Chase: Taylor, thank you so much for joining us.
Taylor: Yeah. Stoked to be here, Chase. Thanks for having me.
Chase: Before we hop in, give us a little introduction on who you are and Common Thread Collective.
Taylor: Yeah. So, I'm Taylor holiday, I'm the managing partner of Common Thread Collective. We're an eCommerce growth agency that works exclusively with eCommerce brands and guiding them on their journey between zero and 30 million. We're a part of a larger ecosystem called Dream Labs, which includes 4X400 where we actually own and operate our own brands as well, and then we have a community group called Your Admission where we have about 250 early stage entrepreneurs working together to sort of build their brands in the early stage. We get a really fun view across the eCom landscape and those three ways.
Chase: It's one of the reasons I was most excited to talk to you because you have the kind of like agency marketing strategy side of things that you can own and operate, but also, you own some of these businesses so you can kind of have a little bit of a playground in real time and see how some of the stuff works that you're working on.
Taylor: Yeah, that's exactly it. It's both the ability to express our own ideas and also put to test our own opinions in a lot of really ways that we think make us uniquely empathetic to the journey, because we are living it alongside of our clients. There's just something about what is required of you in building an eCommerce brand and making decisions and outlaying cash against opportunities that hold you accountable to ideas in ways that other people's money doesn't. We like that about it. We like that constraint for ourselves and our own ideas, and we'd like to be able to share that with our clients and be co-journeyers, if you will, in the process.
Chase: Yeah. Everyone always says it. It's do what I say, not what I do, but you actually have the experience to now do what you do. You've done it before in the past. That's awesome.
Taylor: Yeah, for sure.
Chase: Let's start with this. One of my favorite things to watch of yours are these kind of like marker breakdowns. For anyone who knows Taylor, there's a lot of stuff on YouTube. There's some really, really cool remarketing strategies, there's unit economics, all these really cool things, definitely go check them out. I'll link them in the podcast description here. But let's start there, so where did that come from?
Taylor: If you know me at all, like I even have one in my hand right now, I'm obsessed with whiteboards. I am a much more of a visual learner than I am an audible, or written word consumption. I just need to express my own ideas out on a surface like that. Back in the previous life, when we were in a physical location, I would be writing on whiteboards all day. It's sort of a legendary attribute of mine, maybe yeah. That was where it began is, that's how I've always expressed my own ideas. What I've learned is that that longer form specific methodology of doing it in a single take around an idea on video is a method for me to crystallize my own thoughts.
One of the things I've learned as somebody who has a lot of ideas is I've gotten a lot of feedback in my life about how people understand my ideas. Oftentimes, they're very different than how I intend for them to be understood. Putting out content and writing and doing that sort of expression is a forced crystallization of my own thought. Then I also get this check for understanding with people to see if I'm doing it in a way that makes sense. That process is like really selfishly, super helpful for me, and the fact that other people enjoy it too, is just sort of a cherry on top, but it really, just helps to crystallize my own thoughts around the work that we do.
Chase: It's actually one of the side questions I had is, are they actually all one take? Because they look like one tick, but that could just be some movie magic.
Taylor: Yeah, no, they are. I try and do that because I think it ... there's something about the ... Again, it's this process of forcing myself to crystallize my thought that I do a lot of work beforehand. I'll write out sort of a process, I'll go through and outlining the key points that I want to get to, but there's something about like the flow of the conversation that I think is important for me. Because that's a lot of times how I have to state it to clients in a sales process, or to express to our company. For me, it's just this repetition of consistently clarifying the complex ideas in simple ways is I think one of the most important jobs of a leader of somebody in the eCommerce space that's trying to teach, is to be able to do that. I'm certainly not an expert at it yet, but it's helpful to work through it yourself.
Chase: I love that. I have a personal philosophy that, all confusing ideas are just simple ideas compounded. If you can break all this stuff down, if you can get it into its simplest form and have everyone understand these simple building blocks, it's a lot easier to build it back up and understand that in the future.
Taylor: What happens like, so that's so good, and what happens is I get feedback where it's like, people will say in the comments like, "Hey, what does this acronym mean?" Or, "Hey, when you said this, what are you referring to?" All that does is that they're just ... It's feedback that is so incredibly valuable to go, "Ah, okay." I will be a better communicator if I can eliminate the use of acronyms, if I can bring clarity when I say this phrase versus that phrase. But unless you solicit feedback, you're going to be robbed of the opportunity to improve the way that you communicate. I think putting your work out in the world that has magic if you can tolerate it.
Chase: You're going to be a lot longer winded with no acronyms, but it will declare, I can promise you that.
Taylor: Yeah.
Chase: How do you determine what videos to create? Is there a backlog of things? Is it just people requesting certain things?
Taylor:
Yeah, it's a combination. We have the incredible gift of a mutual friend of ours, Aaron Orendorff, who runs marketing for CTC, who, what he has brought to our organization is like strategic thought work around content. Whether that's thinking about a funnel that we're trying to create on the paid side, whether that's trying to think about a keyword set that we're going after for a pillar post that he's generating, an opportunity for search volume on YouTube, wherever we are going, that will often form a basis for it. Then other times it's like, hey, just go in the room, and what are the three things that you care about? So often like, content ideation is born out of conversations that are happening in our own businesses or with clients. Those are the two sources. Either, it's something that just happened. It's a conversation that I'm having a lot in the clients or on our own brands, or it's a source strategic keyword plan from Aaron, and those are usually the two beginning points.
