How Ecommerce Brands Can Fund Growth: Winning DTC Math

Summary

OPERATORS Podcast: "How Ecommerce Brands Can Fund Growth: Winning DTC Math"

Release Date: April 22, 2026
Hosts: Sean, Matt, Mike Beckham
Guest: Curtis (Portland Leather Goods)

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Episode Overview

This episode dives deep into the realities of funding growth for DTC and ecommerce brands—especially the “ugly math” behind inventory, cash flow, payroll, and profitability as you scale from $5M to $50M+ in revenue. The Operators share war stories about banks pulling support, the limitations of VC funding, bootstrapping, the harsh reality of “the squeeze,” and the true metrics that determine long-term success. Filled with candid advice, battle scars, and actionable math, this episode is essential listening for any founder, operator, or DTC dreamer.

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Main Discussion Points & Insights

1. Funding Growth as an Ecommerce Brand

• The Core Struggle:
  Most brands outside the VC bubble have real questions about how to buy inventory, pay staff, and grow past $10M annually—especially without outside investment.

  "How do you actually buy inventory? How are you paying yourself? How do you go from $5 or $10M to $50M without investment?" — Sean [00:00]

• Bootstrapping Tales:
  Curtis started Portland Leather Goods with no cash, hustling at art festivals to make payroll week-to-week. Early growth came from sheer scrappiness—doing everything from demolition to payroll to being the “optimist-in-chief.”

  "I had to go to art festivals to make enough cash to make payroll...so I was always doing this type of a thing." — Curtis [02:53]

2. The Bank Revolver Horror Story

• The Setup (Wells Fargo Revolver):
  Curtis recounts how, after strong growth, his company was offered (and promised) a $20M+ line of credit. A year was spent fulfilling endless audit and paperwork for the bank.
• The Punchline:
  At the last minute, after Silicon Valley Bank's collapse and a shift in banking attitudes, Wells Fargo pulled the $20M offer and immediately called back the existing $2M credit.

  "Not only are we canceling the $20 to $25 million, we're not going to give you that. We want the $2 million back now." — Curtis [04:30]

• The Aftermath:
  Wells Fargo began clawing back any receivables from their Shopify, preventing payroll and supplier payments. This forced extreme cuts, lean operations, and an ironclad focus on profitability.

  "It was a year of hell...just having conversation day after day...But we were optimistic because I'm optimistic." — Curtis [08:30]

  • This experience taught him to question organizational incentives and to beware of misaligned motivations within large institutions.

Notable Quote:

"I told everybody that day, this is the type that you look back on in a couple years and say, we would have screwed up if we got the $25 million." — Curtis [06:53]

3. The Reality of Debt, Investment, and Personal Guarantees

• Personal Guarantees:
  Early debt almost always requires personal guarantees. If the company fails, founders are on the hook.

  "Everything's me. If the company goes bust, I go bust." — Curtis [10:47]

• Lessons Learned:
  • Only use debt if you deeply understand your lenders' true incentives.
  • As you scale, try to eliminate personal guarantees.

4. The Impossible Math of DTC Growth

• The Cash Cycle Problem:
  Doubling a business is usually mathematically impossible on pure cash flow due to the inventory and payment lag; you need to engineer “slack” in the system.

  "It's impossible, but you have to do it anyway. That is growth in the early days." — Sean [17:32]

• Hustling for Leverage:

  • Supplier Terms: Getting longer terms from suppliers is often the best “source of capital.”

    "Your best source of funding is going to be...working capital. Leverage is probably going to be your supply chain." — Matt [49:15]

  • Negotiation as Partnership: Genuine regard for suppliers is more effective than hardball tactics.

    "The real key is sitting them down...hey, I understand how your business runs. What can I do to get more product at the right thing?" — Curtis [19:42]

  • People Management: Keep payroll as a lean percentage of revenue (target: 8% or less).
  • DIY Mentality: Do anything—from demo work to hands-on manufacturing—to save every dollar for growth.

5. Maturing as an Operator

• Continuous Growth:
  There’s never a “magic year.” Founders learn on the job—every year brings new lessons.

  "I learned a lot of this in the last six months...You get better as you go along." — Curtis [22:38]

• Rolling Forecasts:
  Forget 3-year business plans. Most great operators focus on a rolling 6–12 month outlook due to the high volatility of ecommerce.

6. The Squeeze—From All Sides

• Constant Pressure:
  Employees expect raises, suppliers want cash, and your growth depletes all available capital.

  • Transparent communication is vital. Tie compensation to performance and results.

• Efficient Headcount:

  • 8% of revenue is a competitive target for payroll (excl. production labor in COGS).

    "Ridge spends 8% of revenue on all people...all of our executives..." — Sean [35:08]
    "We're exactly 8%...our projections are 7–9." — Curtis [35:33]

• Trend: AI and automation are expected to drive that percentage even lower over time.

7. Bootstrapped vs. Venture-Funded Growth

• Bootstrap Path (Curtis, Sean):
  Relied almost exclusively on supplier terms, credit cards, and radical cost efficiency.

  "All of our leverage came from suppliers. From $2M to $200M, it's all come from suppliers." — Sean [50:14]

• VC Path (Matt):
  Used VC only when capital expenditures (like building factories) were mission-critical. In hindsight, would have raised less or none.

  "I am not a fan of venture in consumer...In hindsight I would raise a lot less money if at all for Pela." — Matt [44:47]

  • Cautions that VC creates a “hero or zero” scenario due to preferred shareholder structures.

8. Core Metrics & Minimum Viable Math

Gross Margin:

• The equation: What % of revenue is left after all inbound costs, including logistics and payment fees, before ad spend/opex?
• For durables, 66-80% gross margin is the minimum for healthy cash flow.

  "66 to 75% all in...including cogs, fulfillment, everything...this number should scare you, but that's what you need." — Sean [54:22]

Contribution Margin and Payroll:

• Track and optimize for contribution margin on a daily basis.
• Keep people costs as a strict percent of revenue. Target 8%, expect one day to reach 5%.

9. The Survival Game

• Growth at All Costs is Over:
  You can win by being the survivor, not by chasing a vanity “high score” of revenue.

  "We're not in the trophy business...The only trophy is, do you make any money?" — Sean [64:03]

• Longevity:
  Think in decades; true compounding takes years, not months.

  "We overestimate what we can do in a year. We underestimate what we can do in ten." (Bill Gates) — Quoted by Curtis [65:49]

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Memorable Quotes & Key Timestamps

• "Not only are we canceling the $20 to $25 million, we're not going to give you that. We want the $2 million back now." (Curtis) [04:30]
• "It's impossible, but you have to do it anyway. That is growth in the early days." (Sean) [17:32]
• "Everything's me. If the company goes bust, I go bust." (Curtis) [10:47]
• "If you want to change the world, venture capital is a great way to do it. But if you want to sell phone cases or bags or wallets, I think it’s one of the worst ways to go." (Sean) [59:54]
• "You don't get a trophy for telling people how great things are. The only trophy is, do you make any money?" (Sean) [64:03]
• "We overestimate what we can do in a year. We underestimate what we can do in ten." (Bill Gates, quoted by Curtis) [65:49]

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Important Segments & Timestamps

• Opening “How Do You Fund Growth?” [00:00–02:21]
• Curtis’s Origin Story & The Wells Fargo Revolver Catastrophe [02:53–07:44]
• Recovery from Credit Crunch [08:27–09:58]
• On Debt, Guarantees, and Early-Stage Funding Realities [10:41–15:47]
• Negotiating Supplier Terms & Relationship Leverage [19:19–21:41]
• Perspectives on Scaling, Forecasting, and Financial Discipline [22:38–26:27]
• The Squeeze: Keeping Payroll & Margins In Check [30:42–38:28]
• Comparing Bootstrapped and Venture Capital Paths [42:47–47:38]
• Inventory Math & The Necessity of Slack/Leverage [46:17–50:14]
• Gross Margin, COGS Benchmarking, and the Math That Matters [50:48–55:13]
• Surviving the Battle Royale of Ecommerce [64:03–65:49]

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Final Takeaways

• Funding growth is a blend of creative financing, real relationships, and relentless efficiency.
• There is no shortcut: solid margins, lean ops, and smart leverage are the foundation of survival and long-term success.
• Ignore the hype—build for profit, not for applause.
• Patience & compounding trump speed.
• Get real about your math, your margins, and your motivation.

