Speaker: 00:00:04

Well, hello and welcome to the e commerce podcast.

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My name is Matt Edmondson and it is great to be with you on this.

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Well, let's just say it could be sunny day if the clouds weren't blocking the sunshine,

but it's a beautiful day nonetheless.

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And it's great that you're with us.

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Forgive my nasal tones.

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I do have a slight head cold, but you know, we've soldiered on.

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didn't need to call the paramedics, which is an important thing um with this sort of bouts

of man flu, but you know, it was a close call, but I'm surviving.

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Thank you for all your letters of encouragement.

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Anyway, welcome to this.

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It's great to have you with us.

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If you're new to the show, very warm welcome to you.

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I appreciate we get new people every week, which is just fantastic.

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So great to have you with us.

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We just talk about e-commerce.

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We love e-commerce.

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We have great fun talking about e-commerce.

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And today's guest is no exception to the rule.

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We have lots of great guests on the show.

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And Rob, it's fair to say since we did the pre-call, because we always do this sort of

pre-call with guests where we just check.

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you know, do we get on?

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Is it going to be all right?

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You know, that kind of thing.

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I've been looking to our conversation, looking forward to it.

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Whether this is what we call the podcast or not, Rob, I just love the fact that I've

jotted down in my notes that uh the death spiral of Shopify or Stripe loans is going to be

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the key topic.

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Welcome to the show, man.

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Good to have you.

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How you doing?

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I'm doing good.

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Thanks for immediately linking me to the death spiral.

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That's...

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If that's how people are gonna remember me, that's not a good thing.

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Hey, just take it however it comes, right?

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It's like, if people think Shopify loans, they need to think of Rob first, right?

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This is the way it is.

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So Rob, tell us a little bit about yourself and why you're on the show, man.

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I'll spare the whole backstory, I'm Rob.

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I'm originally from the Netherlands, but I've moved out 15 years ago, currently living in

my sixth country.

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And I run a company called Inside Matters.

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We do fractional CFO and accounting.

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And when I say accounting, I mean management accounting.

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So we don't care about tax.

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We care about management information, owner decision-making.

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And we do that for seven and eight figure online businesses, mainly e-commerce.

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Very good.

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Is your sixth country, sorry, out of all of that I heard, don't care about tax and I've

lived in six countries.

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Is that why you don't care about tax?

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Is that why you're living six countries?

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Because you don't care about tax.

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And the other five after you maybe.

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I've done everything by the book.

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I've been creative, but I've done everything by the book.

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No, the thing is, I run my team completely remote.

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We are set up officially in Hong Kong with a subsidiary in the US.

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Our clients, like most of the listeners here, you can work from anywhere.

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So quite a few of the people in the e-commerce space work from random countries with

companies incorporated in random countries.

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Yeah.

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I don't know anything about UK tax.

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I don't know anything about BVI tax.

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I don't want to know.

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I care about the business side and people, there's a of people, people a lot smarter than

I am who can help you optimize for the taxes.

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But that is such a weird and different world.

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ah I'm very aware of the things that I don't know and that's definitely one of them.

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Yes, I think it's a good statement to stay right off the bat actually.

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It's good to be aware of what you don't know.

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Right.

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And stay in your lane.

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It's critical.

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Yeah, absolutely.

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So what country are you in at the moment?

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uh So if you are fed up with the clouds there, move over.

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Same time zone, better weather.

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I have thought of, I, I, I'm not going to lie.

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I have looked at, um, longterm let's in Portugal recently, cause you're just like this

time of the year, at the time of recording, it's, it's mid-Feb.

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And I think this podcast will come out at some point in early March, but you just, at this

time of the year, I'm always like, I need to escape.

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I need to get out.

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So you, you may well have me as a neighbor next year.

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would be nice.

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say that now.

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Let's see if you say the same in about 45 minutes.

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So let's jump straight into it Rob.

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Like the question I like to ask all of my guests, right, one of the questions I've started

to ask I suppose, is you obviously work with the seven, eight figure brands, econ brands,

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you help them with their accounting and understanding the business side of things.

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Now if you could wave a magic wand

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and solve the biggest single problem that your customers face or have, what would be the

problem that you would solve?

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There is a couple of them.

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One of them is just awareness of the finances.

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That's not a problem to solve.

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That's an attitude to solve.

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Access to working capital is a key one.

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In e-commerce, we are struggling always with weird supplier payment terms, a lack of

access to capital because we're still a bit of a weird industry in the traditional eyes.

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So we are always bound to our clients always have to resort to less than ideal financing

options.

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And I'd love to break down the duopoly of Shopify and Amazon, but that is a whole

different conversation.

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I'm with you.

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I'm with you.

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I would love to see that broken massively.

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get that they're helpful and people play the systems well.

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I think, yeah, there's a few duopolis that I would like to break down and that would

definitely be one of them.

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So awareness of finance.

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You say that's an attitude issue.

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What do you mean?

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So typically most e-commerce entrepreneurs that we work with, they are either really good

at marketing or they are really in love with their product or both.

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Finance typically tends to be an afterthought.

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It's at the end of the year, look at their revenue.

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Revenue is typically the one they know because that's the vanity metric that everybody

cares about.

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But being an understanding of what is the actual gross margin, what's the actual working

capital situation and how to optimize for that.

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That tends to be an afterthought.

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And for some, that is a very expensive afterthought because they're going to leave a lot

of money on the table.

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It's perceived as less sexy.

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And I think that's not justified.

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But it's perceived as less sexy than improving your ad campaign or improving your email

marketing.

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Why do you think that is?

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Why do you think it's less sexy or perceived as less sexy?

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Oh, even I think it's less sexy.

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Marketing is more sexy.

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It's the nice images.

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It's selling the dream.

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It's tinkering with everything and you see direct response.

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The financial perspective is a bit more, okay, let's take a step back.

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Let's analyze bit more rational.

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And there's factors in play that tend to be a little bit, might be a little bit more

complicated.

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There's more moving parts.

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And especially if you're a marketeer, that number side is less intuitive for most people.

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So I don't blame them for thinking it's less sexy.

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But in the end, you run the business to make a living, to build up personal wealth, to

build up family wealth, to pay the rent or to live in Thailand, wherever.

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But money is part of the motivation to have the business.

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So it should be much more central to the decision on how do you run the business and not

just how do I push the revenue.

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Yeah.

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Yeah.

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I'm kind of thinking as you're talking, actually, there's a, there's another metric, which

pretty much everybody tracks, but it's not very sexy.

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And I wonder when you, when you know it, how many of you are disappointed by it?

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And that would be your weight, right?

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So you, you take your weight.

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If I, when I stand on the scales, I'm like, most of the time I'm like, still got a ways to

go.

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Right.

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It's just, it doesn't.

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It doesn't thrill me, but I also appreciate that what gets measured gets managed.

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so I wonder if we perceive finance to be a bit like that.

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It's not really telling me what I want it to tell me just yet.

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So I don't actually want to know.

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I think that's true and I think it's like the way you have control over it, but not

completely.

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You have to probably do a few painful things or not so nice things to improve it.

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um So there is some validity in that argument.

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So what would you say, um like if you think about your clients or you think about anybody

running an e-commerce site, what are the key, I don't know, three, four, five finance

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metrics that we all need to know just like that, that we just need to have our finger on

the pulse with?

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Gross margin, per product group or per SKU, depending a bit on your business, gross margin

is absolutely critical.

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If your gross margin is too low, you're gonna have a really, really hard time scaling the

business profitably.

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Your custom requisition costing your lifetime value and the relation between those two.

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If you can't recite those in the middle of the night, you're not on top of it.

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And your working capital, your working capital cycle.

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How does, you buy inventory,

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How long does it take before that batch of inventory starts making you cash?

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Before you've like cashflow positive on that batch of inventory.

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uh Because cashflow is the number one killer in e-commerce.

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If a business goes bad or if it goes too well, cashflow becomes a problem.

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It's not your P &L, but it's the cashflow that kills you.

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Yeah, or the lack of it is always the thing that kills me.

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So gross margin for those that don't know, Robin, I don't want to overs.

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I don't want to.

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It's not a school lesson, obviously, but I appreciate there are people who may be just

starting out who are going is what's gross.

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I always remember listening to an interview with Richard Branson.

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You know, he's made a few, a few bucks, hasn't he?

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He's not shy of a few quid, as they say.

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But I remember listening to an interview where he was like.

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I never really understood the difference between gross margin and net margin.

