I read The Jolt Effect last week. It’s by one of the co-authors of The Challenger Sale which is a super popular sales book. The premise of the book is that in their research of thousands of sales calls, they realized the real enemy to sales was the customers’ indecisiveness. The customers wanted to make changes. They knew the status quo was costing them. They understood the upside of the changes. But they were afraid of making a mistake and that led to indecisiveness and lost sales.
The descriptions of indecision struck me. I recognized that pattern in my work with founders. The founders knew they had an issue. They understood that their company could be better. Yet they failed to take action.
I wrote the post below to help these founders move forward. So if you are a founder needing to make a change in your business, read on. And if you know a founder who could use help making a change, please forward this.
It’s usually not knowing what to do, it’s knowing how to do it.
You already know the challenges your brand faces.
- Is my pricing too low?
- We’re leaning too heavily on discounting and it’s site wide, not targeted
- Certain SKU’s are killing us on returns and refunds
- Our COGS could be lower because we’re still using the same old suppliers
- Shipping & fulfillment is too high and our free shipping threshold is probably too low
- We are definitely losing money on some international orders
- Is wholesale/retail profitable? How do we know?
- Our inventory ordering is off. We stock out and we have way too much slow inventory
- OpEx feels high
- Our headcount seems high, but everyone seems so busy and frazzled, where would we cut?
- Our debt is expensive and killing our cashflow.
- We need to increase repeat purchases
- Our CAC’s, ROAS and MER are all over the place, inconsistent and hard to predict
And the list goes on. Founders can usually tell you where the issues are.
Your brand finance content daily diet doesn’t really help. It’s usually filled with more of the same - tactical issues and fixes. I am guilty of contributing to this too 😉.
- Think about this, that and the other thing!
- Immediately do 1, 2 and 3!
- My software solves XYZ!
If the problem isn’t knowing what’s wrong and there’s plenty of advice on what to do, then why do we struggle to make improvements?
Two things are preventing you from making the progress and improvements you need,
- busyness and
- a clear path.
Busyness
I have yet to run into a founder who isn’t drowning in work. There’s always a list of urgent items. And when they agree that changes must be made, there is frequently some big thing that must be done first before they can tackle it. ‘We have to get past this big sale or selling season, hire this new person and get them onboarded, making a change in our agency / fractional CFO / partner, finalize our plan for next…’
The point isn’t that these things aren’t important. The point is that brands, especially scaling omni channel brands are endlessly busy. That is their nature. They are like kitchens at a restaurant that never closes and always has a line out the door.
And founders often mistake their action for progress. Make hay while the sun is shining. But as founders did you end up creating any real wealth for all those years of grinding? Or did you simply get by to grind another day?
There is never the perfect time to do the hard work of making improvements in the business. But you should prioritize the time because the improvements compound with time. So each day of future grinding will be that much more profitable and cash generative.
A Clear Path
When we are uncertain about what to do or worried about making a mistake, it’s far easier to keep doing our routine what we know how to do. This fear of uncertainty and making a mistake is the second thing holding us back.
Imagine someone urgently needed you to drive across country. You could probably grab some clothes, be out the door and be on your way in 15 minutes. You know how to drive. You know there will be places to eat and sleep all along the way. And your phone or car can plan your route while you’re already underway. Your biggest concern may be finding enough podcasts to listen to.
Now let’s say someone asks you to build a house. Where to begin? You know you need lumber and framing and plumbing and electrical. It needs heat and cooling and appliances and finishes. You know you need land and permits. It needs excavation, a foundation, a plan…
You know all the things that need to be done. But you have never done them, you aren’t sure in what order they happen and all you can think about is what happens if you get it wrong.
Making meaningful improvements in your brand is similar to the house building dilemma. You know all the things you should do, but you haven’t done them, are unsure of the order of operations and need help in executing. In both cases you lack a clear path to execution preventing you from making progress.
Breaking the execution of improvements into nine steps gives us our clear path forward.
1/ Understanding what needs fixing and improving. Founders can point to most of the issues in their business, but will sometimes miss or misdiagnose a big challenge. A common miss here would be focusing on lack of profit and not thinking about our cash cycles. Not having good unit economics causes downstream issues, so what appears to be a CAC:LTV issue can be traced back to not understanding the impact of per unit contribution profit. And we all have our sacred cows. Founders can be loath to point out issues that contradict or challenge their favored strategy or tactics.