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A must-listen episode for any operator serious about thriving in today’s brutal—but rewarding—DTC landscape.

Transcript

[Sean]

How do brands fund growth? You're doing 5 million a year, you're doing 10 million a year. How are you actually buying inventory? How are you paying yourself? How are you paying your team? How do you make it so you can go from 5 or 10 to 15 million without taking investment?

[Curtis]

And we were promised, we had four vice presidents of Wells Fargo in my office saying, you are getting this. We love your company. When you get to 500 million, we're still going to be funding you. Not only are we canceling the 20 to 25 million, we're not going to give you that.

[Matt]

We're going to.

[Curtis]

We want the $2 million back now. We started having money going in our Shopify and they would take it out to pay back the loan. So we couldn't even pay our people.

[Matt]

How long did it take you to recover?

[Mike Beckham]

Welcome to the Operators podcast. My name is Mike Beckham and we are proudly brought to you by Fulfill. Aftercell Rich Panel, North Beam, Sarah's analytics and postscript. Without further ado, onto the pod.

[Matt]

Everywhere we turn right now there is some world changing AI announcement and I think the trick for us operators is figuring out what's actually going to help our business. Is this stuff saving us money? Is it helping us grow revenue? Is it helping us grow profit? Like, where's the fricking roi? Jason for Hexclad, tell everybody what is actually working for you guys.

[Jason]

Yeah, look, I'm laser like focused on implementing AI wherever we can to just make us more efficient. Fulfill has been huge for us. Like, my team is constantly using Fulfill's new CLI tool and MCP features with Claude, they're now able to query Fulfill data. They, they can vi code up dashboards. I mean we get these awesome dashboards on operations and, and Fulfill continues to build things that are actually useful for brands. It's hard to see what kind of AI work is valuable and what isn't. Sure, like there's so much out there, so much coming at us. But Fulfill seems to be giving us things we can really use to get more efficient.

[Sean]

What's up everybody? Welcome to the Operators podcast. We have one of the best guests we've ever had coming back for a second appearance. Curtis. He's a big ball of energy. He's somehow younger than me. He's in great shape. He's doing jump rope every single day. Curtis, how are you, man?

[Curtis]

The world treats me well.

[Sean]

As we talked about, dude, it's always so Pleasure, it's always a pleasure to have you on here, Matt. Thank you how are you doing, brother?

[Matt]

I'm doing great, man. Life is really kind to me too. I'm with Curtis.

[Sean]

It's a topic that we've talked about, but we've been asked to talk about it more. It is, how do brands fund growth? So you know you're doing 5 million a year, you're doing 10 million a year. How are you actually buying inventory? How are you paying yourself? How are you paying your team? How do you make it so you can go from 5 or 10 to 50 million without taking investment? Maybe taking investment as part of that? We're going to talk about three different stories today. Curtis, we're going to open with you. I think you have one of the most compelling punch in your face stories you've ever heard. So. So set the stage. Where was Portland Leather Goods when. When this story took place?

[Curtis]

Okay, I gotta jump a little bit before this and lead in. Okay. Because I started this thing in a garage and so there was no capital. Like, there was just like, there was one time I went to do an art festival with our stuff and I had to like, no gas. So I had to like, basically cruise in with no gas, make enough cash that day to get a hotel and to do it. So we started with nothing O. But even as we said, let's go from art festivals to Etsy and Etsy to Shopify, I would go to art festivals to make enough cash to make payroll the next week. So I was always doing this type of a thing. So we started getting bigger and bigger and we moved to Shopify and we're getting in the tens of millions. And I started my company with Wells Fargo because a block away from where I started, in the garage, there's a Wells Fargo. So what do you do? You go to a bank. And I walked in, I started a business account, and when we needed a little bit of money, they kept looking back three years and saying, hey, we can give you a little bit. So they ended up giving us like $1.52 million. But somebody in Wells Fargo believed in us and he kept coming over and seeing our growth. So they moved us to this new level. And they're like, we want to give you $20 million to grow your company.

[Sean]

And Curtis, this is a revolver, right? So it's a line of credit you can access at any point. And what were the terms of the revolver? So it's going from 1.5 to 20 million. Could you use it for anything you want? Are there covenants attached to it?

[Curtis]

There's always covenants. And you don't know what those covenants are other than, yeah, we could use it for inventory, we could use it for anything. Now, the problem was they needed audit. So we did an audit. They needed this, we needed that. So we spent a year getting everything in line to get this. And we were promised. We had four vice presidents of Wells Fargo in my office saying, you are getting this. It is done. Oh, my. We love your company. When you get to 500 million, we're still going to be funding you, right? I'm like, thank you. They believe in me. Well, we were building a shoe company at the same time where I was 12, 14 million into down payments, leather molds, shoes, already arriving with this new brand. And what happened is the Silicon Valley bank had their problem and they became insolvent right at the exact same time. So we said, hey, we want to sign the paper on that 20, $25 billion line of credit, not just the 2 million we have now. And they're like, oh, yeah, that'll be next week, that'll be next week, that'll be next week. And all of a sudden, the guy we knew called me up and he said, we have to have a meeting tomorrow. I am so sorry. And the guy had tears in his eyes, and I'm like, what is wrong? We met again, and they're like, no, you broke a covenant by this. Because your margins, because you have this inventory, because you trusted us. You. You bought inventory ahead of time because we promised the money and because we delayed in giving you the money, now your books look out of whack. And so happens that the day before, the CEO of Wells Fargo came out and said they were going to be more cautious and start bringing money back in, not giving it out. They said, not only are we canceling the 20 to 25 million, we're not going to give you that. We want the $2 million back now. And we started having money going in our Shopify, and it would go into our Wells Fargo, and they would take it out to pay back the loan. So we couldn't even pay our people. And then they said, oh, that building you bought, that was a Wells Fargo loan, and that was based on your company doing well. And now that we your company over, we want you to go from that 3% you had on your building to a new 8% loan to refinance your building. And we have suppliers all over the world that we can't pay. Like, we're just stuck. I was in New York the day I heard. I flew back, we had a meeting room. And I said, we are doing this boom, boom. We just figured it out, we made cuts, we overcame it and we came out stronger. And I told everybody that day, I said, this is the type that you look back on in a couple years and say, we would have screwed up if we got the 25 million. Let's be better. What are we going to learn from this? And we got more profitable, more lean. And now we've grown and our profitability and our growth rate is staggering. Now we would not have had that profit. I would have been too loose with that 25 million. The fact that we never used it and never needed it, I think it made us stronger.

[Sean]

Sean here to tell you about Saris analytics and Saris Pulse. Ridge is profitable every single day. And we've taken that super seriously since we built this business. We track contribution margin by day. We look at the SKUs we sell every single day. And we have to do this manually. Up until Sarace Linux came out. We take all of our SKU level data, we build it into the data warehouse. Everything that goes into making a true P and L I get on a day to day basis. Sara's Pulse gives you clarity. So your CLO and your CFO and your CMO start speaking the same language. Contribution margin shifts teams away from hoping profits survive the season. To manage them in real time, book a walkthrough with the Saris Pulse team today. Click the link in the description and thank you Saris for bringing you this show.

