Happy Sunday!
If you're reading this, I hope you're ready to get real for the next few minutes. Today, I'm going to dive into the current state of the eCommerce market and how I would rethink what I'm doing. I hope you're feeling relaxed, you've got your feet up, you're enjoying some AC, and you've got a beverage in your hand. Maybe some Hydra-Charge mixed with water. (yes, that's a HOOX landing page!)
Before we get into it, I want to thank everyone for listening to Limited Supply, my new podcast with Moiz Ali (who started and sold Native deodorant). We debuted at #5 on the podcast charts in the US and #8 in the UK, and so many people have even reached out with positive feedback. THANK YOU! We just locked in Harley Finklestein, Shopify's President, for an upcoming episode. Make sure you drop your questions for Harley as a reply to this tweet.
Ok, now let's get into today's email...
It's no secret that the last few months have been quite unreal. On July 26th, Tobi, Shopify's CEO, put out a memo sharing a graph that reflected the return to the pre-pandemic eCommerce adoption rate. From March 2020 until the end of 2021, we were in an eCommerce bull-run, due to the fact that eCommerce adoption had accelerated by 5-10 years.
Whether or not you believe we are in a recession, it's very clear that the slowdown of eCommerce adoption (due to it being a need, versus a desire) has created somewhat of a recession within the eCommerce industry.
As a result, Meta (Facebook) missed earnings. They spent more money and made less money. Same with Alphabet (Google) — significantly slower growth than what they expected. For example, YouTube ad revenue grew only 5%, when the same period a year ago it was 84% growth. Across multiple industries — advertising, technology, SaaS, logistics, shipping, trucking, etc — there has been a significant slowdown.
Even Bezos is feeling the heat! Amazon took a loss of $6B as a result of opening and operating too many warehouses. They are going to hold on fully opening many warehouses, and also try to shut down and sell off others.
So why is this dark rainy cloud relevant to you if you're in DTC? Well, we were the ones who benefitted from a lot of this, and now we're the ones that are feeling the heat of the pullback of eCommerce adoption. Over the next few weeks and months, I imagine we will see a number of businesses go out of operations, lay off unnecessary staff (thinking of those product managers on TikTok by the pool 😂), sell to an acquirer, or, if you've not taken capital before, you might be looking to take capital.
My guess, is we are going to see some stabilization in Q4, then headwinds through next year until the holidays, before things return back to their normal pace of growth. So with that, I wanted to break down 8 actions I am taking with portfolio companies or our own companies:
1. Trim the fat of the organization
Tons of companies are already doing this in our space. Lay-offs are unfortunate, but they're real. As a founder/team lead, you want to ensure you're doing the most to maximize the efficiency of everyone on your team. That means being better about documenting processes, and automating or deleting routine tasks to off-shore talent (reporting, modeling, analysis, etc).
When Black Wolf Nation (men's skincare) first did 8-figures in revenue, it was with 2 employees. Generally, a good rule of thumb is to allocate 1 employee to the business, for every $1M in revenue you have (if you're a services business, it's much less, since the people ARE the "COGs").
Lay-offs suck. Do them with compassion. Try to do right by those who worked hard on your business and help them find their next gig, if possible.
2. Fund your business with alternative cash
Raising capital is quite hard for a business that's already launched, especially if they raised at a high valuation. If you raised a pre-launch round of funding at $10M and you're doing $2M in revenue, you can't raise another round right now.
Instead, use a funding partner like Wayflyer. There are many reasons why to use Wayflyer, but here is why I prefer it:
- The capital is non-dilutive
- Wayflyer assesses your business and tells you how much money you'll get within 24 hours
- You can use Wayflyer capital to fund advertising and inventory spend
- They have a team in China to help your source additional or future products (a few of my port companies have benefitted heavily)
Wayflyer is our first choice for alternative financing, so I asked them for a special link I can put on my newsletter to be tagged as a Sharma VIP. Click here.