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You're like, holy cow.

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So for those that are listening that maybe struggle with gross margin, net margin, what do

you mean by it?

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Just walk me through the basics.

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So let's start with net revenue.

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That's your revenue, your gross revenue minus all your refunds and discounts.

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That's net revenue.

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And then minus your cost of goods sold.

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So that's your product costs, your inbound shipping, your warehousing, your labeling, your

packaging, all these things.

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That is your gross margin.

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So that does not include ad spend or customer acquisition costs.

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It's really the cost of getting the product

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to your warehouse.

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That is cost of goods sold.

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And if your gross margin, so your revenue minus your cost of goods sold, is too low, you

don't have the budget for significant ad spend.

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You don't have the budget for a good operations team.

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So pushing that gross margin higher is usually priority number one.

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Very good.

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And do you have like, like if you were going to look at an econ business, say you were

going to buy an econ business for whatever reason.

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And uh one came up and you looked at a gross margin.

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Do you have in your head a minimum number that should be really based on what you know for

that business to be able to be not only viable, but also to have some chance of scaling in

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future.

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It depends a bit.

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So there's a lot of nuance there depending on the type of product, the market, the

competitive landscape, the brand value, et cetera.

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Not knowing anything else about the business.

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If the gross margin is less than 60%, I'm out.

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So ideally you have it higher.

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And there are situations, if it's a very high volume and very high repeat purchase rates,

a lower gross margin might be acceptable.

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But in a vacuum, it has to be at least 60%, at least.

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Because you have to count on your advertising and your marketing and sales costs.

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You have to work with the overhead.

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You as the owner have to get a salary.

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You have other expenses as well.

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Typically what we would see is 40 % cost of goods sold, 30 % overhead and marketing and

sales, and 30 % profit.

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That's the target.

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Now, there's not many that make that, because especially marketing and sales tends to be

way higher than that.

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But that's the holy grail, basically.

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Yeah, it's the one everyone's chasing, isn't it?

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They always used to, when I, back in the old days, Rob, sort of pre-e-commerce really,

when I was sort of first starting out in business, they always talked about the rule of

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thirds, where you did costs, where it was basically a third, as a sort of third in effect

cost of goods sold, a third overhead, a third profit, you know, and that was in effect

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what you...

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the same.

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the same thing.

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It's interesting.

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I think the companies that make a third profit, I don't come across many of them.

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I tend to see people doing maybe 10 to 20 % net profit and they are investing heavily, I

think the net profits into more ad spend to try and grow new customer acquisition.

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And so they're...

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there's sort of the cost of acquisition.

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There's that, what's that ratio?

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There's a ratio, isn't there?

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Where you track.

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Yeah, that's the one CAC2LTV where we were always told three to one was good.

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And if it was more than three to one, you probably need to spend more on ads.

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That depends on your gross margin.

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I find that...

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Yes, that is oversimplified because there's a lot more new ones that are depending on your

products.

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If you're selling microwaves, your LTV is going to be very different than if you sell

consumables.

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So it has to have a bit more context than that.

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again, in the vacuum, that kind of makes sense.

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I would prefer four to one.

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Well, fair.

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Yeah.

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Are you I'm kind of curious to you.

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I suppose a good question here is when I think about the guys that do our accounts, Steve

and the team.

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Great.

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Michelle, who's our Ops Director, she does a wonderful job.

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Quite risk averse compared to me.

234

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You know, I'm like, let's just go do it.

235

00:15:06,975 --> 00:15:09,556

We might lose everything, but let's go have a bit of fun.

236

00:15:10,426 --> 00:15:20,484

And this is where I also wonder, coming back to your first point, whether we don't think

they're sexy, because do we find numbers a little bit um inhibiting in some way?

237

00:15:23,196 --> 00:15:26,077

That's the perception and it should be the other way around.

238

00:15:26,417 --> 00:15:32,479

you know, so one of my personal pet peeves is the importance of accurate forecasting.

239

00:15:33,419 --> 00:15:42,232

If you make a sales forecast for the rest of this year, maybe this month is pretty

accurate, but the closer you get to the end of the year, the more wrong you're going to

240

00:15:42,232 --> 00:15:42,542

be.

241

00:15:42,542 --> 00:15:43,162

And that's fine.

242

00:15:43,162 --> 00:15:44,262

That's normal.

243

00:15:44,282 --> 00:15:50,124

But building the muscle of making a forecast, reviewing your progress against the

forecast,

244

00:15:50,214 --> 00:15:59,729

and then understanding where you were wrong and then iterating and next month being a

little bit more accurate, the more accurate the forecast is, the more certainty you have

245

00:15:59,729 --> 00:16:04,472

about the future, the more confidence you can have to make big decisions.

246

00:16:04,472 --> 00:16:10,235

If you want to launch a new product or you want to add a new channel or a new country,

that's going to take an investment.

247

00:16:10,235 --> 00:16:11,775

Can you afford that?

248

00:16:12,196 --> 00:16:15,098

Well, that kind of depends on how much buffer you have.

249

00:16:15,098 --> 00:16:20,140

But realistically speaking, you probably don't have a lot of buffer because you're

reinvesting everything.

250

00:16:20,272 --> 00:16:30,192

So the more confidence you can have in your forecast, the more risk you can take with new

investments, with new growth initiatives, because you are much more comfortable with this

251

00:16:30,192 --> 00:16:34,065

is what the main business or this is what the existing business is going to deliver.

252

00:16:34,286 --> 00:16:41,320

So it should reduce that anxiety and it allows you to do more because you have less risk.

253

00:16:41,320 --> 00:16:43,640

Yeah, yeah, no, I agree.

254

00:16:44,100 --> 00:16:44,460

I agree.

255

00:16:44,460 --> 00:16:45,180

I'm just sorry.

256

00:16:45,180 --> 00:16:47,340

I'm just playing devil's advocate slightly.

257

00:16:47,740 --> 00:16:52,180

I'm kind of, let me just rewind if I can.

258

00:16:52,660 --> 00:16:54,100

Cost of goods sold.

259

00:16:54,660 --> 00:16:56,940

So we're looking at around 40 % there.

260

00:16:56,940 --> 00:16:59,920

In other words, we're looking for a gross margin of around 60%.

261

00:16:59,920 --> 00:17:00,680

Two questions.

262

00:17:00,680 --> 00:17:03,600

One, are you including shipping in cost of goods sold?

263

00:17:05,240 --> 00:17:09,700

And two, well, let me ask that question first before I come into my second one.

264

00:17:09,950 --> 00:17:11,212

So inbound shipping.

265

00:17:11,212 --> 00:17:15,678

So from your manufacturer to your warehouse, that should be included in cost of goods

sold.

266

00:17:16,500 --> 00:17:19,183

Shipping from the warehouse to the final customer.

267

00:17:19,405 --> 00:17:24,412

Technically, if you're a purist accountant, that should be in operating expenses.

268

00:17:24,412 --> 00:17:26,510

Okay, very good.

269

00:17:26,510 --> 00:17:28,645

don't mind putting in a cost of goods sold.

270

00:17:28,645 --> 00:17:37,576

I personally would prefer to put it there because it feels more closely connected to cost

of goods sold, but strictly accounting speaking, it's operating expenses.

271

00:17:37,576 --> 00:17:38,296

Yeah.

272

00:17:38,296 --> 00:17:39,096

Okay.

273

00:17:39,556 --> 00:17:46,716

My second question, given that you've given this magic number of 60 % in an ideal world,

and I appreciate it is in an ideal world.

274

00:17:48,396 --> 00:17:51,896

There will be people listening to the show and I know who they are.

275

00:17:51,916 --> 00:18:00,596

I've had conversations with some of them who are on gross margins of 20%, some are on 30%,

some are on 40%.

276

00:18:00,596 --> 00:18:04,193

They're going to be crying right now.

277

00:18:04,193 --> 00:18:14,306

And um especially if they're watching YouTube, giving your reaction, I'm kind of like, do

you, how do you deal with companies that have such low gross margin?

278

00:18:15,176 --> 00:18:19,560

So this is where context is so important.

279

00:18:19,560 --> 00:18:25,244

We have a client in that kind of space, but they're almost more like a wholesaler rather

than a retailer.

280

00:18:25,484 --> 00:18:27,556

it's business to business.

281

00:18:27,556 --> 00:18:31,329

They have larger clients, uh bigger order volumes.

282

00:18:31,349 --> 00:18:35,753

They can afford to have the lower gross margin because they have less inventory risk.