Chase: Do you feel that, to an extent, you're giving away some of your secret sauce? If you look at this as a piece of content, it's just another piece of content, whether it's video or blog or whatever it is, but then you look at actually what you're putting out there, something like a retargeting ad funnel, that stuff is not really proprietary, but that stuff is straight from your brain and straight from your company. That's stuff you make money with every day. How do you figure out, can I give this away, can I not give that away?
Taylor: Yeah. Sarah Silverman is a comedian and she has this quote that I've taken to heart very much, which is, she says that the hardest thing about being a comedian is that in six months, all of your content is either obsolete or offensive. The reality is that's true in marketing too. Instead, what we want to establish ourselves as, as the source of new ideation. If your game plan is to take ideas from anybody, me, or anybody else and copy and duplicate them, there's a depreciating value of ideas and repetition. The first time that they come, and this is sort of the Seth Godin purple cow idea, which is that they are most effective the first time in use. Then every time you pick up my idea or anybody else's idea and replicated, the odds are it's going to be less effective.
Then the reality is, in three months, it's going to be completely obsolete because Facebook's going to come up with a new ad product or whatever it might be. What we've now established ourselves as is we get, very often, clients come to us saying like, "Hey, our agency kept referring to content that you guys were reading, and so we figured it might be just worth coming to the source. For us, that trade off is worth it, is the idea that, yeah, it's going to happen. People are going to take it. The reality is, our mission statement, the reason we fundamentally exist as a company is to help entrepreneurs achieve their dreams. What that means is that whether that's through the publication of content, through the direct service of our clients, the purchase of our own brands, if we're accomplishing that, then we are behaving consistent with the mission.
Someone taking my ideas and having success is consistent with what I exist to do as a human being, and so in that sense, it's not a threat to the business. It's actually amplification of it.
Chase: Very cool and very well said. I'm not even going to drill in any further. That was perfect. If all of your answers can be that straight forward, this is going to go very smoothly.
Taylor: All right, all right. I'll see what I can do.
Chase: One of the things I wanted to do today that I'm excited about is, I mentioned I am a big fan of yours, a lot of content you put out there. What I want to do is take a look back at some of the old content you've put out, a couple tweets, a couple of LinkedIn posts, just a few things and kind of reassess them. There are about a whole bunch of different things. First one I want to ask you about is work from home, some of them are about actual work, actual marketing strategies, just a couple of random things. I'll give you a little bit of context and then I'll let you expand on those ideas.
Taylor: Cool, love it.
Chase: This first one is about work from home, like I mentioned. You had a post a few weeks ago saying creative talent. “We've been able to add to CTC since we've gone fully remote is wild. It's open so much opportunity.” A little counterintuitive to what a lot of people think about work is that when you're in a space that more of that creativity comes. What's your take on work from home?
Taylor: Yeah. I could talk for hours on this. I forever had a narrative that I was a leader that had to lead in person. I grew up in the locker room. I was an athlete. That was the environment I understood. I'm an emotional person. I'm enthusiastic, I'm energy. I feel like those are sort of like, in a lot of ways, this world is me leading with my hands tied behind my back. But what I've learned so much is like, that was just a narrative that I created that I can as easily undo. There are so many benefits to this remote work situation. One of them that we've discovered is what you've described, is that we ... our office was geocentric located in an incredibly expensive, not very diverse part of the world. The talent pool that I got the choice to participate in and made a lot of poor choices within that, but in terms of like the way that I constrained and created boxes around the possibilities was very limited by that geographic location.
Now we are entirely free of that constraint. We went from a to potential talent pool of 5 million people to 300 million people. What that unlocks as possibility is just insane, and we've noticed it, is that suddenly the quality of applicant, the talent level of the people that have come into our organization is incredible. We are reaping the benefit of that in really, really cool ways. That has been a fostering. One of the things that I believe is that creativity, in particular, you can inject creative process that helps to fuel creative ideation, no doubt about it, but when you inject a human being into the organization that has those attributes, it has a compounding effect on everybody around them. I think that more than we've given people creative process, they've brought with them creative process and ideation and energy that has been really helpful to our organization.
Chase: Creativity is 100% key. You're right. We're fully remote at Recharge. We've been fully remote from the start, so we've always looked at hiring everyone outside. I'm based in Los Angeles. So, when we were looking at growing a marketing team, a lot of my teammates, we thought let's bring everyone in office and let's do kind of a marketing hub in Los Angeles. Now fast forward, a handful of months and everyone's all over the country and all over the world. So, definitely hasn't worked, but it's super exciting to see all the content, all the random things that people bring in from just different perspectives and different nationalities and all of those things. Yeah.
Taylor: Yeah, exactly. I just think that the way that ... Where we're going in the world is like, I just fundamentally believe that we're on the precipice of a truly global eCommerce marketplace, a truly global workforce that is going to be enabled. They're going to be the most diverse, asynchronous, fully remote workforces that have ever existed. If we're going to participate in differentiate ourselves from our competitors, from other people, then it's important that we are able to access and participate in that movement. In a lot of ways, that's a gift that COVID gave us that I think we would have been severely behind as an organization if we weren't forced into that behavior.
Chase: It's awesome. I was going to say that this ... I've tried to stay away from COVID talk on these podcast. I think everybody has gotten enough of that, but when you spin it positively, you're 100% right. That's exactly what you look for, is you look for a silver lining, something to take out of it. This is one of them.
