The Profit-First Approach to E-Commerce Growth

0:00Growth at all costs is such a bad strategy. I think it should be profit at all costs. A lot of the founders don't even care about food. The CPG is just a vehicle for growth because people are funding it. I look at one-time orders, two-time orders, three-time orders because I know once somebody's ordered three times, the propensity for them to keep ordering to the 15-time, 20-time is really high. The risky period is when they've ordered once till three. And that's where all my attention is. Welcome to the DTC Insider Podcast, where online business owners come to find actionable tips and tactics to grow their businesses.

0:37Now, here's your host, Brian Roizenthal.

0:47Hey, welcome to another episode. My name is Brian Roizenthal, and today I'm joined by Arshad Ball, founder of Ambrita. It's a great company. I've been following him for years on LinkedIn, as I was telling him before recording. And if you don't follow him, of course, by the end, we're going to give you his social media handles. But it's amazing. And it will be an amazing episode and different from the previous ones, I promise. So stay tuned. Hey, Arshad, thanks for being on the show. Thanks, Brian. Thanks for taking the time to talk to me. Yeah, no, my pleasure. And likewise, you know, I was telling you offline that your content is different, but it's not even about your content.

1:29It's what you value about building and growing a business is different than what I see in most people I talk to, where I work with, where I read about online, right? So why is that? Why do you think that happens? And for contacts, for people who don't know you or doesn't follow your content, you don't speak about the latest AI trick. I mean, there's nothing wrong with AI, but the latest AI trick or thing they can do, the AI creatives they can implement. You talk about the fundamentals, or that's my opinion, doing the reps, excellence in operations, in real life connections, staying in touch with your customers.

2:10So why do you think more people isn't talking about? Yeah, that's a great question. You know, I came into entrepreneurship a little bit later in life. I had done corporate. I had done a lot of things that I'd gone to school for, you know. So entrepreneurship to me was really taking an idea and idea that came out of a personal need and finding a market for it, delighting customers with the product and then building the business. And, you know, I started in 2013. And at that time, the CPG industry was very different than where it is now. At that time, it was a bunch of hippies, people who really cared about food, agriculture, the way the soil was being farmed.

2:51You didn't have gluten-free. You didn't have all these terms polluting. It was all just clean food that was being made for people to consume. Really simple transactions. You didn't have venture funding into the market at that time. And I think these are people who were very happy making product, taking it to a consumer, getting money for it, and then reinvesting the money into the business. And what I've noticed in the last maybe five years or so is CPG got an influx of venture money. And it has completely changed the narrative of a lot of founders in the industry where they're really in it to exit.

3:29And they're trying to grow at an unnatural pace with money. So a lot of the founders don't even care about food. The CPG is just a vehicle for growth because people are funding it. And that's a tough situation to watch because you want your colleagues or you want your friends in this space to be doing things for the right reason. Like they really, really care about why they're selling a gummy, right, that has greens in it. Not, not, not to, there's a big DTC example of a big company selling gummies that went to a couple billion dollar exit in two years. And, and, and, and the, well, you need to leave it or not.

4:09Yeah. It's crazy. I mean, nothing to take away from the brilliant execution that that guy and his team did. Amazing. Like he's a operator. Very few people can operate and execute as well as he did. But, you know, in the old days, people could not get to a billion dollar exit in less than 20 years or something because they were just building step by step by step. Right. And it's very interesting how things are today. So I just take a different approach. I take a more of an old school approach. Like you it's you build really amazing product, first and foremost. You delight the customer. You make sure your repeat customer rate is really, really high.

4:48Otherwise, you go back and fix the product as to why the customer is not buying over and over again. And then you figure out every channel that you can get to the customer in the most efficient way. For us, it happens to be DTC, but for some other people, it's retail. And then you just rinse and repeat that because I think even I've done it for so long, I'm still a novice in what I do. There's so many things we can learn. So I stay super excited about the industry that I'm in. Do you think that it's not not better or worse, but do you think that brand founders who started the brand after the pandemic operate drastically different than the ones that started before and value different things?

