Brand is the most under defined word in ecomm.
We all talk about brands, building brands and the importance of brands. But ask 10 founders and you will get 10 definitions. The most recent episode of the Operators podcast (episode 117 Jun 11, 2025) is a case in point. It’s an interesting conversation exploring many angles of brand, but ends without an actionable definition.
I offer my definition, the thinking behind it and concepts to make it actionable. I have expanded on these actions in previous posts (links below) and continue to add what I learn as I apply these concepts with clients.
Brand is the predisposition of a group of people to buy your products at their current prices.
Essential to this definition is the concept of potential. Think back to sixth grade science and the concept of potential energy and kinetic energy. The water behind the dam represents potential energy. The water flowing through the turbines represents kinetic energy.
For brands, the kinetic is cash generation and the potential is the predisposition to buy. The more people with a predisposition to buy and the stronger their predisposition to buy, the more cash you can generate.
It’s important to remember that the predisposition to buy is linked to your products and prices. Hermes can sell the hell out of leather bags, but how well would people’s predisposition to buy translate to dog food? Likewise if Ferrrari introduced a car at a $50,000 price point, they would convert a lot of predisposition, but would also alienate their customers at the high end.
In order to make this definition actionable, we need to review first principles.
1/ The goal of a company is to generate wealth.
2/ ROIC (Return on Invested Capital) measures how well a company generates wealth.
a/ The return is measured by profit and the invested capital is the equity and debt employed.
b/ The more repeatable and predictable you can make this equation, the more wealth you generate.
3/ Your goal is to find the right balance of this equation - profits and capital.
a/ Generate profits, but needs lots of capital? Your ROIC will go down. Use capital efficiently, but generate little profits? Your ROIC will go down.
b/ The answers lie at the intersection of your customers and your products.
4/ Not all customers are equal.
a/ Some customers buy more often and buy more expensive and profitable items. Some customers require less discounting and return infrequently. Some customers generate word of mouth and help spread the brand’s visibility.
5/ The best way to generate predictable profits and to speed capital cycles is to build repeat customers and especially High Value Customers.
a/ Returning customers are more profitable because they don't need to be acquired, buy repeatedly over "lifetime" and often buy higher priced, more profitable items while requiring less discounts and return less.
b/ Returning customers speed cycles because (a) their demand should be more knowable so we can do inventory purchasing more accurately and (b) will buy faster so we convert inventory back into cash faster.
6/ It’s critical to define these High Value Customers and then segment our customer base.
a/ But that’s not enough, we must use these segments to build the skills of prediction of how our customers will buy so that we improve product development, demand planning and marketing. Remember our goal is repeatability and predictability.
7/ This segmentation must be applied to new customer acquisition
a/ While we don't know a priori which type a new customer will be, we can make good guesses by looking at factors such as the channels from which they are acquired, targeting, creative, discounting, first purchases, time to second purchases etc. With analysis and thoughtful testing we can get better at acquiring one type over another.
8/ We also must acquire customers within acceptable financial ranges.
a/ For most brands, this means acquiring customers who are first purchase, post-CAC contribution profitable.
9/ Customers churn. Our High Value Customers churn.
a/ When we understand how our customers churn, we can then understand how much budget we need to just stay even.
b/ And we can compare this amount to our organic free cash flow generation.
c/ If there is money left over, that determines our potential organic growth rate.
d/ To grow faster than our organic rate, we need to either free up more cash from our operations and/or outside capital.
10/ Our goal is to stack High Value Customers and keep them.
a/ Each customer represents a forward cash stream. We know some streams are more valuable than others.
b/ Imagine three simple groups of your customers:
i/ Your High Value Customers
ii/ The Rest of Active Customers
iii/ Your Churned Customers
c/ Given the constraints of your budget and financial ranges, your task is to stack as many cash streams in your High Value Customer segment and minimize your Churned Customers.
d/ Your customer acquisition should be judged on success or lack thereof of this stacking.