Taylor: Yeah. Oftentimes, these things are catalysts for considering ... I remember like one of the weird things that happened to me was the first week home from COVID was the most creatively energized I had been in years. It was because suddenly I had a whole new slate of problems that I was handed. I had to think about building systems in new ways and solving all sorts of new problems and clients, and the market exploded. It was just all energy, and it unlocked. Even something as dumb as like my guest room needed to be turned into an office. I got to re-imagined my home. My garage needed to be a gym. All of a sudden, it was just like creative energy of new things. Now, there's some fatigue that comes with that, don't get me wrong, and there's a trade-off there, but there's definitely ways in which this is going to allow for new businesses to be developed that never would have been developed, for things to be solved, for people to get opportunities are all going to come from this. There's no doubt about it.
Chase: Totally great, and we're going to get to new business opportunities in a second. I can't wait for that. Moving on here. Another post of yours, “One of our media buyers just got hired to run growth for a billion dollar brand. I'm stoked for them. Replacing them won't be easy, but I love seeing CTC become a platform for people to fast track their careers, feel free to come use this like a trampoline.”
Taylor: Yeah.
Chase: It's an awesome statement. It's one of the coolest things I've written a while. I read it in blood, found a dumb smile on my face, thinking like, that's really, really cool. I'd love to work for this guy, but what's the philosophy there?
Taylor: Yeah. One of the core tenets of Common Thread Collective is a program that we offer inside of CTC called Tell Me Your Dreams, and every employee goes through it. What it is, is you meet with a licensed therapist every two weeks and you identify a dream for your life. Then the first Monday of every month at CTC is dream day, and you stand up and you declare to your coworkers what your dream is, and then we put you into pursuit groups to help you achieve it. It was built on this premise, the relationship between the company and its employees should be symbiotic. If I'm going to ask you to come and work for me, as the equity holder in the company, to my benefit for the sake of my mission that I've established as the most important thing of my life, I should be willing to ask you the same thing.
I should be willing to ask and care about what it is that you want for your life, and then we will serve each other for as long as those things overlap. Then when they don't, we should celebrate our directional change. For me, as an entrepreneur, the idea that someone owes me some sort of endless loyalty to my mission or to my thing is just fake. It's not real. Instead, what I want to do is find a season where we can serve each other's future outcomes better. If we do that really well, and every day you show up to work, you feel like you are closer to becoming the person that you want to be, who you're going to be at my company while you're there is going to be the best version of you. I believe that.
So, my interest is your interest. I am interested in seeing you become the person that you want to be. If that includes being a CMO or getting this promotion or launching your own business, or becoming a zookeeper, I don't care. I'm not there to stifle that. I'm there to fuel that. That's just core to who we are. Because CTC is a place that we have built awesome training programs, and people are learning, and you get access to tons of data, I know it's going to happen. Does it suck? Is it hard to really lose an awesome person? Yeah, of course it is. There's a cost to us for that. No doubt about it. But at the end of the day, that employee, I genuinely, from the bottom of my heart, am so excited for him and his family and what it's going to do for his opportunity, and there's nothing better in the world than him being out there.
Celebrating his time at CTC and me celebrating him, everybody wins in that scenario. To try and stifle that for the sake of fear of losing somebody, doesn't actually serve either of you, in my opinion.
Chase: That's incredible. Most people don't have that philosophy. I'm sure you know that already.
Taylor: Well, it's scary, and I don't actually think it's out of bounds. It's scary. When you look at an organization, people are so valuable. When you find someone you can turn your brain off to a space and trust that it's being done better than you can, it's so valuable to somebody, especially to a founder early on. So, there's a lot of fear in that loss. One of the things that I've learned now being in business long enough is that everyone, including myself, is replaceable, that the organization can move on. On the other side of that fear, you just realize that you can keep going and you solve the problem, and that reduces the fear. But early on, you're not sur. What will happen if they leave? And you tell yourself all these scary stories that oftentimes my experience has been is that like, they just don't come to fruition in the way that you're often afraid that they will.
Chase: I read a book recently, there was a quote where a CFO has to CEO worried about money saying, what happens if we invest in these employees and they leave us? The CEO responds and says, well, what if we don't invest in them and they stay? Then you have a bunch of guys working at your company who aren't of quality, and they don't really add any value to.
Taylor: What happens when you hire giants, when you hire amazing talented people, you know what they have? Lots of opportunities. That's a reality that you have to live with, and it forces you into creating an experience that makes talented people want to be inspired, which only makes you better. All of those things end up serving the same outcome, even if they seemingly, in the short-term, do come with a cost, and that is real. There is cost to losing great people. But the environment that you're forced to create to try and recruit and maintain them is actually something that makes you better as a company.
Chase: I couldn't agree more. Let's move on to some product to talk. This one's about unboxing. “Your unboxing experience is the only marketing channel with way 100% open rate, act accordingly.” This is one of my favorite ones, because I've been screaming about this unboxing touch point that everyone gets all the time. People seem to forget about it. Dive into unboxing, go for it.
Taylor: Yeah. It's funny because one of the things I love about Twitter is it's forced at me, a fairly long-winded guy, into thinking about how to say things succinctly, and when you get it right, it feels so dang good. That idea I've expressed in LA long-winded ways, but that was one of the few times where I feel like I really got it clearly in terms of what I was trying to communicate, and it's fun when you do. But yeah, the reality is, is that it's so easy to focus so much of our attention, especially as early stage eCommerce businesses on the acquisition of the customer and to ignore what happens once you've captured them. It's partially exploitive. It's partially just like, we're so ... that's where the revenue most presently comes from, that our attention goes there.