283

00:18:35,753 --> 00:18:44,640

They have less inventory to hold because it's longer term clients that have a pretty

accurate sales forecast of what they will purchase in the next year.

284

00:18:44,744 --> 00:18:47,324

So their risk profile is very different.

285

00:18:47,724 --> 00:18:53,344

They're not gonna have Facebook ads that all of a sudden stop working and then you're

stuck with a boatload of inventory.

286

00:18:53,604 --> 00:18:58,584

So it really depends on the context on what is acceptable or not.

287

00:18:59,884 --> 00:19:08,722

If you're B2C and you're depending on paid traffic and you're running a 20 % gross margin,

I think you're in a very tough spot.

288

00:19:08,722 --> 00:19:09,496

Yeah.

289

00:19:09,916 --> 00:19:12,640

the question then really becomes like, how can you maneuver out of that spot?

290

00:19:12,640 --> 00:19:13,551

Can you change the product?

291

00:19:13,551 --> 00:19:14,493

Can you change the positioning?

292

00:19:14,493 --> 00:19:17,847

Can you change the cost structure of the product?

293

00:19:18,048 --> 00:19:21,192

Because this is not a sustainable, scalable model.

294

00:19:21,532 --> 00:19:23,393

Yeah, that's a good home truth.

295

00:19:23,393 --> 00:19:24,534

I like that Rob.

296

00:19:24,534 --> 00:19:28,575

I remember, if I can interject a story here.

297

00:19:29,435 --> 00:19:32,017

We had our website called Jersey Beauty Company.

298

00:19:32,958 --> 00:19:34,419

And I don't have it anymore.

299

00:19:34,419 --> 00:19:36,200

We sold it during COVID.

300

00:19:37,581 --> 00:19:43,914

And years ago, over 10 years ago now, we were doing really well with that business.

301

00:19:43,914 --> 00:19:48,136

It was doing millions every year and it was scaling, it was growing and we were loving it.

302

00:19:48,136 --> 00:19:51,228

Now, one problem that we had,

303

00:19:51,612 --> 00:19:53,985

which I didn't realize until it was too late was

304

00:19:56,420 --> 00:20:00,953

we, I would say over 95 % of our sales were through one supplier.

305

00:20:00,953 --> 00:20:06,247

Okay, so we bought products off one supplier, which accounted for 95 % of our sales.

306

00:20:06,548 --> 00:20:12,112

The other 5 % came from the other suppliers that we had on the site and try as we could to

grow those other suppliers, it just wasn't working.

307

00:20:12,112 --> 00:20:17,815

We were, you know, we were with this sort of one supplier and there were that one

supplier.

308

00:20:18,952 --> 00:20:23,932

Dermalogica, if you know the skincare trade, they were supplying other websites as well.

309

00:20:23,932 --> 00:20:26,892

So we were all competing and we're all doing quite well.

310

00:20:27,132 --> 00:20:33,412

Until one day, we got a letter from them.

311

00:20:34,192 --> 00:20:35,792

It was January 2012.

312

00:20:35,792 --> 00:20:37,512

I always remember this.

313

00:20:37,832 --> 00:20:41,052

We got a letter from them saying, basically guys, we're changing our pricing policy.

314

00:20:41,052 --> 00:20:43,292

The more you buy, the more you pay.

315

00:20:44,192 --> 00:20:45,852

And so, yeah, yeah.

316

00:20:45,852 --> 00:20:48,673

was, yeah, yeah.

317

00:20:48,673 --> 00:20:49,869

seen that one before.

318

00:20:49,869 --> 00:20:54,502

I looking back, I have all kinds of ideas as to why Dermalogica did this.

319

00:20:54,502 --> 00:20:57,791

um Looking back.

320

00:20:59,688 --> 00:21:02,871

Part of me thinks it was quite an immoral thing.

321

00:21:02,871 --> 00:21:05,873

Part of me thinks actually this was quite a shrewd move.

322

00:21:06,315 --> 00:21:10,669

Because what it meant was I paid overnight 30 % more for the products I was buying.

323

00:21:10,669 --> 00:21:14,602

Because we were one of the biggest worldwide suppliers.

324

00:21:15,103 --> 00:21:23,548

So what that did, going back to gross margin, my gross margin shrunk from 40 some percent

all the way down to about 16%.

325

00:21:23,548 --> 00:21:24,800

And

326

00:21:25,582 --> 00:21:31,016

let me tell you that business halved in value at that point.

327

00:21:31,037 --> 00:21:39,293

Sales dropped off a cliff and what I couldn't do because Dermalogica started selling

direct to consumers themselves because at this point they weren't really, it wasn't their

328

00:21:39,293 --> 00:21:41,505

business model.

329

00:21:41,505 --> 00:21:50,072

They were able to offer value to customers that I wasn't like gifts with purchase and so

on and so forth and it became problematic.

330

00:21:50,640 --> 00:21:57,045

So I fully appreciate what it's like trying to run a business on search type margins.

331

00:21:57,606 --> 00:22:05,292

And in essence, the Dermalogica sales of that business declined year on year after that.

332

00:22:05,292 --> 00:22:13,840

And it's really hard to manage a business, I think with any kind of energy, there is a

perpetual decline in business.

333

00:22:13,840 --> 00:22:19,664

So that business declined in sales with Dermalogica feet.

334

00:22:19,784 --> 00:22:25,464

several years and we tried everything that we could do to rethink it and to redo it.

335

00:22:25,464 --> 00:22:30,284

It was just really really hard and soul destroying in many ways.

336

00:22:30,284 --> 00:22:38,688

So I feel for you if you're out there and you're working on sort 15, 20, 25 percent gross

margins because that's not easy.

337

00:22:41,768 --> 00:22:44,179

think that's a very polite way of putting it.

338

00:22:47,438 --> 00:22:48,439

It really is.

339

00:22:48,439 --> 00:22:49,219

It really is.

340

00:22:49,219 --> 00:22:52,421

em But yeah, it's a fascinating one.

341

00:22:52,421 --> 00:23:00,826

em Let's go to working capital, because this is an interesting phrase that people might

not understand straight away.

342

00:23:00,826 --> 00:23:08,370

So you talked about the cycle between buying stock, that stock going onto your shelves,

and then selling that stock.

343

00:23:08,370 --> 00:23:10,921

Is that what you mean by working capital cycle?

344

00:23:10,921 --> 00:23:12,672

Let's just dig into that a little bit.

345

00:23:13,392 --> 00:23:18,654

Yes, essentially yes, because basically if you're running a business, you have money tied

up in inventory.

346

00:23:18,654 --> 00:23:21,675

You have bills that you have to pay to your supplier.

347

00:23:21,675 --> 00:23:27,438

And if you're doing wholesale or B2B, you might have receivables of money that you get

from your customers.

348

00:23:28,498 --> 00:23:30,799

The balance of those three, that's your working capital.

349

00:23:30,799 --> 00:23:35,641

So how much cash do you have tied up in actually running the business?

350

00:23:36,542 --> 00:23:42,944

And you need to understand and manage that to actually scale because changing the payment

terms,

351

00:23:43,128 --> 00:23:50,551

On the customer side, it's typically not an option, but changing the payment terms on your

supplier side may make a really, really big impact.

352

00:23:51,332 --> 00:23:56,013

Case in point, we have a client in uh Australia for a seasonal business.

353

00:23:56,013 --> 00:24:01,656

Their supplier is in Europe, so they have to order inventory six months before they plan

to sell it.

354

00:24:02,756 --> 00:24:06,558

It's, from a working capital perspective, disaster as a business.

355

00:24:06,898 --> 00:24:11,740

They managed to run it really well, but the working capital is horrible because you have

to...

356

00:24:12,040 --> 00:24:22,940

Define now what you plan to sell six, nine, 12 months from now, pay part of it now, and

then three months from now when the stuff gets on the boat, you pay the rest and then you

357

00:24:22,940 --> 00:24:27,740

wait and you wait and you wait for three months before the stuff hits your warehouse.

358

00:24:27,740 --> 00:24:30,120

And then you can start selling it.

359

00:24:30,120 --> 00:24:32,640

So that's insanely capital intensive.

360

00:24:33,840 --> 00:24:42,022

If you're having ways to, for example, with your suppliers, you change the payment terms,

not pay 30%, sorry, 50%.

361

00:24:42,022 --> 00:24:48,798

before shipment, but when it arrives or 60 days after it arrives, it frees up a lot of

cash.

