- Come up here.
(dog shuffling)
- And sit down, sit down and relax.
Good boy.
So, one thing that I've been doing lately is reflecting on
things that I wish I knew sooner.
Because obviously, people watching these videos,
my whole purpose is I want to teach you,
so you can kind of learn from my mistake.
I had a lot of mistakes when I was starting out.
Partly because our business grew so quickly,
which I feel very fortunate about,
but because we were doing 150 million revenue
in our third year, largely thanks to our product,
amazing team, and just market timing.
But when you make a mistake at that level of scale,
we're talking millions of dollars.
When reflecting on it, I think the largest mistake,
if I was to look at, what lost me the most money,
is around financing, financial literacy, and cash flow.
Now, it's really important with a disclaimer
on this video to watch it through to the end,
simply because you need to apply common sense
to these learnings, and apply it to your situation, okay?
We're gonna be talking about financing
and also equity raising.
So, make sure that you really understand these things
because leverage is a scary thing for many people.
For those that have been following along
or tried to buy an Oodie in their time,
you may have seen our website and certain products
being sold out or on presale.
Now, why a lot of people have said
that this is marketing genius
because we're creating scarcity,
scarcity being a psychological principle, that if someone
can't get something, they're more willing to want it.
But the truth is, it wasn't thought out like that.
We just really, really struggled to stay
on top of our inventory.
Now, you're probably thinking
we're doing 150 million in sales.
How can we not fund our inventory?
I had a bit of a viral TikTok the other day where I said
the E-commerce is not gonna make you rich.
And that was a bit triggering for people.
But the truth is, E-commerce is a very cash flow
intensive business due to the inventory that you require
to make those sales.
In fact, it's not uncommon for really profitable businesses
to actually be losing cash over time.
So, let's understand that for a second.
So, let's say you've got (graphics whoosh)
$10,000 to start (cash register dings)
your E-commerce business.
You send that $10,000 (graphics whoosh)
to your supplier,
and it might take
30 days for (graphics zipping)
the product to arrive,
including transit time and manufacturing time.
You're selling that product
really, really quickly, (graphics popping)
and you're making (boxes thudding)
profit on it.
(cash register dings)
But the truth is, (graphics popping)
if your sales are going up
and up, and up, (boxes thudding)
You're wanna place
more than $10,000 worth (cash register dings)
and probably (graphics pop)
need to place it earlier because there's
some level of lead time
from the manufacturer. (cash register dings)
There's also the fact (graphics pop)
that your profits on those
first products (boxes thudding)
might also not be enough
to cover the amount (cash register dings)
of inventory that you
actually want. (graphics pop)
So, this is why you can make
a thousand dollars (boxes thudding)
off that initial
$10,000 order, (cash register dings)
but you actually need
$15,000 worth of (graphics pop)
inventory to make (boxes thudding)
the maximum amount of profit
in the future. (cash register dings)
This is where it's really important to understand
your cash flow, possibly get financing,
or even get equity through something like a seed round,
which I'll get into (exciting music)
in a second.
For the Oodie, personally, I had three major issues.
First of all, was a lack of forecasting.
The second one was a lack of conviction,
and the third one was a lack of financial intelligence.
This was so prevalent in the Northern hemisphere because of
our lead times were three to six months during COVID.
What happened is we ended up losing
about 20 million in revenue over a three-month period.
We've in fact, never had a Christmas period for the Oodie
in the UK, where we haven't been completely out of stock.
The worst part about this,
it was creating huge bottlenecks for our supply chain.
So, our entire company infrastructure was struggling.
Big orders were coming through, and then
the customer service team would have to deal with them.
We're getting lots of negative reviews,
and the whole system just broke down.
We lost heaps in revenue,
but we also lost in heaps in trust and brand equity.
I wanna touch on the three problems that we had to make sure
that you can fix it in your business early.
First of all, lack of forecasting.
Firstly, what is forecasting?
Forecasting is basically
where you predicted demand based on previous demand,
adjust for things like your ability to create sales
such as your marketing efforts,
and also really understanding seasonality.
This forecast should be the north star of your business.
It helps you understand other things
like your resourcing requirements,
how many customer service agents you're gonna need
to facilitate your customers.
