baby. Get a little baby product. Exactly. Perfume. Anything that is really small, doesn't take up a lot of space, and has high AOV, that's great for e-commerce, right?

1:06:26Taylor Holiday:So shipping should be about 10 % of your revenue, tops. Ideally, it's less than that. And I actually think it's a goal. I encourage brands to track what I call net shipping costs. So shipping revenue minus shipping costs. Now, the question all the time is like, could I realize more shipping revenue? Could I charge the customer more? And you should get really clear for yourself. And this is where price testing all the time should be coming in. But that net shipping revenue is something you should keep an eye on all the time because shipping just destroys a lot of businesses in ways that is kind of hidden at the grand scheme of things.

1:06:57Yeah, for our business, it's a single unit drop ship and our production is one of the biggest FedEx and UPS accounts. So we actually have our shipping baked into the COGS. That's right. That's another way to hide it. There's more predictability. And then when we charge for shipping, it's just new cash. That's right. Yeah. So there's lots of ways to play with that game. But gross margin, the reality is the average gross margin in e-commerce is about 42%. So about 58 % cost of goods across the industry. We ran a really great study that will share some of the data in one of the show notes with Final Loop, large accounting platform to look at some of these benchmark averages.

1:07:29So about 58 % is industry

1:07:31Taylor Holiday:average apparel. It's usually the return rates you need into a lot of that. If you're a hard goods that has no LTV, you probably want to be a lot more than that. If you have higher LTV, gross margin can be less of an issue because you're going to get a high consumption rate and more future purchases. So there's all sorts of considerations around what's good gross margin for you. And it depends on how much of that repurchase rate, how much competition exists, all sorts of different things. But that 10 % shipping, 20 % product cost is a good indication to go, okay, where am I at relative to that and why?

1:08:00Taylor Holiday:And can I fix that? You're talking about the cost of delivery. Yep. You're saying needs to be what? What's the range? Ideally, again, if I can get that to somewhere between 30 to 40%, that probably means it's not the biggest problem in my business. There are some limitations to how low you can actually get that number. Some of that is negotiation with a supplier. There's probably a conversation to be had about to the difference between the PNL and cashflow where there's, it makes sense sometimes to give up margin on the product level for cashflow. We're going to talk about that. Yeah. So, but let's say if I can get this between 30 and 40 % is my cost of delivery, that's probably not the biggest problem in my business.

1:08:36All right. Let's jump into CAC then. So on the CAC side too, just for, it's basically your marketing dollars. Yes. Are you baking into that like marketing contractors and agencies? I don't. That number for me is pure media dollars for the sake of generating revenue. The others I would put into fixed costs. I just don't want to convolute that number with fixed dollars. I want it to be purely variable marketing expense. I think that might change for you. Like what we were talking about before off camera, that creative is becoming such a big thing. Do you think maybe that will, if creative is a variable expense, which it's becoming more of the case where creative becomes a variable expense, in which case it should be baked into that.

1:09:13But if it's a fixed expense, I would separate it out. So that's just the distinction. Is it, is it variable or is it fixed? If it's a variable marketing expense, it goes in this bucket. Coming. So from a CAC side, what percent are we looking at? Okay. This has to do with the stage of business that you're in and whether you are a high LTV or low LTV business. Okay. So you had Sean on here. He sells Ridge wallets. He runs at 50 %

1:09:35Taylor Holiday:marketing as a percentage of revenue, right? Because - Must be nice, Sean. Yeah, right. High gross margin, low OPEX, high marketing expense, because every month, all of his revenue has to come from new customer acquisition. And the reality is the median result on Meta across my entire portfolio for new customer acquisition is like a 1.7. That means the average cost of acquisition is like 55 to 60%, right? So that's huge, right? So now, how does that change? How does that get to where you'll talk to these businesses that are large-scale retailers, like Antelar Loft or a Coach or these like legacy businesses, and they're like, marketing should be 10 % of revenue.

1:10:13Taylor Holiday:Well, how do you get there over time? I have this graph that's one of my most viral tweets that I have that I call the Mona Lisa of e-commerce. And the idea is that if you could hold new customer acquisition constant, okay, if you're a business with good LTV and you every year you went out and acquired 100 ,000 customers, 100 ,000 customers, 100 ,000 customers, your marketing as a percentage of revenue would go down over time and your revenue would go up. You'd see margin expand because more and more over time your revenue would be coming from your existing customer base. So if you have high LTV, you should see marketing as a percentage of revenue go down over time because more and more of your revenue is gonna be coming from your existing customer base over time.

1:10:52You get high LTV, you're capturing value off that base, you hold new customer acquisition constant

1:10:57Taylor Holiday:and that will expand over time. So you can be a business that, those businesses tend to have higher op-ex because they can afford effort towards the relationship with the customer because they realize value over time. They're less of a new customer acquisition on. engine. They have higher emphasis on customer service, higher emphasis on loyalty, higher emphasis on retention, because the value capture is all after they've been acquired. But if you're a hard good, like that doesn't have good LTV, you're going to see this number be closer to 40 to 50%. Because spring is here. And there's a whole new way to try at Starbucks that's made perfect for you.

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1:12:18Taylor Holiday:Every month, you have to go acquire new customers over and over and over again. So, so much of this depends on the stage of the business that you're in and the type of business model you're running and being aware of the distinction between the two. So, Sean's business at Ridge is always going to be high marketing cost, low cost of goods, low OPEX. That's going to have to be the model in order to get to profitability. And you've just got to be aware. So with four quarter accounting, there's lots of ways to win the game, to configure the different levers. You just have to be conscious of what business model am I in?

1:12:48Taylor Holiday:And so therefore, what needs to be true about where I have to create leverage? Or pick a product that has good LTV. Or just like, exactly. Or solve the problem by just picking a better business. I mean, me and Sean, we talked about on camera, but also off camera. It's just like the fact that he's winning the game and fuck, I've won the game at a smaller level. We've won the game with not the hardest business model ever. Game ever. You have a want, not a need and LTV, no LTV. It is the hardest version of the game. And this is teaser to get you guys to stick around for a little while. This is why I'm going to tell you that service businesses are way better than e-commerce businesses later.

1:13:22Yeah, because I was just about to say, this looks absolutely terrible. We have CAC at around 50. We haven't even talked about OPEX. And this is why it is fundamentally important to understand that e-commerce is a low OPEX game. E-commerce is not a full-time employee, large-scale business, large-scale office business. That's what we all thought it was in COVID, but it's not.

1:13:41Taylor Holiday:It is how much leverage can you get off of a very small employee base? It is a lean OPEX business. I've watched the standard go from 25 % to 20 % to 15 % to now the benchmark for great e-commerce business is somewhere in that 10 % to 12 % range for their entirety of their OPEX. because the marketing cost and competition just demands that the dollars go to growth, not to labor. And so you have to create leverage. And the good thing is like AI is creating this. They're creating opportunities and you're seeing this now. Brands with a million dollars of revenue per employee, $5 million of revenue per employee.

1:14:12Taylor Holiday:It's happening in e-commerce all the time. Yeah, I don't even think you can win if you're over 20 at this point. And I think that the last five years, I mean, I know because I actually just looked at these numbers yesterday. I don't think that there's any business that is still in business today that year over year, man, you can argue, I'm not going to argue a percent of revenue, but their fixed dollars per day of OPEX has to have gone down every single day. It has to. And I'll just say, and I don't even care if you're scaling, you're doubling up. It's just, it has to. I promise you have not found the maximum output of the people inside of your company because AI is changing it every day.

1:14:47Taylor Holiday:What is possible for one person to do today versus what it was two years ago is like infinity X times greater output. number of ads they can make, number of channels that they can manage, number of things that they can model from a forecasting and demand planning side. Like everything somebody can do now in partnership with all the tooling available, the output is just infinitely greater and you have to challenge your organization to move along that curve or you're going to get swallowed because what it's going to mean is somebody can spend more for marketing. And if they can pay more to acquire the customer in a competitive set with you, you lose.

1:15:17Taylor Holiday:It's the old Henry Ford, like he who wins is whoever can pay the most for a customer. And that's the end result. Good point. And if you're going to get that leverage on the OPEX, it might be better to play a different game, which we'll talk about. But I want to talk specifically about this four-quarter accounting, the four things that we spoke about, and how do you use this cash conversion cycle in your planning to optimize? What are all these things that you do? That's right. So it's really important that you understand that playing the P &L game, which is what four-quarter accounting applies to, it's a way to analyze your profit and loss statement, is very different than managing your cash flow and your balance sheet.

1:15:49Taylor Holiday:And there are times to take trade-offs in your profitability, in your gross margin for the sake of cash. In business, the end goal a priori to everything else is growing your bank account. And especially in an era where M &A is really challenging for brands, funding is really challenging, growing your bank account gives you ultimate optionality. And so I'll give you an example of a tactic that we help brands with all the time that has to do with a reduction in the view of their four-quarter accounting makes their P &L worse, but helps the overall business from a cashflow standpoint. Apparel is inventory intensive and you're making guesses all the time about the allocation of colors and sizes and you're doing your best to model it.

1:16:29Taylor Holiday:But the only thing that's true is that you're going to be wrong. The question is, what do you do when you're wrong? And so what we help brands to do all the time is track what we call aged inventory. You break inventory into four different categories, A, B, C, and D grade. Okay. And that just has to do with how long it's been sitting in your warehouse or how many days of inventory outstanding there is in the warehouse. And so what you want to do is you want to be turning inventory as fast as possible. And ideally your days of inventory remaining, it matches how long it takes to produce the product such that if you were to place a PO today, you would run out just as the new shipment arrived, right?

1:17:02That's ideal. That's called just in time inventory planning, right? But what happens is

1:17:06Taylor Holiday:sometimes you make an order and the sales velocity dips. And all of a sudden you find that you have a thousand days of inventory outstanding. That's a problem. That's a cashflow suck. And so when we, what I think about is how much you should be willing to discount a product or alternatively, how low of efficiency you'd be willing to take to turn it back into cash should be related to how many days of inventory you have outstanding. So brands make two mistakes. If you need to optimize for cash. If you need to optimize for cash. But regardless, I would contend that aged inventory that isn't moving should be liquidated and a new bet should be made for the sake of the business always.

1:17:43Because it's just decaying there and it's probably losing its value by the day.

1:17:45Taylor Holiday:That's right. And anybody who's sophisticated that comes in is not going to assign to you the full retail value on your balance sheet for an inventory that's been sitting there for two years, right? So if you are trying to hold it there because it's propping up your asset to liability ratio on your balance sheet, you're probably overstating the value of that inventory. Guys, go to Uncle D Murphy at ghost.io. I'm going to put the link down below to liquidate all your needs. So is that really, is he a liquidator? Oh, it's episode one. You got to watch it. It's maybe the most important resource a business with large inventory constraints should have is relationships with liquidations.

1:18:18Taylor Holiday:And then also the capacity to develop what we call liquidation funnels. So imagine you have a set of SKUs that you want to discount and turn back into cash. There's two ways to do that. What we suggest doing is creating an unlisted PDP. So not one that shows up on the website, right? It's unlisted. And we're going to run ads. And if our target CAC on our good inventory is our target ROAS is a two to one, well, on liquidation, it might be one, it might be 0.8. And so there's two ways you could do that. You could either discount it a ton on the funnel and make it only available through the ad, not available on your website.

1:18:48You can exclude all your existing customers so that people don't see it.