3. Optimize your contracts, Accounts Payable & Accounts Receivables
This is a 2-part tip I took from Moiz in an upcoming Limited Supply episode:
- Call the people to whom you owe money, and ask them for extended payment terms. You might not get everyone's buy-in to pay them 30 or 60 days late, with no fee, but you'll miss 100% of the shots you don't take.
- Call the people who owe you money, and ask to move the date of receiving cash UP, or at least a percentage upfront.
Generally, when you have transactions or contracts you sign, also ensure that you have a reasonable out-clause in the contract, along with payment terms that are favorable to you (at least try for it). I recently saw a brand sign a 2-year software agreement, totaling $50k, with no out-clause, and it hurt my soul. There was no legal way out of the contract. Don't put yourself in that position.
4. Sell your business
Some of the most vulnerable eCommerce businesses to go out of business are the ones doing $4-10M in revenue with a low MER (media efficiency ratio, aka $1 equals $XX in gross business revenue) and high inventory ties up cost — basically brands that are tight on cash-flow.
Sell your business to OpenStore — A aggregator-like business that acquires Shopify brands from founders. A year ago I wanted to buy a business, and OpenStore beat me to it, with:
- A non-binding offer within minutes
- The founders (a couple) got 80% of the cash the next morning
- An easy-close process (12 days), and now they're done with it
I asked OpenStore to provide a URL where any of my audience can check the value of their business (there's no obligation to sell!) — click here to see the value of your brand.
5. Lower your expenses
There's a good chance you're paying for subscriptions that you don't use anymore — a URL shortening app, a post-purchase survey on Shopify, a reporting tool, etc. Go through your credit card statements and Shopify statements and make sure you're getting rid of unused subscriptions.
I would also do a full audit of your monthly 3PL bill, and make sure you're not paying for extra BS fees, like "Technology fees" or "Services fees" without knowing what they are. The same goes for your apps. Are you overpaying for customer reviews or hosting returns on your site? You might be.
Even if you know you're not overpaying, it's always worth reaching out to see how you can get better pricing. Maybe it's a longer contract term, agreeing to a case study, or being a guinea pig for a new set of features.
6. Focus on underpriced marketing channels
Tik. Tok. How are you not on there yet with a creator? If you spend at least $50k/month on Facebook ads and you don't have an in-house creator who can create content at high volume, what are you doing? A great creator can cost $5-10k/month and bring you $500k/month worth of digital ad spend. (If you don't want to hire someone and want to learn how to do TikTok yourself, check out JT Barnett's video series on how to do it!)
Pinterest. Quora. Taboola. Snapchat. Affiliate. TV. Podcast. Email newsletters.
These are all channels that require more work than just clicking a button on Facebook, but can be absolute honey holes of underpriced attention when you crack the code.
On Taboola, I remember finding that when we tested 50-100 sites, we found 2 that delivered CPAs 1/3 of Facebook. That's all we spent on Taboola. Same with TV — we found Baby First TV was an underpriced channel to run ads on, so it was the only channel we ran ads on. This Tuesday, we are running a placement for a client in a newsletter with 6,000 readers, for two separate weeks, for a total of $500.
There are lots of underpriced channels still available — they just require a lot more work to find. If it was easy, everyone would be on them.
7. Focus on being unique
Just selling a great product isn't enough — you already know that. If you can make the same shoe Nike does in China for $10 as a pair, why do you still buy Nike's? Because you're buying into the uniqueness, the lifestyle, and the brand of Nike.
If you're a growing brand, you have to double down on WHO you're selling to, and HOW they should feel.
When I took Shaan's Power Writing course, one of my favorite lessons was: at the top of the page, write down the SINGLE person you are writing for, and the emotion you want them to feel. With your brand, you have to do the same. Know WHO your customers are, and HOW you want them to feel.
If you just rely on a good product and you don't have the support of a brand, you'll always be fighting for a repeat purchase — and ultimately it's a race to the bottom. Just look at what happened with all the meal-kit companies and 15-minute grocery delivery apps.