2/ What causes what? Often times we confuse our leading and lagging indicators. I like to think of this in terms of inputs and outputs. What actions cause what result. We may say shipping and fulfillment is too high as measured as a percentage of net sales. That’s not a lever we can push. What specifically is causing that? Getting to the root input is essential because we need to identify the actions we think will change that input. And sometimes we find there’s not much we can do about it e.g. tariffs or Meta algo changes.
3/ How the numbers are interconnected. There was recently an interesting discussion about the importance of including all ad spend in the MER calculation as opposed to judging each channel by that channel’s specific ad spend i.e. including DTC and Amazon ad spends in judging your DTC and Amazon channels. We know ads and marketing have a halo effect. People may see an ad on one channel but transact on another. But how are those connected? Do we have the data to understand that connection or do we fall back on educated guesses?
Another common example is discounts and sales. Increase discounts; increase sales. But do we understand the downstream impacts on margins and cash? Do we have insight into how increasing discounts may change repeat customer behavior? Do we have a view on whether customers acquired with increased discounts are as valuable as full price customers?
4/ Model what’s important. Models are attempts to codify our understanding of our businesses. They are fantastic tools to quantify the relationship between levers and results and to test our range of outcomes. They allow us to identify danger and downsides. And done well, they are the closest we can come to crystal balls allowing us to envision and then plan for a future we want.
But models are also dangerous and the dangers usually fall into 4 buckets
- The model assumes a business the way we want it to be, not the way it actually is. This often happens when off the shelf models are deployed and force the process into a methodology that is already built or used by others, but doesn’t reflect the actual business. ROAS and MER assumptions I am looking at you.
- We don’t understand our businesses well enough to input meaningful assumptions. In this case, the model has the business mostly right, we just don’t know enough about our own business to make meaningful inputs. A lack of understanding of unit economics and margin structure is usually a problem here.
- The model is too detailed and hard to use or too generic and broad. Modeling is a tension between detail and usability. A common refrain is that ‘the only thing we know about the model is that it’s wrong.’ Or to paraphrase Munger, we don’t need to model something in detail to be precisely wrong. So, we see models that are endless tabs of inputs and assumptions that are highly precise, but requires so many assumptions and tuning, it becomes hard for anyone besides the model builder to actually use. Or we see models that are so generic and high level that they fail to give us the necessary insight to critical decisions e.g. why you don’t use a generic monthly FP&A model when you are worried about running out of cash in 3 weeks.
- The model becomes sacrosanct. This is really just laziness. We convince ourselves that because the answers came out of a model, they must be right. A corollary of this is not questioning the model. We cede authority to the model and don’t question it.
5/ Tracking progress. Which metrics do we use to tell us if our changes are going well or poorly? We can’t wait for the accountants to close the books for the year to know if something is working. So which metrics do we use? Can we actually measure them? Do we have a process for reviewing them?
6/ Who does what? Change takes people to execute. And change can require new processes, metrics, and tools. Change takes time. How hard is it to make all these changes? Do we have the people in house with the expertise time and most importantly the will to make these changes? Or do we need to bring in outside consultants (like me 😉)?
7/ Prioritization of efforts. We can’t do everything at once. Given all of the above, we now have a list of desired improvements, we have estimates of the positive impacts and potential negatives, we understand the level of effort, cost and time to enact the changes and we have a good sense of our ability to make each change. So now we need to stack rank these changes. The changes that can make the biggest impact aren’t always at the top of the stack rank because smaller, easier changes can deliver wins faster.
8/ Locking in success. Our goal is to compound our improvements over time. What additional process, tools and people will need, if any, to lock in our wins?
9/ Establishing incentives. People will do what they are incentivized to do. And people will resist change for all sorts of reasons. Maybe they like their routine or they don’t know how to make the change or they chose the old platform or tactic. Change initiatives usually fail for lack of will. So have you properly aligned incentives not just to make the change but to lock in the change?
Summary
As founders, we know change is needed and improvements have to be made. We often know what these changes are. We even know the value of making these changes and that the improvements will compound in our business over time.
Yet, we struggle to actually execute the changes.
One problem is just getting out of our own way. We have to break the busyness cycle and prioritize making the changes. There is never a perfect time. So today is the day.
Second, we overcome our inertia and fear of making a mistake by establishing a clear path. This path has 9 steps. By breaking the change process into these smaller steps, we can take the first step, start progress and build momentum.
I hope this helps you make the changes you need and the progress you want. If you want help with this process, reach out. This is how I help founders and I would love to chat.