1:18:52Taylor Holiday:Or you just take a much lower efficiency to move through this inventory quickly. So that's a tactic that improves your cash. It'll harm your P &L. It'll reduce the overall margin value of the business. But that's okay because turning that back into cash that you can go back and buy good inventory is just as important. Or you can make high margin dollars. That's right. Yeah. The other mistake that businesses make is on the other side. And this is what happens when a media buyer is operating under a real-ass obligation, independent inventory position. If you are about to sell through a SKU, let's say you only have 30 days of inventory left and it takes 80 days to order more, okay?

1:19:24Taylor Holiday:You should either increase the efficiency expectation and maximize the marginal value of that batch of inventory or turn off the ad's entirety, okay? The worst thing you could do is pay a high CAC to move through inventory that's about to go out of stock, right? Because what that does is it minimizes the marginal capture on that batch of inventory. Every time you place a PO, your job is to maximize the marginal value of that batch of inventory. You're probably tearing it down from A, B, C, D, just from a margin. Like, how do I get the most amount of margin? And then it just keeps tearing down.

1:19:56That's exactly right. And so what brands don't do, and if I'm a media buyer, I'm going to sell your best SKUs at the target that you've given me. And I don't care about the inventory. I'm just going to move through your best marginal value. Guys, the game is deeper than you think. It is. It's so much more detailed. This is game right here. That's it. This is serious game.

1:20:10Taylor Holiday:So if you're an apparel business or you should have an inventory meeting with your media buyer every week and you should be looking at how many days of inventory outstanding are there on the best SKUs? Where are my ads going? What am I spending money on? Oh shit, I'm going to run out in a week. Raise the efficiency expectation a ton or turn it off and let's move through some of this other stuff and make sure all the time that your demand creation matches your demand planning. Those things are disassociated. So if we go marketing, ops, and finance, This is the connection between ops and marketing, the relationship to ensure that your demand planning and demand creation work in sync.

1:20:44And then if all bets are off at the bottom, you go to Uncle D at Ghost. And you liquidate. And you liquidate. And or if it doesn't affect the brand, maybe you hit the big list with a discount and maybe build a narrative around it. That's right. But you have to have strategies all the time to move through inventory and turn that. Nothing is worse than paying a storage fee

1:21:04Taylor Holiday:to put on shelves inventory that you have no plan to sell. There's no ads running. There's no emails planned. It's just there. And you're just going to pay someone to store it for you. That's your money. As a founder, that's literally your cash that is sitting on a shelf that has no plans to be sold. Go get that, turn it back into cash, make a new bet. Yeah. I mean, I really, really want to touch on suppliers and vendors and terms. Because that's something for me, man. Oh, yeah. I give you some bad game. I have crazy. You go first. I got crazy. I'm so late to the game. I've only been doing this for three, four years.

1:21:36I'm like, oh my God. I could go from net seven to net 90. You go first though.

1:21:42Taylor Holiday:Vendor as lender, bro, is that my cashflow is your float, okay? I'm going to give you, tell you how the big boys do this, okay? Six months ago, comes to us. They're spending, you know, million plus a month on media. They say, as of next month, you are going to put our ad spend on your credit card and I'm going to get net 120 day terms on that a million dollars. And I go, guys, you want me to float a million dollars for 120 days? You think I have like this kind of cash flow? They go, oh, we actually created an internal lender that if you want a loan to manage that float, we created one. So now not only are you going to handle my media, I'm going to loan you the money to float me the cash.

1:22:31I'm going to make a vig on that and push my media terms out 120 in 20 days. Now we might have to mute out the name of this company because this is some gangster Illuminati shit right here. Dude, this is what ultimate leverage looks like. Because they know they could just go to any agency in the world. Every agency wants that business. This is why like agencies, like they think they want the enterprise game. You don't guys, you don't want the enterprise smoke. You want to go out through the small businesses because they create the mediums, not the smalls. No dude, the smalls. I'm telling you, we could come back to that if you want.

1:22:56You want the smalls. The leverage in the relationship dictates everything. When you go to Walmart, the reason they pay you on net 180 day terms on retail is because what are you going to do about it? Right. The only one Walmart. Right. So the leverage matters. So that's the extreme example that does. Wait a second. We have cashflow issues in e-com solved. Our, we just turned our media expense into net 120 days. They do it with their suppliers. They do it with everybody. Now, if you're a small business, you don't have that kind of leverage, but here's the important

1:23:21Taylor Holiday:things is that you need to understand the cost of capital in your ecosystem. Okay. So cost of capital, just think of that as a simple proxy for it is the interest rate on the lending that anybody has access to. So if you're a business and you go, well, where can I go get my credit cards? 30 % interest rate. Merchant cash advance is like 70 % interest rate. I have extremely expensive cost of capital. Well, your suppliers in China in particular, there are a lot of government subsidies for manufacturing because they care about the industry. So those guys can get much cheaper capital than you can.

1:23:50Taylor Holiday:So if you go to them and you say, hey, I'll actually pay you an extra two bips or 10 bips on my gross margin. So I'll actually pay more for my cost of goods, but I need better terms, for them, that cost of capital calculation might actually make sense and they're going to be more than willing to do it. For people out there listening that don't know, net terms is, if you transact, if it's net seven, you pay them seven days after. Net 90, you pay them 90 days after. The bigger the net terms, the better. And what you really want is you want your terms to be relative to the manufacturing timeline such that you're paying them with your customer's money.

1:24:23Taylor Holiday:So let's say it takes 90 days to manufacture your product. If you can get 120-day terms, that means you receive the product and you actually sell it before you have to pay them. That's what a negative cash conversion cycle is, right? You're fundamentally paying the manufacturer with customer's money. That's ideal, right? Now, that's really hard to get to in many cases, but one, the longer your relationship you have with suppliers, this is why you go to China. This is why you go build relationships with the humans. They trust you. You build longstanding commitments. You pay more gross margin. Sometimes that matters.

1:24:50Taylor Holiday:And the manufacturer is obvious, but here's the thing. You could do this with me. You could do this with everybody, right? So you come to me. Let's say I'm an agency. One of the benefits that I have is that my cash flow to EBITDA ratio is like 95%. So in other words, when I pull a P &L EBITDA every month and I make X dollars, 95 % of that is cash I realized that month. E-commerce, your cash flow to EBITDA ratio is terrible. It's way worse. So for me, I have a very cash intensive business where I make a lot of cash flow. So if you come to me and you said, Taylor, I'm actually willing to sign a longer term agreement or I'm willing to pay a little bit more, but I need longer terms, done.

1:25:27For my business, my issue isn't cashflow. I don't have that problem. Mine is I want to make more margin. I want more committed dollars into the future. So there's trades that we can make all the time. And Kendalee, if you're big enough and you'd probably ask me for it, I'll probably grant it to you anyways, right? So you can do this with Meta. You can do this in every place. You can try and find the maximum allowable payment terms with every person in your life. Three things, guys. You said three things there. I want to break it down. One was the cash situation. Yep. Two was obviously wanting to optimize for margin and then three optimize for length of contract.

1:26:01That's right. And you see that. I mean, dude, you see that with like a lot of like the email providers of the world. They're like, oh, it's, you know, is it month to month? Is it six months? Is it 12 months? Even with licensing, you know, with minimum guarantees and royalties, understanding and knowing that the account manager gets evaluated on minimum guarantees. That's right. So if I know I'm going to clear my minimum guarantee, I'll give you 10 to 20 % more on the minimum guarantee up front, but I want 1 to 2 % less on the royalty knowing that I care about margin and I'm good with cash. That's right.

1:26:32Exactly.

1:26:33Taylor Holiday:So the thing to do is, and this is just like, it's the same as an employee. Understand how everybody around you makes money. How does your manufacturer make money? How do I make money? How does my business work? Is it cash intensive? Do I have to depend on a lot of loans? Do I have a lot of flow? Could I understand it? Same thing as if you're an employee in a business. How does this business I work in make money? That allows you to negotiate deals, to understand, to create mutually beneficial relationships. Because this isn't about being predatory. This isn't about screwing your partners. You want to have good relationships.

1:26:58Taylor Holiday:It's about understanding where is there a way in which the way you make money and the way I make money allow us to come to a relationship that's mutually beneficial. Love that. Yeah, and I mean, I guess having a single unit dropship business isn't bad. Right. Because obviously we're not paying for anything. Well. A customer pays for it and then I can get. I would actually contend that the ultimate way to buy inventory with your lenders isn't actually net turns, it's consignment. It's to say to them, I'm gonna hold the inventory and I'm gonna pay for it when I sell it. That's what you actually want, which is why drop shipping is a category that is so attractive to people is because that's functionally what it is.

1:27:33Taylor Holiday:You're selling inventory that you don't have to pay for. And if you get a good enough relationship with the supplier where they trust you, Roman Kahn, who is a guy you should probably have on here. He's coming out in June. Is he? Okay, he's awesome. He talks about this where he goes to his suppliers and he says to them, I'm going to take this on consignment. You're going to get paid before my children. Like I'm going to commit to you that you will get paid for your inventory. Help me build this business in a way that's most effective, that allows me to grow and be aggressive in investing. And we will grow together.

1:28:00Taylor Holiday:And he builds trust and he builds authority and he builds credibility over time. And the end result is he sell, he manages inventory on consignment. He's functionally drop shipping, but he's actually holding inventory. Now you can scale like crazy as a business without having to go raise a bunch of debt or outside capital in order to grow the business. That should be the ambition for your relationship with your supplier, is that actually they would trust you so much that they would give you the inventory on consignment, know you're going to move through it. A way for people out there to look at that is if you have one side, you have dropshipping, the other side, you have inventory.

1:28:32In the middle is consignment. People don't like dropshipping because it's usually worse unit economics. And if you buy into inventory, you're getting the economy to scale and good price. So if you do the consignment, you get the benefit of both. That's right. Exactly. Uncle Roman, smart man. Yeah. He's going to kill it for you. So, so you listen to those and you realize, okay, and this is all, I think what I'm watching happen macro in our industry,

1:28:54Taylor Holiday:what I, it's like an evolution as hardship shows up, natural selection occurs and brands evolve these skills. And so this is like, I have this idea that I call the cashflow era, which is like, we've gone out of this area of abundance. That was the COVID era where we all got fat and happy and learned growth. Then we went through what I call the Ozempic era where we all had to get super lean, cut OPEX, cut everything. And now we're developing into what I call the flow era. And this is all these brands that are merging these skills and abilities that they've evolved to make an e-commerce business generate cash.

1:29:23Taylor Holiday:And they can, and some of them are doing a fantastic job. And it's through tactics like the ones we're discussing that allow you to take a really difficult cash intensive business and make it work for you so you can actually make money. With you saying that, I think I've said, I don't even know, probably two times in the podcast already. Man, experience is so underrated in entrepreneurship. Like for me, I think the ideal entrepreneur would be someone you want, you know, I would say the younger, the better, but someone that at least has been in the game since pre-COVID. That's it. Because those are the big waves.

1:29:53It was super easy from 12 to 19 where just like you could put a dollar into Facebook, a little earlier, but dollar to Facebook at four or$5. But if you've been through COVID, iOS tariffs, and then this kind of another two, three years of just like figuring it out and you're here. I want to bet on that human. That's evolution, man. It's the tale of the world's time is that natural selection breeds skills. And if I look at each of these eras, it's easy to just sort of like dismiss them as, oh, that was when it was easy. But what we did in the COVID era is we learned how to grow.

1:30:23Taylor Holiday:We learned the skill of deploying dollars. We learned how to generate revenue, right? We didn't learn the finance skill. We didn't learn how to manage lean OPEX, but we learned how to deploy capital fast, aggressive, make a bunch of stuff, build manufacturing, supply chain, scale, go, go, go, go, go. That's an important skill. We learned it. Then we went into an era of austerity. All the capital disappeared and we had to learn how to get lean. We learned finance. We learned how to manage contribution margin. We learned how to forecast. And each of those eras give you a skill. And so the longer you live through them, the more of the skills you evolve, right?

