I hope more founders embrace the goal of building a brand that
really means something to customers
produces reliable cash flow
that can support reasonable growth
and be distributed to build wealth.
That sentiment is captured in this post from
I think there's going to be a new batch of D2C companies that will have sub 5% OpEx but not super huge at like <$10M-$20M/yr revenue range.
Ultra lean, serving a tight community (probably their own community) with ears fully on the ground.
They won't get bigger but will stay super nimble, always at the front of the market and people working there are happy with their high income.
ron | e-comm & operating ron | e-comm & operating on Twitter / X
Let’s break it down.
“Really means something to customers”
I believe the best definition of “brand” is the disposition among a group people to buy our products at our current prices. How do we measure this?
- Repeat purchase rates
- Purchase rates among our High Value Customers
- Conversion rates and speed of New Customers becoming High Value Customers
- Sales velocity of new products among current customers
- Churn rates
- Community growth & engagement
- WOM which will show up in CAC
“Reliable Cash Flow”
This has two parts. The Cash Flow and its Reliability. We measure this with:
- FCF over time
- FCF as percentage of Net Sales trend
- The acid test for reliability is how well we can forecast our FCF. The closer to actual the further out in time, the better.
“Reasonable Growth”
This is likely the most controversial aspect. The first thing to understand is our organic growth maximum. To understand that, we need to understand our customer and contribution profit churn which tells us how much budget we need for new customer acquisition just to stay even. In other words, we know customers are going to leave us and take their contribution profit with them. So what do we need at our projected CAC’s and CP per new customer to replace that lost contribution profit?
We then compare this budget to our projected Free Cash Flow. Do we have enough FCF to maintain? Is there FCF left over? If so, how much? We can then infer our organic growth maximum.
If we want to grow faster than this, we have to source new capital. Do we want that? Can we get it? What’s the impact of this new capital if it’s debt? What’s the impact on dilution of equity? And most importantly, does taking equity mean our strategy is now geared to growth and exit as opposed to cash distributions?
“Distributed to Build Wealth”
This strategy is really only possible if we have not taken institutional capital. If VC or PE is on our cap table, our strategy is cooked and growth and big exit are our only choice.
But if we are bootstrapped, we have another option which is steady distributions with the option for exit. And building a business that can steadily distribute cash will also help us maximize exit opportunities. Remember, our goal with a company is to generate wealth and for brands in this revenue range, the best wealth generation comes from steady cash distributions.
The larger FCF, the more cash that can be distributed. But notional amount is not enough. Founders must have the confidence to distribute cash as opposed to the natural tendency to retain cash for upcoming events like Q4 or general worry about a downturn. Founders gain confidence through proven ability to predict cash flow, so see “Reliability” above.
Tracksmith is used as an example in the comments of the mentioned post. I don’t know Tracksmith’s financials, so I don’t know if it qualifies for the criteria above, but it appears to from the outside. The brand is 11 years old, has expanded from DTC to 3 owned retail stores (Boston, Brooklyn, London) as well as specialty wholesale with an impressive group of running focused retailers. It has also slowly expanded product offerings to include shoes, outerwear and lifestyle products. And clearly has a strong community. It looks like a great role model!
Takeaway
There has never been a better time to build brands that:
really mean something to customers
produce reliable cash flow
to support reasonable growth
and be distributed to build wealth.
Because the right financial and operational playbooks have been created, tested and refined and are being shared through employee movement, communities, vendors, X and LinkedIn which combined with AI is increasing margins and speeding capital cycles. The result being that brands can achieve greater profitability and more reliable FCF at smaller scale.