The truth is, we were doing some level of forecasting,
but it was really based on historic sales,
which is really problematic.
You really wanna be making sure that you
can adjust based on growth multiples.
Without business specifically,
we really had a large seasonal business
with our winter sales.
Well, it should be up to the CEO to really
understand that and lead the team.
I was very, very marketing focused in the early stages.
I really didn't understand what hires to make.
Our hires were kind of out of their depth in that,
they were too junior,
or they been working in the wrong industry.
I ended up finding a COO that was incredible.
She works in retail,
so she really understood the industry
and the nuances that comes with clothing.
She was then able to build out a team and really
create the forecasting framework with the proper meeting
cadence of demand planning,
and really started leading to the team.
The second thing that really did affect our ability
to forecast was a lack of conviction.
And I think that this stems back all the way to my
Instagram growth days.
I would create these businesses,
and people would always underestimate how much
that would grow.
That would be extremely influential,
and influenced how much I believe that I can grow them.
So, what that ended up is, I sold my Instagrams
way too early, and they turned into be
a million dollar business maker,
which I definitely do (tear trickles)
regret to this day.
It was the same with Oodie.
Everyone was saying how many Oodies do people actually need
in the world?
When I was doing $1,000 a day, they were saying
this is gonna end soon.
When I was doing $5,000 a day, they were saying
this is gonna end soon.
Even when I'm doing $1,000,000 a day,
and they probably are right,
there is no product that stays around forever
without being reinvented or reinvigorated
in some kind of way.
But trying to predict this ceiling
with a lack of confidence really cost us a lot of money.
You really need to look at other case studies
around the industry about
how big something like this can get.
And there was a lot of evidence that saying
that these kind of products,
these comfort wear products can be absolutely enormous.
The other thing that we did with that was really useful
is create a presale framework.
Presale is where the customer can buy the order,
when it's maybe even still getting developed,
or it's on the water being shipped over.
This can then create a negative cash flow conversion cycle,
which we've talked about in previous episodes,
where basically, the customer is paying it
before you pay a supplier.
You can pair this with supplier terms, so you can push out
plank paying the supplier for like 60 days to really create
a larger cash balance and an inventory buffer.
The other thing is, you can use a ton
of financial instruments like credit cards to really just
kinda give yourself that buffer.
But obviously, use them responsibly.
Now, you're probably thinking, with all of that
kind of process and systems with supplier terms and presale,
that's great, but the truth is,
we were incredibly inefficient.
Going on presale is gonna reduce
conversion rate and reduce top line.
I think we could have done over $300 million last year
if we just got a financing solution.
A business will grow up
to its main constraint, and then it can't grow further.
You can get small incremental improvements.
But last year our main constraint was inventory.
If we managed to remove that constraint,
we could have grown much faster.
Now, there are two instruments that you
as a small business owner can do to raise money.
You can either give away equity or you can raise debt.
We just need to understand those before we recommend one.
Let me just explain both of those things in simple terms
so that you understand, so you can pick
the right one for you.
Debt is a very simple process.
There's lots of different forms of debt.
However, traditionally, a lender will give you money,
and you will then pay interest on the lent amount
of money in a set amount of time.
So, it might be quarterly.
You even pay monthly or even annually.
The lender then gets the interest on top
of the money that's paid.
Equity, however, is where you are actually giving away
part of your company to say something like
a venture capital firm, or a friends and family investor,
so that they can prosper down the line
when your business is successful.
Typically, the interest rates
for businesses can range from 2 to 15%,
depending on the risk profile of your business,
as well as if you have some security
that you can give the bank.
Riskier lenders that will work with you
when you're smaller might charge a higher interest rate,
'cause there's more risk associated with it.
But if you're a 40-year-old business,
and you've got a house that you can give
to the bank as security,
you can get interest rates incredibly low,
especially if you're using some of
the big, traditional banks.
So, you're probably thinking, I'm a one
to two-year-old E-commerce business,
how am I gonna fund my business?
You don't really have a house yet to give to the bank
as security, which honestly, you should avoid at all costs,
but you also don't have the profit margins and the cash flow
for these riskier lenders to charge huge interest rates,
and kind of drain your business.
Now, this brings us to our solution
and how I got
$9,000,000 (graphics tinkle)
in two weeks for the Oodie.