1:30:53And so now we're continuing to move into channel distribution and product development.

1:30:56Taylor Holiday:These are the skills of the new era, right? And so every time you're right, it's like a Pokemon that's evolved over many generations, right? Is that each of the ones that you lived through gave you a set of traits. And so as you get to here now, you're seeing these brands that are like, they're behemoths. They've got all the superpowers because they evolved all the skills over time. Let's talk about those. You got five. Yep. You call it the flow error. Let's start with the first one. Yep. Constraint as a superpower. Yeah. Why is constraint the most important trait for brands? Because this idea of understanding my unit economics and being disciplined about the point at which I am not willing to spend another dollar forces you to then go solve the problem a different way.

1:31:35There was a point in 2021, we did an analysis with a business partner of ours that found that 60 % of the media dollars spent

1:31:43Taylor Holiday:were net never profitable. Net 60 % of the dollars never paid back over any period of time, okay? That is a lack of constraint. That is the inability to understand what are my unit economics, What is my LTV? What is the period in which this is going to pay back? And then deploy the media against it. Just talk about it really quick. Yeah. So what is that? A company that just raised a ton of money and it's been hundreds of millions of dollars and just bleeding EBITDA? That was the majority of the industry. Never made a dollar. There are some of the biggest darlings that I - These are like the Caspers of the world and like those?

1:32:13Yeah, without knowing the specifics of any individual brands that I won't name here. But yes, there were$5 billion of venture dollars that flew out into the consumer economy in 2021. Those all got deployed into unprofitable media acquisition, right? Think about like the Allbirds of the world that got all the way to public without ever generating a profit dollar, right? There are businesses that got really far doing that. And again, it was the era. It was what the market demanded at the moment. It was actually like really logical in some ways because that's what the market wanted. The market pulls you towards what it wants, right?

1:32:43And so what happens today though is that brands have developed constraint. And what happens when you're not allowed to just lower the ROAS, it forces you to go solve the problem a different way. You get creative around storytelling. You develop those peaks. you go do better creative. And that constraint, like if you've ever worked with a creative person, there's this sort of idea that if I give you a blank page and I just tell you like, make anything, the boundary is too wide. You don't know what to do. But if I give you a box and I say, okay, here's the limitation or here's 10 boxes. I want you to put one idea into all of them.

1:33:13It actually unlocks more creativity. And so constraint is an important attribute to creative problem solving. And so what I say to a media buyer or to a marketing team as a finance leader or a CEO, this is the CAC. There's no moving it. Don't come to me with a solution that says, raise the CAC, lower the ROAS, go solve the problem. They will go solve the problem and find creative ways to do it. And I've watched businesses, after years of watching their CAC degrade, just reach a moment where they go, line in the sand, we can't get worse than that. And all of a sudden, all the energy of problem solving goes into something else.

1:33:43It improves product development, channel expansion, new peak moments, influencer ideas, all these things that unlock new opportunities for growth. And I think with under the notion that everybody's trying to drive OPEX down and with AI coming out, like putting that on people saying that like, this is where the buck stops and you have to figure it out, I think is a must. I guess a good thing to talk about in relation to the constraint is, let's go back to 2022. You're on the phone with the bank every day. Yes. During the holiday break to avoid foreclosure. You told your board, I think you should fire me.

1:34:15I think I've lost the emotional capacity to do this. Yeah. A lot of people listening have been there. Tell me about what happened and tell me about how constraint and what you did to get out of that. So much of my experience maps all of the partners that I serve. And so we rode the wave up with everybody else. We walked out of our office in March of 2020 with 50 people. We had offices in LA and New York. 18 months later, we had 200 people. We had 150 people in about 18 months. We get to 2022, June of 2022, all the music stops. Okay. You have to remember at that time, we were talking about this before the podcast started, all of our deal structures were percentage of media, right?

1:34:54Taylor Holiday:So it's 10 % of spend, 8 % is the spend. And for two years, spend just went up. Every deal grew, grew, grew, grew. And then all of a sudden when the capital dried up, iOS 14 hits and retail opens back up, everything just went down. And so brands that went from spending, paying us 10 ,000 a month to$70 ,000 a month, very quickly went the opposite direction. I had to lay off a hundred people in 60 days. Okay. It was the worst time of my life. I felt like I had no capacity to continue forward. I felt like I had failed everybody around me. There was so much disappointment I was dealing with, a lack of clarity about what to do.

1:35:28Taylor Holiday:It was an immensely difficult time that we rode through with everybody else having to stare a bunch of humans I cared a lot about in the face and letting them know that I let them down. And nobody wants to deal with that. It's not an experience I ever want to have again, but that is an evolved skill. Now I have this like sense of the pain I'm trying to avoid and a lesson about how to avoid. We changed every contract out of a variable spend to a fixed business model. We reframed everything we did around marketing and finance. We built this system. And now three years later, we have, we're more than 50 % larger than we were at our peak with half as many people.

1:36:03Taylor Holiday:And so we grew the business and we just, this past June, we sold the company to private equity to become a platform. So we're off doing our version of M &A, but we never become that thing without that suffering. Like there's just no way. I love that, man. What do you think is like the most common, quote unquote, constraint mistake that founders are making? Like what's the number one most common one? Capitulation to efficiency of acquisition. I think that it is very hard to have your marketing team coming to you and saying, I don't think we can do this. This target doesn't work. And founders and CFOs often don't know.

1:36:38They maybe they think they're right. They're being reasonable.

1:36:40Taylor Holiday:And so they go, OK, we can lower the bar. We can lower the bar. We can lower the bar. We can lower the bar. and not capitulating and saying to people who you think are smart and are trying hard and are exhausted, no, no. It's as simple as that. I won't draw, change the standard, solve the problem. And what it might mean is that sometimes there are some people who have decided in their head that they can't do it. And it might mean you have to get somebody else to try, but you cannot lower the standard. The standard is the standard. And when you know that that's where the marginal efficacy of the business is, do not let someone talk you into the idea that you need to capitulate that standard.

1:37:13Taylor Holiday:Find somebody who will work with you to try and solve it. Doesn't mean you will for sure, but get people who are on board with trying to accomplish that objective. I'm R.J. Decker, a private investigator uncovering the sunshine state's darkest secrets. Tuesdays, it's the premiere of ABC's hottest new crime show. R.J. freaking Decker as I live and breathe. He's a private eye. It's not a standard murder. It's someone bigger. And a public mess. Trying to get someone back to prison today? You go to prison one time and suddenly it's all the jokes. R.J. Decker, series premiere, Tuesdays on ABC and stream on Hulu.

1:37:51This episode is brought to you by Indeed. Stop waiting around for the perfect candidate. Instead, use Indeed Sponsored Jobs to find the right people with the right skills fast. It's a simple way to make sure your listing is the first candidate C. According to Indeed data, Sponsored Jobs have four times more applicants than non-sponsored jobs. So go build your dream team today with Indeed. Get a$75 sponsored job credit at indeed.com slash podcast. Terms and conditions apply. Yeah, you can't buy into, oh, the macro economy is poor right now. Everybody is noise. Yeah, it's all noise. It's all noise.

1:38:25Taylor Holiday:It doesn't matter. Your job is to win anyways. It's to, in spite of that reality, now what? I've been guilty before. We all are. Yeah. Too nice. Yes. And like, I want it to be true that it's not my fault. Like I would love it to be true that the failure of the company was a macro factor, act of God. It doesn't mean that I suck, but it doesn't matter because at the end of the day, like it's all on you. If you lose, you lose, you win, you win. That's it. All right, number two. Product-led growth. You typically hear growth, you know, through like paid media or creative iteration. What's your rebuttal to that?

1:38:58But what happens is, and I'll use this category of leggings as an example. We have a customer that grew their business on the back of fitness leggings, okay? If you go today and you search black leggings on Google, you will see a thousand brands. And you'll see not only that, you'll see the best brands in the world, Viore, Lululemon. You are now competing in an absolute knife fight with the best brands in the world. Whereas five years ago, that competition was much less. What that means is that the amount, all the profit has been competed away in that product category for almost every business.

1:39:29Taylor Holiday:So if you are in a business with a product category like that, and you are just yelling at your meta team, make the efficiency better, make the efficiency better, go do more creative, go solve the problem with the ad creative, you are likely asking them to accomplish a thing that the market has eliminated, okay? And so sometimes what you have to do is recognize that this business might be a$10 million a year business and that the growth of your company is not coming from getting that from 10 to 12 or 12 to 15. It's going, all right, leggings are 10. What else can I add that's five? How do I get into shoes?

1:39:59How do I get into a swimwear? How do I get into the next thing? And that product expansion unlocks that growth. And ideally, I'll go back to the Born Primitive example, which I'm using here, is they recognize that footwear could be an off-peak where they had a winter moment. And so for cashflow, they wanted to go to summer, higher AOV, better gross margin, lower return rate, less LTV, but different economics in a way that supported the business

1:40:21Taylor Holiday:needs, unlock the category, add another tranche of growth. Now we've got 10 million here. We've got 8 million here. And you can begin to build an expansion of the business that recognizes the limitation that every category is not going to grow forever. And so a lot of brands are getting immune to this. You use the Ridge example. They went from wallets to backpacks to suitcases because they recognize the ring business is$20 million a year and it's not going to be a hundred. It's just not what's there. The competition or the category, the growth, et cetera. Especially under the notion that it's shrinking given all the competition coming in that we talked about earlier.

1:40:51And it's just not growing fast enough. We work with a large business in the musical instrument space, okay, without giving away who they are. And they come in there like, look, our category growth every year is 3%. We're the largest player in the space.

1:41:05Taylor Holiday:we're not going to grow 50 % this year. That's not what's going to happen. So our job is to maintain our percentage of the category and grow 3%. They're aware of the economics of the category. Now, if somebody came in and said they wanted to grow 50%, they aren't going to do it on that product. They're going to have to figure out something novel to introduce to the business. And so that's the tension, is where is that growth going to come from? Some new cases for the trumpets. Yeah, exactly. Right, exactly. Whatever it is. So I've seen more and more brands are becoming aware of this. Go look at what Grooms did.

1:41:31Taylor Holiday:Go look at Athletic Greens, the businesses that got to massive scale on a single skew and are going, well, the growth is going to come from expansion into the next category and expansion into the next category as much as possible. And so brands are becoming realizing that product development is growth marketing as much as the media account is. And I think that's where this idea, the head of growth is a title that I have been very critical of because I think head of growth is fundamentally the CEO's job. They are the head of growth. And so right now what brands are realizing is that all used to be concentrated into fundamentally what was digital advertising.

1:42:03Taylor Holiday:People used to say, okay, the head of growth is responsible for spending more media dollars. Managing the content and putting on ads. That's right. Yeah. But the reality is that growth now is as much an exercise in category expansion and product development as it is in media. And so if you want to grow next year, you need to be thinking about that at a unit level. How many of these units am I going to sell? And what other things am I going to introduce? And the investment, the return on invested capital of developing a net new product category is usually so much better than the next meta dollar.

1:42:30Taylor Holiday:And that's where brands, I think, CEOs need to see themselves as capital allocators. And if I have a million dollars, I could put it into the meta account, that's gonna yield X percentage over the year, or I could put it into a product. It's gonna have a different value realization cycle, but the return might be better. And for many brands, they're realizing that growth is coming from that effort. So from like a capital allocation perspective, from a priorities perspective, like R &D and finding your next product, that should be a priority. Absolutely. And I think that the way I like to think about it is just like you would with your personal budget at home is that when you want to make an investment, if you are living paycheck to paycheck and you can't make your mortgage next month, it's not the time to go make investment in a long payback period of a condo or something.