[Matt]

How long did it take you to recover?

[Curtis]

It was a year of hell. It was a year of hell. It's, you know, our people here in Mexico, I'm in Mexico and our CFO in Portland, like they just had to tell 10, 15 people a week, we can't pay you. We can't pay you. Yeah, could you please still deliver the leather or this product or the boxes or the packaging or can we pay you next month? Can you do that? Like that was just. It's constant for a year of juggling those financ finances and it's one of those things that entrepreneurs never see. They'll hear the story of you staying up late at night and you can't sleep because of this. But they don't know that. It's a year long of just having conversation day after day. It's like, I'm sure broke people who get debt collectors calling them every day and they're like, dude, I don't got a job, I can't give you any money. That's what it's like, but we were optimistic at the same time. And why were we optimistic? Because I'm optimistic. I knew we would overcome it. Like, I just don't let doubt enter my mind. I let problems come in, but we were able to solve it just out of sheer stubbornness.

[Sean]

Did that sour you on debt completely? Because, you know, in that year, I'm sure another bank or another lender would have came and given you money, but by that point, were you just so burnt out, you're like, I'm just gonna. I'm gonna do the hard thing. I'm gonna make this. Or what was the thought process?

[Curtis]

It did not sour me on debt. It soured me on dealing with organizations where the person in the room that you're talking to isn't the power person. Right. We had all of these people saying, it's good, it's good. Just do these things. And then someone else up the chain said, I can read these numbers a different way, and it can come out poorly. I mean, that sucks.

[Sean]

Yeah. Also, just like, you know, even the fact that there's four vice presidents. You just described the problem with dealing with the financial system. It's like, I'm like, guys, just. You guys are worth $200 billion. Just give me the loan. I'm good for it. And there's 9 million people you got to talk to. Matt.

[Matt]

I was going to say Curtis, did you. Were there a lot of personal guarantees with this stuff?

[Curtis]

Everything's me. Everything's me. So, yeah, you know, when the. When. If the company goes bust, I go bust. Like, beyond that, they'll come at you. Now, we've got really good trust attorneys and all of those folks. Now, since that's happened, I've hired the people who set up everything in a more careful way and do all of that. But I didn't know at the time, like, we're too busy building. We're too busy growing to worry about all of that stuff. But, you know, we brought those folks in to shield ourselves in the future, but shield yourself if the company goes out of business today, I got no money. Like, it's all in the company.

[Matt]

Yeah, I get that part. I think it's just. It's a call out, Curtis. Just personal guarantees. When you're early in building a company, they're usually required to get any kind of borrowing in place. That's the lender's way of, like, having a backstop. The. I'm just. I think, like, it's probably a good idea that as you get your business to a better Place that you want to start to try to rip those out of any debt that you have.

[Curtis]

Oh, without a doubt. Yeah, go ahead, Chuck.

[Sean]

Oh, I was going to say, you know, to frame the conversation when you're getting started. When, when you were selling on Etsy, right, Or the art fairs. Like, the way to fund your growth is by any means necessary. This is when people are using credit cards. This is when people are using savings or friends and family. Like, you're not going to be able to go to a bank and get a loan when you don't have a business. Like, like Curtis, you said this. The bank wanted the past three years financials and the financial system in America, a lot of really awesome positive things about it. I think bankruptcy is like a very uniquely American thing. But one of the downsides is it favors the established, right? Like when you're getting started, the only way to fund stuff is yourself. And that's why I think, you know, drop shipping was so popular, is because you can buy just ads and someone else completes all the inventory purchases. I era is behind us. I don't think you can really drop ship and become a millionaire. So to build a business like Portland Leather Goods or Pela or Ridge, you know, the funding has to come from somewhere. And when we got started, the funding came out of our pocket, too. Now, Curtis, how far were you able to take that $2 million line of credit?

[Curtis]

We were already doing well, you know, because we had had years of just growth of cash flow, doing cash flow, cash doing cash flow. And at the time, we were doubling every year. And when people today, when I talk to small businesses, 1, 2, 5, 10, 20 million, I say we doubled. And they said, how do you do that with cash flow? And I said, it's not possible to do it on your own, but you still have to figure out a way to do it anyhow, right? Like, it just doesn't seem like it works from buying inventory, putting down deposits. By the time you get paid, paying everybody else off, it doesn't seem possible. But being in that scrappy sense, I remember one time we're in our building and I knocked down a wall because I didn't want to pay somebody 5,000 to knock it. So I always was the one. Like, everyone would go home and I would just like just take things and knock down a wall and there's this huge electrical thing with all these wires coming out of it. So we called somebody's like, that's dangerous. Let's call an electrician. And I said, yeah, yeah, whatever. And the Electrician came over and he's eyeballed and said, yeah, It'd be about 20,000 for you to get rid of that. And I said, thank you. And he left. And I said, turn off the power. And I just like went, cut every damn wire. The whole thing fell down, wrapped him up. And I said, now let's call somebody and say, hey, finish off these wires, not cut the thing off. And I'm like, hey, there's $20,000 that I needed, that I did. There's pictures of me standing on 40 foot ladders on the very top, reaching to paint a corner. Well, you do the things you have to do. That's what being an entrepreneur is like, oh, I could pay somebody 2,000 or I could spend a couple hours doing it or a weekend. I did that at the beginning with our building. Everyone would leave on Friday. I would start doing construction work all day Saturday, Sunday, come in early Monday morning and clean everything up for the gains we did. And then people would come in and say, is it a little dusty? Do you see some dust? And I'm like, I just spent 24 hours this weekend doing this big project. And you come in, you're like, there's dust on my computer. But you do it because I don't want to give that money away because I need that money for growth. So when you're small, you do that. When you get medium, you start understanding why someone who's going to give you 5 and 10 million is better. But you have to watch who these people are. The bigger these companies, the more that they say this is how it's done. The more I say, this dude doesn't have a clue of how it's done. He studied finance, he went in, he's a lower middle management of somebody making promises, doesn't know what they're talking about. I don't trust him. I'm going to trust people that are trustworthy.

[Matt]

You know, I think one of the hardest lessons I've had to learn because so as I think you guys know this. Sean DF definitely knows, like we have investors, so we have like a cap table. We have debt from like, well, we have convertible debt, right? So it's supposed to convert into equity. I can tell you, like one of the hardest lessons I've had to learn dealing with outside equity investors and lenders is that you're actually never really sure what their internal incentives are at any given moment in time. So you think like I've always thought everybody just wants to make money. So like the profit motive is the number one thing. But that's actually not always true at funds, right. Or inside of banks. Sometimes there's political motives, sometimes it's self preservation, sometimes they're raising a new fund and they just need to look good to LPs to raise the new fund. So there's a lot of things that actually what you're making me think of, Curtis, is just this, like there's a lot of things that when you start to deal with other people's money that you are not privy to, you do not know what they're contending with on a given day. Like the average fund, whether you're getting debt or equity, there's GPS and LPs. The GPS are who you deal with, the LPs are who the GPS deal with. And dude, the last three years, LPs have not been great to their GPS. It's been hell in most funds and a lot of that winds up bleeding down to the operators. So I'm with you man. I think that like you really, if you're going to take money, it doesn't matter what kind of money you're taking, you really need to know the other like the people on the other side of the table and just know that their incentives are going to change over time.

[Sean]

Curtis, you said something that I think is really impactful. It's impossible, but you have to do it anyway. That, that is, that is growth in the early days, man. I always tell people, I always meet a young kid and he's like, you know, trying to double his business or triple his business in a year. And I always tell him, why are you doing that? Like, because, because like the math doesn't work. Like if you actually run out the equation.

[Jason]

Yeah.