5:29I think after the pandemic, the cash dried up a little bit, right? Maybe, maybe not. I think there were some big changes in buying behavior, especially in the snack business. Like the snack business dropped about 30 % during COVID because people were not snacking. They were staying at home, right? So a lot of the snack companies struggled during COVID. On the other hand, there were some companies that just exploded like the baking companies or the bread mixes, all that. So I think different part and e-commerce exploded too, right? So a lot of stuff, a lot of changes happened. Some people were observant of the changes and jumped on the right ship.

6:09And that's, you know, you can debate whether that's right or wrong. But if they enjoyed it, that's great. But I think there was a fundamental change in, like I was talking about earlier, where money was coming in and then money just dried up. And a lot of the people were left high and dry because they started the business with the assumption that somebody was going to fund them for an exit, right? They were building a business similar to Amazon, where it was like profit was not the lever, growth was the lever. And everybody knew that, including investors. And then the investors pulled the rug out and said, we're not going to fund you anymore if you're not profitable.

6:44And to me, that's not correct, right? You funded them because of growth, and then you change your ideas along the way. But a lot of companies in CPG were impacted by that change in the way the funders were thinking. And a lot of those businesses went out of business because the fundamentals were just not there. But I don't think the founders were at fault per se because they were rewarded for growth, not rewarded for profit. And now everybody wants to reward people. Yeah. So I think that conversation shifted a lot indeed, you know, talking about profit in the last few years. Whereas before it was all about growth and low costs, you know, talking about revenue and everything that we all know by now.

7:26But it was like socioeconomic, you know, the socioeconomic landscape changed a lot. The technical landscape changed a lot as well. You know, the privacy issues. We met after 2021 or iOS 14. Many things happened. And now it's not growth at all costs for getting new customers only. It's focusing on retention. But retention, it's such a buzzword, right? But it's so important. Of course, new customers are important. but that's only a fraction or one part of a company, one level, let's say. The other one is, you know, doing, again, putting in the reps, you said, goes across the business and I'd love you to expand there if you can.

8:06Like what are the fundamentals part of a business for every brand these days? What's the most important thing you get up in the morning, you look at and you spend most of your time in? Yeah, so for my situation, it's slightly different because we're vertically integrated. So I actually run a factory. So I start my day typically at the factory going, what are we making? You know, make sure everybody's up and running, doing that well. And that's been only about six years in the making before that we were using co-manufacturers to do that. And I went into the factory partly because I wanted to get dirty with my hands and make the stuff.

8:40And so that was just a personal desire. That in turn has turned out to be a real economic value adder because our cost of the goods have been dropping. the more we optimize the factory. So it's really, really helped us be more profitable. That's, from a business perspective, it's been the best thing we ever did. So that's important for me in a day. I think the other things in terms of reps are to look at the retention numbers, to look at the acquisition numbers, new customers and returning customers. I typically look at the metric, which is I look at one-time orders, two-time orders, three-time orders, because I know once somebody's ordered three times, the propensity for them to keep ordering to the 15 time, 20 time is really high.

9:22So the risky period is when they've ordered once till three. And that's where all my attention is, right? Like we nurture those customers. We give them anything that helps them get over that trust gap. So like they may have got a sample from us. Maybe they like two flavors, maybe whatever it is, right? They didn't like everything. Maybe it was just a batch that just didn't work for them. We just need to find out, we need to fix it so that we can get to second. And then we need to get the third order, right? And practically 99 % of the time after the third order, they are either, they love it or they hate it.

9:58And if they hate it after the third order, like it's not, we're not the right product for them. So we move on. But typically this attention to the first three orders has really solved our retention problem for us heavily. And then obviously, I think I spent a lot of my time now thinking about what is unique to the direct-to-consumer channel, right? I think there's so much noise in the market with AI tools, with all these people trying to sell you low-cost services at volume, right? Everybody talks about volume. At the end of the day, I think what matters the most to the consumer is do you care directly, one-to-one, about them, right?