362

00:24:48,798 --> 00:24:52,261

It doesn't change your margin, but it frees up a lot of cash.

363

00:24:52,261 --> 00:25:01,269

So if you want to, if you're growing fast, you can afford to buy more inventory because

you have more cash in the bank accounts that you can use to spend on ads or buy inventory.

364

00:25:01,590 --> 00:25:09,160

So even if it doesn't change your profitability, it does change how fast or how healthy

your business can grow.

365

00:25:09,160 --> 00:25:13,163

m Yeah, it's an interesting one.

366

00:25:13,163 --> 00:25:15,384

Again, I'm reminded of a chap called Albert Gube.

367

00:25:15,384 --> 00:25:18,946

AG was a bit of a mentor to me years ago.

368

00:25:19,908 --> 00:25:21,499

And he's passed away now.

369

00:25:21,499 --> 00:25:29,834

And he was a really interesting guy because he was his whole business model was the quick

safe supermarket in the UK in the 60s and 70s.

370

00:25:30,075 --> 00:25:32,216

And his whole idea was

371

00:25:32,774 --> 00:25:34,595

I'll buy a pallet of baked beans.

372

00:25:34,595 --> 00:25:36,337

I'll put the pallet out in the shop.

373

00:25:36,337 --> 00:25:37,228

I won't unpack them.

374

00:25:37,228 --> 00:25:41,330

I'll leave them on the pallet because then that saves me paying somebody to unpack them.

375

00:25:41,811 --> 00:25:48,347

And when I buy them, um I'll get it on a 90 day invoice rather than a 30 day invoice.

376

00:25:48,347 --> 00:25:51,980

And then I'll take actually maybe 92 days to pay them.

377

00:25:51,980 --> 00:25:59,506

And he just offset everything constantly, which just freed up so much money for him to

expand quite rapidly.

378

00:25:59,506 --> 00:26:00,947

It was quite an interesting strategy.

379

00:26:00,947 --> 00:26:02,928

I don't know if I would have the

380

00:26:03,976 --> 00:26:10,932

uh, the courage maybe the full hardiness, I don't know, uh, to, pull that off.

381

00:26:11,560 --> 00:26:20,067

So probably, if I understand what he did correctly, if that pallet goes in the

supermarket, it doesn't take him 90 days to sell out that pallet.

382

00:26:20,668 --> 00:26:23,810

So he has what we call negative working capital.

383

00:26:24,111 --> 00:26:28,914

He has money from the customer before he pays the supplier.

384

00:26:28,995 --> 00:26:34,079

That is every finance person's wet dream, because that means you can scale unlimited.

385

00:26:34,079 --> 00:26:37,042

The faster you grow, the more money you have in a bank account.

386

00:26:37,042 --> 00:26:39,784

Well, typically with e-commerce, the faster you grow,

387

00:26:40,136 --> 00:26:44,622

and the more cash it takes because you have to pre-finance all the inventory.

388

00:26:44,923 --> 00:26:51,218

So the more you can get that amount to zero or even negative, the better it is.

389

00:26:51,218 --> 00:26:53,329

Yeah, that's exactly what he did.

390

00:26:53,329 --> 00:26:56,330

um That's exactly.

391

00:26:56,671 --> 00:26:57,712

Here's the interesting thing.

392

00:26:57,712 --> 00:26:59,182

I want to contrast this slightly.

393

00:26:59,182 --> 00:27:17,652

So when it came to the beauty company, for example, Andy, who was my business partner um

and I, we very much were a part of the cam, which said when we order the stock, pay for

394

00:27:17,652 --> 00:27:17,803

it.

395

00:27:17,803 --> 00:27:20,584

Cause then everything on the shelves I owe is mine.

396

00:27:21,554 --> 00:27:29,913

just because we'd heard the horror stories of people struggling later on down the lives to

pay, not to pay, because they've not sold the stock quick enough, if that makes sense.

397

00:27:29,913 --> 00:27:32,556

So Jersey was a bootstrap company.

398

00:27:32,556 --> 00:27:34,477

didn't owe anybody anything.

399

00:27:35,078 --> 00:27:41,184

And so when we sold it, it had no liabilities other than obviously we had to pay the VAT.

400

00:27:41,745 --> 00:27:43,146

But that was about it.

401

00:27:43,487 --> 00:27:44,548

And so,

402

00:27:46,584 --> 00:27:53,439

That though creates this longer working capital cycle that you talked about.

403

00:27:55,132 --> 00:27:56,334

And I don't think it's because we're wrong.

404

00:27:56,334 --> 00:28:04,527

I'm curious to know what you think about how that strategy in itself and how we can do

that well.

405

00:28:05,682 --> 00:28:09,735

So it's not about wrong or right because neither is wrong and neither is right.

406

00:28:09,735 --> 00:28:11,496

It's about priorities.

407

00:28:11,496 --> 00:28:20,977

It's about what's fit for you, for your risk profile, for your confidence and what

actually fits the business and what is actually practically possible with suppliers and

408

00:28:20,977 --> 00:28:22,302

the situation.

409

00:28:22,923 --> 00:28:25,745

The approach you take is very, very conservative.

410

00:28:25,745 --> 00:28:28,906

You have no external risks.

411

00:28:29,187 --> 00:28:33,670

You don't owe anybody anything, but that means that you're paying for it.

412

00:28:34,591 --> 00:28:35,651

If you're

413

00:28:36,284 --> 00:28:41,688

keeping the payable to your supplier open for longer, that means you owe them money.

414

00:28:41,688 --> 00:28:45,811

And that gives some people don't mind, some people lose sleep over that.

415

00:28:45,811 --> 00:28:48,232

So that's where the personal preference comes in.

416

00:28:48,353 --> 00:28:57,338

It's more capital efficient, but it comes with a higher risk because you're basically

trading on money that you borrow from your supplier.

417

00:28:58,200 --> 00:29:03,062

You're not paying interest over it, so it's free money, but it is still money that you owe

to somebody else.

418

00:29:06,874 --> 00:29:11,748

If you neither is wrong or right, it's about risk profile.

419

00:29:11,748 --> 00:29:12,849

What are you comfortable with?

420

00:29:12,849 --> 00:29:21,415

Do you sleep better at night if you know that everything on the shelf is yours and you

don't owe anybody from it?

421

00:29:21,475 --> 00:29:27,940

Or do you sleep better at night knowing that you don't have as much money tied up in the

business and that is somebody else's money?

422

00:29:28,778 --> 00:29:30,109

Yeah, it's an interesting one, isn't it?

423

00:29:30,109 --> 00:29:32,340

I there's no right or wrong.

424

00:29:32,340 --> 00:29:34,542

think it's an interesting.

425

00:29:36,003 --> 00:29:38,985

It's just, guess I'm unique in that sense.

426

00:29:39,386 --> 00:29:40,516

Unique is probably the wrong word.

427

00:29:40,516 --> 00:29:47,051

There are people out there like me, but I like the idea of buying the stock straight away.

428

00:29:47,051 --> 00:29:50,773

And I tell you what happens because people say to me, well, why don't you just buy on

credit?

429

00:29:50,774 --> 00:29:54,364

say you're going to buy 10 grand worth of stock, but the 10 grand in the bank.

430

00:29:54,364 --> 00:29:59,946

get the interest and at least then when the stocks due payment you interest.

431

00:29:59,946 --> 00:30:10,490

I've always found that actually if I'm going to give them 10k straight away, I can call

them up and say, can we do a deal whereby I don't pay you the 10 grand I'll pay you nine

432

00:30:10,490 --> 00:30:13,472

and a half, but I'll pay cash upfront.

433

00:30:15,674 --> 00:30:22,136

I always have much bigger negotiations, more, what's the word I'm looking for?

434

00:30:22,136 --> 00:30:25,422

Much more weighty, much more power.

435

00:30:25,422 --> 00:30:26,084

Yes.

436

00:30:26,084 --> 00:30:29,058

In the negotiations, if I'm willing to pay cash upfront.

437

00:30:29,832 --> 00:30:34,212

Yes, but again, every business has a constraint.

438

00:30:34,452 --> 00:30:39,492

So for some it's cash, for some it's other things, it's profitability.

439

00:30:39,612 --> 00:30:45,292

So there's a, what you've done is you've traded timing of cashflow for more profit.

440

00:30:45,332 --> 00:30:49,152

So you can, I pay you upfront, but I'm going to get a lower price.