8. Double down on customer retention efforts
Your existing customers are the perfect set of customers to keep your business humming. It doesn't mean you can expect them to just come back and buy for no extra reason, but it does mean that you have a base of people who are ready to see what you've got cooking.
Here are some easy ways to drum up revenue from existing customers:
- Launch a new product — this can be a new variant (color, scent, flavor, etc) or a whole new product.
- Partnerships with other like-minded brands — MadHappy & Prince St Pizza; American Express & Equinox; JUDY & Poo~Pourri; Olipop & Minions movie.
- VIP customer-exclusive promotions — sales or promotions tailored just toward the top % of customers and/or subscribers.
Focus on taking care of those who have supported you first, before going out to hunt for new customers. Those customers will reward you.
Moiz and I talk through some more strategies on what to do if you're nearing bankruptcy on an upcoming episode of Limited Supply — don't forget to subscribe on Apple or Spotify!
On to some fun stuff...
Vendor of the Week:
Tapcart — The easiest way to build a mobile app for your Shopify store (aka underpriced real estate and attention)
I believe this coming week, we are going to launch a mobile app for Long Wknd. Building the app was almost too easy — we worked closely with the Tapcart team to help implement a lot of the basic frameworks around design, based on the Figma files of the site, and then we could go in and make any and all edits, or add new modules (which, when you drop them in, are already on-brand).
If you've ever used Powerpoint, you know how easy it is to drag and drop elements (images, videos, text boxes, etc) onto slides. With Tapcart, it takes the same level of difficulty to create a mobile app.
At Hint, we had the perfect business to create a mobile app:
High % of recurring revenue
Great repurchase rate
Consumable product
Engaged customers who wanted more content
However, when I went to get a quote for an iPhone app, we were quoted $120k. So we never ended up making it, and it was a huge missed opportunity. I think in 4 years, it will be the gold standard to have an iPhone app ready to install when a brand launches. If you're wondering, "Umm, Nik, why?" I'll tell you:
92% of people open push notifications
~2.4x increase in CLTV
40% in in-app conversion rate vs website
3x lift in session frequency
It's underpriced! My friends at Tapcart are willing to get you on a demo for free, and I highly recommend at least getting a demo, so you can see how a mobile app can improve your business.
Click here to sign up for a demo with Tapcart!
Jobs of the Week:
Sharma Brands — Account Manager
Sharma Brands — UX Designer
Louré — Lead Graphic Designer
And, if you're a brand looking for some great contractor talent, I highly recommend MarketerHire!
Question of the Week:
These are tough times... what song gets you fired up in the morning to take on the week with no fear?
Brand of the Week:
M0de — The best new toothbrush I've used
A couple of weeks ago, Marco, the founder of M0de, asked me if I was interested in trying a new toothbrush. His Apple-like website got my attention and I was game to try it out.
I didn't expect too much, given the best Quip brush doesn't have that much power and I've been using Oral B's Costco toothbrush (it was a good deal) since I was in 8th grade. However, once I used the M0de brush, I was blown away.
The bristles are Quip-like, so they don't hurt your gums (even sensitive ones) and the motor is fast. This is the toothbrush I'd imagine you'd find if Rolls Royce made a toothbrush. Powerful, yet quiet, and luxurious, yet functional. Check out the brush and the website, for yourself, here.
That's all for this week
I hope this newsletter was helpful and insightful, versus just full of fear. I wanted to thank everyone for also listening to Limited Supply with me and Moiz. It's crazy to think we debuted in the top 5 of all marketing podcasts in the US, and have been comfortably sitting in the top 10 in the UK as well (Canada, where you at?)!
We are finalizing our plans for the holidays, in terms of what we're doing with clients and port companies, so I'll keep you in the loop of what those plans end up becoming.
Until next week, have a great sleep tonight (9 hours only!), stay hydrated, and get sweaty.
Have a great night!