Podcast

Learn from Fast Growing 7-8 Figure Online Retailers and eCommerce Experts

EPISODE 337 73 mins

The Subscription Commerce Advantage



About the guests

Evan Padgett

Kunle Campbell

Evan Padgett is a 20 year veteran of all things eCommerce and specifically subscription commerce. Having worked in and lead as a Chief Executive in multiple billion-dollar brands (JustFab/ShoeDazzle, Thrive Market) now running a growth firm as COO called Stealth Venture Lab.



On today’s episode, Kunle is joined by Evan Padgett, Co-Founder & COO of Stealth Venture Labs, an incubator for growing eCommerce businesses and a company that works in acquisition and growing eCommerce brands.

Every small brand goes through the hoop of the needle to ensure their growth is steady but there will come a time when that brand exceeds what you can handle with a handful of people. A growing business means a growing team, and a part of your team is a marketer.

Choosing the right marketer is going to send your brand flying in the right direction. Because they are the voice of your customers, you can improve your brand’s advertising knowing that it’s exactly what they wanted and more. Stealth Venture Labs can help you with that. With a diverse and highly effective team, your brand will fly high.

In this episode, Kunle and Evan talk about how VCs can complicate things for your business. You will get to hear about how to swap your recurring revenue model for a service model strategy. This is a great episode for business owners who want to expand their brand and need an execution team to do it.

Here is a summary of some of the noteworthy points made:

  • Stealth Lab Ventures has a unique team that can execute a brand’s growth.
  • VCs can complicate the dynamic with the brand but it doesn’t hurt to work with them. They are the other voices in the room.
  • With huge amounts of money in advertising one must have a trustworthy team to handle it.
  • Deferred revenue is good for cashflow but complicated to explain to investors.

Covered Topics:

In today’s interview Kunle and Evan discuss:

  • Evan’s Past
  • The Transition From JustFab to Thrive Market
  • The Inner Workings of Stealth Venture Labs
  • Team Building
  • A Marketer’s Role
  • Subscriptions in the Ecosystem of eCommerce
  • Subscriptions and Product Stacks
  • More About Credit Systems
  • The Shopify and Recharge Ecosystem
  • Future Proofing as a D2C eCommerce Business
  • Contacting Evan

Timestamps:

  • 09:58 – Evan’s Past:
    • Getting Into eCommerce
    • Going to College to become a scientist
    • Growing up in Oregon and moving to Colorado
    • Reconnecting with an old friend
    • Joining Intermix Media and Discovering eCommerce
    • Growing alongside Intermix
    • Managing a $300 million P&L
    • Transitioning from JustFab with 15 years of experience
    • Being led to Thrive Market
    • Meeting Brent Freeman
  • 18:31 – The Transition From JustFab to Thrive Market:
    • Evan’s work on JustFab and Thrive Market
    • Thrive Market Solving Food Desert Problem
    • Costco meets Whole Foods but Online
    • Customers spending less for organic foods with a membership strategy
  • 22:25 – The Inner Workings of Stealth Venture Labs:
    • Why VCs complicate things
    • The two pillars of Stealth Venture Labs
    • Build a team who can manage over $10 million in advertising
    • Choosing a dark side
    • Building Stealth into a company based on what people are good at
  • 27:15 – Team Building:
    • Using EOS Model
    • What are Visionaries and Integrators?
    • Choosing the right marketer to grow your brand
    • Finding a person to be the customers’ voice
    • The biggest mistake a marketer makes
  • 36:20 – A Marketer’s Role:
    • “The output has to feed into key components of the business to optimize it”
    • Taking more from losses than from wins
  • 43:03 – Subscriptions in the Ecosystem of eCommerce:
    • Shopify is your best friend when you’re starting out
    • What can Recharge do?
    • Stealth’s Impact Lab
    • Building an actual store during the weekends
  • 46:56 – Subscriptions and Product Stacks:
    • Swapping you recurring revenue model with service
    • Think about what your customers need in a quarterly basis
    • Good retention rates for non subscription business
    • Average customer subscription
    • ROI for Subscriptions can take a while
    • What is Subscribe to Save?
    • Increasing LTV through subsidization
  • 01:01:01 – More About Credit Systems:
    • What is deferred revenue
    • Deferred revenue is tricky business
  • 01:04:25 – The Shopify and Recharge Ecosystem:
    • Creating a subscription with a virtual product
    • Subscriptions and credit scores
  • 01:06:33- Future Proofing as a D2C eCommerce Business
    • Ways to fix the advertising spaces
    • Getting into other channels of advertising other than Facebook
    • Listening to Consumers and finding out what’s relative to them
  • 01:11:00 – Contacting Evan