10:40So we spend a lot of our time one-to-one with customers. So let's say our goal is to add 1 ,000 customers per month to our acquisition. We will basically say, ask 500 of our existing customers, will they recommend 500 friends? Because we know that word of mouth is so important. We will push a lot of our marketing dollars into that 500. Like we'll give them a free box of bars because we say, and we'll write a handwritten note in there that says, Your friend Brian recommended us to send this to you. Check it out. Let us know what you think. Here's my phone number. Call me. Here's my email. Email me with your thoughts.

11:19If you love it, here's a coupon code to use on your first order, right? that's old school super slow way of doing it but the but think about it our cost on that box maybe ten dollars twelve dollars all in we convert we can we're converting those customers at such a high rate compared to a cac on facebook of 25 to 30 dollars right and even on facebook the lifetime value is iffy because the person is just trying it out for the first time so i'm kind of in so i spend a lot of my time in terms of reps doing reps like that, like going, how can I be so uniquely different? And where can I make that connection with the consumer where they are struggling with today, right?

12:05Most consumers are really over and undated with media, with all these emails coming to their box. So sending them more cold emails doesn't help the problem, right? But sending them a postcard that says, hey, your friend recommended this to you and they know their friend, the chance of them trying the product is so high. And that's, again, old school way of doing it. This reminds me of a conversation that I had with a former Disney executive. I interviewed him on the podcast. I think it was 2022. We started in 2021, by the way. So I had the pleasure of chatting with many, many founders. And he said something that stood out that seems simple, obvious, but those typically are the best tips or pieces of advice, right?

12:48It's like map out your customer journey. You know, the goal is to Disneyfy experiences, right? To create this wow effect. So map out your customer journey and see what you can do in each, at each step of the process to create this wow feeling. What you're saying is, if I got it right, you know, it's exactly that. Don't send a cold email. Just, you know, be intrusive. And something else that, you know, I want to highlight just or emphasize just in case some people didn't notice what you said is that you didn't just speak about apps when something's not working or you want to improve you try to test multiple variables including one that is really forgotten or typically forgotten which is the offer yep right the offer is so critical right i think this is something i've this is actually something i've learned from the big operators like grunts and hollow and these people right they are it's all about the offer it's yeah the product has to be good.

13:46But if you look at hollow that sells socks, come on, so many people are selling the same socks right now. How are they at whatever 40, 50 million? It's because their offer is freaking amazing. And I think that's one thing that's really interesting about D2C that I am so excited about because I'm a student of marketing and I go D2C is evolving so fast all the time. And the beauty is that it's evolving in public, right? These guys are talking about what they're doing. You just have to find out where they're talking and go learn. It's like a masterclass that's happening constantly. And there are so many of these companies that are growing at a rapid pace where they're doing everything correct.

14:29And you just go and listen to what they're doing, come back, do a test application in your own business. Nine or 10 times it works. And I think that's where we're living in this really beautiful economy right now where I don't have to pay a broker to tell me, a D2C broker to tell me what to do. I just have to spend my time listening to the experts of what they're doing because a lot of times they are doing it and then showing the results. Like, you know, and so it's a very unique feature in D2C that's not as common in retail or other places. Yeah. One thing someone who builds a public tour told me here on the podcast is at least he applied these to his business is that they, in order to grow to the next level, they kill the previous version of the company at every step of the way.

15:23Like even things that are working. So this guy, for example, started at Etsy and he was doing great, but then he transitioned to something else. He killed that and everyone was like, you're crazy. And then he transitioned to something else and killed the second thing. So you might not be this, you know, aggressive in every case, but have you ever done that or something similar? We've killed a lot of products. That's what we have done. So we, I went through the lens of margin, right? I said, now that I own manufacturing, I can clearly see profitability through operational lens, which is throughput.