1:43:16You're gonna go broke, right? But as a business, what you wanna do is you wanna build up a cash reserve. And when you get into a position where you can make a longer term, longer horizon investment, I could take$100 ,000 and if it doesn't pay back for eight months or nine months, that's okay. I don't get in trouble. Then you make that allocation on a horizon against the best bet over a longer period of time. So the horizon that you view the return on capital changes relative to the availability of your capital. This all comes back to the cashflow. Everything comes back to the cashflow. And what I think about brands doing is like, when you win the cashflow game, you're building up some cash reserve.

1:43:53And I experienced as an entrepreneur, you go from sales person who's just trying to sell every day to survive. You're trying to just meet your expenses to all of a sudden you begin to build treasury. And all of a sudden I've got money in a bank account. And now my job becomes not just fuel the machine that grows the cash, but now I actually have to make decisions about what to do with this capital.

1:44:14Taylor Holiday:And so entrepreneurs, we go through this where we have to evolve a skill of capital allocation. I now have treasury. What do I do with treasury? That's a whole skill in and of itself. And now you begin to make these bets on different horizons because the payback period might be better on that store that you're going to build or the new product category than it is to just redeploy it in the meta. Guys, if you have cash in the bank, just at least be getting a couple of percent. That's right. But that's a treasury skill, right? Yeah. That's like, where do you put it? Stuff like that. It just, it takes a long time to get there and understand and know it.

1:44:42So you're picking your products. You've got this product MVP framework for evaluating new products, opportunities. Why don't you walk us through that? Yeah. So product MVP is a way to look at your own matrix of most valuable products that you have. And what I look at is the relationship to the cost of advertising on that SKU relative to the efficiency of value realization. So across the entire portfolio of SKUs, if you were to build a last month, you were to look at total unit volume sales, and then you were to allocate the media dollars against those SKUs.

1:45:10Taylor Holiday:And you were to look at an efficiency of like the ROAS or MER on the SKU level. What you would find is that there are some products that produce more efficient acquisition than others. There are some that have better LTV dynamics. There are some that are underserved. And so as you look across that matrices of value, it's going to give you both ideation of how you should allocate the future media in an opportunity, but also where there could be investment into new category expansion. A lot of times this has to do with like unlocking visions of efficiency across gender spectrum or different categories, tops versus bottoms or footwear versus headwear.

1:45:45Taylor Holiday:As an example, where you're going to find that the efficiencies aren't the same. And so a lot of this is about trying to decide maybe colorway expansion or limited edition. Should I go after sports bras or leggings? Should I go after footwear or headwear? And some of that needs to come down to, well, how effectively can I deploy media dollars into that category? And I just, I don't see brands do enough work of looking at the relationship between where is the media being allocated against the unit velocity sales and using that to decide then how should we think about what we should make next? And that goes into inventory on hand.

1:46:18Yeah. And where you allocate the dollars for this MVP, you have margin value and popularity. Yeah. So, yeah. So when I think about the opportunity to develop a net new product, I'm trying to solve for usually a margin problem, a volume problem, or a cash problem in different ways. So the cash problem would be the example I used before, where let's say you have a high seasonal concentration of unit sales in January and the summers suck. The problem with that for a lot of businesses is you have to place the PO for the winter in the summer.

1:46:48Taylor Holiday:So often the problem with peaks like that, there are highly, like we call it, bimodal distribution of your revenue, where there's two large peaks and they're very far from each other, is that you have to place your PO in the valley. And that tends to be a big problem. So what you want to solve for a cashflow product development cycle is the idea that, ooh, I need to find something in the valley. I need to find a summer product. I need to find something that can help to smooth out my revenue curve in that period. That can be a cash problem. Volume problem is like, okay, where is there a trend where the category is expanding?

1:47:18So in supplements, you see this a lot where it's like, oh, okay, creatine gummies, you

1:47:21Taylor Holiday:use that example. Maybe there's this kind of colostrum became a really popular thing. Fiber people talk about. Where is this opportunity where I might be in a market that's stagnating and I want to get into one where there's velocity. Sign up for things like particle where you track sales velocity for different categories and find those trends and opportunity that inform innovation. That already has product market fit that meets your ICP. That's right. Yeah, you're selling protein powder and then you'd go into creatine, then you'd go into fire. That's right. Then there's margin expansion, right?

1:47:48So this is looking at it going, wow, my gross margin as a business is 50%. I've got bad value to weight ratio. How could I actually innovate a product that has better margin? And that's just allowing you as a business

1:47:58Taylor Holiday:to be more aggressive on the marketing front to help inform new customer acquisition because instead of needing a two to one, maybe you could develop a product that only needs a 1.4 to one. And all of a sudden you can continue you to increase the volume of acquisition without doing it at an efficiency level. And so when you go to do product development, there's this real question about like, what problem am I trying to solve? And what I watch brand these teams do is they sort of just, again, they do these things in silos where it's just sort of like, well, what is the next cool thing that I want to create versus like, what is the business function or problem that I'm trying to solve that's most important?

1:48:28Taylor Holiday:And that MVP idea gives you at least a rubric to start to imply against what is likely thousands of ideas that you have for the next product that you could develop. And ideally, you want them to be all three. There could be a product that's blowing up right now. More than in each category. Yeah, it could be a product that's blowing up right now that has super high margin. That's exactly right. Yeah. And so if you think about scoring them all in a category, people do this with like ICE as another framework for impact. I don't even know what they all stand for, but it's just like, how do you build a framework for optimizing against the idea that's going to be most impactful to your business?

1:48:57And I think you really got to understand, do I have an EBITDA problem? Do I have a growth problem? Do I have a cash problem? And usually your business exists in one of those.

1:49:04Taylor Holiday:Sometimes it's all of them. But do I need to grow top line revenue? Okay, I got to find something that's going to move volume. Do I have a margin problem? I got to find something that helps my gross margin profile. Do I have a cash problem? Well, this is something that I could go to my vendor and just get the best terms on. Like, what problem do you need this product to solve that can help you idea or get clearer on which product to go after? Guys, that's a bar right there. That last line right there, that tells you everything you need to know. As far as product portfolio goes, as far as prioritizing resources, you have another framework.

1:49:32It's about champions, growth drivers, underperformers, and hidden gems. Yeah. Each has a different strategy for investment, liquidation. How would you look at kind of each? So if we go back, if you were to do that exercise where we call it the product matrix, every SKU, how much media I spent on that SKU, and you were to assign what you're looking for.

1:49:52Taylor Holiday:So a hidden gem would be high volume, low media investment. Oh shit. Like I'm actually selling$30 ,000 a month of sports bras and I only spent$1 ,000 to do it. Efficient. Yeah. What if I increased my investment in that individual product category? Okay, let's get the creative supply chain fired up. Let's get some creators. We're going to make an investment in trying to sell that SKU. Okay. Your champions tend to be the highest volume at the best efficiency. This is generally every brand knows what their hero SKU is. You know where the driver of volume is going to be. But what I find is that there's a lot of these hidden gems.

1:50:22Taylor Holiday:Now, alternatively. The champion's the black t-shirt. That's right. Exactly. And, but the other side is like high inventory, low volume velocity. That's a problem. Now I need to go turn. That's the one I need to go turn into cash. I need a different strategy for it. So every SKU in some ways is its own little business is the way to think about it. And I have to treat it then with its own market demand. And this is another thing I'm a big proponent of, which is like, even within the same categories, because SKU can be a little bit challenging. Let's use t-shirts because you said it. SKU usually exists at the color and size level, right?

1:50:53So you'll have a categorical product. It's the black or it's the t-shirt. And then it comes in black, small, black, medium, black, large, black, extra large. That's where the SKU gets assigned usually, right? And then you'll have different colorways and sizes for every one of that product category. So what'll happen often is that we price all the SKUs the same. I know where you're going. But the reality is like the demand for them is not the same. And if you go on to comfort.com right now, or you go to nike.com, what you're going to find is that the bright pink high top costs less than the black one.

1:51:24Taylor Holiday:Because the demand is not the same. and all they're doing in that case is they're playing the same game I talked about with the liquidation that you can do on the media front. They're fundamentally just price mapping to the actual demand level that exists for the SKU so that they can move it. You made a bet that some amount of extra larges in some color were gonna sell and you were wrong and you need to allow the market to dictate the point of liquidation for that SKU because there's some price point at which it'll move. It's just not the one that you have listed and so as inventory begins to aggregate on some of these outlier SKUs, there's an opportunity to more dynamically price the product.

1:51:59And not only from a black t-shirt to a red t-shirt, you could probably go within the black t-shirt and I would imagine the medium and large are gonna be more money than the XXXL. That's right. And so what'll happen so often, what I see brands is they sell out of the core color and size on a SKU way before everything else.

1:52:21Taylor Holiday:Of course. And what that just tells me is that there was a mismatch of price and demand. for that skew if all of a sudden, and that's what kills the velocity of an ad account is like you have a thing, it takes off, it's ripping. And all of a sudden mediums are gone. All of a sudden black is gone. And you know what happens to the ad tanks, right? And that's where I go, wait a second. We, we needed to slow the ad account down because there's nothing that kills an ad account. That's machine learning optimization over time quicker than, Oh, this is taking off. Oh, now conversion rate plummets in Meta's eyes.

1:52:50Taylor Holiday:That ad sucks. They don't track your inventory allocation. they don't understand like, oh, as soon as that repopulates, I should respend on that ad. It's not an input in their system, right? So as far as they're concerned, that creative sucks. It's gone. Stop spending on it. When really it was a winner. And so this ability to map the unit velocity to the demand is so important for keeping a healthy ad account running over time. They are not a partner, but I endorse IntelliGems, which is a price test thing. That's right. And yeah, we found out that we could charge a lot more and there would not be drop-off in velocity.

1:53:21That's right. It's pretty crazy. And so every brand has a different elasticity of price. And so you want to find it at the product level. You want to find it at the SKU level.

1:53:28Taylor Holiday:And I think that the more that you can do that, the more that you'll realize the overall value of the total batch of inventory you have. I just want to touch base on, before we get off that, is the growth drivers. The growth drivers are, are those the new bets that you're taking that potentially could be a champion? That's right. That's one where I'm going, okay, hey, the hidden gems have disproportionate efficiency. This is where I see revenue growth over time, but I've kind of held the investment constant. So this is where I'm seeing an increase in spend and revenue, but now I'm going to make a disproportionately sized bet.

1:53:59Taylor Holiday:We're going to size up here. And so we're going to scale into this opportunity more than we have been. We're going to find out where the top of this market is because it's giving me signals, but maybe we've only gotten 10 % each month. This month, we're going to make a 50 % growth driver, Brett, because we have a trend line that suggests that there might be more opportunity. That's when the product planner gets a raise, right? Exactly. That's right. Yeah. Got you. Awesome, man. What about any types of process for kind of testing demand? I mean, for me, I don't really know if people still use pre-orders, but what do you recommend for someone that's testing into a new?

1:54:31I think that if you can't solve for the net terms, that pre-order becomes your solution to that problem, right? So if you can't get your supplier to allow you to front the cash, you're going to ask the customer to do it, right? And that's the trade that you try and make in all directions. And I think to use comfort again, I think that when you have enough demand, you can get away with this. You can say, hey, new SKU is coming. It's hot and it's awesome. Pre-order now at good price X and you can front load all of that revenue to yourself. Because they're driving enough velocity. That's right. There's enough demand for it.