441

00:30:49,332 --> 00:30:58,432

For other businesses, it might be better to say, you know what, I'll pay a little bit

higher price, but I only want to pay 20 % now and 80 % in net 90.

442

00:30:59,536 --> 00:31:05,960

If you're having a gross margin problem, increasing your profitability is probably the

most important thing.

443

00:31:06,340 --> 00:31:18,028

But if your profitability is good and your growth is good, but you don't have access to

capital, then getting cash or a loan essentially from your supplier might be the more

444

00:31:18,028 --> 00:31:19,309

valuable thing.

445

00:31:19,309 --> 00:31:20,769

So that's why there is no wrong or right.

446

00:31:20,769 --> 00:31:25,158

It's about what is appropriate for that business, for that risk profile.

447

00:31:25,158 --> 00:31:27,209

Yeah, that's true.

448

00:31:27,209 --> 00:31:28,069

So true.

449

00:31:28,069 --> 00:31:29,648

Let's talk a little bit then.

450

00:31:29,648 --> 00:31:31,800

I mean, I mentioned this at the start of the show.

451

00:31:31,800 --> 00:31:37,992

And this leads me nicely, Rob, into the, what did we call it?

452

00:31:37,992 --> 00:31:42,493

The death spiral of short-term things.

453

00:31:42,613 --> 00:31:50,975

So I've seen this recently whereby you have a company starting to trade.

454

00:31:50,975 --> 00:31:53,926

It's not making enough to cover salaries necessarily.

455

00:31:54,292 --> 00:31:56,913

And, but it's starting to make some money.

456

00:31:56,913 --> 00:32:00,094

Shopify comes along and says, Hey, would you like a Shopify loan?

457

00:32:00,094 --> 00:32:01,795

It's all pre-approved.

458

00:32:02,094 --> 00:32:03,316

Here's whatever $20,000.

459

00:32:03,316 --> 00:32:07,137

Just click here.

460

00:32:07,518 --> 00:32:10,499

And in the small print somewhere, these will be the fees.

461

00:32:10,499 --> 00:32:16,702

And what we're going to do is we're going to take a percentage of your sales going forward

to pay back that loan.

462

00:32:16,702 --> 00:32:20,683

And you kind of go, Oh, that'd be nice to have the 20,000 pounds.

463

00:32:20,683 --> 00:32:23,024

I could give myself a little bit of extra cash.

464

00:32:23,036 --> 00:32:26,007

So you take the 20 grand next year, you find you're in the same boat.

465

00:32:26,007 --> 00:32:28,097

Only this time Shopify are offering you 40,000.

466

00:32:28,097 --> 00:32:38,580

And you need to borrow the 40,000 because you still really, you've not really recovered

from borrowing the 20,000 and everything sort of compounded a bit that year.

467

00:32:38,580 --> 00:32:43,582

And this is why we called it, I think when we talked to the death spiral, because the year

after that, all of a sudden I have to borrow 80,000.

468

00:32:43,582 --> 00:32:49,683

And it seems like we, we, we jump into this perpetual borrowing more and more money.

469

00:32:49,904 --> 00:32:51,534

You could argue.

470

00:32:51,912 --> 00:32:56,304

ah that money is unsecured from Shopify and it is secured on the business.

471

00:32:56,304 --> 00:33:00,295

So if it all goes peat-tongue, you don't lose your house.

472

00:33:00,956 --> 00:33:06,868

But I'm curious what your experience with Shopify loans is Rob, because I've never really

talked about them on the show.

473

00:33:06,868 --> 00:33:11,200

I've just seen the effect of them and I'm excited to talk to you about them.

474

00:33:12,898 --> 00:33:21,750

I'm not so sure Shopify is going to be excited to talk about it because just to clarify,

we're calling it Shopify here, but it's also Stripe, it's also QuickBooks, it's also...

475

00:33:23,051 --> 00:33:28,543

Basically, if anybody offers you money with such convenience, just click here and you get

it.

476

00:33:28,543 --> 00:33:31,073

And by the way, there are some fixed terms.

477

00:33:31,734 --> 00:33:34,614

If it's so easy, you know there is a catch.

478

00:33:34,614 --> 00:33:40,836

And the interest rates, the cost of the capital, it is absolutely bat shit crazy high.

479

00:33:41,576 --> 00:33:45,376

Are there situations where that is the best or the right thing to do?

480

00:33:45,496 --> 00:33:46,516

Sure.

481

00:33:46,836 --> 00:33:48,376

But they are exceptions.

482

00:33:50,516 --> 00:33:56,016

You're essentially paying typically 20 % or so of interest on that money.

483

00:33:56,756 --> 00:34:00,876

Now, we just spoke about borrowing money from your suppliers at 0%.

484

00:34:00,876 --> 00:34:09,676

Or if you're borrowing it from your, if you privately lend it to the company so the

company can use it, you're probably paying yourself maybe 8 or 10%.

485

00:34:10,182 --> 00:34:13,298

These guys, you're gonna pay 20%.

486

00:34:13,298 --> 00:34:20,829

On a business that's running at 10 % margins, every dollar you use from them shrinks your

profits.

487

00:34:20,951 --> 00:34:22,051

We buy two.

488

00:34:24,132 --> 00:34:31,618

So like you said, you borrow one next year, your sales grow a bit, you take another bigger

loan and you take out a bigger loan.

489

00:34:31,618 --> 00:34:42,646

And before you know it, more cash goes to repaying the loans than it goes to spending on

marketing or spending on growth or paying your own salary.

490

00:34:44,128 --> 00:34:50,773

It is, we have a client and now I have to be a little bit careful how I describe it so

that nobody can actually deduce it.

491

00:34:51,494 --> 00:34:54,216

They are now in eight figures in revenue.

492

00:34:54,248 --> 00:35:00,628

And I would not be surprised if they're not going to make it till the end of the year

because they have so much external debt.

493

00:35:00,628 --> 00:35:09,068

The business, the gross margin is doing pretty okay, but their interest cost, their cost

of financing is so high that I don't think they're going to survive.

494

00:35:10,820 --> 00:35:24,382

really interesting isn't it really powerful like i i mean again not to um i again want to

be careful with what i say but um

495

00:35:26,084 --> 00:35:33,007

We've seen businesses go into administration because really the cost of that loan is

crippling the business.

496

00:35:33,727 --> 00:35:38,559

Especially because it's not just the cost of the interest.

497

00:35:38,559 --> 00:35:43,651

It's the fact that there is a I am taking 17 % of all your future sales.

498

00:35:44,012 --> 00:35:55,356

And so in the UK, it was kind of like, well, for every hundred pounds, I have to pay 16,

17 pounds in VAT to the, you know, the taxman.

499

00:35:55,356 --> 00:35:59,037

Plus you're now taking 16, 17 pounds.

500

00:35:59,037 --> 00:36:02,859

So all of a sudden I'm down almost 40 quid.

501

00:36:03,059 --> 00:36:05,280

And that's before I've even got out of bed.

502

00:36:05,520 --> 00:36:11,442

And so from, so now you talk about great, if I had a 60 % growth margin, now it's down to

20 % and I've not done anything.

503

00:36:11,442 --> 00:36:16,364

You know, it's, it's proper crazy.

504

00:36:17,316 --> 00:36:20,503

your marketing spend is more than 20 % of your revenue as well.

505

00:36:20,503 --> 00:36:24,651

So then effectively you're below zero and then you haven't paid your own salary.

506

00:36:25,697 --> 00:36:27,841

Yeah, and you're or you're not paying the creditors.

507

00:36:27,841 --> 00:36:31,923

You're not paying your suppliers and there's everything is just getting put back on back.

508

00:36:31,923 --> 00:36:37,874

don't have to pay your suppliers because you can just take a new loan next year when you

need to buy a new batch of inventory.

509

00:36:38,995 --> 00:36:44,016

So that's the psychology that I've seen happen.

510

00:36:44,016 --> 00:36:46,367

So they think, I don't have to pay the supplier now.

511

00:36:46,367 --> 00:36:47,534

I can just postpone that.

512

00:36:47,534 --> 00:36:49,358

I don't have to put money aside for that.

513

00:36:49,438 --> 00:36:53,479

And then because business is doing well, Shopify will offer me a better loan.

514

00:36:53,939 --> 00:36:56,910

Yes, they're going to offer you a bigger loan, but I wouldn't call it better.

515

00:36:58,086 --> 00:37:02,520

And that's why I call it the death spiral because you get stuck into taking out ever

bigger loans.