Takeaways:

  • A marketer’s mistake is talking too much about the features of the products instead of focusing on the benefits.
  • Be careful of a customer’s fickleness. It can cause your brands downfall. Be careful.
  • VCs are the other voice in the room. They can complicate the dynamic with the brand but they have points to look into.

Links & Resources

Facebook Group • Continue the Conversation

The eCommerce GrowthAccelerator Mastermind Facebook Group has just launched.
It is a community…

✔️ for founders and experts passionately involved in eCommerce
✔️ for the truly ambitious wanting to make an impact in the markets they serve
✔️ for those willing and open to help and share with other members

Here is where to apply to join the Facebook group
>>http://bit.ly/ecommercefb<<

———–

SPONSORS:

This episode is brought to you by:

This episode is brought to you by Klaviyo – a growth marketing platform that powers over 25,000 online businesses.
Direct-to-Consumer brands like ColourPop, Huckberry, and Custom Ink rely on Klaviyo.

Klaviyo helps you own customer experience and  grow high-value customer relationships right from a shopper’s first impression through to each subsequent purchase, Klaviyo understands every single customer interaction,  and empowers brands to create more personalized marketing moments.

Find out more on klaviyo.com/2x.

This episode is brought to you by Gorgias, the leading helpdesk for Shopify, Magento and BigCommerce merchants.

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This episode is brought to you by Recharge, the leading subscriptions payment solution for Shopify merchants.

Recharge helps ecommerce merchants of all sizes launch and scale subscription offerings. Recharge powers the growth of over 15,000 subscription merchants and their communities—turning one-time transactions into long-term customer relationships.

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Find out more on rechargepayments.com/2x.

Transcript

The 2X eCommerce podcast show is dedicated to digital commerce insights for retail and eCommerce teams. Each week on this podcast, we either get on a commerce expert, a founder of a direct-to-consumer commerce brand, or a representative from a best-in-class commerce SaaS product with a tight remit to give you ideas you can test right away on the brands you’re building. You can improve growth metrics such as conversions, average order value, repeat customers, your audience size, and ultimately your gross merchant value or sales. We are here to help you sell more sustainably, so welcome.

This interview you’re about to read is an interview I had with Evan Padgett. He is the Co-Founder, or he likes to refer to himself as a Partner, and COO at Stealth Venture Labs, but that’s not the full story. He’s a veteran in high-growth eCommerce businesses. He’s worked at JustFab and Thrive Market, which is both inherently are subscription eCommerce businesses. That’s his base.

Right now, with Stealth Venture Labs, his agency, they are an incubator for eCommerce businesses or eCommerce ideas as well as a growth unit to attach to eCommerce brands that are trying to grow. They work predominantly in acquisition, acquiring and growing eCommerce brands. He’s worked with the likes of JustFab, ShoeDazzle, and Thrive Market. That’s his interview.

We start off with his backstory, how the dot-com boom got him into South California and this startup environment, and how he’s grown teams. Fun fact, he’s managed advertising budgets of $30 million while he was at JustFab. He’s run multiple millions in his other role at Thrive Market. All in all, he’s an operator, let’s put it that way. He’s not someone who talks about just tactics. He can merge tactics with your P&L on your balance sheet and he sees a bigger picture from an operational standpoint. That is why I connected with him in this conversation.