[Sean]

You cannot have enough money to double while also satisfying inventory demands now and everything else. Like there needs to be some slack in the system. But like you said, you find out a way to make it, to make it happen, right. It's either you getting loans that aren't really loans from your supplier, right. So you get terms in your inventory, Right. Or you found some way to pre order inventory. I think Hudson did that over at Comfort. He's like, okay, I'm going to get my money before I buy the inventory. There has to be some slack in the system to actually double because the raw equation by itself just doesn't work no matter how big you are. You cannot buy the current inventory and next year's inventory and double it. Right. With with the same amount of cash.

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[Curtis]

Matt said that incredibly well. He said really understanding what the other people want is the key. Not what they, the company has said they want. Not what the salesman says, but really talking to them saying, the more I know about what your model is, what you're really looking for, I can change what I'm doing. So we work well together. That's the same thing with sourcing, right? Everyone thinks I'm going to pound them down, I'm going to negotiate them down, I'm going to push that down. We've had to do deals with people where I had to convince them. I watched last night a operator's podcast of the two of you talking about how if you're likable, you get farther in business. And that is so true because everyone thinks negotiation. I got to be a hardass and tell these suppliers they need to take this deal. The real key is sitting them down with the room and saying, hey, I understand how your business runs. What can I do to get more product at the right thing? Where's your crunch point? Where are you? And well, we need this and this. If I did it this way, would that work out? Now you can get better terms. You're their buddy. You're not the person fighting them. You're Curtis, who's being nice to them. And that gives you the power. I used to go back every year to all of our leather suppliers because right now in my building I have 2.8 million square feet of leather, okay? So I have 6 to 7 million square feet just in this building, not counting all the product and all the stuff that's in ships on the way, right? And I would tell everybody, hey guys, I got. I'm a wonderful guy, I love you to death. You're not getting paid from October 15th until December 2nd until the money is in my account from Thanksgiving, Black Friday, that weekend. I'm building product to sell. I'm not paying you anything. And you tell them ahead of time and you joke around about enough and you treat them well, they'll say, okay, we trust you. Well, you'll just pay us in a couple months, right? Sure. That's just people dealing with people and all of that is needed. Every one of those things that you can do, get a tool at a better price, get someone to work for less, extend those terms a little bit more. Everything you can do, you need in. Or if you're going to double because the math doesn't work. I'm dealing with. Matt, you had something to say there?

[Matt]

No, I'm just wondering at, like, at what point did you develop this sort of. There's like, I feel like when you're early in the journey, you're much more reactive when it comes to, like, cash cycles, working capital. Like, you basically, it's impossible, but you do it anyway.

[Curtis]

Right.

[Matt]

Then at some point you develop a bit of, like, proactive. I'm, I'm more thoughtful. I'm thinking through things. I'm like, I understand the company's working capital calculations. Like, basically, like, how does all this connect together? I'm just wondering, like, when did you develop that, Curtis? Because, like, clearly to build out warehouse, like manufacturing facilities, like, at some point you had to go from. I'm just responding to, oh, I'm going to think this through a little bit. Like, here's how we're going to deploy capital. Like, what size were you when this started to get a bit more disciplined? I'm looking for a better word here. I just, I don't know what it is.

[Curtis]

Yeah, don't throw out disciplined in terms of me ever.

[Matt]

Yeah, I don't think that one doesn't work for you, but, like, thoughtful maybe.

[Curtis]

I don't know. I would say I learned a lot of this in the last six months. I learned a lot more the six months before that. The six months before that. It's not like magically in 2018, it all came together. I'm better this year than I was last year. I remember being on stage at Commerce Roundtable speaking, and Nick Shackelford was there and he seriously asked a question like, what if I don't feel like I'm ready to do the jump I need to do? And I said, none of us are ready. None of us have ever done this thing before. Like, the thing that Operators Podcast does better than anything is you guys talk at a high level from experience of actually doing Things to a lot of these companies that are 1 million and 2 and 4 and 5. And they're looking for something that you guys say that's going to help them in their day to day life. And I really think the number one thing that I've told people that's helped is you've never done it before until you do it. So when did I learn it? I sure as hell didn't know it at the beginning. I didn't know it the second year, I didn't know it the third. Each year I've gotten a little bit better and now looking back I feel like I've got it more in hand. But I'm just entering the new room where, where things are bigger and people are talking billions instead of hundreds of millions. Just like I was entering rooms where people talking millions rather than 50,000. You get better as you go along. The money side came because you had to learn because you're squeezed down, you're squeezed in June when you have no sales, you're squeezed. When your revenue is picking it up, you're squeezed. When taxes come like you're squeezed all the time. So you just get better at forecasting that out. Everyone thinks I look ahead five, 10 years. I don't. I look ahead one year, that's it. I figure if I do that one year, the rest of that gonna come together.

[Matt]

That's been a common pattern in founders I talk to at scale is they actually don't look that far out.

[Curtis]

Right.

[Matt]

It's like typically six months back, six months forward and they're just rolling all the time. Like the forecasts are rolling. There's none of these like you know, three year business plans. None of that. It is straight up, like here is the furthest I can see in my business. And even then there's a lot of assumptions into those forward looking statements.

[Sean]

Like a lot. Some of the worst hires, I shouldn't say worst hires, they're good, they're good people. But the worst culture fits at Ridge were traditional finance people who wanted to do a three year finance like, like, like through your projection, right? Being like hey, like here. And like they're trying to build our projections based on like website visits and stuff. And this is not how we operate. I'm gonna do whatever is best in the moment right now to make the most amount of money. And it is just a series of hopscotches to try to figure out what the, the best idea is. It is not like this like forward path, like this is exactly what we're going to do because you just, you can't predict the future in this business. Who would have saw tariffs coming? Who would have saw Silicon Valley bank blowing up? You know what I mean? Like, who would have saw this stuff happening day to day?

[Matt]

There's just so many changes in this business. Like Sean said, the last, over the last 10 days were for a bunch of reasons we're producing. One of our lenders asked for like an updated three year forecast. We get on a call with them and I'm with some of my investors and I get asked this question. Every time I get asked this question, it's like, here's the three year budget. They're like, well, what's your confidence level in that? I'm like, zero, bro. Like if I could see 36 months in the future, I wouldn't be talking to you right now.

[Sean]

Totally.

[Curtis]

What I say on that, Matt, is my confidence level that we're going to hit that goal is there. But all of these numbers in the middle are just made up. Right? I'm flying to LA today and I'm talking to an potential equity partner that I've been working with for four years. Okay. And I flew to LA on December 12th and it's fun because it's going to be three months. And we gave them all of our numbers and our projections for next year and now they have all these people in their rooms hitting keys and working with our financial people to make sure our finances are right. They've missed the three months of me saying, I saw where we were on December 12, I didn't like it enough. So I'm making major changes that those numbers on that screen are not going to show what I've done in three months. It's major stuff. It is major, major. But they don't see the day to day in the week. They just say we start here and to get here the computer goes here. Divide those months by 36 and here's.

[Sean]

You got.

[Curtis]

It's such. It is the broken way that finance people and linear minds look at things drives me crazy.

