Amazon’s shocking secret weapon to growth

Happy Sunday! If you’re reading this, I hope you’ve got a Vintage Cola Olipop in your hand and your feet up on an ottoman. We’re gonna talk about money today.

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There is so much money going around right now in the world of venture capital. If you haven't heard about companies like 1520, Buyk, JOKR, or Gorrilas, they have hundreds of millions of dollars to deliver groceries in 15-20 minutes to consumers. Why does someone need their lemon and bag of Doritos in 15 minutes? No idea. But for context JOKR made $1.7M in July 2021 while losing $13.6M to do it. For the $1.7M in revenue, they spent $2.3M to buy the goods. Surely there's some narrative here of "We're investing in growth for the future" but it's insane how sometimes venture money just takes the fundamentals of business out of the picture.

Putting this over to DTC brands, it's also mind-blowing how many brands raise money at insane valuations. I've seen companies raise at 8-figure valuations, pre-product, then be forced to raise a down-round, and they'll still do it. If you put $100k into a company worth $10M, you effectively own 1% of the company. On the other hand, watching Shark Tank and seeing Daymond John own 17.5% of Bombas for $200k, which is now probably worth around $140M to him, is crazy!

Both these scenarios show two things: 1) Some valuations are absolutely nuts; 2) if you can prove your concept and show product-market fit, there are some better ways to fund your business than giving away so much equity. That's what I want to dive into today: cash flow management.

Last year, GymShark made headlines in the eCommerce circles when people realized that they had a negative cash conversion cycle in their financial statements. This means that they are not really locking up cash because they don't pay for their product costs until after a customer has paid for it and the money has landed back in their bank account. In the case of GymShark, it's actually even better than that, they get about 3 months to pay their inventory back. This is also how companies like Amazon and Walmart are able to grow faster, as they build revenue.

If you're a brand that's been around for a while and you've got a ton of rapport after running hundreds of production runs, it's easy to be in a position to do this. It allows you to pour your cash into other things that build your business: marketing, advertising, hiring, building out new product lines, etc. It's why so many businesses love using companies like Rho, Brex, or Ramp where you get extended payment terms, compared to the traditional business credit cards.

But, how does a brand new business, or one without the rapport of a GymShark-level brand operate with more cash, all while not needing to sacrifice more equity for another round of venture capital funding? The answer is non-dilutive funding.

Non-dilutive funding can be as close to you as family members, or within reach with grants, tax credits, credits you earn from programs like MainStreet, or, my favorite, companies like ClearCo, Shopify Capital, Settle, and Wayflyer.

While this might sound like I’m putting Wayflyer on a billboard, it’s a legitimate story. I recently connected Wayflyer with one of my portfolio companies that consistently sells out their inventory. With a monthly revenue rate of about $400k/month, they got access to $1M in funding to instantly deploy into stocking up on inventory and customer acquisition. What they do with the money is completely up to them, but that's $1M they don't need to go out and trade for equity, and instead, they'll only pay 3% for it.

If you have money in the bank from fundraising previously, or you have customer revenue coming in, a service like Wayflyer can make it easy to get access to instant capital right away. (PS - Sharma Brands has a partnership with Wayflyer so you can get funded instantly here)

One more example I want to share — 2 years ago I spoke with a founder of a company before investing and asked him what was one of the traits that made his brand so special, and able to compete in a crowded category? He said, "I don't pay for any inventory until I've already collected the cash for the product we sold." I decided to invest on the spot and a handful of other investors did the same — it was a moat. That was due to a personal relationship he had with the supplier, but the beauty of that was there is no interest payment required when the vendor allows you to have longer payment terms. 

So if you're a new brand, no money in the bank, you're just getting off the ground, how can you work towards having better cash flow management in your business? Here are some ideas.

Change return processes. If a customer comes to you, make an incentive to give a gift card instead of a refund. Maybe they'll get 10% more value on a gift card versus refunding the cash. If they come back with a $100 gift card to spend, your COGs might only be $30. That's better than sending $100 back out. If you have to refund, try to make refund payments 7-10 business days, instead of 1-2 business days. This keeps the money in your account for a few more days. Every dollar counts.

Ask vendors for a line of credit. If you have a good relationship with executives at the company that produces your products, ask them if they'd take equity in exchange for a line of credit. I almost recently bought a brand and the way we were setting up the cap table, the factory owner would have 15% of the company in exchange for a $1M line of credit with 6-month payment terms, and we would pay for the product at the factory cost, so even the factory wouldn't make money off our transaction. They'd also wait for the liquidity event, like an acquisition.