We were moving from business implications to tactics. It was like a ping pong. We built a good rhythm over the conversation, so brace yourself. We get into what you need to do to survive now in 2022 with the drop in data. Most advertising platforms are getting from iOS users. We talk a lot about team building. That was a super-powerful point. I asked him what is the team required to move from under $10 million or even from $1 million to $100 million and what are the building blocks from a team-building perspective. He went deep.

We talked about subscriptions. He gave some good numbers on what your expectation from a CLV standpoint from subscriptions. I thought this conversation was going to be 30 minutes, but it ended up being an hour for good reason. If you are thinking or you started a subscription commerce initiative, if you’re on a quest to build a $100 million-plus eCommerce business, you should read this episode. He’s speaking from the trenches and he has the experience and the battle scars to everything he’s saying. Enjoy this episode.

I want to give a shout-out to one of our sponsors, Recharge. They’re the number one subscription app on the Shopify platform that’s sponsoring the show. Great product and great sponsors. Enjoy this conversation. I’ll be sharing more details about our event coming up in London in person. I’m going to see you, guys. I’m going to hug, I’m going to talk, I’m going to kiss every one of you. I’m excited.

Who knows? Beyond London, we might have New York editions. I love the West Coast. No hates on the East Coast, but I want to do something on the West Coast. I want to do something in Texas. Bringing people together, bringing followers of this podcast together. I’m looking forward to it. Enjoy my interview with Evan Padgett from Stealth Venture Labs.

On today’s episode, we go deep into subscription commerce for eCommerce. It’s a great episode you do not want to miss. Evan, welcome to the 2X eCommerce podcast.

Thank you for having me.

We’ve had quite a fun pre-interview. We’ll jump right in. You’ve been in the industry for over twenty years. That’s substantial. You speak a lot about subscription commerce, which is relevant right now. I want to get to the starting days of eCommerce, those nascent days. Why did you get into eCommerce?

In 2002, it was a job. I was a nerdy kid growing up, building web pages in the late ‘90s on a notepad, free handing code. That’s how you did it back then. You didn’t have fancy tools to build web pages that would just fill in code for you. You had to close your own tags. I was doing that all through high school, and video gaming as well. I love technology.

The moment I saw computers and the moment I had a 2400 baud modem, which is a slow modem, I was like, “There’s something here. This is the future.  I recognized that at 16, 17 years old. I had fun with it. I went to college. I was going to university to become a scientist. I was intrigued by that. My best friend growing up that I did this nerdy stuff with took a job in Southern California. He quit high school, which I don’t recommend doing, to take a job in Los Angeles.

You’re Colorado-based. Did you grow up in California?

I grew up in Oregon, north of California, and then I’m now in Colorado. I’ve spent most of my career in Southern California, in Los Angeles. My best friend from high school dropped out of school to go work for this company. This would have been in 1999. I was like, “You’re crazy. That’s insane.” He was a graphic designer and a coder as well.

Years later, I reconnected with him. He was visiting and he was 20 at the time. I was like, “What are you doing?” He’s making good money in Southern California and he’s talking about all these things that I know about. I’m about to go to university and I threw out there, “If you know of any interesting jobs that I could do, let me know.”

He gets back there. Two weeks later, he calls me up and says, “Do you want to move down here to be a junior analyst?” It was what I was called working at this company that became Intermix Media. I’ll explain that because there’s an interesting story there. I was like, “Yeah, sure. Why not?” It sounds fun. I’m 20 years old and I’m moving to Southern California. What could go wrong?

I joined this company. This company was called Intermix Media and it was most famous for being bought by Fox Interactive Media for the property, Myspace. I was working at the company Myspace but I was in a totally different product-market division selling all sorts of healthcare products, Simpson’s bottle openers, and little RC cars on the internet.

This is the early days of the internet. I’m running invoices and getting IO signed, insertion orders, because you talk to somebody on the other side. I was like, “This is fascinating.” I’m just in this office, in a cubicle. It’s cliché, Silicon Beach style. There’s an arcade in there. A bunch of 20-something’s running around making money.

Fox bought that company. They didn’t care about the product marketing side. They wanted Myspace at the time, so they bought it from Myspace. The people that were selling products, we splintered off and I joined these people that started a company called Intelligent Beauty. We were selling skincare. We were notorious for the ads that sideswipe. You have a wrinkly face and they go away. I’ve been there. That’s millions of dollars spent on all that. I grew with the industry.