[Matt]

I understand why though, guys. Like, I really do understand why. Because a lot of consumer. There's a lot of history in consumer and most of that history has been in traditional B2B wholesale retail agreements. So like it actually was easier to like know what Target's going to buy from you over the next 12 months or 18 months. Because target tells you like, this is how much we're going to buy over the next 18 months. So like there's a lot of muscle in the Analyst side or like the banking side around what they think a consumer business should be able to tell you. They don't, they're just not up to date with like listen man, we've, we've been algorithmic for a while, right? I get, hasn't like the news hasn't made it to you yet but like there's this E commerce thing and things fluctuate a lot in this E commerce thing and like Zuckerberg can't really tell me what my return is going to look like in, in three months. You know, there's no guarantees. So I, I think Curtis, part of the problem is like you're dealing with a bunch of people with like to Sean's point on like these hires are tricky. Even if you don't hire them, you're going to deal with people like this. They have a lot of muscle built up over a long time that is just not the right muscle. Every SaaS company says they are AI powered, but very few can explain what it actually does for the revenue of my brand. This is why postscripts approach stood out to us. They don't just build AI for demos or buzzwords, they built it to drive real incremental revenue. Postscripts AI called Shopper. It shows up inside of SMS at moments with real buyer intent when shoppers are likely asking questions, hesitating, maybe even about to drop off. Shopper can answer product questions instantly, answer questions about fit, availability, recommendations, order issues, the kinds of stuff that people usually bounce for. This means more conversions, higher aov, less lost demand. So you are driving more revenue and doing it more efficiently. Check out Shopper from postscript. We use it at Pela, which is why I am telling you to check it out.

[Sean]

Yeah, the flexibility in E commerce is that like you have to be flexible enough that if you see something you can exploit it. Right. You know, our biggest product line this year, it'll do 40 million didn't exist 12 months ago. So it's like, you know, we've added a new product line to our business. It is, it is our third or fourth biggest product line didn't exist 12 months ago. And so if I had a 36 year, sorry, a 36 month chart, it wouldn't be on there because it didn't exist. Right. You know, we have to find these pockets of, of either demand or low like you know, low cost attention or whatever so you actually exploit them and grow. I want to talk about though, the squeeze. Curtis, you brought this up a couple times. I think the reason why being an E Commerce person is the one of the worst things to be and why such a hard job is like you're getting squeezed by everybody all the time, right? And maybe, maybe unpack your experience with that. Like, you know, when you're actually trying to fund this growth, you are, you are looking for dollars that don't exist and looking for a margin that doesn't exist. So what are some unique places you found that while you're getting squeezed, well,

[Curtis]

you're getting squeezed and everyone around you see that you're growing. So they all think that, well, a real business would have all of this money and you've got to be making all of this money. You're worth a lot of money. So you get employees coming in who are saying, wow, nice building, right? That's really nice. They don't know that I actually knocked down the wall and built it and paint the whole damn thing myself on the weekends. And they're like, well I need to make more money because this is awesome. And I'm like, yeah, we don't do that around here. They're like, well there's another job that pays more. But I don't like them. You pay less than I like you. So I want to work with you cause I like you and I want you to pay what they pay. And I'm like, they, that's the choices we make in the world, dude. You trust me enough that this is gonna grow and you jump on this team and you, you grid it out or you go where someone's gonna give you the short term money. So the first thing is your employees. You gotta tell em from the word go, hey, you're go make more someplace else. And it will be the dumbest decision you've ever made. I say that in interviews with people. Like they'll be talking, I'll be listening. Yeah, yeah, yeah, yeah, yeah. And then I'll say, hey, if I offer this job at $20,000 less, your smartest thing is to take this job because in one year you're going to be a different person because we're going to stretch and grow and you're going to get skills and you're going to be awesome. So part of that money comes from you can't have a labor force that is overpaid, that has high expectations of getting fed at the end of the year. Unreasonable amounts of money that you may not have, that's number one. Then it's the supply chain. What I did differently and Matt, I really loved what you said. There is hey, Target, they got this stuff figured out 12 years ahead of time. That's because they're ordering materials that are going to factories, that are being men that are on boats, that are taking two months to come across that are going. And they're seasonal. So They've already chosen 12 months ahead of time. We had a new ad hit on TikTok and we moved it over to Meta, and it just skyrocketed everything. So a bag that was going to sell 110,000 bags is now projected at 300,000 bags this year, an additional 190,000 bags on a line, that makes 1,000 a week. You got to make changes, right? If I was dealing in China, I'm screwed. We ran down that day, changed it up, and had within five days those things kicking out and in a truck on the way to Dallas. So part of, Sean, your answer to your question is when cash is doing it is like, how can I turn my product into cash faster and more efficient. I can't spend money on product that's not gonna sell. I just can't spend it on there. I can't be as far ahead on that. I have to make the exact right products at the right time. That was one of it. I used credit cards. I used American Express. I. You know, that's it. Like, you just. You make it work. We don't have the money. What I used to say to everybody is, if you want to make more money, if we want to get here, then we need to do this. And what's one of the biggest changes in my company? We were an Etsy company. We were paying everybody like $12 an hour, I think, to make our little journals. In Portland, there was only a few employees, and my young lady I was working with said, we need to get everyone up to $15 an hour. And I said, look at the money. We only bring this in. We can't. Like, there's no money to pay them $15 an hour. This was years and years ago. She said, how do we pay them? I said, if you could sell from this many totes to this many, we can give the cash flow that we can then give them the raise. When they had that motivation, the way to make them, to make them cheaper, to make the right bags, to do the photography, to get it online on Etsy, to start receiving the cash within seven days, we tripled the amount of totes we did, and we gave everybody a ra. So what we did is we tied performance and money to the success of the company. You get more when we do better by being transparent. About the money. I don't know if that answered your question, because I don't know. Hey, I'm gonna be honest with you. I don't know how I did it. I really don't. Like at times I look back and I'm like, we should have been knocked out of business a bunch of times.

[Sean]

No, dude, I'm right there with you on the people point. Before we leave the people point, you know, Ridge spends 8% of revenue on all people. So that is bonuses, 401ks, taxes, insurance, salaries, whatever. 8% of revenue. It includes all of our executives. We have a very large executive suite, includes our in house lawyer, whatever else. I'm just curious where you guys track towards that 8%.

[Curtis]

You know, we're exactly 8%.

[Sean]

Oh, cool. So. So Curtis, you're. You're right there with us, brother.

[Curtis]

Well, our projections are 7 to 9, but we're currently at 8. And with the retail growth, with the income growth will be. We should stay right around 8. I was talking to Maverick, he's like, wow, that seems pretty low. Like everyone's more than that. And I'm like, well, that's our advantage, dude. Our advantage is to not hire those people and to build out. You don't just as. Because your income doesn't go up doesn't mean you build your company to fulfill that. You don't start spending money because that's what other companies do. I like the 8%. It feels really, really good to me. I'm gonna, I'm gonna be an asshole here. It feels high. I wish we could have. Right now we're in the world. Where can you get one person to do three people's jobs? It's like when we started the company and there's only five of us and every had to do three or four jobs. I wanna return to that world. I wanna return to say, hey, you know more about this. You should be overseeing this because these two work together. And if we had you just doing that, I could get rid of a salary. You could make more. The company will be more successful. It's just me, I'm just. I guess I'm kind of thrifty.

[Matt]

Our target, our target this year is eight.

[Curtis]

Like we're.

[Matt]

Some of that's going to come from right? Sizing. Some of it's going to come from growth, productivity. Like there's a bunch of stuff. But eight is what we want to get to. I think right now it's. Chris, when you say eight, are you including your factory workers, do they all

[Curtis]

go into cost no, this is all cost of goods.

[Matt]

Okay.

[Curtis]

All of the folks in Mexico are cost of goods.

[Matt]

Yeah.

[Curtis]

But the cost of goods by making here is much less than if we buy from somebody else. Like if I could buy the product,

[Matt]

I get that part. It's more just how you account for like people costs.

[Curtis]

Right. So because all of our executives in Mexico are on that 8%.

[Matt]

Okay. So it's like non, non production labor. So basically like full time, full time equivalent sort of workers that are not making the goods.

[Curtis]

We have design here. Design is part of that 8%. We have photography here. It's part of that 8%. We but the actual workers who are actually physically making the bag are part of, part of a cost of goods.