16:00How many units can I make? What do these units sell for? What is my cost? Right? Simple equation. And I go, there's nothing, for me, there's nothing better than doing protein bars. It's the highest lever. But a lot of my customers got used to us making protein oatmeal. They love it. I constantly get emailed and we don't make it anymore because it's not efficient. We don't make as much money on it. We're going to bring it back because it's a really good upsell item where somebody buys bars and they can add so AOV can increase. But I know that there's nothing today that I can make that has higher margin than bars.

16:35And so I cut out everything else. And I said, I know the industry in bars is huge. People like what we're doing. We're just going to continue going back. I also did cut out a lot of channels. Just like you say, your previous person on your podcast cut out Etsy. We were doing a lot of similar things. We just, it's a great example is I've got this guy who is a broker for me for coffee shops and he's just old, really, really old school. He refuses to use the internet, like texting me his orders. And I finally said, I can't, you know, even though it was a couple thousand every month, it was just like inefficient, the whole process.

17:11And we shut it down. And so I think you're right. You have to protect your time. And you have to do the highest value things with your time. And that will require deleting a whole bunch of things that just don't match that equation. I think there's a fine line between expanding product categories to grow and between that and being a distraction. There's a fine line between distractions and amplifying categories for growth purposes. there's no right or wrong but again as you said you need to find what i mean whether it's one or the other for your company i mean i i met so many founders and some have some are successful with a thousand categories and some others you know they sell one product type for example belts they do multiple eight figures selling belts and i just said you know back then you know have you ever thought of expanding and he's like no why like this is like we are optimized and maximizing the value as you said for these categories maybe in the future who knows but for now this is we are growing very well so yeah i guess market the market changes a lot everything changes but something there is something more to this and i think that where i know that in your case it's this way as well most companies that were most successful companies that i've met they have a big why a big reason for existence.

18:37And anyone else can sell what they sell, but they build such rapport within a certain group and a certain community that they build something unique. And it's like a moat against competitors. So what's your why? Yeah. So my why has changed a little bit through the years. Early on, it was to, there was an internal why and there's an external why, right? But really the why was to create a really clean protein bar in the beginning that I started that met the needs of low inflammation and allergen friendly. And that was because I started a company based on my son's journey with autism and a low inflammation diet that helped him in his recovery.

19:17So that was my why early on. Then when I started my manufacturing, I realized I had this opportunity to give people on the autism spectrum jobs. And there was a data statistic that I heard about that I can't forget ever. which was the young adults in the autism spectrum, these are like 21, 22-year-olds, have nearly three times the unemployment percentage as neurotypical, so people without autism do. And, you know, as you think about it, these are like prime years of working, and they can't work because they have some development disabilities that prevents them from functioning neurotypically in an environment.

19:54And I knew right away that I could give them an opportunity in a manufacturing environment. So that became a big part of my why is really, and it started with autism with my son, but kind of like now threaded into autism at the facility level. And now we typically have about 20 young adults come to our factory every single week to do vocational training. I've hired one full-time person years ago, and I'm getting ready to hire my second one now full-time. And my goal is to try to hire a person a year within my establishment and to give them jobs, but to really give vocational training to as many as I can.

20:31So that's a big part of my why is kind of this inclusion piece, right? To go, how can I find people who are disadvantaged, whether it is, you know, immigrants working in a facility or people with developing disability, give them opportunities. And every single time I've done that is the net positive for the business. So even if I think about it as I'm doing this because I want to do something good, it always ends up being net positive for the business. So which has been really reinforcing to me that you can do good and make money at the same time. Those two are not mutually exclusive. Wow. What would you tell those people who are thinking or considering about hiring someone with a, how do you say, neurodiversity?

21:15Neurodiversity? Yeah, neurodiversity. Many people might have good intentions, but they are afraid. They might not know how to handle things at work because they are not around them as often. So what would you tell these people? How have you prepared to do it as well? Yeah. So actually, I've been doing a little bit more work in this space for trying to convince the state of Connecticut to give more funding to companies so that they get more comfortable with hiring people with autism. It really comes down to the fact that people with autism have certain skill sets that they are really, really good at.