Before and afters.

You’re 90 and all of a sudden, you’re 20 again. I helped make those ads. We were doing product marketing. We were doing the same thing. I grew so I became a marketer. That’s where I became more of a marketer. I started working on landing page optimization, analyzing customers, analyzing what they’re doing. Using my tech background, being able to extract data and do some fun things with it.

That company shifted from beauty products to fashion. I was growing with the company. I was focused on analytics, then I became a shared service head there. That’s where I grew into analytics and became analytics and member service. I grew our customer service organization from 30 people to 600 people in a few years because we were growing so rapidly.

It was at JustFab.

We acquired a company called ShoeDazzle. They launched brands called Fabletics and Savage X by Rihanna. Same company. I kept growing with the company and we were hypergrowth. Adam Goldenberg and Don Ressler, the CEOs there, are close personal friends and mentors of mine. Honestly, I learned so much from them.

I kept taking on more responsibility. All of a sudden, I’m running four departments. I’m running customer acquisition, managing about $120 million a year in advertising throughout all of our brands because we were a centralized customer acquisition team. Member service with almost 1,000 agents, analytics as a shared service to provide data to whoever needed it and whatever they needed it for, and market research. I’d throw that in there because it’s tangentially analytic-related.

I was doing all those, and then finally the day came, Adam came to me and said, “The business was getting too big.” He built that company. He was like, “I need you to be the GM and run JustFab.” He’s got a purview over everything because we were worldwide. By then we had entities in Europe. I became one of the people running the JustFab brand. I was managing a $300 million P&L. I was managing about $50 million in media that I had to be responsible for. We acquired ShoeDazzle in the process, so I’m running two teams. I had about 80 people in my org.

VCs complicate things a little bit. It doesn't mean we won't work with them. Click to Tweet

ShoeDazzle is another subscription business.

ShoeDazzle came first. We built JustFab when we tried to buy ShoeDazzle and it didn’t work out. We ended up buying them later, so success story there. That was awesome. I had a great time. I did that job for two years. We built the company. I grew revenues, but I hit a point where I was like, “Adam, I’ve been working for you for fifteen years, from 20 to about 35 years old. I got all my 20s wiped. I learned a ton but they’re gone.”

Me and my wife were having our second kid. I was like, “I need to take a little bit of a break. You’re my dear friend. I still love you to death, but let’s transition me out.” I transitioned out. I was going to take a year off. About two months into that year, I was pointed at a company called Thrive Market. They were an up-and-coming LA brand, a sweetheart business in the area. Everyone knew about them. Hypergrowth. I was like, “I’ll jump back in.” I was the chief marketing officer there. Awesome company. Amazing cause. I could talk forever about how awesome the people in that company were and the mission that they’re behind. It’s beautiful. They’re doing great things.

After 1.5 years, I realized that it wasn’t for me. It had nothing to do with the company. At that point, I’m an operator. I don’t like to be just a marketer. I identify as a marketer, but I like running businesses. They had plenty of leadership there. I was like, “Nick, this isn’t going to work.” I transitioned out. I played around in LA for a while and then met my business partner here at Stealth. His name’s Brent Freeman and he’s the founder. I made that transition to the client service side from being the client for most of my career. That’s where I’m at now and that’s what we’re building. That’s fun.

There’s a lot to unpack, particularly the transition from JustFab to Thrive Market. Am I right in saying they’re both inherently subscription-based businesses?

Very unique subscriptions but yes, subscription businesses.

How do they differ, in your opinion?

When I was at JustFab, it had a system of credits and store credit. You were on a subscription where every month, we would ask you to buy products and if you didn’t buy, you’d have a credit stored up that you could use later. We use that to help inventory, control cash, and be able to give flexibility but have revenue coming in.

In Thrive, we marketed this heavily at the time and they might still do this. We said, “We were Costco meets Whole Foods but online.” An annual access membership instead of a membership for the products. They were both different in that regard, but the membership for Thrive was the key to get through the door, so to speak. Once you’re a member, you’re getting awesome products at the best prices possible.