Now, as you guys know,
I haven't done any paid promotion on this YouTube,
but honestly, I believe in this service so much,
and I just wish I knew about it sooner.
I was actually in the situation that I talked about before,
which is using a high interest lender.
I was then at Geek Out and I met the Wayflyer team,
and they really did provide a solution that has
lower interest rate, and just a perfect solution for us.
The way Wayflyer works is it's revenue-based lending.
And don't tune up 'cause it's really important,
and it's gonna revolutionize the E-commerce industry.
Unlike the other lenders that I talked about before,
revenue-based financing can reduce the risk profile
because they're taking a portion of revenue,
maybe monthly from your Shopify sales.
One of the great things about these services
is they are very tech savvy.
So basically, they're plugging into your Shopify dashboard
and your Facebook ad account.
So as we know, there's a large degree
of predictability about how our brands will perform,
especially on a revenue basis.
If our customer acquisition cost is staying steady,
we're quite confident in the future
that we can keep creating that revenue,
and therefore, they can offer us great terms
of cash flow lending.
One of the other thing that I really like
about Wayflyer, and why I recommend 'em
for smaller business owners, is they don't have huge amounts
of covenants requirements.
Covenants are generally things that banks will put
in place that you need to be hitting.
So for example, if you sign up with a bank, they might say
that you need to be making this much profit each quarter.
And if you cannot do that, they can actually
call in the loan, or change the terms of the loan.
Remember, that's one of the last things that you want to do.
You don't wanna have to worry about losing your house
when you're just trying to fund your business.
Wayflyer didn't ask for security,
and they didn't have any covenants.
The rates are pretty good as well.
Obviously, due to the size of our business,
we had our own rate, but on their website,
they advertise 2 to 8%.
Now, you need to understand how to use these tools
and protect yourself as well.
Do your best to put caps in place.
So basically, every single month,
you're doing a set amount of sales,
they're going to be taking a percentage of that,
but you really want to cap that.
So if you have an incredible month,
you're basically not paying off the loans straight away.
The other thing you really need to understand is how much
net incremental improvement is this money
going to create for you?
If you're only going to make, let's say 1% extra profit
per month, and the Wayflyer interest rate is 1% per month,
then technically, there's just no point taking that money.
That's obviously a simplified example,
but basically, you just wanna make sure
that you have the profit margins to fund the interest.
Before I sign off talking about debt and get into
the equity piece, I heard a really,
really good quote on Alex Hormozi's YouTube the other day.
He said, "Debt is a form of risk.
And risk, if extended over a long period of time,
can expose you to zero."
So basically, if you take debt on for your whole life,
there's plenty of black swan events that could come out
and wipe you out to zero.
This is why you really need to reduce your exposure.
And Wayflyer really does help you do that.
Unlike the house example that I gave.
That being said,
you need to be very confident
that you can keep hitting those revenue levels
and the profit levels as I've said.
If not, then you probably
don't need a financial solution,
and you need to probably use something like equity.
If you wanna use equity, basically, what you're going to do
is something like a seed round, which you can go to
friends and family,
if you are obviously an established kind of brand,
you may be able to go to VC funds and show them your growth.
By doing equity,
you're obviously not obliged to pay back
in a set amount of period of time, it's a longer window,
so it can reduce your risk a little bit.
That being said, there is a common term
that debt is cheaper than equity.
And basically, what that's saying is,
if you do hit a home run and your business succeeds,
and you could have funded the debt,
it probably would've been cheaper to do so
because you're gonna want that equity to sell the business
at a future state.
There's also the fact that if you wanted
to start paying dividends as a founder,
and you're not 100%,
you're going to have to pay those shareholders
an equal percentage of those dividends based on
the amount of share holding that they actually have.
If you wanna learn more about Wayflyer,
I do recommend, I really do love the team,
they've been incredibly helpful.
I'll leave a link in the description.
Again, I'm not a financial advisor,
so you need to seek financial advice in this situation,
or at least talk to people and get financially literate,
so that you can make the correct decision for your business.
If you want more episodes about E-commerce fundraising,
like we can go through a pitch deck and stuff,
just leave a comment in the description.
Don't forget to like and subscribe.
Thanks.