[Sean]

Yeah. And warehouse staff should be the same thing. Right. Like you know, if you ever, they're all part of logistics, you know, on the 8%. So Curtis, I'm with you. That it also feels high. I think the future is 5% and for a very long time it was 10. 10% was like the gold standard. I think 8 is the new 10 and I think 5 is going to be the new 8. So I think I, I, I'm right there with you, brother. I, it's not being thrifty. It's, it's just with AI agents, it's where the future's going.

[Curtis]

Yeah. Those are hard decisions.

[Matt]

I'm doing the math on my side because I got to back out the factory that I'm trying to do it. But 8 I think is the right number that like we just talked about this yesterday here, so.

[Sean]

Yeah. And I at Ridge, we're not going to cut headcount. What we're going to do is grow. It's like if you can keep headcount the same and your business doubles that eight becomes four. Right. And I think keeping your business with no additional hires is hard, but it's going to be very few additional hires. Right. I think these businesses are going to just get way, way, way more efficient. Okay. So you're using credit card points. You're, you're, you're convincing people to work for you for less because you are more likable. Throwback to a previous episode. But yeah, that squeeze. It's so hard being an E commerce merchant because like you have to get the supplies, you have to get the raw goods, you have to transform them, you have to pay for ads and then you have to get the inventory in people's hands and then you get your money from Shopify. But then you got to buy more inventory to do it again. And as your business scales up, it's really hard to do that. If you ever take a flat ear, you will make a ton of money. You'll have a bunch of cash. You'll have no idea what to do with it. So, Curtis, let's go back to that 2021 meeting. Wells Fargo totally screws you. You end up. You're like, I'm going to figure this out, right? Since that point, your business has quadrupled, right? Or tripled. Your business is way bigger than the 2021 point.

[Curtis]

We're way bigger and we're way more profitable. Like, that's just the game. I used to. I think as an entrepreneur, I was more of a salesman, so I always thought I could sell my way out of any problem or just market my way out of any problem. It's like, oh, we need to pay for that. I will make more money and we will pay for that. And then you look back at the end of the year and like, where's the money at? Right? And I realized it's kind of like, you see these lines behind me. If you're watching this on YouTube, you get to see that there's a stitching factory behind me. If you're just listening to it, you don't get to see that. And what we found out is if you just start a line every week and they say, make as many as you can, they'll make a certain amount and they'll say, that's the most we could make. So we put up computer screens and interlocked on every single line. So it has a big screen, like a big screen tv, in colors. And each hour it changes colors to see where they are on pace. Are they in white, are they in green ahead, or are they in red? And what we found out by marking that down, efficiency went up 28% without saying or doing anything. Just keeping track, hour to hour, of where your money is going, or in their case, what they're actually making, made them all more efficient. They were dropping efficiency where they didn't know it. Same thing in money. It's the once I finally said, whoa, whoa, whoa, whoa, let's really start. Let's break the year down. Here's what it is. Logistics. You only have that cost of goods, not good enough. We cannot be at that. We need to be 2% lower. No, no, no, no, no. We need you to be there. You cannot get our Merck, cannot be above this. Once we did that, gave them goals that they could use every week, every month, all of a Sudden cash starts spitting out the other end and if I had not done that, we would have worked just as hard, thought we were doing the same things and the cash wouldn't have been there at the end of the.

[Sean]

Yeah, no. Well dude, it's an amazing story and I'm so glad you were able to bootstrap your way through all of that. And now you have this big profit blast at you on at the end. What's up operators? Welcome to the Rich Panel ad read. Rich Panel has been a sponsor for over 12 months. I've been a paying customer for over 12 months and guess what, I just renewed the pay again for another year. We have cut our SaaS bill in half and automation dropped our cost per ticket by 70%. Our CSAT has also improved from 88% which is still really good, to 96%. Best in class. All powered by Rich Panel. I told them last year, hey, you guys need to do the same thing with returns. And now Rich Panel has a returns portal. It's built to cut down your tickets and convert more refunds into exchanges. They do the heavy lifting, data import, self service, retention flows, team training, all of it. And they'll be live in two weeks. If you want to save 30% guaranteed on help desk and now returns, book a demo. Yeah, Matt, I just want you to explain venture capital to us. Right, so me and Curtis bootstrapped and so the question is, Matt, you funded growth a different way. How did you end up funding growth for, for your brands and why'd you choose venture capital?

[Matt]

Okay, so we, we bootstrapped till about 10 million in revenue. Bootstrap being like I put up the first capital like most of the first working capital. I had another company that like Pela basically grew up inside that business. So like we, we took office space, we used an actual office as a warehouse. That was also interesting. So it wasn't a garage, Curtis, but like I was on the sixth floor of a brick and beam building in a 110 year old like brick and beam building in Toronto and they used to have to come up the damn elevator which is a hundred years old to get the packages every day to go out to customers. So we would pick package beside the desks of all the software developers that worked for me in my first company. So we, we funded the first bit of Pela's journey off of my own personal balance sheet. So I guess in that sense it's like also a little unfair because I wasn't really starting from like zero. I put I think a quarter Million bucks in or 400 grand in like pretty easily at the beginning, like spread out and it just like write the check. It's like I could just afford the. I could cash flow it. So that was the first 10 million bucks we brought on venture. I would say in hindsight I shouldn't have done it. We should have just figured out how to bootstrap the way that Curtis did it. Because for Pilla, the only reason we needed outside capital was when we decided to start building our own factory. Then it was like, oh this is expensive. Like buying injection molding machines and printers and building out a facility. Like all that just it takes cash. So we raised a bit of money for Pela and then along came the idea for Lomi Lomi were like, oh, we're going to need money. Like hardware, firmware, software. Like this is a nightmare product to develop. That's when we raised real venture capital. So that's like the sequence of things. I am not a fan of venture and consumer. I think these are just incredibly hard companies to underwrite to. The outcomes just aren't as big. Like they're just compared to like what tech used to be. Although I don't know, maybe SaaS multiples coming down is going to make consumer look really good for venture. So Sean, I think you know, my view was like high Capex gave us a reason to raise outside capital. Like I could justify it that way. Like oh, I'm gonna spend like tens of millions of dollars on CAPEX and R& D and building facilities and all that crap. That's why we did it. In hindsight I would raise a lot less money if at all for Pela.

[Sean]

How do you, how do you fund growth right now? Is it just a cash flowing machine?

[Matt]

Yeah, now we're Pila produces cash. It's like good free cash flow. Like that's a good business.

[Curtis]

Right.

[Matt]

And for the reasons that Curtis is highlighting, like when we get a winning product, it's very easy for us to scale up because we own the production. So my working capital needs in Pila are extremely low. Like I am probably as close to negative working capital as you can get in consumer without like negotiating 180 payment like day payment terms with a factory like or with another supplier. So like we largely sell and then make and ship is sort of a sequence of events for our direct consumer business.

[Sean]

Yeah, I want to, I want to go back to the equation that makes cash flowing a business very difficult and assume zero day terms on everything.

[Matt]

Right.

[Sean]

So like you pay a supplier and Then they give you inventory. Well, that inventory has to trans. Like, even if you're not doing what Curtis is doing and building it yourself, if you're just buying from China, putting on a boat, you're waiting 30 to 60 days and then you're selling it. Let's say, let's say you sell all this stuff immediately, right. You know, the. Then you have to take that money and then go back to the supplier and buy more things. And like that handover that, that cash conversion cycle is what ends up killing you. Right. And it's why you need some sort of unfair advantage. Like where are you putting leverage in the system? You either can have a bunch of money, right? Which is what Matt Cash. Matt took his own personal money and put into his business and that's how he got it off the ground. Or you can use debt or investors or whatever, somebody injecting money into the system, right. To add liquidity. Or you can go to your supplier and you can make them give you it before you can start selling it. But something has to change or break in that system because we're not even talking about paying people yet. We're not talking about paying taxes yet. Like, the reality is the equation doesn't work unless there's some sort of slack or leverage in the system. And you have to get that from somewhere. Either you bring the money, someone brings the money, or you change the payment terms.