516

00:37:02,520 --> 00:37:05,441

The more the company grows, the more you have to borrow.

517

00:37:06,081 --> 00:37:08,496

And the less you're going to end up with yourself.

518

00:37:08,496 --> 00:37:10,477

Yeah, absolutely.

519

00:37:10,518 --> 00:37:11,539

It is crazy.

520

00:37:11,539 --> 00:37:21,539

So how do we, suppose if now we've identified this and we've labeled it, how do we

mitigate for it?

521

00:37:21,539 --> 00:37:29,155

How do we prevent ourselves going down that road or if we're on that roller coaster, how

do we get off it?

522

00:37:32,262 --> 00:37:36,775

getting off it is actually remarkably difficult once you're on it far enough.

523

00:37:37,156 --> 00:37:45,703

know, especially in the US, there are a couple of local credit unions that actually help

to refinance those things at more sustainable rates.

524

00:37:45,843 --> 00:37:56,031

One of our clients is now refinancing a batch of those loans that were going at 20 % at a

community bank for, I think he's going to refinance it for eight in a longer period.

525

00:37:56,312 --> 00:37:58,313

So that makes it a lot more manageable.

526

00:37:58,313 --> 00:38:01,656

um In the end.

527

00:38:01,830 --> 00:38:12,043

What you're going to have to get out of it, you have to bite the bullet, cut everything,

every cost that you can cut, make sure they paid off and then hit the throttle again in a

528

00:38:12,043 --> 00:38:13,583

more sustainable way.

529

00:38:14,364 --> 00:38:18,145

So that means lowering your own salary, cutting staff you don't need.

530

00:38:18,545 --> 00:38:25,007

Make sure that the company stays cashflow positive until everything's paid off and only if

it's paid off.

531

00:38:25,007 --> 00:38:27,848

ideally you build up a little bit of a buffer again.

532

00:38:28,116 --> 00:38:31,941

then you can start putting the foot on the gas again.

533

00:38:33,324 --> 00:38:41,456

But that's the non-sexy, that's the hard way, but you have to clean it out first before

you can double down.

534

00:38:41,906 --> 00:38:46,998

That's bit that, um, that they don't talk about when you take out the loans.

535

00:38:47,398 --> 00:38:53,650

It's like, you know, at some point that the debt comes calling and there will be stories

of people that like, Oh, this loan saved my life.

536

00:38:53,650 --> 00:38:56,261

You know, we took out the loan and enabled us to buy some stock.

537

00:38:56,261 --> 00:38:58,181

sold all that stock out.

538

00:38:58,182 --> 00:39:01,462

It kickstarted our business and now we're doing this, that and the other.

539

00:39:01,543 --> 00:39:05,164

I would say that's the exception and not the norm personally.

540

00:39:07,506 --> 00:39:16,424

But there is this horrible, uncomfortable space where you have to start to think, how do I

pay this back and what's the strategy for that?

541

00:39:16,866 --> 00:39:27,596

And it's, I don't know, maybe you've got some experience here, Rob, that can help us, but

it doesn't feel like it's gonna take just a couple of weeks to do that.

542

00:39:27,910 --> 00:39:29,320

Depends on the scale.

543

00:39:29,481 --> 00:39:30,961

Depends on the scale.

544

00:39:31,002 --> 00:39:35,764

If you're a million dollar business and it's a $10,000 loan, that's a couple of weeks.

545

00:39:35,764 --> 00:39:40,667

Or maybe that's one month of not paying your own salary, get rid of the loan, get it over

with.

546

00:39:41,427 --> 00:39:47,631

If you're talking about a million dollar business with 500K in loans, please don't let

those exist.

547

00:39:47,631 --> 00:39:49,912

You're gonna talk about a lot longer periods.

548

00:39:49,912 --> 00:39:54,974

So the earlier you tackle this problem, the easier it is to do.

549

00:39:55,195 --> 00:39:57,976

But this all starts with the awareness of

550

00:39:58,150 --> 00:39:59,880

What does my profitability look like?

551

00:39:59,880 --> 00:40:01,641

How am I financing this?

552

00:40:01,981 --> 00:40:03,751

Am I borrowing money from the supplier?

553

00:40:03,751 --> 00:40:05,202

Am I funding everything myself?

554

00:40:05,202 --> 00:40:16,665

Because if you think I want to increase my profit with 2 % by paying my supplier upfront

and making sure I can bargain hard there, but I'm paying for that with a Shopify loan,

555

00:40:16,745 --> 00:40:18,565

you're shooting yourself in the foot.

556

00:40:19,506 --> 00:40:22,307

So if you have the cash, you can do that.

557

00:40:22,307 --> 00:40:28,188

If you have to borrow the cash, I would rather have a slightly higher price for my

supplier.

558

00:40:28,188 --> 00:40:31,303

but not have to borrow money elsewhere to pay for it.

559

00:40:32,663 --> 00:40:34,145

Yeah, no, absolutely.

560

00:40:34,145 --> 00:40:40,675

So how do we stop ourselves maybe getting into the needs to sort of fall into this spiral?

561

00:40:41,778 --> 00:40:44,049

very clear understanding of gross margin.

562

00:40:44,049 --> 00:40:51,273

What's your revenue, what's your gross margin, and how is like for every batch of

inventory that you buy, what's the cash profile there?

563

00:40:51,474 --> 00:40:53,035

When do you spend how much?

564

00:40:53,035 --> 00:40:54,085

When do you pay the shipping?

565

00:40:54,085 --> 00:40:55,156

When do you pay the VAT?

566

00:40:55,156 --> 00:40:57,377

When do you pay customs?

567

00:40:58,218 --> 00:40:59,559

When do you start receiving money?

568

00:40:59,559 --> 00:41:02,460

How does that profile look like and can you change that?

569

00:41:04,360 --> 00:41:10,880

The second thing is make sure you have enough gross margin because a higher gross margin

solves for a lot of problems.

570

00:41:10,960 --> 00:41:19,360

If your gross margin is high enough, you can afford a little bit higher cost of capital or

you can afford to spend more on marketing to push up the sales faster.

571

00:41:20,160 --> 00:41:29,560

If you don't know your margins and you don't know your own capital, then you're blind on

this part and you might push yourself in the corner that all of a sudden you have an empty

572

00:41:29,560 --> 00:41:32,710

bank account and you have to use that kind of loans.

573

00:41:32,710 --> 00:41:33,446

Yeah.

574

00:41:33,446 --> 00:41:37,461

So it's really staying on top of it, having everything transparent.

575

00:41:37,642 --> 00:41:39,184

That's the best recipe.

576

00:41:39,974 --> 00:41:44,206

Yeah, I mean, what you're saying in essence, Rob, is you have to plan.

577

00:41:45,227 --> 00:41:47,318

And we're notoriously bad at planning, aren't we?

578

00:41:47,318 --> 00:41:56,703

And I think especially if you're entrepreneurial, planning is not something you'd like to

do or think about because you this blind optimism guides everything, which is both good

579

00:41:56,703 --> 00:41:58,254

and bad, I think, in many ways.

580

00:41:58,254 --> 00:42:08,092

uh But we have to sit down and we have to take it seriously and we have to plan and start

to think about how are we going to achieve what we're going to achieve.

581

00:42:08,092 --> 00:42:08,872

Yes.

582

00:42:08,872 --> 00:42:19,092

And this is why, again, when we're going back to old school weights here, Rob, they said

to us right at the start, it came to business, you needed, I think it was three or four

583

00:42:19,092 --> 00:42:24,172

key people, one of which was a finance guy, finance director.

584

00:42:27,354 --> 00:42:32,147

Obviously when you're a young company, unless you're a finance guy, you're not going to go

out and get a finance director.

585

00:42:32,147 --> 00:42:35,570

And this is why the fractional CMO type things work.

586

00:42:35,570 --> 00:42:36,951

think quite well, don't they?

587

00:42:36,951 --> 00:42:41,074

Why you guys do quite well is because it's like, you don't need to now.

588

00:42:41,074 --> 00:42:42,434

We'll do that for you.

589

00:42:42,434 --> 00:42:49,709

We'll be specialist here, but finance is a really key pillar as his operations, um, as his

sales and marketing, right?

590

00:42:49,709 --> 00:42:56,664

So, um, I think you have to see finance in your business as important as marketing.

591

00:42:57,180 --> 00:42:57,980

Yes.

592

00:42:58,341 --> 00:43:05,026

From my perspective, and I'll admit I'm biased here, finance is the one part of the

business where everything comes together.