1:55:03They can hit the MOQ like immediately.

1:55:05Taylor Holiday:That's right. And so some of that is, it also helps you to map the PO is you can actually understand the demand clearer when you do that. So pre-order is super powerful. What I would say is that it's a lever like net terms are, which is that you have to understand your customer appetite for it. What I'll say is that introduces some accounting complexity. You can't realize the revenue on your P &L until you've actually fulfilled the order, right? So you do have to be a little bit careful about understanding that you're going to introduce cashflow benefits and accounting complexity on the P &L side.

1:55:34Taylor Holiday:So this happens a lot in the furniture business where it's actually pretty normal for there to be really long lead times because it's made to order is another way to say pre-order, right? Is that you order it and then we make it is a fancy way of saying you're going to pre-order my inventory. The two risks that come with it is that because you can't realize the revenue, there tends to be an unknown cancellation rate. So the customer has the right to cancel their order until it comes, until it comes. And so what you have to be careful to model, This is the same thing, the same issue with buy now, pay later, is that when brands introduce that, what's often unknown is there's usually a much higher return rate or try before you buy is a similar idea.

1:56:14Taylor Holiday:And so you have to be careful when you do the modeling of the efficiency on a pre-order is that you have some unknown cancellation rate and that's going to reduce the actual value capture on the total PO. So these are all pieces of that journey and it can be really powerful if it exists, but you do have to be cautious with it. Biggest mistake brands make when expanding their product line

1:56:37They don't map out how much expectation of media it's going to take to move the volume that they placed. A brand I was in planning with, they have$20 million of revenue expected on a new SKU that's coming out.

1:56:51Taylor Holiday:I asked them, how many media dollars do you think it's going to take to move the$20 million? No idea. It was an expectation of demand devoid of the demand creation plan. You have to say, okay, we're going to place a PO. we're going to generate this many units and here's how we're going to sell them. We're going to sell this many through email and SMS to our existing customers. We're going to sell this many through influencer seating. Paid media at this efficiency is going to move this amount of volume. Therefore, I need X dollars and that's the demand plan that supports the actual PO. And so brands will make the actual inventory decision independent of understanding the actual allocation.

1:57:30And that's directly tied to kind of the cash cycle within that PO. That's right. Yeah. And like the assumption of the efficiency of the new thing is one of the hardest things to get right because you have no historical data. And so you also need to assume really wide error bars on things that are unknown. If you're a brand that's selling wallets and you're getting

1:57:48Taylor Holiday:ready to go into luggage, like you have to be really careful about the assumed efficiency of that category. And the more that you can place a small bet that scales into a large one, the better off you're going to be. Yeah. Just low MOQ guys. That's it. small batch orders. That's right. And when you send out the organic email or text, just pray to the gods that a good velocity... I'll give you, right here in your backyard, so we're in LA, right? The best brand I've ever seen at this is ColourPop. So ColourPop... I don't even know what that is. ColourPop? Okay, so ColourPop is a makeup brand here in Oxnard, a little north of here.

1:58:20And they are owned by Seed Beauty, which is a manufacturer that also did Kylie Cosmetics. And the way that they operate is inside of their facility in Oxnard, California,

1:58:30Taylor Holiday:is a manufacturing lab to produce about 100 units. So what they do is they make the 100 units on site, on location, put them on the website, test demand, then place the PO. And I think this is going to become a much more common thing where you have two different supply chains. You have a flexible, low MOQ, gross margin doesn't really matter supply chain. Test, test. And then you have large scale PO supply chain. And so this is like, to me, what it gives them is, what they would do is they'd watch Ulta.com, Oh, that SKU's trending. Make it right now. Get it on the website within 72 hours. Take advantage of the trend.

1:59:06Taylor Holiday:Test the demand for it. Run some ads. Get the efficiency. Now you place a PO with real understanding. That's how you create and win this game. Like the way you die in this game is bad inventory purchases. So how do you de-risk that as much as possible? And that kind of internal supply chain where you think about these things have two different functions. Large-scale supply chain, fast, flexible. Who cares about the gross margin on those SKUs? It doesn't matter. I'm not trying to make money here. I'm trying to understand demand. And mitigate risk. That's right. Yeah, George from Represent, he was on.

1:59:35He's doing that. And I'm throwing it out there. I'm just talking to the gods right now. I want Steve Madden on. His documentary is absolutely crazy. And what he did, he's like the pioneer of this. I don't know if you know this story, but his Times Square location obviously had the highest velocity. So he would be producing SKUs at 8 a.m. today and then he put it on the floor tomorrow at 8 a.m. And he'd have this kind of baseline of sell through like, oh, if it sells more than 15 units, it's a win because times square is the velocity and it drives the trends. So if you think about return on invested capital, right, there's two parts to that equation.

2:00:09There's the potential return, the amount of dollars, and then there's the cost that it takes to do it.

2:00:13Taylor Holiday:Product expansion, what creates risk in category expansion for brands is that the cost is often pretty high. You have to spend a lot of money. So that makes it so that you have to generate a really high return in order for it to be worth it. So a lot of times people think about this part of the equation. They get how much value could I create off of this, but they don't think enough about de-risking the cost to test the new category. So if you're ColourPop, what you've done is not actually increase the volume. You've in, you've decreased the cost of every bet that you make. And that increases your return just as likely.

2:00:45Taylor Holiday:It makes you a better, better, right? And so I think in that case, brand should think more about how could I make it as cheap as possible to test demand for new things. that gives you a massive advantage over everybody else. Mall batch, waitlist is another good one. Pre-orders as well. Let's move on to the next one, number three of five. Story, not iteration. We've talked about this briefly. I just want you to just to get any other thoughts. What are you seeing out there as far as? I think that the art industry has collapsed around the worst creative strategy idea ever, which is this idea of iteration.

2:01:18Make an ad, look at the results, create a change, fix it, iterate, iterate, iterate, iterate. Optimize the hook, optimize the body.

2:01:25Taylor Holiday:Yes, what you are doing in that scenario is that you are optimizing for the local maximum like a really tight band of potential performance change, right? Small changes equal small change to outcome. And so almost every brand's creative system is this illusion that I make a set of ads, I analyze data and candidly very poorly, very poorly and not very data-driven, actual analysis of creative. And then I make some change to the ad and I try again and I try again and I try again and I try again. And that represents the entirety of the creative workflow. What I would just say is that if we go back to the stories I told earlier about Born Primitive or the International Women's Day, is that there needs to be some large portion of your effort that goes into creating stories that matter, not iterations on ad hooks.

2:02:09Taylor Holiday:I'm not saying that some amount of time can't be spent there, but I'm just saying that we are under allocated to breaking the model, to disassociating from the local maxima and generating a return that's bigger than anything else we've ever done before. And that's not going to happen through iteration. That happens through an unlock of a novel idea or concept or story that's bigger than anything you've done before. Yeah. I think for story, I said it earlier, but I just want to re-pin it down. This is all about, I mean, it basically backs into cashier, but it's about efficiency. And how does this story drive A, more content and B, more distribution, which just gets you more eyeballs and more conversion.

2:02:48Yeah. So it's just, how does more people talk about it? That's really what it comes down to. That's right. When we, so my brother started Kalo Ring. We launched it in, I don't know, 2016 selling silicone wedding rings. First silicone wedding ring on the market. Okay. And when we started, we had no idea which market the demand was for. My brother liked to work out. He built motorcycles. He hated wearing a metal wedding ring. So he created one of the silicone. okay and at the point it was a to solve our own problem so we started selling to these people then we started we had a woman reach out and she ran a blog called firefighter wives okay and what she said was that hey my husband's never been able to wear a wedding ring to work a day in his life

2:03:26Taylor Holiday:because ring avulsion where you literally get your ring caught on something and it rips your finger off is a risk and so firefighters police officers people in the military aren't allowed to wear wedding rings holy cow all of a sudden our world got unlocked to this idea that there were all these different places where we could go and tell a novel story in a compelling way and unlock massive demand. So in each of these categories, there is a cycle of, okay, let's go after firefighters and let's take ads and let's try and make them better and create different stories. But the real thing that kept unlocking the next transfer growth was, ooh, CrossFit.

2:03:59Let's go build a relationship and attachment and find a charity partner and go find the best influencers and build a novel story into a new area. And in so often that the next big unlock, the thing that moves you from one tranche of opportunity into the higher tier is not just staying in the same place and trying to refine the story. It's to go build an entirely new one. And I think brands just get caught. They find a pocket that wins and then they just drill it into the ground and they get stuck on this hamster wheel. And so instead it's like, okay, this is the back goes back to that idea that there's two rhythms in business.

2:04:31There's the day-to-day improvement, efficiency, execution, but somebody has to work on this counter cycle. The one that looks out and goes, okay, how will I take us to an entirely new tier of opportunity? Find a new cohort and tell an interesting story to that. That's right. Yeah. Four or five, let's get into forecasting and cash. We've talked about it a lot. So I just want to ask you one question on that. What do you think is the most invisible cashflow killer in e-com? I know you've seen a lot of P &Ls out there. Yeah. Invisible cashflow killer. We've talked a lot about the, so if we think about the biggest buckets of spend, it's ad dollars, it's your inventory.

2:05:04Those are the two largest buckets.

2:05:05Taylor Holiday:And then your OPEX is after that. So we've talked a lot about the supplier terms and everything in there. I think the next piece is just inefficient ad dollars are a massive waste. That there are so many places where brands are out beyond their marginal frontier and then the next dollar of spend is a loss, right? And so the easiest thing to do inside of every business in the world is to walk in and cut that tranche of spend. And that is destroying cash most clearly. This goes back to the first point of constraint. And so I think that, I know that's not the sexiest answer in the world, but you just got to follow the bulk of the dollars to find the biggest potential wins.

2:05:36And then unfortunately, the reality is, the third thing is labor. Is that there's a stark reality

2:05:43Taylor Holiday:that most people are not driving incremental value to a business in excess of their cost. They're just not. And the other thing I'll say is that e-commerce, if you look at the flow of your revenue, the idea that your labor pool should be fixed over time against a business that is highly seasonal, e-commerce is a wildly seasonal business. And so the idea should be that you have flexed staffing way more than you realize. And so FTEs, full-time employees, that have the same cost in months where you have low revenue and months where you have high revenue, you should try to figure out how you can model the actual labor costs of your business more in line with your revenue.

2:06:17I like this little rabbit hole here. The baseline of your full-time labor force should be at 12 % of your lowest month of the year. Say that again. So if I look at your revenue every month, there's a month where you do a million there's 800 700 600 take the lowest point okay my payroll in relationship to that month should be the thing that is my baseline of full-time employee staff

2:06:39Taylor Holiday:i want to have the right relationship in the lowest point everything beyond that should be flex staffing wow so you're saying you're you know if you're doing 500 one month or a million a million another month regardless your base should be 60 000 because that's 12 percent of And then everything above that you're sourcing out. That's right. And what brands do so often is they accept the idea that in low months they have to lose money and then in good months they have to win money. I'll just tell you that there is so much labor that is willing to work in a seasonal or in an outsource or in a flex staffing model, whether it's agency, freelancer, even people that you hire for periods of time.

2:07:17Taylor Holiday:The labor pool has never been larger optionality for brands. From the Philippines to Argentina to Brazil to people in the U.S., to AI, the idea that you have to maintain full-time staffing in periods where your business can't support it financially is just not true. I'm actually the mayor of the Philippines. I love the Philippines. I've been there for months that time. How many of you have been in the Philippines now? We got six. It's unbelievable. And the other illusion is like, I just, the global talent pool is incredible. It's incredible. Guys, Taylor is basically saying that you should fire like 20 to 40 % of your staff, basically.