Then what gets lost is that, the actual way that a business builds and grows sustainably long-term is by the ability to build that organic flywheel that customers turn other customers, or other people into customers. The way that you do that is by ... We sort of have this phrase that we use, is this marketing rubric for any piece of content that we use, and it's mission, magic, money. Does every touch point that you have reinforced the mission? Does it create a moment of magic or serendipity or unexpected delight that people want to talk about? And then is there a mechanism for that purchase or that experience to turn into more money for you? Is there a monetization opportunity? I was just on a call.
We have this accelerator right now where a portion of our admission group, we've taken five brands, and I'm going through the founders. One of them just sent me a gift of his product, and his product is super cool, but I just got really candid with him. Like, man, you said it to me, I opened it and it was styrofoam in your box, no thing, and I didn't take a picture of it. I didn't send it to anybody, and it's now sitting on my shelf, and that'll be the end of the journey for the product. You want more than that, I know you do. Considering that, I think it's hyper-critical.
Chase: Totally great. One of my favorite examples is United Sodas of America. They send these brilliantly branded sodas. They're all one singular color on the can. You open them up and it's just this rainbow of soda and it's gorgeous.
Taylor: Yeah, I've seen that. Yes.
Chase: They sat in my fridge for like three weeks before I drank any of them, because they were just too pretty to do a dang with, and then eventually I drank them all and got more because I wanted the pretty colors in my fridge again, it's unbelievable.
Taylor: One of the things that ... so, I love is there's a company called first media. They make social content. They run a bunch of Facebook pages, like So Yummy and a bunch of these like craft DIY blogs, and they're in LA. One of their creative frameworks is they reinforce this idea that you are always creating for your audience’s audience. You are trying to equip your customer to say something about themselves to the world. If you think about, what is the kind of thing your customer posts on Instagram? What is the thing that they want to tell their friends? If you can design to make them the hero in their text threads, to make them the hero on Instagram, you will win. If you make it about you, the brand, and something you want to say about yourself, then the conversation's going to end there because I don't want to propagate that message. I want to be the hero.
I need to equip the person to do that. There's so many ways to do that, like one of my all time favorite examples. Right? PACs are baseball cards growing up that has a stick of gum in them. It's so odd, right? One it's like just totally exposed food. There was no wrapper. People were putting it in their mouth. It was sort of insane, but why is there gum in a pack of cards? Well, because 30 years later, I still remember it, and it still was that bit of serendipity and unexpected delight that made it matter and made me want it. Just considering that you live in this infinite creative universe where you can do anything in that unboxing experience and not to think of it just as a cost center.
Oftentimes, things like viewing employees as cost centers will be the same sort of ideology and mental approach that will make you view your unboxing experience as a cost center, instead of seeing them both as having the potential to create value in excess of their costs, and really holding them accountable to that idea versus just looking at what their detriment is from your bank account.
Chase: Super interesting. I was a card collector growing up as well. I know the exact same feeling. For the video people watching this, I'm smiling hearing you say that, because you're totally right. You open a pack of cards and there's some gum in there and I know exactly what the flavor is. I know what I'm looking forward to. I can remember that from 20, 30 years ago.
Taylor: Yep.
Chase: Yeah, that's super cool. Okay. Taking a bit of a shift here. This is a politics post. As promised, we're not going to get political. I'm going to relate this back to eCommerce because there's a way here, so stick with me for a sec. You posted one saying, "Local election flyers in my mailbox for two candidates. This system sucks. Just weeks of people trying to destroy each other and no one actually wins." There's a picture with it. It's just the two local candidates. It's clearly one just trying to bash the other one and the other one trying to bash the other one. There are just two negative posts here. Without getting political, my theory is that, one of the reasons we're so caught up in this whole presidential election and all these other elections is that the system is broken clearly, but we're trying to solve ...
Not that we're actually trying to solve a problem. The problem exists. We're just trying to work within the system. That's one of the reasons why I have such high respect for entrepreneurs, is that they step out of the system and they figure out a new system, they figure out a new solution here. I don't know if you want to talk more about this exact post or this political election or whatever it is, I'll give you the floor, but that's kind of how I related, is that solving different problems that think about things in different ways is what an entrepreneur's job is.
Taylor: Yeah. I love there's a quote from a field theologian I respect. He says that your system is perfectly designed for the outcome that it's getting. I think this is a thing that is required. If you are willing to accept that premise, that your system is perfectly designed for the outcome that it is generating, it offers you so much optionality into improving and doing things better and different. As an example, oftentimes, I'll sit with business and I'll ... they'll be frustrated that their LTV is really low, that no one's coming back for the product. My counter would be like, I actually just think you've designed a system to produce a really low LTV. What if, instead of being frustrated in externality, you accepted responsibility for the thing that you created, because that would also then give you the choice to recreate it and to decide that you could design a system to produce a different outcome.
When I think about this election flyer, what I think is like we have a system perfectly designed to divide us. It's perfectly designed to make us angry and spiteful. No matter who wins, somebody's going to hate them and think they suck, because all ...
Chase: Half the people in the country are going to hate them.