593

00:43:05,027 --> 00:43:11,102

Where you're purchasing and you're marketing and you're sales and you're HR, everything

comes together in the finance part.

594

00:43:11,102 --> 00:43:15,997

Because in the end, you have an X amount of dollars in the bank account and you can spend

that on marketing.

595

00:43:15,997 --> 00:43:19,039

You can pay your supplier, you can hire a new person.

596

00:43:19,800 --> 00:43:21,672

But finance is where it all comes together.

597

00:43:21,672 --> 00:43:24,349

It's like the centerpiece that everything connects to.

598

00:43:24,349 --> 00:43:24,928

Yeah.

599

00:43:24,928 --> 00:43:26,309

you have to be on top of that.

600

00:43:26,309 --> 00:43:27,760

And it's not rocket science.

601

00:43:27,760 --> 00:43:31,653

mean, you don't need a finance director unless you're over 20 million.

602

00:43:31,653 --> 00:43:35,375

uh You really don't need a full-time finance director.

603

00:43:36,336 --> 00:43:40,758

But make sure you have somebody surrounding you on your side that knows what they're

talking about.

604

00:43:40,758 --> 00:43:42,480

Could be a fractional CFO like us.

605

00:43:42,480 --> 00:43:44,141

Maybe you like it yourself.

606

00:43:44,342 --> 00:43:48,944

To some extent, chat GPT is actually, or any AI tool can do part of that.

607

00:43:49,305 --> 00:43:52,267

Just make sure you're aware when it's hallucinating.

608

00:43:55,080 --> 00:43:57,172

especially when it says, yes, take the loan.

609

00:43:57,384 --> 00:44:03,328

Exactly, So don't blindly trust it, but it can do 70-80 % of it.

610

00:44:05,518 --> 00:44:13,251

really interesting point, isn't it, about AI and where, especially now where you've got

things like Claude Cowork, which is just fascinating me right now.

611

00:44:13,251 --> 00:44:17,343

And the ability for it to analyze finance information.

612

00:44:17,343 --> 00:44:19,154

It's like, I need to understand this data.

613

00:44:19,154 --> 00:44:21,414

Give me a dashboard with these numbers.

614

00:44:22,355 --> 00:44:26,667

I think is a great place to start if you're just starting out in Ecom and you don't want

to do finance.

615

00:44:26,667 --> 00:44:34,410

Just plug everything into, I use Claude, I don't use chat GPT, but I think that kind of

thing makes sense to me.

616

00:44:34,410 --> 00:44:35,580

But like you say,

617

00:44:35,974 --> 00:44:40,312

You have to have the ability to check what is making up.

618

00:44:40,865 --> 00:44:44,846

AI is really good with the data, the interpretation of the data.

619

00:44:44,846 --> 00:44:45,716

What does that mean?

620

00:44:45,716 --> 00:44:49,687

And how does it compare to your plans and your vision and your market positioning?

621

00:44:49,687 --> 00:44:52,948

That is where the human side still is very, very critical.

622

00:44:52,948 --> 00:45:00,490

uh The visualization of the data, extracting all the data and making that accessible and

visible.

623

00:45:00,490 --> 00:45:02,710

AI can do that pretty damn well.

624

00:45:02,931 --> 00:45:08,604

But how does that relate to, am I comfortable to launch a new product?

625

00:45:08,604 --> 00:45:08,992

Yeah.

626

00:45:08,992 --> 00:45:10,656

is that going to cost me and can I?

627

00:45:10,656 --> 00:45:12,774

That's where it's still human judgment.

628

00:45:12,774 --> 00:45:15,067

Yeah, still need that nuance, don't you?

629

00:45:15,067 --> 00:45:20,494

But it's I mean, all the things you talked about earlier, gross margin, CAC12 TV and

working capital cycle.

630

00:45:20,494 --> 00:45:25,360

AI actually can help you figure out those numbers pretty reasonably well, I would have

thought.

631

00:45:25,542 --> 00:45:26,353

Yes.

632

00:45:27,362 --> 00:45:27,905

Yes.

633

00:45:27,905 --> 00:45:29,545

If the data is clean, yes.

634

00:45:29,545 --> 00:45:31,686

Yeah, yeah, absolutely.

635

00:45:32,267 --> 00:45:34,838

Rob, listen, man, I'm aware of time.

636

00:45:34,838 --> 00:45:38,950

We're just getting started.

637

00:45:38,950 --> 00:45:44,773

And I feel like we probably I don't know, do you think we'll get lawyers uh like those

from the Shopify lawyers?

638

00:45:44,773 --> 00:45:45,544

I don't think we will.

639

00:45:45,544 --> 00:45:47,014

I think we've been okay.

640

00:45:48,475 --> 00:45:53,959

Just to reiterate, it's just gonna go up on my wall.

641

00:45:53,959 --> 00:45:57,200

If it does cease and desist orders talking about Shopify loans.

642

00:45:58,429 --> 00:46:05,111

I think it is worth saying, obviously, we are not criticizing Shopify per se or its

company practices.

643

00:46:05,111 --> 00:46:10,333

We are questioning whether high interest loans are suitable or right for your business.

644

00:46:10,474 --> 00:46:13,095

And please do think twice before doing so.

645

00:46:21,638 --> 00:46:25,500

I that's probably a good enough sort of get out clause, isn't it really?

646

00:46:25,592 --> 00:46:28,614

Um, but I love that.

647

00:46:28,775 --> 00:46:32,759

Rob, I've got to that part of the show where I ask for a question for me.

648

00:46:32,759 --> 00:46:35,692

This is where I ask my guests for a question.

649

00:46:35,692 --> 00:46:39,665

You're going to give me a question, Rob, and I'm going to go away and answer it on social

media.

650

00:46:39,665 --> 00:46:43,728

So if you want to know how I'm going to answer the question coming up from Rob, come

follow me on LinkedIn.

651

00:46:43,728 --> 00:46:45,530

You'll find me there answering questions.

652

00:46:45,530 --> 00:46:48,142

But Rob, what is your question for me?

653

00:46:49,018 --> 00:46:50,590

It's a two part one.

654

00:46:51,395 --> 00:46:53,499

When is the AI bubble going to burst?

655

00:46:53,721 --> 00:46:56,587

And what's the impact of that on e-commerce in your view?

656

00:46:57,732 --> 00:46:58,642

Ooh, very good.

657

00:46:58,642 --> 00:47:02,974

Okay, if you want to know my answers those questions, I said, come follow me on LinkedIn,

I'm Edmondson.

658

00:47:02,974 --> 00:47:03,874

Just find me there.

659

00:47:03,874 --> 00:47:05,634

We're gonna have some fun with that.

660

00:47:05,855 --> 00:47:08,152

But Rob, listen, I love the show, man.

661

00:47:08,152 --> 00:47:09,696

I love the conversation.

662

00:47:09,696 --> 00:47:13,237

Thank you for just being so candid with us genuinely.

663

00:47:13,237 --> 00:47:20,859

This is why I love and I know it's I know I'm stereotyping when I talk about people from

the Netherlands just being utterly candid.

664

00:47:20,859 --> 00:47:23,700

But this is why I love talking to people.

665

00:47:23,720 --> 00:47:28,780

My son lives in the Netherlands and I just love the just the sheer, no, this is the truth.

666

00:47:28,780 --> 00:47:29,640

What's wrong with you?

667

00:47:29,640 --> 00:47:31,400

Just accept it and get on with it.

668

00:47:31,400 --> 00:47:32,000

Right.

669

00:47:32,000 --> 00:47:33,040

I love that.

670

00:47:33,040 --> 00:47:34,440

So thanks for coming on, man.

671

00:47:34,440 --> 00:47:39,939

If people want to reach out to you, if they want to find out more about what you do, maybe

they've got questions for you.

672

00:47:39,939 --> 00:47:40,280

I don't know.

673

00:47:40,280 --> 00:47:41,728

What's the best way to do it.

674

00:47:42,147 --> 00:47:46,754

The easiest way is to either connect with me on LinkedIn or go to connectrob.com.

675

00:47:46,754 --> 00:47:49,678

There is a scheduling link there to just schedule a call with me.

676

00:47:49,678 --> 00:47:51,139

That's the easiest way.

677

00:47:51,418 --> 00:47:52,328

Awesome.

678

00:47:52,328 --> 00:47:55,499

We will of course have those links in the show notes as well.