2:07:51I'm not afraid to say it. It is the reality. My ICP is operators, not employees. So that's fine for people out there. But here's the thing. And what I, look, I have employees. They listen to this. They're going to hear me. And what I think is the most honest thing I can tell them is that at all times, your obligation is to deliver value in excess of your cost.

2:08:10Taylor Holiday:At all times. And that's the most honest thing I can give them. And if they want to grow in my organization, actually the best thing they can do is deliver more value such that I could pay them more money. Like, and I am excited to do that. And so at all times, the most honest thing you can do is give people the truth about the market and what optionality we have as entrepreneurs. If somebody in the Philippines can do your job at the same level for half the price, then the market price for your service is not yours. It's the one that's half. That's actually the market replacement cost. Sports are a perfect analogy for this.

2:08:40Taylor Holiday:It's the easiest place to see this play out. People go to free agency and people go, well, you're worth half of what you were before, person X. And that's just the reality is that as you age, your value depreciates. And so suddenly, all of a sudden, the market plays out in a very real way. And we all accept that when watching our favorite sports team. I'm a Lakers fan. I hate that we're playing LeBron James as much now as when he was 30 years old. That's criminal. His production is not as good, and it won't continue because of that, right? And so the truth is the same in every labor market that's capitalistic, is that it will move towards the price of replacement cost.

2:09:14And the global market is changing that, and AI is changing that too. Overseas is like 20%, guys. for those people out there that are not arbitraging that, you should definitely take a look. The fifth one is progressive peaking. We're not going to get into it. We talked about it a bunch. Talked about it a lot. About usually you have your one big peak and then Black Friday. Find the other ones to drive. And the key with the progressive thing, because we just haven't touched on it enough, is that usually your moments like Black Friday are a value realization off your existing customer

2:09:39Taylor Holiday:base or people who already know you. So if you can create a large scale new customer acquisition moment in October or November, that group will over deliver for you in those moments of peak realization. Like again, we've talked a lot about Ridge just because your audience has heard about them. They do their big giveaway for their car in September. And that's very intentional, a big moment to go out and acquire customers ahead of those peaks. Build a funnel, September and October for sure. All right, guys, we're gonna get into a quick track. We have a bunch of hot takes, a lot of questions we got here.

2:10:09We're gonna start with, you said the next wave of nine figure e-commerce exits won't be brands, SaaS or agencies. They'll be Sean's. Yes. What is a Sean? Software-enabled agency. So I know you have a bunch of people in your audience, 25 to 35, deciding where am I going to allocate my time and my precious life force towards the greatest opportunity. I'm here to contend that the best business model in the world is human services. Today, 2026, that if you want to make money, you want to have a high floor and high exit upside, the best business model in the world. Both. You say cash flow and exit.

2:10:41Both. Is agency. It's human service. Aren't we going to pop up Suge Knight, Steve Weiss with a massive exit? Go through this. Look this up. W Promote, Power Digital, Tenuity, Mute Sex, Common Thread Collective.

2:10:54Taylor Holiday:Every one of my direct competitors that I've grown up with has sold their business multiple times to PE and multiples better than any consumer business that you've seen. The idea that agencies don't have exit potential is wrong. It's fundamentally wrong because what PE, private equity in particular, what they value a business on is its ability to handle debt. And you know what kind of business can handle debt? A business with high cashflow and predictable cashflow. And so the more leverage you can put on a business, the higher the multiple you're going to get from private equity, the more they're going to want to be involved.

2:11:27That cash conversion cycle you're talking about.

2:11:29Taylor Holiday:That's it. You know what has a terrible cash conversion cycle? E-commerce. Heavy inventory, yeah. You know where there's a ton of gross margin pressure? Software, right? Software was valued because of the predictability of revenue. There's a metric called net revenue retention. It's the most important number in my business model and in software. Of the revenue that you had last year, what percentage of it stays next year? Software is famous for its revenue quality, 120 % net revenue retention. All the customers I had last year, they generate actually 120 % of their value in the previous year. My business, 100 % net revenue retention.

2:12:02Taylor Holiday:So the idea that I can produce the same gross margin, the same operating income, the same revenue quality in the world right now where AI is creating the number one leverage against labor. All of my cost is labor. We have expanding margin as a result of it. AI, unfortunately, doesn't create as much leverage for your business in e-commerce because there's atoms that you can't actually AI away the actual physical cost of the product. Yeah, yeah, right? So the revenue quality is the same. The cost of capital or the cost of starting is basically nothing. You can be making cashflow immediately. You don't have to go raise money.

2:12:36Taylor Holiday:And the exit potential is just as good as in any industry there is. I would say on e-com, correct me if I'm wrong, I feel like we're at like a one times revenue and three to 10 times EBITDA multiple. Yep. And again, this is February of 2026. That is, I mean, it's very different all over the place. Agency, where are we at with that? Eight to 12. Eight to 12, the bottom? Yep. Off EBITDA? Let's say from 2 million, 2 million in EBITDA to 5 million in EBITDA, you're probably in that closer to 6 to 10 range. From 5 million to 15 million, you're closer in that 8 to 14 range. 14 right now. Like again, this is all about understanding value of an enterprise, depending on who the buyer is, is all predicated on what is the model that they use.

2:13:22Taylor Holiday:PE uses a discounted cashflow model. They look at future earnings. They finance debt on top of the business. And so all of lending is just a confidence in your cashflow. It's a confidence in your future cashflow. And if you have contracts that are annual contracts, you have proof of high levels of net revenue retention. That is a high level, high free cashflow to EBITDA ratio. That is a high level of confidence environment to lend into. E-commerce is the exact opposite. It is horrible relationship between free cashflow and EBITDA. It is incredibly difficult to service large amounts of debt when you're in this business because it's so capital intensive for inventory as a business.

2:13:58You have none of that expectation on the service side. And the software enabled part of the agency, you're just talking about that's going to lower your OPEX because of things like AI. The problem with software right now is nobody wants a tool. Everybody wants an outcome. So I don't want to go pay for a software. I want to pay for some result. And so what you're seeing software businesses have to do is they develop these large customer

2:14:18Taylor Holiday:success teams. And the lie about software, especially in the e-commerce industry, is this idea that it's really high gross margin because people look at the dev expense against the resource, but they hide customer success as marketing or sales or something else. But the reality is the actual gross margin of the product is much closer to what it is in mind because the customer success piece of it is so highly intensive. They have to do a lot of work on the human capital side to spend time to make their product valuable to people. But what I say is like two things are happening. If you buy a software, you have to hire an employee to make it valuable.

2:14:48Taylor Holiday:If you hire an employee, you have to buy software to make them valuable. A software enabled agency gives you both for less. So you can hire my people. You get all the incrementality, all the attribution, all the forecasting. You don't need to pay for any of the software. We have all the technology and you get the person to deliver the cost at a lower price and you're buying the outcome obligation on us. Which makes it stickier and you get a longer LTV. And just go watch like the markets. We're sitting here today. It's like February, what is today? February 5th or whatever. We are in the middle of one of the largest stock market collapses for software ever the last four weeks.

2:15:20Taylor Holiday:Why? Because everyone's realizing that AI is driving the ability for brands to build the software in-house, right? And so there's this question about where is the value going to accrue? And my contestation is the value accrues to the person willing to be accountable to the out. And so the problem with software is it's not accountable. It says here, here's your tool. Good luck. Go make it work for you. And the problem with just even the human side is that they need that resourcing. So the question is, who is the person that will put their hand up and say, I will deliver you your contribution margin.

2:15:48Taylor Holiday:And if I don't fire me, and I think all the value accrues to the person who's willing to be most accountable. The reality here is no one really gives a shit about how you do it. They just want it done. That's really the thesis that you're saying. Because I don't want to have to analyze, like, how do I make this tool? Is your tool going to really accomplish? I just want you to say, I will deliver you the outcome. Okay, cool. I'll sign up for that. Yeah, so many of these AI tools, I feel like we're about to get to the next wave where people are going to start doing more of this Sean stuff, but a lot of the ones...

2:16:16It's happening in every one of them. Go look at Icon. Go look at what Drew's doing in Iris. All of them are turning into,

2:16:22Taylor Holiday:okay, we will actually take our tool and make it valuable for you. And we'll sell a service on top of it. It's every single one of them. I'm watching, I mentioned Leo at Final Loop. They're considering optionality around launching a service business on top of it. They're realizing that the obligation is the tool makes you money. And if the brand owner doesn't have time or energy or resource or availability to go in and figure out how to do it, then they canceled the tool. And the tools are awesome. The problem is somebody has to learn how to make it effective. A hammer by itself does nothing, right?

2:16:48Taylor Holiday:Someone has to pick it up and wield that thing. It's so funny you say icon because this goes back to the experience. they started as a software tool and realized that people weren't getting the results that they needed. So now they've layered on a quote unquote agency business. That's right. Love that. I'm into it. Who's the most important member of a modern marketing team? Ooh, that's a great question. So I am going to contend there's a role emerging that I call the profit engineer. Okay. So this is a phrase, if Heta Growth was the most important person of the previous era, in development, something happened where there used to be a dev team that included a product manager, a designer, a front-end engineer, and a back-end engineer.

2:17:26Taylor Holiday:That was a dev team, right? Inside of every software business in the world, they became known as a full-stack engineer. Their job was to do all of it. In e-com, a marketing team used to be a head of growth, a media buyer, creative strategist, maybe meta and Google media buyer, and a retention strategist, right? All separate members have functioned the same team. Well, guess what? That's going away. That's not four people anymore. That's one person. We're calling them the profit engineer. It's the evolution of the full-stack engineer in development, it's the same thing that's happening in e-com.

2:17:56Taylor Holiday:Media buying for one brand is not a full-time job. Creative strategy for one brand is not a full-time job. Not with AI tools and their capacity to help you with research and output and briefing and all those things. There is no way any one person can do enough work to sit on one ad account all day long and develop 40 hours of work such that they should be a salaried employee. Those days are gone. And so what you're seeing is the convergence of expectation that someone has the ability to forecast a business, manage the media account, define the creative, upload it in the creative, manage the expectation, design the email calendar, all themselves.

2:18:26Taylor Holiday:That's what we expect of our people. That's what the systems are existing to do. And that's where the future is going. And that stack of all of those like three, four, five different skill sets, which one do you think is the most valuable of those? I think it's the capacity to connect the dots between define the expectation and the authority and capacity to control the outcome. Is that what's happening is the feedback loops between the person who set the financial goal. Again, this goes back to the disconnect between finance and marketing and the person whose job it is to deliver it is a chain that's too long and too diluted as you go.

2:18:56Taylor Holiday:I need both. You set the goal and I'm accountable and I have the authority and capacity to deliver it. I don't have to depend on this long chain of people where the message gets degraded as I go and the connection to the goal. I don't understand the goal. The goal wasn't fair. It's so-and-so's fault. It's that's fault. It's inventory's problem. It's One person on the hook, accountable to defining and delivering the expectation. Yeah, I would argue that it's actually the person that understands and knows creative because I think all the other pieces, kind of the finance and numbers, those are going to be very objective in nature because we're going to have so many tools, tools like you have the profit system.

2:19:28I think that there's always going to be subjectivity on the creative side. And what I've seen, it's a lot of these numbers type people and they don't understand and know creative. I think the question is just, are you sure that the AI isn't better at creative than you?