Taylor: All I've gotten is fliers telling me how bad the two candidates are and how corrupt they are and the worst possible things they've ever done I know. I look at that and I go like, well, in this case, we have a system that's perfectly designed for the outcome. So, if I was a candidate, to your point, what I would begin to think about is how do I produce something different? To tie this back to eCommerce, and this is, again, I'm coming out of a conversation where this was directly applicable is, when I think about businesses that are frustrated that their CAC on Facebook is deteriorating or that they're experiencing this volatility, my counter would be well, again, if you change that, if you remove the externality and you say the system is perfectly designed for the outcome, my advertising is perfectly designed for the outcome that I'm getting, what it does, again, is it allows you to consider what you might do then that would produce something more remarkable, will produce something more novel.
What that will actually require is actually creative, innovative thinking, and I think, in that place, there's a lot of opportunity to do incredible things. It's not in the place that falls in the rut of what everybody else is doing, because all of those systems are producing the same kinds of outcomes that you're getting. Why would you want that? If that's not what you want, then don't behave that way. That sort of inconsistency, now, don't get me wrong. That's not simple. I'm not simplifying the idea of novel thought, but I look around at some of my favorite businesses right now are ones that are doing really novel things on the sales and distribution of product. Whether it's like mischief, who's doing really fascinating things, or I had a call with yesterday with this guy who's basically designed a system that basically, the retailer ...
His premise is, it's an SMS-based quiz funnel, and what you end up with is a person, and the person is your personal aesthetician that then acts as your retail gateway to skincare products, but you never have a relationship with a retailer. You have a relationship with a person, and that person that is ... they are responsible for providing you ongoing relationship. You basically get a friend. These are all novel ways. Now think of building a Facebook ad that leads to a text SMS funnel that like, now you're talking about a completely new thing that is going to be able to talk differently in ads than everybody else, that's not going to lead to a Shopify store on the same theme. As you start to think about how to produce a different outcome, I think you start by evaluating your system.
Chase: Then tying that all the way back to the beginning is this is what you give all this stuff away, because in six months, everyone's going to be doing this, so we've got to figure out another new way to figure out how to do this things.
Taylor: The people that will win are the ones that are able to consistently re-imagine the system in new ways that will drive them into new adoption. Now, there's some other macroeconomic factors here that are as simple as just you come with a new idea, you win. But yeah, I think in general, there is value in that ideation.
Chase: Awesome. Awesome. A couple more here, coming back to eCommerce, “PSA for eCommerce brands slow down your growth rate. Doesn't matter the way it feels like it does. Let your organic traffic percent of your total be velocity constraint, fight the temptation to scale your paid spend independently of your organic demand, your margin will disappear.” Growth rate is something that everybody is talking about all the time. Why is growth rate, why does it not matter as much as it feels like it does?
Taylor: Because all of the stories of the heroes that we worship grew fast, at least most of them, it seems that way. It is one of the main things for me, is that I just think that's the thing that we've been sold, is that, whether it's the Inc 500, and I've fallen prey to this, like the 500 fastest growing companies in the world is a magazine that sat on every shelf. That's an award that people put in their LinkedIn bio. Forbes 30 under 30, how young can you become successful? Every one of these are social triggers that lead us to believe we're behind and that we have to go faster. That statement, that PSA, it is a personal experience that I am stating to myself, which is so often the case when I'm tweeting, it's like, it's born out of a reminder to myself that I'm experiencing.
But in particular with eCommerce, and I'm going to try and do this without being able to show numbers to explain this in a simple way, but one of the problems-
Chase: Hey, you're doing the legwork here.
Taylor: Yeah, I know exactly. I'm going to visually drop my hands, but is that so often the defining attribute for whether I increase or decrease spend is my Facebook account ROAS. Let's say I'm getting a two to one ROAS in my Facebook ad account, and that is a good outcome. It's generating for me a net business result that I'm happy with.
Chase: Let's be clear because you were getting in trouble for acronyms earlier. ROAS is return on ad spend, ROAS.
Taylor: There you go, yes. For everyday I spend, I'm making $2 back in my Facebook ad account. Well, what that means is that for that subset of customers, 50% of the revenue that I'm generating is going to Facebook. 50% of the revenue. Now, if you look at the whole revenue of the business, it's likely a much lower number because there's some amount of organic sales that are happening alongside those. Let's say, for the sake of the example, 50% of the customers I acquire were paid for at that two to one rate and 50% of the customers I acquire were done on an organic basis. That means that my cost per acquisition would be 25% of the revenue, right? So, 50% of the 50%. Does that follow with the math?
Chase: Yep.
Taylor: Now, let's say the media buyer whose job it is to scale the spend against that target, the next month is able to double the ad spend at the same ROAS, which for media buyers would be a outcome they would celebrate. If you can double your spend while maintaining the efficiency, that's a great result as a media buyer, but now I've gone to $200,000 in ad spend and I've generated $400,000 in revenue. Last month it was $200,000 in revenue, and I generated $200,000 organically. We'd said 50/50, 200,000, 200,000. The next month I generated 400,000 that I've paid for, but I've only grown, or let's say the organic was stagnant. It only was 100,000 again. Now I've generated $500,000 in revenue, but for 400,000 of it, 80% of it I've paid a 50% CAC.
Now 50% of 80% right is 40% CAC. Now I have 15% less margin, but none of the ad metrics changed, but my margin disappeared in the business. This is what people don't understand about. Because so much of their business is the Facebook ad account, the Facebook ad account, the Facebook ad account, and it's the driving force, is that you can be succeeding in the Facebook ad account and still deteriorating the margin of the business. You've just got to be considerate of the way in which you're growing demand in other channels, because even a two to one, which is a pretty good outcome, it's about a 50th percentile outcome in Facebook, no business can sustain giving away 50% of their margin. You won't be profitable. If that's where all your customer acquisition is coming from, it won't work. It won't work.