Create a membership program. Having a membership gives the customer instant access to value (discounts, perks, exclusives, etc) and gives you upfront, predictable cash flow. A few years ago I worked with a DTC brand in the auto space. Their membership had a raffle component, giving away a $100k car per month, and amazing discounts to like-minded companies. They had the most predictable cash flow because of it, and it allowed them to invest in other parts of the business.

Find unrealized grants you're owed. Using a company like MainStreet taps into government grants and budgets that most people are unaware of. You might sign up, connect your payroll platform and realize that you have $100k in cash that you're eligible to receive. Your CPA isn't legally allowed to take a percentage of what you save, but MainStreet can. So they scour all the budgets that are set aside and give you what you're owed.

Build your AOV. This dips a bit more to what you're doing on your own website, but if your AOV is $40, figure out how to increase it. Can you add items that are high-margin, make sense to the customer, and are easy up-sells? Brightland's bottle spout is a great example.

Got any other ideas I might have missed out on? Reply and let me know what they are! I'll share the good ones in next Sunday's email.

On to some fun stuff... 

Some Links to Share:

Instagram DM is now a sales channel. Previously, you had to run Messenger ads on Facebook to make use of conversational commerce. Paloma is hosting a webinar with Facebook to show off how they turned organic Instagram DMs into a sales flow. Sign up here.

Curated Tweets. I sent out the first email this past Wednesday and had a 76% open rate, 47% click-through rate, and it drove a 30% increase in subscribers. You can get the next edition this Wednesday. Click here to subscribe!

Optimize your PDPs. I wrote a column for Shopify's website about how we like to build PDPs at Sharma Brands. What goes above the fold, below the fold, what modules to explain, how to ensure you have all the right photos in your gallery, etc. I'm really excited about this partnership with Shopify!

Vendor of the Week

MarketerHire — The "We need a head of growth" staffing company for brands, large and small.

I don't think I've heard of so many companies, even just in my portfolio, asking for a new Head of Growth, Head of Marketing, or eCommerce Manager. Everyone is looking for a new full-time employee, but when you ask why, they need someone to help manage growth through Q4!

The solution is easy — MarketerHire! I did write about MarketerHire recently, and many companies signed up and were connected with new teammates from incredible brands to help tackle problems.

Whether it's as complicated as building growth funnels, planning promotions and Q4 merchandising, or putting together an entirely new campaign from scratch that will run across out-of-home and digital, MarketerHire talent will have you covered. It's harder for a marketer to become verified MarketerHire talent than it is to get into Harvard. You'll never get bad talent.

If you're looking to hire a marketer, take 5 minutes to fill out this form, and just see what you get back. You won't be disappointed. If one of the largest technology companies relies on MarketerHire to execute their global marketing campaigns, they'll deliver for you too.

Fill out this form and see what MarketerHire can do for you!

Brand of the Week

Brightland — The most flavorful and highest-quality olive oil on the market.

Brightland has been a case study on how to build a business. A strong brand identity, a [very] loyal customer base, and solving a clear need in the market. Most of the olive oil you buy at the store has been bottled for years, uses olives that were crushed with dirt or are probably contaminated with larvae, and may contain a blend of vegetable oils like soybean, sunflower, or canola oil. Learning this is what made me want to invest in Brightland 2 years ago.

Brightland olive oils are hand-harvested in California, where the olives are cold-pressed within 90 minutes of a harvest. They hold rigorous standards to their product, and as a consumer, you can taste it in every bite. The punchline is: it's delicious. 

If you live in New York City, check out the pop-up shop in Soho (173 Elizabeth St) and get a sample of the tasty product.

If you're looking for some good gifts for the holidays, check out Brightland's Holiday Guide, with products including olive oil, bottles of vinegar, and jars of honey. I've never gone wrong gifting The Luminous Capsule!

That's All For Today

I wanted to mention this because it's important: Rest in peace to those who attended AstroWorld this weekend and didn't go back home. There were kids as young as 14 years old who lost their lives due to poor planning and poor management of the concert. There needs to be a rule that if you're not a company known to put on festivals (Insomniac Events, AEG, etc), you shouldn't be allowed to do it. Period.

I hope you have an incredible upcoming week. It feels like the holidays are just around the corner now. Have you already put your Christmas tree up, or is that for after Thanksgiving? Get those 9 hours of sleep tonight, and have an awesome week!

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