679

00:47:55,499 --> 00:47:58,510

And if you're watching on YouTube, you can just read for those in the description.

680

00:47:58,510 --> 00:48:02,391

If you're on your podcast player, they will just scroll down, they'll be there somewhere.

681

00:48:02,471 --> 00:48:06,002

And of course, they'll also be on the website at ecommercepodcast.net.

682

00:48:06,002 --> 00:48:08,608

And if you're subscribed to the newsletter, they'll be in your inbox.

683

00:48:08,608 --> 00:48:11,193

Of course, if you're not subscribed to the newsletter, why not?

684

00:48:11,193 --> 00:48:12,154

You should be.

685

00:48:12,154 --> 00:48:13,471

Absolutely, you should be.

686

00:48:13,471 --> 00:48:14,124

That's just what I'm saying.

687

00:48:14,124 --> 00:48:16,675

That's my marketing spiel over.

688

00:48:18,836 --> 00:48:20,876

Yes, well done Matt for the marketing.

689

00:48:21,164 --> 00:48:29,447

Rob listen, at the end of the show, for those that have stayed, we love to do this section

called saving the best till last.

690

00:48:29,447 --> 00:48:40,190

This is where I like to hand over the microphone metaphorically to you my guest for the

next two or three minutes and just ask of all the things that we've talked about, what are

691

00:48:40,190 --> 00:48:41,911

your top tips for our listeners?

692

00:48:41,911 --> 00:48:44,391

What is the best value that you can give them?

693

00:48:44,391 --> 00:48:47,002

The mic is yours my friend, over to you.

694

00:48:48,914 --> 00:48:57,572

We have already covered it, the most important, the most impactful low hanging fruit, make

a sales forecast.

695

00:48:58,013 --> 00:49:00,235

What revenue are you targeting for?

696

00:49:00,235 --> 00:49:02,156

What product is that coming from?

697

00:49:03,578 --> 00:49:05,780

What does that mean for your inventory?

698

00:49:05,780 --> 00:49:08,542

What does that mean for your purchasing timing?

699

00:49:08,583 --> 00:49:10,534

What does that mean for your cash flow?

700

00:49:10,798 --> 00:49:12,409

It is a manual model.

701

00:49:12,409 --> 00:49:20,534

You can use AI tools for it, but I would really recommend you to do a simplified version

of this in Excel because the thinking behind it is critical.

702

00:49:20,894 --> 00:49:28,999

Thinking about what you plan to sell, in what period in the year and why, and how that

cascades down to your purchasing and your cash flow.

703

00:49:29,279 --> 00:49:31,320

It is an eye opener.

704

00:49:31,961 --> 00:49:37,286

You're going to be wrong and that's fine, but just a thought process and ideally iterating

that every month.

705

00:49:37,286 --> 00:49:46,240

and updating it based on the actual information so you get a little bit closer, it's going

to make you feel so much more in control of your business.

706

00:49:47,160 --> 00:49:54,624

If you're having a gross margin issue, it's not going to magically solve everything, but

it gives you much more clarity and much more comfort, and therefore it makes it easier to

707

00:49:54,624 --> 00:49:55,804

make decisions.

708

00:49:55,904 --> 00:50:04,848

So simple forecast, sales, uh inventory and purchasing, and you're already halfway there.

709

00:50:05,832 --> 00:50:06,603

That's wonderful.

710

00:50:06,603 --> 00:50:08,535

The sales forecast.

711

00:50:09,017 --> 00:50:14,964

And do you use Excel, not AI um or whatever spreadsheet you particularly use, but yeah.

712

00:50:16,588 --> 00:50:16,914

Yeah.

713

00:50:16,914 --> 00:50:23,620

about, if I'm gonna run this campaign in November, I'm gonna have to make the purchase in

May.

714

00:50:23,620 --> 00:50:25,922

But what if I can do that in July?

715

00:50:25,922 --> 00:50:29,105

Or what if I can change that with this product, whatever.

716

00:50:29,105 --> 00:50:32,388

That thought process is where the value is.

717

00:50:32,388 --> 00:50:39,915

Not the actual numbers help, and of course they give clarity, but it's the thought process

of you understanding how on the finer side your business works.

718

00:50:39,915 --> 00:50:41,340

That's where the value is.

719

00:50:41,340 --> 00:50:50,161

And if you move that part to AI, you're just gonna get the numbers and you don't know if

they're true and you're missing out on the value of you understanding the finance side of

720

00:50:50,161 --> 00:50:51,291

your own business.

721

00:50:51,342 --> 00:50:52,253

So cool.

722

00:50:52,253 --> 00:51:02,600

That's like, think what I'm hearing you're saying, what you're saying, Rob is once you've

got the base in, you're asking what if, and something that gives you the ability to ask

723

00:51:02,600 --> 00:51:10,264

what if is actually really freeing and it's quite creative and it removes bottlenecks.

724

00:51:10,305 --> 00:51:15,448

It enables you to dream a little bit and it enables you to find solutions that you

wouldn't have thought of.

725

00:51:16,449 --> 00:51:17,520

And you're right.

726

00:51:17,520 --> 00:51:20,611

I actually think in that through that you don't get that with AI.

727

00:51:21,990 --> 00:51:24,601

and it's the thought process which is critical.

728

00:51:24,601 --> 00:51:26,762

Rob, thank you so much for coming on man.

729

00:51:26,762 --> 00:51:28,253

Loved it, loved it, loved it.

730

00:51:28,253 --> 00:51:29,143

Really appreciate it.

731

00:51:29,143 --> 00:51:34,060

We'll have to get you on again at some point to tell us the rest of the things that we

need to be thinking about.

732

00:51:34,060 --> 00:51:36,587

And who knows what country you'll be in when that happens.

733

00:51:36,587 --> 00:51:38,948

ah But thank you.

734

00:51:39,888 --> 00:51:40,402

My pleasure.

735

00:51:40,402 --> 00:51:41,657

Thanks for having me.

736

00:51:42,278 --> 00:51:43,369

Well, there you go.

737

00:51:43,369 --> 00:51:46,511

That's another wrap on a phenomenal podcast.

738

00:51:46,511 --> 00:51:48,592

Thanks for joining me wherever you are in the world.

739

00:51:48,592 --> 00:51:49,432

I hope you've enjoyed it.

740

00:51:49,432 --> 00:51:52,244

Make sure you like, subscribe and do all of that good stuff.

741

00:51:52,244 --> 00:51:59,818

As I said, the links to uh Rob will be in the show notes and that also be on the website

and that also be in the newsletter.

742

00:51:59,899 --> 00:52:03,341

In all seriousness, we do have a newsletter if you're not yet subscribed and would like to

get that.

743

00:52:03,341 --> 00:52:04,131

It's not a spam thing.

744

00:52:04,131 --> 00:52:06,843

We just send you the notes and the links from the podcast.

745

00:52:07,203 --> 00:52:08,740

And it's as simple as that.

746

00:52:08,740 --> 00:52:11,662

So do come and join us on that.

747

00:52:11,662 --> 00:52:14,953

also have more cohort groups opening.

748

00:52:14,953 --> 00:52:20,406

So with cohort, we basically get e-commerce entrepreneurs together every month on Zoom.

749

00:52:20,406 --> 00:52:21,773

We just chat about e-commerce.

750

00:52:21,773 --> 00:52:23,588

It's a totally free group to join.

751

00:52:23,588 --> 00:52:26,780

We have people present their websites, what they're doing, what they're up to.

752

00:52:26,780 --> 00:52:29,971

The whole group sort of joins in and goes, have you thought about this or that?

753

00:52:29,971 --> 00:52:32,063

And we critique each other and we support each other.

754

00:52:32,063 --> 00:52:33,213

And it's just phenomenal.

755

00:52:33,213 --> 00:52:35,664

There are more cohort groups now opening up.

756

00:52:35,664 --> 00:52:38,844

So if you're interested in cohorts, uh come.

757

00:52:38,844 --> 00:52:42,090

to the website ecommercepodcast.net and find out more about it.

758

00:52:42,090 --> 00:52:43,532

But that is it from me.

759

00:52:43,532 --> 00:52:44,403

That's it from Rob.

760

00:52:44,403 --> 00:52:46,196

Thank you so much for joining us.

761

00:52:46,196 --> 00:52:48,580

Have a phenomenal week wherever you are in world.

762

00:52:48,580 --> 00:52:49,644

I'll see you next time.

763

00:52:49,644 --> 00:52:50,522

Bye for now.