Chase: It looks great on paper, if you haven't done a video on this one, maybe this is one you should do a marker video on. But yeah, I'm a numbers guy, so this stuff totally makes sense to me. It's a fake statistic. It's a vanity metric at some point. You're "scaling," but you're not actually scaling. You're actually hurting yourself.
Taylor: Yeah. Well, I would just say it's an insufficient metric. It's insufficient to be done on its own. It still is indicative of something that's happening. What I like to say is like data reveals truth. In the Facebook ad account, it is true that you spent $200,000 and you made $400,000. That's just a fact, but what's absent from the story, if that's all you look at, is the fact that you did not acquire any other customers any other ways. That organic channel didn't grow. Everyone wants to paint with these really broad brushes or the silver bullet metrics, and the reality is that's really hard. There's nuance here. What I would just say is that ROAS is insufficient as a metric, and that, that idea of the organic to paid ratio, what percentage of your customers did you not pay for as a percentage of the total, if you can maintain that, then the profitability doesn't deteriorate.
Then it maintains, because if I grew 100% and I grew my organic 100%, I maintain that 50-50 ratio. Now it works. When I call it the velocity constraint, what we'll often say is that you can only scale your ad spend consistent with your ability to scale your organic demand. That's harder and longer and people don't want to wait. That's why they get in trouble.
Chase: That's going back to all the stories of heroes came to rise super quickly is no one has the patience for that, but that's what it requires to build a successful business.
Taylor: Right, and there's a whole question around capitalization of eCommerce businesses and what your position is in terms of your capital versus other people's, and what their intent is, and what your exit strategy is. Whether it's a strategic acquisition, which is going to be less about profitability than it is to sell. The other thing I just know is that, when I speak, it's so important to contextualize that most of the people I'm talking to are people, zero to 30 million, early stage eCommerce business owners. We sell eCommerce misses. I'm a week away from completing a transaction on one of our businesses. I sold another one, six months ago. We buy them all the time. I know, I know this for an absolute fact that, at the early stage, your growth rate does matter. Early stage eCommerce businesses get sold on SDE, seller's discretionary earnings, which is your EBITDA plus whatever you paid yourself.
That's what they get sold on, period. Now, once you get up to 30, 50 million, those things, it doesn't matter. Again, it really depends on the game you're trying to play, but for most early businesses, the rate at which you're growing is not important.
Chase: Again, it's a great clarification point. There's context to everything. Just because we say something one time on a podcast, doesn't mean that it's eternally true.
Taylor: Universal truth.
Chase: Yep.
Taylor: Yep.
Chase: Good context. Moving on, I pulled one of these from Aaron Orendorff, actually. I got to get to this one cause it's a content quote, and I'm a marketing guy, so I love the content stuff. Aaron says, "Content is easy, data rich, timely, and tactical content that one, moves from an accurate what to a practical how, two, explores the why, and three, doesn't bullshit its audience. It's hard as F. Also, you get what you pay for and what you bleed for." I just love the quote. I think it's awesome. There's way too much content in general out anyway. How do you get to a place that's valuable content? How do you get to a place the people are actually going to use?
Taylor: Yeah. Man, there is no greater temptation than to try to use data to make your story true versus the other way around. Because you know what sucks? Is you have a hypothesis of this great idea that would be so awesome if it was true, and then you go look in the data and it turns out that it's not. One, to be honest about that, to be willing to look the numbers in the face and not, well, if I just pull this one out, then the correlation is a little stronger. Or if I just tinker with this conversion rate, because that period wasn't really ... You can do that endlessly. I'm a big fan of Edward Tufte, who does a lot about statistical design, and really just about charts and honesty and charts. It's such a great book, because it calls into accounts how often we use data to manipulate and prove a point.
I think what Aaron is getting at is that, to one, do a lot of research is hard, to have access to get information is challenging. You want to produce content fast, that's the temptation. Then to subject yourself to edits and critique is challenging. That requires a humility. That's challenging. Then to be really honest about the story and to find stuff that's compelling, it's hard. It is really challenging. There's this tension man between a world of marketers that is driven by case study and is driven by successes and the ability to show off what you've done that is really tempting, and it's tempting because it's powerful. It works, people are compelled by it.
What we have found is that, if at the end of the day they find that, through the facade, if all we did was sell them, that when they get there, it's not worth very much to us. It deteriorates really quickly and the value doesn't last, and it's really hard to build a business on that. Aaron's a dreamer, he's hopeful, he's got so many good ideas, and he's also rigorous, and I think that's part of what makes him really good at what he does. It's fricking hard. It's really hard. I empathize with them.
Chase: There's also the piece of concept production that we've talked kind of about speed and about how it's not the greatest thing to have to push forward, but speed and content is a real thing, because if someone gets that piece out before you, now you're behind the eight ball again.
Taylor: There's SEO implications. We fought this with COVID. There was a mass temptation to own the narrative around the data related to COVID without making assertions. One of the things that we are pretty disciplined on is I think that one of the place people get in the most trouble is prognosticating, is trying to predict the future. I think it is an incredibly, incredibly difficult thing to do. Acknowledging that and reporting what is versus what will be, I think one is sexier. Everyone wants you to tell ... if I could tell you, and I came out here and I was like, I guarantee you, I can tell you the CPMs on Facebook in Q4, that would be great. A lot of people would tune in and I'd be full of shit. Because the amount of variables that go into that is far beyond my capacity to see them.