21:53And then maybe they might be slightly below average on certain skill sets. And the thing is, in certain industries, these skill sets are super valuable. So manufacturing is a great example. So somebody with autism tends to be really, really good at following directions, especially repetitive direction. So if you're in manufacturing, kitting, anything to do with putting things together, somebody with autism will be like higher output any day. But at the same time, they might take their ramp up time might be a lot higher than, you know, a neurotypical person. So you just have to build in that extra bit of ramp up time.

22:29They tend to be very punctual, very, they don't call out sick because they really like that repetitiveness of the job. So those are the things that I would tell people to watch out for. But I really, really think that there are so many people on the spectrum who are looking for jobs. And if you've got something that is at that level of kitting, shipping, manufacturing, you know, connect with the local nonprofit. Like ideally connect with school programs because all school programs have something to do with nonprofit autism programs. And they will bring kids over and they will do a lot of the work for you.

23:07And then you can hire out of that group if it works out well. Sweet. Yeah, I was listening to an expert in this topic the other day in the radio. I don't listen to the radio very often, but I actually have a podcast here in Argentina as well in studio. And I live like an hour away from the city. So when I travel, I listen to podcasts mainly, but I didn't find any that I loved while I was driving, you know. So I was listening to the radio and there was this expert and they were covering this topic and said something that got my attention. but I don't hear many people talking about it. And it's people in the program was asking him, like, is it that more people have this neurodiversity right now?

23:50Or was it that before wasn't diagnosed enough? Like, why do I know? Because it happens to, I have twins, six-year-old twins, a boy and a girl. And both, they go to separate grades. and both of them have friends with neurodiversity. And I know many of them, like many siblings and people in the school. So he was asking, you know, why is it that we don't know as many adults with that? Is it because we are not diagnosed? Is it related to some newer behaviors in society, things they put into food? You know anything about it? Yeah, I mean, there's lots of theories. So for my son, it's a great example.

24:32When he was two and a half, he was diagnosed with autism because he had no speech. He had really bad sensory issues. We had never heard the word autism until he was diagnosed. And then when we found out about it, we were like, we were blown away that one in three boys, it was literally as high as that, had some version of autism. Now, it's a spectrum. So the amount of issues really varies. But when we changed his diet, it still took a year. Once a diet cleaned up, his internal stomach cleaned up. And that meant he was able to absorb a lot of the services better because he was not always struggling with stomachache.

25:09And he started recovering really well from the age of about five till eight. And then by eight, he started getting speech came back. A lot of his occupational therapy issues went away. And by 10, he was pretty close to being neurotypical, like he was in a regular classroom and all that. But that's, I feel like, so that was still two and a half to 10. Right. Long time period of intense work that we had to do with him. Right. And I would say he was extremely lucky that everything worked out properly for him. Not a lot of kids are lucky like that. So I think, well, first of all, it's really, really important to do early intervention.

25:46If you see a child having the problem, get going early and then just be the human brain is very pliable to change, especially when people are younger. So do everything you can when they're young to impact the change because their recovery can be much faster younger versus older. Yeah. Great. So changing subjects, and it's probably one of my last questions for you is, you know, for those, you know, whether they are starting a CPG plan or thinking of starting one or already, you know, let's say growing, what would you tell them as an advice? You know, first of all, channel-wise, like, are you only DTC?

26:30Do you sell in retail? If you do sell in retail, what's your advice for getting into retail? Were the challenges, were ups and downs, were being there for the CPG brand? What metrics should they watch out for, you know, be, you know, alarms, signs? So, yeah. Yeah. Yeah. So, CPG, I mean, there are a couple different ways to doing this, right? So, you've got things that are ambient, so they don't need to be refrigerated or frozen. and then things that are frozen. So if you're in the refrigerated frozen category, e-commerce is extremely difficult, extremely expensive. It'll never be profitable. You can try it at scale.