[Matt]

That's what made Lomi so difficult as a business was that because it was a new thing that no factory had ever made before.

[Curtis]

We effectively prepaid for all of our

[Matt]

inventory for the first year and a half or two years. And like at $240amachine in like per to buy and cost at really fast scale.

[Curtis]

Yeah.

[Matt]

We needed outside capital. I'm like, I, I can't write a $12 million check. Like, sorry. So I think, I don't know how useful that is for people listening because like most product in most consumer companies are, are going to come out of factories that know how to make the thing. Like, they make lots of that thing. So you should be able to get far better terms than like prepaying for inventory. Although when you're a new business, I don't know, maybe that's like actually just part of it too. It's like there's no relationship there. So, like show up with cash, right?

[Sean]

Yeah. Also, if you're new, the best factories don't want to work with you and they don't want to give you terms. So you're going to be Stuck working with a bad factory. And if they're giving you terms, then things are really bad. They have no other clients.

[Matt]

So, yeah, that factory that I think, like, for most brands, what Curtis hit on around, like, partnership with your supplier, I would start investing in that relationship really early. Like, make yourself a good partner, and then it'll build, right? Like, you'll get better terms. Sometimes you're gonna have to help them out, too. Like, we've definitely had situations where we would working with our factories, because we still have some factories that supply us some products, right? Where I've done what Curtis is talking about, We've sat down with them and just said, okay, like, what do you need from us to extend us better payment terms? And we've had times where it's like, look, if you can give us some amount of cash now, that'll show our bank that we're a better borrower in China, right? And then we'll be able to extend you better terms because we'll get better terms from the bank. So we'll extend then the cash up front, say, like, here's a hundred thousand dollars. They'll go get better terms and then immediately cycle that back to us. That only comes from having a good working relationship with the supplier. So, like, I think, John, most brands that are going to listen to this, your best source of funding is going to be, like, working capital. Leverage is probably going to be your supply chain. Like, it's most likely and that.

[Sean]

And like, you know, rigid stories. That's how we were able to do it. Right. We've never taken any investment. We barely have a line of credit. All of our leverage came from suppliers. So from $2 million a year to $200 million a year, it's all come from suppliers. Look, we talked about payroll as a percentage of revenue. I think the next thing we should talk about is gross margin, because this whole thing doesn't work unless you have good gross margin. And I'm going to explain my definition of gross margin. I'll give you guys Rich's gross margin numbers, and then you guys can chime in with what you think the minimum requirement is.

[Curtis]

So, you know, if you have an

[Sean]

MSRP of $100, okay, and it costs you $10 to make, that is a product margin of 90%. But you have to. You have to factor in what you're actually selling it for. So your MSRP is different than your sales price, if you have discounts or whatever. Right. And then also, it doesn't count for gross margin unless you're Getting it to the customer's door. Right. Like, if that includes wholesale fees, if that includes payment processing fees, if it includes shipment to the customer's door, it doesn't matter if it only costs you 10 bucks to make, it's what. When is the customer fulfilled with that order? And then when does the money clear? So that's the actual gross margin number people should be talking about. Public companies do this a bunch of different ways. Hermes puts the cost of their machines and their buildings inside of that gross margin. Because they make all their own stuff. They're like, if I don't buy this machine, if I don't buy this building, I can't make the thing. So it's part of my cost of goods. Right.

[Matt]

Oh, interesting. They don't capitalize that.

[Sean]

No, I mean, I, I look, I haven't looked at their, their earnings in a long time, but, you know, French company or French company stuff, I don't really know how they're, how they're doing

[Matt]

it, but I, I suspect, I suspect that what the way that we work, Sean. Like, so, yes, gross margin is like the total cost to make and deliver the thing to the customer. Like make, sell, and deliver the thing to the customer, not including marketing costs. That's not inside of your gross margin. Right. That's like, then we're gonna move over to contribution. But I would suspect that Curtis and I financially probably do very similar things. Like, we take all the labor costs and overhead associated with the factory, and then that basically get. That's your cogs number for us. So, like, we don't buy a product from a factory. It's like all that stuff. If I made a hundred thousand cases this month, it just gets divided amongst a hundred thousand cases.

[Curtis]

In Curtis math, I do it a little bit opposite. I say, what's our cost of goods? And we're getting that down every year. So from some bags that are at 28, 29% to small other goods that are less, we want to up that. We want to be at 25.2% of cost of goods throughout the year for a couple hundred million in sales. Right. So 25. And we say all money that comes down here to Mexico to make this product or goes international has a strict budget to be at that 20.5. That's how much money they have. They have to make all the product we need. Okay, Logistics. We had a couple bad years in logistics because we're expanding retail and we have to send things that are more expensive. We've added that in. And that can be A pain in the ass. But the marketing is different there. But we were about 16% because we sell big packages for low, low margins. We have moved over to a company called Flexport, met the CEO, great guy, we really got along, had some really good things and they said, hey, we'll pay you $2 million. And they ran our numbers and they said we'll save you $6 million next year guaranteed on your shipping. 2 million plus 6 million. So we're like, okay, sounds good. Well, we'll take that money. So we'll be about 12.5 all in with logistics this next year. So with the product plus that, we're going to be under 33% with the. Making the product, getting it to Dallas, shipping it to the consumer, all in product, everything about 33%.

[Sean]

Yeah. Which is fantastic. I think those are public company numbers. I think Yeti's at 54% all in. Right. So you're, you're, you're mogging them. Curtis Ridge Ridge is a lighter weight. Good. And typically probably starts at a higher margin good than you. So we're at like 75 to 80 all in. That includes logistics, shipping to people's doors. And if these numbers we're saying scare you, this is probably what you need to be at somewhere between Curtis and me to actually be able to cash flow your business like, or else you're just going to be setting money on fire and not be able to grow you. You really need margins like this. 66 to 75% all in, including cogs, including fulfillment, including everything like payment processing. Put it all in there. Right. Like this number should scare you, but that's what you need to be at. Matt, do you agree or disagree?

[Matt]

I completely agree. I think we're talking about durables right now, like consumer durables or I guess, I don't know, Curtis, if you call yourself a durable but like non consumable. Right. So it's not food, it's not beverage, it's not supplement. Like it's none of that stuff. I think that is, I mean I can. We are very close to you, Sean. Longtime sponsor North Beam is launching incrementality later this quarter. This means that you can now have the trifecta of marketing measurement all in one platform form. That is multi touch attribution, media mix modeling and incrementality holdouts all inside of North Beam. You can automate that lift testing end to end, unify results with your MTA and your. Mmm. This is a lot of letters, but if you know, you know and you can start to cut what doesn't work. And you can scale what works and you can do this all with confidence. This is why this is such an incredible ad to Northbeam. North Beam's incrementality measures what results marketing is actually generating, not just what they're claiming credit for. As a CEO, that's like music to my ears. Sign up now and you can lock in 50% off unlimited tests for the year.

[Sean]

Yeah. And you make the distinction around consumables because. Yes. The reason why these numbers have to be like this is because we're all paying a meta tax of 25 to 50% of our revenue. Right. And the idea with consumables is you're going to pay a meta tax of 100% of your revenue, but then you're going to stop acquiring new customers at some point and just rake in the cash from these, from these beautiful cohorts. Tbd. If that happens to you, you know what I mean? That is, that is the 36 month game plan that we were talking about earlier. It's like you really have to be believing in the future to pull that off. You have to have those cohort values. But anyway, the reason I bring this up is this is a, this is about funding growth. This whole episode. You can't fund growth if you have broken unit economics. Right. So you like the reason why curves talked about 8% of revenue going to people and that number going down over time. That is the reality. You're probably listening to this and you're probably at 15% or 12% or 8%. Like there's a reason why I was broke until Rich did $100 million a year. Right. Curtis, I assume you were broke until you guys are doing $100 million a year too, right?