We want to do our best to be thoughtful and to consider all the inputs that might affect the output, but there is this challenge, even like ... the tension we felt with the COVID thing was SEO. We knew there was going to be the search volume around these things. How do you state it in a way that's honest, integrious, but also does move fast and does produce information and says, this is what we're seeing. We don't know what it means yet, but it's there and it's available and want you to follow along. I think that's really the key, is to provide what you have, be honest about it and avoid the temptation to draw insider prediction from it.
Chase: Totally great. Shout out to Aaron. Appreciate the context for that last question there.
Taylor: Yeah, absolutely.
Chase: Last one for you before we jump into some rapid fire questions. This is pulled from a 2PM email. It's a bit of a long one, so bear with me for a sec. "It's expensive to compete to acquire customers. Those companies have deep pockets. What they don't have though is an average order value that's anywhere close to ours. They may have millions of dollars in the war chest, but the day of reckoning is coming, if it hasn't already, for a lot of DTC brands where they can't afford the customer acquisition cost." I'm going to give you the floor. How does CAC play into this average order value and ultimate lifetime value? Go for it.
Taylor: Yeah. If you think about what sort of media buy arbitrage represents, it's simply the Delta between what it costs to acquire a customer and what they pay you. If we back out a layer further, then we say, okay, well, how do you get the cost of acquisition? Well, it's cost per click. If cost per click is a function of CPM times CTR, then at the end of the day, what happens is that as CPMs rise, your ability to produce CPCs, cost per clicks, so as the price of advertising increases the price of the traffic increases and the elasticity of your conversion rate. Meaning your ability to constantly improve it, to stretch it has real limits. You're not going to be able to endlessly stretch conversion rates consistent with the rise of costs in a platform.
What that means is that, for brands that have low margin, or brands that have a low AOV, there's a real limit to their ability to be first order profitable. The business models, and this is why, like some practical examples of this idea playing out, like why did mattresses become a massive online media acquisition engine? Well, it's because they have a massive AOV. They have tons of gross margin. So, they were able to go out and spend a lot of money to acquire a customer, and they had deep pockets to do it, and so they're able to pay more for a click than you can, and they can still win. That industry was sort of perfectly built for the DTC, or the eCom paid acquisition world. Similar to silicone wedding rings. When we started QALO, the beauty about silicone wedding rings is they have tons of margin.
This is a very cheap product to produce that we could sell for $24.99. Now, what happens is there's now a thousand competitors that stepped in between every step of the margin all the way down to, you can buy 10 of them for a dollar on Amazon. What happens is like, this is how markets work, that eventually all the profits get competed away in the event that there's no moat or defensibility of the thing. This is one of the things I'll say with search, is like, in a keyword auction-based volume constrained ecosystem, all of the profits eventually disappear. Things that allow you to push the threshold at which the profit disappears are margin, so just the percentage, raw dollars, which in the form of AOV.
If you think about, if you have 50% margin on a $20 product, you make $10, but if you have 50% margin on $100 product, you make 50 bucks. There's just more raw dollars if you can move the AOV up, and then, I think a lot of the world that you guys live in, which is the capacity to generate ongoing value or LTV off those customers on an ongoing basis. That's the way you sustain the inevitability of the rising cost of CAC, is through those mechanisms, and so that sort of happens over time in different industries.
Chase: It's one of the things that I love most about subscriptions is, even though it's not suggested to not be profitable on your first order, you do have the luxury to stretch a little bit, and you'll be under water on your first order with the assumption that they're going to have a second, third, fourth, and ongoing recurring orders.
Taylor: Yeah, that's exactly right, and subscriptions are incredibly powerful that way. In that, you can generate massive ongoing LTV. Again, it's a system perfectly designed to generate LTV, and it does it really, really well. If you have the capacity and product that lends itself to that idea, then it's really, really powerful, and it's a thing that can help to offset rising CACs. It can give you a longer runway than other people, which is a competitive advantage to driving acquisition in those channels.
Chase: Assuming you have a better product in the first place, which is a whole other conversation we got to get to.
Taylor: Totally.
Chase: Cool. Lightning round, I got a couple last questions for you. Piece of advice that you will give any small brand who's just starting out on subscriptions.
Taylor: Yeah. I think, small brands, the key is you have to become great at cashflow management. If your mechanism is going to be subscriptions, you have to understand your cash conversion cycle on that purchase. I mean, deeply and intimately understand this. A lot of times we think about this as a marketing problem, and it certainly is, and you definitely have to have a product that actually makes sense, and you have to think about the pacing, and that's all true, but I actually see the biggest problem that people have is they're actually not clear on the way that they're going to actually make money and how the cash is going to show up and when it's going to show up relative to the business needs. Understanding like, hey, my inventory lead times are X. I'm going to pay this much for a purchase.
The net result will be on day zero. I'm going to have this many dollars. On day 30, I'm going to have this many dollars. I have to make appeal on this date. Payroll is on this date, rent is due on this date. The businesses that I see, where they have a lot of early success are actually people with more financial wherewithal than others. This is really intimidating for a lot of entrepreneurs, because not many of us began our careers with that as our core skill. We were more marketer product innovative people, especially in eCom than we are finance people. But what I'll tell you is you can learn, and don't be intimidated and go after it. One of my favorite books that we used to teach all of our growth guides, like our highest level account strategists, is a book called How Finance Works by Mihir Desai.