2:19:43Taylor Holiday:Are you sure that a human should be making that choice? And I'm not. So I'll give you an example of a study. Do you know Eric Seifert? I don't. You should have him on here. He's awesome. He runs a great podcast and he had on a research team. And they looked at AI creative through three different workflows. One was humans themselves. One was humans briefing AI. And one was AI by itself, independent the interaction. Right now, the illusion is, and it's because we humans desperately want to be important and necessary in this process, and I feel this too, is that we think that humans should interact with machines to do the creative, and that's where the leverage happens.

2:20:22Taylor Holiday:The problem is we are the problem. We are the limitation because we have all these preconceived notions about what will work and what should work, and we're horrible at processing data. In this model, when they ran this study, the one that outperformed all of them was to allow the AI to work independently of the people. When you think about the exploration of ideas, one of the problems that we have is that we have preconceived notions about what will work. We have biases, we have fears, we're afraid to touch certain taboos. We have all sorts of reasons we will and won't try certain creative based on our own individual experience.

2:20:53Taylor Holiday:And AI doesn't have that same limitation if you allow it to optimize for a specific outcome. And so I think what's gonna happen is we are right now on the third rail, the idea is, I saw a tweet the other day that was like, you know, on Meta, there's all these AI enhancements now or they'll add music to something or they'll automate the creative for you. And everybody's like, this is a terrible idea, right? Somebody was like, the tweet was something along the lines of like, hey, Zuck, hell no, I don't want you to DJ my static images because there was like an option to add music to it. I'm just gonna tell you, that person is dead.

2:21:25They're dead. They are so wrong and so far from being able to leverage these tools' abilities to test through thousands of variations of things

2:21:34Taylor Holiday:and deliver the most efficient result. Scary hours is around the corner. It's already here in 2026. What do you think about Mattis? Because this is something that people are starting to talk about that on the creative and the media buying side, they're just going to do everything. So I'll give you an example of how I've been playing with Mattis because the hardest thing I have right now is my own ability to set appropriate expectations of my team in this world. How many pieces of creative should my marketing team be able to produce? Five, 5 ,000, 50 ,000? How good should they be? I don't know how to level the expectation in this world.

2:22:07Taylor Holiday:So I'll give you an example of like an outbound sales rhythm in our world. So I work in service. Okay. We work with a bunch of golf brands, Sunday red, Travis Matthews, bad birdie, a bunch of golf brands. Okay. Barstool sports, all these categories. So we have this incredible case study. So I go to Manus and I say, here's what I want you to do. Here's my information about the success that I've had with these brands. I want you to build me a deck of, that is an industry report on the performance of golf, Highlight my success with these specific brands. Build me a list of all of the CEOs and CMOs of every company in this sector between this size and this size.

2:22:41Taylor Holiday:Design me a workflow that I could message them on LinkedIn and what I should say. And then give me the option to deploy that. 10 minutes later, the whole thing is done. That outbound sales strategy for my business would have taken 90 days last quarter. How do I possibly right size what I should expect from my team when that's possible, right? And the deck is sick. and the research is good. And like, yeah, is it pixel perfect? No. But like, can I edit that really fast? Yes. But the point is like that whole modality, here's every contact you could possibly want. Here's a sick deck that, here's a message you should send them.

2:23:16Taylor Holiday:Here's the follow-up. Here's what to do next. Do you want me to deploy it? God, like it's like, it's an infinity X capacity for what is possible six months ago. Guys, the passion, the passion is seeping through. OPEX is going to 3 % of top line revenue. Dude, it is. That is crazy. The joke is like you and a bunch of agents, right? Like that's the thing, or maybe not even you. I hope it slows down a little bit. You've talked a lot about using an employee stock ownership plan, ESOP, to give employees equity. Can you walk us through that and how it's impacted your business? This goes back to the idea that the dashboard I show my people, I want to as closely align to my incentive as a person.

2:23:54Well, the problem with that is that if the actual financial incentive of your employees doesn't also match, then their behavior won't either. I'm a big believer that incentives drives action. And that if I want to increase shareholder value is the primary thing I care about, then I have to make my people care about that too. And the best way to do this is to make them owners. We've done this in two ways inside of my company. One was through an ESOP, Employee Stock Ownership Program,

2:24:18Taylor Holiday:which is a really cool vehicle. What it basically allows you to do is to bring in a debt to finance the purchase of your own equity from the existing shareholders that gets put into a trust in a tax-free way for your existing employees that they realize over time. that's really cool but what i would say is when you give someone equity at no cost to themselves you rob them of half the power of ownership which is risk and so the second thing we did in the company is at one point we had some passive partners that we bought their shares back and we invited our top 20 employees to write checks into the company to purchase shares all of them did they wrote every one of them wrote five-figure checks and these are people on salaries like w2 employees, saving up their money.

2:25:00Taylor Holiday:That was the most effective thing we ever did as a company because we introduced both the upside of the value creation and the risk of loss. And that's part of the beauty of ownership is that if you only do one, the ESOP program was cool. It invited people into understanding ownership. There's a lot of beauty in that. And I believe in community capitalism is a really effective way to run business, but it just, it robbed them of the risk. And when we did the buyback thing where they actually wrote checks, it transformed our company. They're vested. Yeah. And they never left. And that was the other thing.

2:25:28And in this ESOP, is this like vesting like with a cliff and you get it over time? That's right. So the way that it gets distributed is it gets distributed pro rata. You get an allocation every time the company makes an allocation out of the trust as your

2:25:39Taylor Holiday:salary is a percentage of the total payroll. So if you make a hundred thousand and the company payroll for that period was a million dollars, you would get 10 % of the allocation. And so we sold 20 % of the company to the ESOP. So 20 % of the company shares were in the trust and were allocated. They have to be allocated over a five-year period. And so you make an allocation every year to the base of employees because you want to keep it in the hands of the employees. And what's cool about it is if they leave, we actually have an obligation to buy it back from them. So it's actually more liquid than most stock too.

2:26:07Yeah. So it's really interesting. So when we sold CTC for human service businesses, we had 60 people that made six-figure checks or better. Damn, man. Good for you. Love that. True or false, LLMs will be a real revenue driver in 2026. Revenue driver as a source of traffic or transactions will occur in them. Which do you mean? Either or. I think they will. Let's define real as you will see up to 10 % of revenue either sourced from or occurring within them for some businesses. I think that will be true.

2:26:43Taylor Holiday:I think that we are moving to a world where the website is diminishing in value and it's omnipresent commerce. People like to talk about omni-channel commerce. I like the idea of omnipresent commerce, whether it's in your glasses, in an LLM, on TikTok shops, at physical retail, on Amazon. You want to be everywhere where the customer is. And I think an LLM is where people are spending their time. I like to say that transaction always moves to the point of discovery. Wherever people are discovering products, they will try and transact. And the closer that you can bring those things together for them, the easier it is, the less friction exists between the discovery and purchase, the better off you are.

2:27:19Taylor Holiday:I think LLMs have all the attention. Transactions will happen from them. Why TikTok shop is winning. That's exactly right. Guys, I'm going to put a form down below. I just paid$1 ,000 to a really smart human to analyze my company and others on how to get ahead on the LLM side. Highly recommend it. I'm going to put a tight form below if you guys want to chat. Yeah, ACM, UCM. Those are the protocols for understanding the commerce structure that how LLMs are going to absorb your product feeds, both from Shopify, ChatGPT, and Google. Look those up and try and make sure that you're feeding the correct data back to the alarms.

2:27:52It is absolutely incredible how, I mean, I paid her and then I just went at like 15 companies, like big companies. None of them were doing anything right. It is crazy to get ahead. I mean, I've seen companies, you want to talk about OpEx as a percent of revenue that had hundreds of thousands of backlinks and had a 15 year headstart on SEO and just literally their company is winning. They are doing, their OpEx is so low. They're doing like no marketing just because of SEO. Exactly right. So get ahead of that. That's one of those games too that you want to talk about the counter cycles of business is that you have to make this investment with a horizon for longer.

2:28:27You just have to. Biggest lesson you have learned from the legend, David Ogilvie. Yeah, it's only creative if it sells, right? I think the general idea is that the obligation for us as advertisers

2:28:40Taylor Holiday:is that we are not artists. We're not. It's not what we do. We are in an industry where the obligation and expectation and evaluation of our work is to drive a business outcome. And so I think that the more that we could subordinate ourselves to that reality, the better our creative work becomes. Guys, go consume all the content you can on David Olgo, the absolute legend. Tell us about your good versus bad role documents. What are they and why do you think they are so important? I think when you create a role, a job description, so often we are trying to tell people what it looks like to be good at it.

2:29:12I think sometimes it's equally as helpful to tell people what it looks like to be bad at it. What is this role not? Because sometimes the aspirational identity of the role can come alongside things that are also really detrimental. And so this is actually comes out of, I think it was, it's an A16Z thing. It might be a Ben Horowitz document. I forget exactly who wrote it, but it was like good software engineer, bad software engineer.

2:29:32Taylor Holiday:And so the idea was write job descriptions that include both the good examples of the role and then what it's not. So you say a good media buyer does this, a bad media buyer does this, a good media buyer does this, a bad media buyer does that. And it just gives people a better understanding of how their behavior can best come to life in your organization. Print it out and put it next to your computer. You're looking at it every day. You can see, I should not do this or I should do this. What is working better on meta, image or video? I don't, I hate the frame. I think that you can have a great image ad and a great video ad and that in and of themselves, the formats are meaningless.

2:30:07I think that your job is to deliver the communication as is necessary. The question I like to ask for every product is what is everything somebody needs to know in order to make a purchase? and if I'm selling, like I just bought my son a 3D printer, the amount of things I need to know to make a 3D printer decision

2:30:24Taylor Holiday:is like a thousand things. What kind of a, what's the right plastic that I need? How big is it? How hot does it get? Is it good for kids? What software would I use for it? Like you have to answer a lot of questions. So your advertising funnel needs to do a good job of that. If it's a static image ad, your landing page better be freaking awesome. If it's a long form video ad, drop me in checkout. You've already given me all the information. So I like to think about the design of the entire funnel relative to answering that question. What is everything I need to know in order to make a purchase?

2:30:50Taylor Holiday:If I'm buying something very simple that I understand, static image is probably highly effective at that. You don't need a lot of explanation. So your job is to think about the product, to try and answer every question the customer had and to decide, am I doing this on the landing page or the ad? And just ensure that the funnel covers all those questions. King of context, should people still be using old creatives for ads? Yeah, never turn off an ad. What's the best performing ad format in Q1 of 2026 that you have seen? Oh, I hate this question. I am probably the person that believes the least in the idea that there's a transfer of value associated with format.

2:31:34I actually think I ascribe way more to like the Seth Godin purple cow idea, which is to

2:31:39Taylor Holiday:say that like your replication of an idea that works is actually the degradation of its value. So the more that we all go, ooh, Post-it notes are awesome and everybody goes to use Post-it notes, the less valuable the format becomes. And so in some ways, my answer to this question should be the do not do thing. You want to find the thing that nobody else is doing. You want to find the purple cow. You want to go and create the ad format that is the most novel, not to be a fast follower to the things that are already working. If you find yourself as we are a creative shop that tries to replicate the performance of other people, just know that your yield on that will always be subordinate to them is that they created the format that generated the novel approach that maximized the yield and you are downstream from that.

2:32:22Taylor Holiday:So I just, I don't like to think about creative through that lens. Marketers ruin everything. Yeah, exactly. That's the basic thesis. Last two questions. What's your current thesis on influencer marketing? And what's your advice for a founder with limited budget on how they should start this? The two greatest influences on purchase decisions for all time will be a recommendation from somebody you trust and price. That will forever be true in every modality. When we use the term influencer, we have made this word mean a lot of things. I have a drawing video that I do if you check it out on YouTube where I break this down into how I would approach the idea of influencer as a business.