[Curtis]

Absolutely broke, yeah.

[Sean]

Like, it's because it's very hard to extract capital out of this machine, especially if you're growing right now. If you want to take a down year or a flat year, you should be rich as hell. And the reason for that is because there'll be a pile up of capital in the system. Right. Right now the system's incredibly lean because all the capital goes to buy new inventory to keep, to keep the whole machine growing. And if you ever want to just not grow for a year, you'll find yourself being incredibly rich. Right. At Ridge, we call it the waterfall theory. And it's because we're always chasing that waterfall. It's like, dude, at some point there's going to be a bunch of money. We're totally going to get it hasn't happened yet, but you know, we're counting on it. And then Matt, because you're a venture capital funded, how. When do you, when do you get money? Do you never.

[Curtis]

Well, it's a.

[Matt]

This is why I don't think you should. That the pref stack becomes your, your problem when you're venture funded.

[Curtis]

Right.

[Matt]

So depending on how much money you bring in, your preferred shareholders on a, on an exit, they get more. Well, sorry, they get their money back first. They don't necessarily get more. There's a lot of other terms that go in there. So in my case, Sean, I think I said this in like the first three episodes we ever recorded, like when we built this company and we decided to take venture. The minute you do that, you're basically committing to a hero or a zero. And that, that's like, that is the world you live in. We're trying to move the company more to a private equity. Like we want to just be consistently profitable and generate cash and that. That's how we provide returns to our shareholders. That is a whole other set of battles, guys, like trying to get investors to like change the way that they've underwritten your company after they've underwritten your company is a diff. Like, we don't need to talk about that today. But that is like really hard to do. No, Sean, I mean, the reason I'm doing this like forever. I'm already rich. Like, I've already sold a company. Like, I wouldn't go and raise venture capital and try to like do something really hard where you get paid nothing if I didn't already have all the money. Like, like, let's just be really honest that there's a giant safety net. I just, I think it's insane of a path. Like, don't do it. It's. It's the best advice I could give you. Like, unless you're already rich.

[Sean]

Yeah. If you want to change the world, venture capital is a great way to do it. But if you want to sell phone cases or bags or wallets, I think, I think it's one of the worst ways to go. 105 minutes left. What. What do we want to talk about, Curtis? What did we miss that you think is incredibly important for the audience to know?

[Curtis]

You didn't miss anything. I wanna, I came on about episode 81 or two. So we're about halfway through this so far, the journey so far. And Matt said something important about manufacturing. He's like, hey, everybody, don't just think that starting a manufacturing is the way to go. It's hard. He said earlier, hey, when you get a product that really takes off, you're manufacturing it. It's easy. No, everybody, none of them D.C. like, it's like nothing that I do easy. I do it because it works better as a long term thing and it works out. But none of this is easy. You get better at it so it looks easier to other people, and then you forget how hard it was. So you pretend like, oh, I was pretty easy. I started doing art festivals and I built a company worth blank amount of money. Right? No, no, no, no. This is all hard. So that's number one. Number two, Sean, you were saying so well that, hey, where are your margins at? I am approached by people, as I'm sure both of you are, because the operators podcast has become so well known for DTC. Everybody knows it about people who are at 1 million and 2 million and they're not making money. And they come, they say, let me tell you my model. I'm buying t shirts for 40 and I'm selling them for 80. And you're like, yeah, don't do it well. That's the only way I can. The quality's really good and people will buy it at that. And, you know, I haven't done my shipping and my returns or anything else in there. And the model's just broke from the start, right? You've got to get a model that actually works if you want to scale that thing. You can't overpay for your product. Have no advantage just to sell it low so you have revenue coming in. I have met with companies. I was meeting with Mariana and I met, and I'm going to say this really quick. I met with this guy who's doing about 45 million a year. And we just stopped in because I like their company and met with them. And after about an hour, I said, hey, can everybody leave the room? I just want to talk to this guy. I'm like, dude, what's wrong? And he's like, oh, nothing. Everything's great. I'm like, something's wrong. He's like, dude, I'm broke. I've got kids. I'm not making any money. All my friends are telling me I'm killing it, right? Everyone's saying, congratulations, you started an apartment. Now you're doing 45 million. You're in Dick's Sporting Goods. Like, you must be killing. It's like, I'm worried. And I'm like, yeah, figure out your models. You know, you're not making money. Here and here. Like, don't listen to the, the roar of the applause because you tell people things are good and they tell you you're awesome. And you use that to justify not getting better, find better margins, change your company, get a model that works, figure out how to be profitable, how to scale and how to make money and make the hard damn decisions.

[Matt]

I think, Sean, the actual thing on what Curtis is saying, part of the equation is you might just be trying to grow too damn fast. Like, if you look at your, your operating margins, so, like, there's gross margin, there's contribution margin, and there's like, how much can I actually generate? Just do the math on how much growth can you actually afford? You don't need to triple. Like, you just don't, you know, like, what growth can you afford? Maybe that's the right answer. Like, like, do you. Do you have to stress the system to the point where it almost breaks every month? Like, I thought you were. I mean, like the whole point of being a founder and bootstrapped, it's like you can choose. So if you're choosing to break your business by growing that fast, maybe the answer is to choose to grow a little slower and compound over a longer period of time. I don't know, maybe I'm just an idiot. That seems like a option.

[Sean]

No, Matt and Curtis, you guys are both right. And I just want to say, you know, we're not in the trophy business. Like, E Commerce is not the trophy business. And what I mean by that is you don't get a trophy for telling people how great things are. You don't get a trophy for growing fast. The only trophy is, do you make any money?

[Curtis]

You know what I mean?

[Sean]

It's like, there's like, you don't get a trophy. Be like, yeah, dude, you built a great business and you, you took no money for yourself and whatever. It's just like, we're not that business, bro. Like, you have to be able to take money out of this thing and, and growing slower or being ruthless about opex, being ruthless about margins, like that, that is the only way you survive to play another day. So we're, you know, for all, for all of our Gen Z audience, it's like this is a battle royale. You have to be last to survive. Okay? It's not a high score game, if that makes any sense. You can win by just staying in the bushes, doing nothing and waiting for everybody to kill each other and being the last guy out there. That's how you can win.

[Matt]

So you can't win a game you're not in. And I think the goal number one, stay in the game as long as you possibly can, ideally forever. And take a much longer view on a physical goods business. Get the off of X and. Or whatever the hell we're calling it these days. And listening to like I went from 0 to 300 million in, in. I mean, we're guilty for this because we have these people on our, like, just get off of X. Consumer goods is a very difficult bucket of companies to build. They take longer than you think they do. Like, if you're young and you're getting started, be prepared for a 10 year journey. Like go into it with that mentality and just go slower. That is like the best advice I could give somebody.

[Curtis]

The greatest quote about time is a Bill Gates quote and I love this one. He says we overestimate what we can do in a year. We underestimate what we can do in 10. Because no D to C person is figuring out 10. You ask us for a three year model and we're like, kiss my ass. I'm thinking months, I'm thinking seasons. Don't talk to me about 10. But 10's real. 10 comes along after 8 and 9 comes 10.

[Matt]

Yeah, man. I've been doing this for 22 years.

[Curtis]

It takes time.

[Sean]

Yeah. This is my 10 year anniversary at Ridge this year. That's awesome. That's how long takes. Guys. All right, that's been another amazing episode of the Operators podcast. Curtis, I hear you're going to be on way more of these episodes in the future. You're the new Jason, so we love having you here. Curtis, thank you for being here, Matt. You're a great guy. I talk to you guys later. Goodbye.