It's incredible business ... or Financial Intelligence is another great book, if you're an employee of a company and you want to understand more about how your company makes money. Those things are an important critical skill for subscription in particular, because the value capture is usually latent, because you are going to have to wait for the cash to show up, you're going to sell something. You're going to be like, where's the money. It's not going to be there. You've got to understand when it's going to come and you got to understand churn. There's a lot to it to do it well.
Chase: It's just a big math problem then, at some point. As we were talking about earlier, you break down all this complicated stuff, you break it down and took it. This state's coming here, this state's here, this state's here, then you kind of have a clear picture of what's going on.
Taylor: One of the skills that I'm learning to get better at, and I wish I was better at and it's a restriction on our own growth is understanding debt facilities, understanding different vehicles for capitalization, understanding how to use cash well. Those are things that will give you lifelines. Understanding how ... one of the most critical things that you can do is negotiate better terms with your supplier. There's not a bigger cash destroyer than having to pay for product upfront. Those things are the unspoken skills of the eCommerce entrepreneur of those that are winning, is that those that can continue to add days on, I went from 50-50 upfront to on delivery, to now I'm 10% upfront, 25% on delivery and 25, and then 70% net 60. That will transform the way that you have cash in your business.
If you can do those things, that's where you win. That's where, the reason we get to know this and why that we can speak to our clients this way is because ... I spend as much time talking about demand planning and cash flow forecasting as I do, because we're living it. That's, I think, where we get this competitive advantage is that, the actual marketing mechanics and financial mechanics of marketing scale have to consider those things.
Chase: This is the slowest lightning round ever.
Taylor: I'm sorry. Sorry, sorry. Okay, I'll speed up.
Chase: No, it's great content. No, no, no, it's perfect. If you want to go the same length, we'll keep it going there. Same question, but for larger brands, what is something that you can do that you function within that $30 million range, and once you've hit that $30 million, how do you take that next step to grow? Piece of advice.
Taylor: I think it comes down to understanding different purchase behavior and connecting the parts of your organization on marketing and demand planning better. I think that one of the bigger problems becomes like your balance sheet and inventory management when you get larger. It's because., in almost every organization I see, there's no relationship between the demand planning side of the business and the Facebook media buying side of the business that's creating the demand. The demand creation and the demand purchasing, or the planning, are very disassociated. What'll happen, and I see this all the time in big companies, you have a media buyer who has a KPI that has to do with ROA who does not care what product they sell. One day it might be this many products on this one, and then the ROAS falls off and they're moving all that budget over here to this funnel because it's better and they don't care.
There's a big disassociation between this versus being disciplined about working to make things work. I had a great interview with the GM of the Rams who talked about drafting Jared Goff, and when he hired Sean McVay, they said, Jared Goff had a horrible first season, what gave you guys the confidence to stick with him and have so much success? And he said, "We believe that you have to work to make things work. We thought about the receivers that we brought in, in the system and the place that we called for him, we put him in the position. When it comes to selling things at that level, when you have that much demand planning, you don't get to just decide that a campaign doesn't work anymore and I'm not going to sell that product anymore, because you have 50,000 units in a warehouse somewhere. Now you have to work to make it work and you have to re-imagine the possibility and you have to be more persistent at the larger stage about specific types of purchases that you're after.
Versus in the early stage of businesses, you're just sort of following whatever works and you're letting that drive the decision-making. But when you get to big order quantities, you don't get to do that anymore.
Chase: It's so funny, when I ask this question to a handful of people, every time the answer is, how do you scale your company? The answer is always something boring and unsexy and something that is not going to make headlines. It's hysterical that everyone thinks, from this entrepreneurial journey that, it's, you've got to be a leader and you got to do ... You've got to be visionary. Like, no, it's you manage your inventory well, you're going to be okay.
Taylor: Yeah. Even within that, the hidden thing, the biggest thing I say is the biggest problem is the incentive structures of the employees is the number one problem I see in big organizations, is that you don't ... In the example I gave, you have a Facebook media buyer who's KPI is disassociated from a business outcome that's really critical. So, you've built a system where people are doing the thing that you asked them to do. Again, is your system designed for the outcome that it's generating? It is, or like, hey, this person isn't incentivized to talk to that person or to ask their opinion or to consider them or ... In that ways, what you get, and it's really hard because it's super hard to tie everybody to the same direction, that from an organizational structure, even for our agency at 90 people, it is such a challenge. But I think great leaders and great organizational thinkers do it really well.
Chase: Last question for you. What physical products are you subscribed to?
Taylor: So, Whoop is my favorite. It's kind of cheating, because it's a physical product plus a digital subscription, but I love that business model. I love the way they do it actually, is I paid for a year upfront, so it doesn't actually feel like a recurring spend, which would have made it easy to cancel. It actually increased my level of investment in it. That is like the most obvious one to me is Whoop. I'm trying to think if there's any other recurring ... Oh, I get, this is a dumb one. Hold on. I get envelopes sent to me on a recurring basis because I'm an eBay seller of trading cards. That, oh, and then Rollo, which is my label printer is my favorite product I've bought in a long time, and I paid them a subscription for access to cheaper shipping rates. Again, physical product, digital subscription, I freaking love the business. This is my favorite product I've bought in a long time, is my Rollo printer.
Chase: Interesting. Those are examples I had not heard of, so that's breaking the box there, breaking the mold, I love it. Taylor, thank you so much for joining us. Really appreciate have you on here.
Taylor: Yeah. Appreciate you guys, man. Love the product. Appreciate everything you guys are doing, and look forward to following along.