2:32:59Taylor Holiday:There are people for whom I want their credibility. What I want is the fact that they have trust with an audience that I care to reach. And I want to proxy their trust with their audience for me. And those are people are really, really important. I think about that. Like if I, this is where doctors become really good influencers as an example in a space, right? They don't have audience, right? Sometimes I'm using an influencer for an access to distribution, to audience. I'm trying to get, take my doctor and put them in front of a large scale audience. And so I'm using influencer for access to audience.

2:33:32Taylor Holiday:And sometimes I want their content. This is where the words creator and influencer will sort of get mapped together, where the thing I actually want from this person is the media. I actually want this video so I can go put it in the ad account and I can make a bunch of money. Your job is to gather all of those different types of resources, right? And so to think about, okay, how do I get both trust and authority, distribution and assets? And influencers represent a spectrum of possibility across all of them. The question is, what do you need? What do you have? And what do they represent opportunity or potential to?

2:34:03Taylor Holiday:But your customer cares about what somebody says about your product and you should figure out who it is and make sure that they're talking about your business. Yeah. And they could definitely be all three. I mean, that's right. That's best case scenario. And it could go way past that too. I mean, you can leverage that to go raise money. Just put their name on the deck, put their name on the PDP page. So I talk about this a lot where like there's a time. So I, let's go back to icon because I had a rant about this the other day, which is like at different points, you're using different things to solve different problems.

2:34:32Taylor Holiday:So when I'm trying to raise money, my positioning as a business is all about upside. This is going to be an infinity billion dollar business. And so when you build the deck to go show the investors, you don't show the service business, right? You show the infinity moonshot, right? And so then you go to the next phase and you're like, oh, well now I have to generate revenue and I'm selling to a brand. What does a brand care about, right? I don't know what your take is and I did not see your tweet, but I want to say something in relation to this because I want to see if it's what you were thinking because this is what I was thinking because I followed this guy on Twitter.

2:35:03He was very, very loud about Peter Thiel investing. That's right. In the beginning. Who does that appeal to? Yeah. Right. So he was leveraging that social proofing to A, raise more money and B, give credibility to this actually works. Right. That's not for the seven figure dollar e-commerce owner. They don't give a shit. Right. So the question is all the time, who are you selling to and therefore who influences them and how do I co-opt that voice? Co-opt is probably a nasty word, but how do I bring that voice alongside mine to build

2:35:30Taylor Holiday:trust with my customer base? And then sometimes it goes bad. Now I have to substitute that a different way, right? So all the time you're trying to proxy trust through people for your business and apply it to it as best you can. So whether that's Marquez Brownlee for Ridge or a doctor for your skincare brand or whatever it might be, influence matters. It always works. Love that. Last question. We talked about it off camera before. You mentioned you had watched the Cain episode. Great episode for people that have not seen a Cain Callaway. What is your overall thesis on just like the creator economy and the creator business?

2:36:00because Taylor, for people listening, he has a great, great, I don't even know, content podcast. He's on whiteboards. It's great. I've gone down your rabbit hole well before this episode as well. It's amazing stuff. What's your thesis on just how to create a, let's just call it media empire? And yeah, how do you see it? What are the pluses? What are the minuses? I thought he did an awesome job of explaining that the first thing you need to decide is what business model you're in and therefore how that content informs that monetization strategy. So for us as a service business, we sell contracts that are worth a quarter million dollars, a million dollars, large scale value capture to a small subset of customers.

2:36:38My goal is not view count. Right. And even for my advertisers, what they're trading on with me is authority to a small subset of audiences. Right. And so it's high levels of trust that they're trading on that I can charge a really high CPM. If you look at my audience size, you know, it's not massive for my podcast, for my YouTube channel, for my Twitter account.

2:36:58Taylor Holiday:account, but the CPM I can charge that subset of people is much, much higher than the CPM that you're going to get on YouTube with a million views by a lot. Right. And so we can build that business. And then what I do with the way we think about our media portion of our business is that if I can offset my marketing costs, so when I can drive my functional customer acquisition cost negative. So inside of CTC, we have a negative CAC. We make money off of marketing. And so you, My business runs at 30 plus percent operating margin at meaningful scale because I can drive a negative CAC because that marketing line item for me in four-quarter accounting is actually, I make money because I have a media business that drives awareness to my customers that I get paid to create content and the flywheel just continues.

2:37:42Taylor Holiday:The more podcasts I create, the more videos I make, the more media dollars come in, the more I get to reach my customers, the more they buy my services and that flywheel informs my monetization strategy, but it's all about selling services. It's not about trying to make money off the media, right? But you do make money off the media. That's the bivariate benefit. You have a fairly flat OPEX in relation to the media, and then you're making a substantial amount of money on sponsorships. So we scale the OPEX on the media relative to the ability to drive revenue off of it, right? So the more that we can grow the media business, the more we can invest, the more people we can make, the more content we can create, all those things, the more customers I reach, the more services I sell.

2:38:18But for us, we are very clear for ourselves that we are in the services business. That is what our job is. We run an agency. We are selling services to e-commerce brands. The media is a mechanism to generate large-scale awareness and monetization and a negative CAC for the sake of that business. So it just depends. Like, what are you trying to do? And what I'll say is like, if I was in a media exclusive business, my content would be very

2:38:40Taylor Holiday:different because I would need to generate way more eyeballs than I do. I would have to generalize and dumb down the content and get rid of all my acronyms, right? I'd have to like really think about how I reached a much bigger audience if I was purely trying to build a CPM-based advertising business. It's not the business I'm in. I sell services. Yeah. For people out there listening, you should definitely watch the Callaway episode. And the fact that you have a very narrow ICP, it's like, if you are obsessed with e-com and the relationship between marketing and finance, I would imagine that you'd love this episode and you would love all of his stuff.

2:39:10So I would say you would have a, what I'm learning now, especially over the last couple of months, I think that this media, that top part of the pyramid that I always talk about, the sponsors, I think that there's more money than you think. It's crazy. Well, I think the category, this is where choosing your content category really matters because those brands, they will pay a massive CPM if your audience is niche and right for their customer. Because again, why are they willing to pay that? Because they monetize it. It's such a massive level, right? They make so much money off the customer. Like think about the, you brought up FinTech.

2:39:40Some of the best sponsors that we have are Mercury Bank and the large scale banking providers where their average customer value is massive. So they can afford those CPMs. high CAC, high LTV, and price discrimination. That's it. The bigger the fish, the more money they pay. You hit one whale. That's it. And they chill. Last four questions that I ask everybody. Amazing time, man. Favorite book or podcast and why? The book that I give, it sits in my background on my Zoom call. It's a book called The Carrot Seed. It's a book for kids, but I think it's the ultimate entrepreneur stories. It's 10 pages and the story goes like this.

2:40:14A little boy planted a carrot seed, everybody around him told him it would never come up. Every day he watered the

2:40:20Taylor Holiday:seed, pulled up the weeds around the carrots while everyone told him it would never come up. And then one day the carrot came up just like the little boy always knew it would. And I think that's the story of entrepreneurship is you show up every day, you water the ground, pull up the weeds. Everyone's going to tell you it's not going to work. You're going to have a bunch of naysayers show up, water the ground, pull up the weeds, never stop believing. And one day the carrot comes up just like you always knew it would. And that story, like I read it and I just feel this like, I identify with the little boy so much.

2:40:46It's just like, just show up. I've been doing, I've been in the same business for 12 years, 12 years. There were a bunch of days you heard the story either. I wanted to quit still every day. There's every other day. I feel like we're for sure going to die, but you just show up, you do the work, you water the ground, you pull up the weeds and it'll come up. I'm going to get that book for my nieces and nephews guys. There you go. Get it. The carrot seed. Love it. Entrepreneur or brand that you want to give flowers to and why? Taylor, take your time on this, baby. Take your time. I'll give you two because I know you have a shit ton of clients and you have been in this space for a long time.

2:41:21Yeah, that's a great question. So we're connected through BG. Brian Garofalo is the CEO of Skull Candy. He's the best business person I've ever been around. And what BG understands is that his life is a 20 long journey of building surplus value into the community that he cares about, where he gives more than he takes. And he did it for 20 years and he's now the CEO of Skullcandy. He's going to go on to be the CEO of lots of companies over the course of his career. But Scott Galloway, I'm a big fan of his content. He talks a lot about this idea that masculinity

2:41:54Taylor Holiday:is attached to the idea of surplus value, is that every relationship you're in, whether it's with your wife, with your kids, with your employees, with the school that you're at, whatever it is you give more than you take. And he's embodied that to me more than anybody I've ever been around. And so I think, and what I've watched him do at Skullcandy, which was a company that was really cool in consumer electronics, fell apart, and that he has rebuilt into a place that's incredible. I'm constantly inspired by him. And this is another example, us sitting here is a by-product of him making that connection in a way that he didn't have to do.

2:42:22Taylor Holiday:He went out of his way because he cared about us, both of us probably, and said, hey, there might be a mutual benefit here. That's just woven into who he is in a way that is deeply, deeply impactful to me. For people out there, I did an episode with BG. It's probably the most underrated episode of the 25. He is underrated. It's the definition of BG. Yeah, he is such a weapon. And I say it all the time. I think the most interesting thing about him is he is a, he has covered so much ground. Like he was a marketing guy. Oh, for sure. And now he's like an ops in finance. Well, that path from head of e-com to CMO to CEO is very rare.

2:42:57Like you don't usually see CMO to CEO. And so he, I think is aspirational for any marketer out there. It's a good career path to follow. Yeah. I think it's going to be so interesting when he's like 57 and he's like CEO of like a Disney or something. It's going to happen. And he is the guy that has been in enough roles, both, you know, e-com, CMO, CEO, and then enough companies to know how to win there. And he's so like systematic in nature. And like the other thing is like, you know, what really fricking matters is integrity. Oh, he's a great dude. So just doing what you say you're going to do, being honest and caring about the human strategy.

2:43:27I'll tell you, I've run an agency for 12 years, okay? We've had lots of wins and lots of customers. Two times in the history of my company has a customer shown up at our office to thank the team for the work. After Black Friday, one year in our office,

2:43:41Taylor Holiday:he showed up with a cooler of ice cream sandwiches, stood up on a table, said, I just want to thank all of you. This is when he's the CMO of Igloo. So thank you all for the work you're going to do. You guys are an important part of what we did. Gave them all ice cream sandwiches and walked out. It's happened two times in 12 years. The amount of people that actually look around them and can express gratitude and appreciation for the place that they're in and can always make the people around them feel like, man, you are an important part of why I am successful is like an unbelievably rare skill.

2:44:09BG Part 2, 2027, 2028. Coming, coming. 2027, 2028, great guy. Last question. How big can Common Thread Collective be? We could be a public company within three years worth a billion dollars. Enough said, we'll leave it there. Where can they find you on the internet? CommonThreadCo.com is where you can come and chat with us. If you're a seven or eight figure e-commerce brand, we'd love to chat. And then I'm Taylor Holiday on Twitter. DMs are open. Love to jam with people on X. My man. I said Twitter, but X. Guys, I'm going to do tons of links and resources below. Hope you enjoy the episode. Adios.

2:44:42What's up, guys? If you guys got this far in the episode, I would assume that you enjoyed it. If you got any value, it would mean the world if you hit the subscribe button, give it a like, post a comment, tell a friend. We could keep going bigger. Bigger guests, bigger locations, more value. See you in the next episode.