Is Thrive Market digital native?

Yes, digital first. They’ve now launched their own brand and they have probably thousands of SKUs in their own brand now. It was just starting when I got there. They have their own brand, but they are only digital. As far as I know, they are not in any retail. None of their products are in retail. That company had one main goal, which I love. This is a big part of why I joined that company. It was trying to solve what we call the food desert problem in the US.

People that say, have gluten issues or want organic and non-GMO foods. Sometimes in the country or 40, 50, 60, 100 miles away from a place that could get those foods, we said, “We’re going to deliver those to you and it’s going to be cheaper than the processed foods. As long as you pay for the annual membership and you’re ordering every week.” One-time annual membership fee. All the better foods most likely for you don’t have to be more expensive.

In its DNA, it’s been values-driven and that’s amplified into the products, into its offering, which is pantry staples, so plant-based.

A lot of shelf-stable stuff. At the time, we were notoriously famous for your first order came with free coconut oil. One of the first products that we made was a Thrive Market branded coconut oil, which a lot of people that are averse to using vegetable oils or canola oils and would use coconut oil in everything, that was a big hook for us. It was our marketing hook to get people in and try the membership out and validate the value of that membership.

It became evident quickly, “This bag of chips or crisps that is organic compared to the one that’s not doesn’t have to cost 50% more.” Retail stores do that, but the actual finish cost is not that different. We can sell it for cheaper as long as we have that membership behind it, and that was beautiful. They’re at millions of members now and doing well. The pandemic, for better or worse, helped that business. They were doing well before the pandemic, so I’m proud to have been a small part of that journey.

Can’t wait for them to come to the UK. I’ve been knocking on their doors. Stealth Venture Labs, you started with your business partner, Brent. Who do you serve inherently, the bootstrapper, the funded, VC-backed commerce business?

Nothing against VCs, but VCs complicate things a little bit. It doesn’t mean we won’t work with them.

Why do VCs complicate things?

They’re another voice in the room. A lot of less than experienced or first-time successful entrepreneurs rarely do a good job managing their board. If you have VCs, you got a board. If you got a board, you have people as a CEO telling you what to do and what not to do. They have the purse strings, proverbially. They’re like, “If you need more money, you better listen to what I say.”

A lot of that with acquisition marketing gets complicated because you’re spending your money to try to make more money. The acquisition marketing comes in waves. Sometimes it’s good, sometimes it’s bad. You have seasonality. Sometimes CPM goes up, sometimes algorithm changes. Sometimes iOS 14 happens, sometimes iOS 14.5 happens.

VCs put a lot of heat on CEOs, and then they’re like, “You scratch your marketing team,” or, “This other marketing isn’t real.” I’m not going to turn away business. It’s VC-backed. We work with plenty that are. At times, VCs can complicate our dynamic with brands. We have two pillars of our business. We have what we call our Founder Lab, which is meant for entrepreneurs that need a full service marketing team to do everything to bring their product to life.

Occasionally, we work with big established brands that are like, “We want to expand our product line and we need a team that can turn this around in 60 days and get us to market.” They already know what they want, but they need an execution team to do it, and then a marketing team to run it and do acquisition marketing and stuff. That’s our Founder Lab side.

Our Growth Lab is more of a traditional ad agency. We’re a team of people that manage your media dollars, focused on all the channels that we could control behind a computer or in front of a monitor. We’re good at it. What I mean by that is at JustFab, we were managing $10 million a month in advertising. At Thrive, several million dollars a month in advertising. I built a team that I would trust without those kinds of budgets. That’s what we’ve built here.

We work with companies that have budgets of $20,000 a month to upwards of $10 million a month and everywhere in between. We provide strategy, media buying, and creative post-production. We’re starting to get into creative production. I’ve never been on the client-server side until now. I’ve been that client. I’ve been that person looking at an agency being like, “Why aren’t my CACs better?” Now I’m on the other side.

Which would you turn the dark side, agency or client?

The client service side is a lot more active listening, a lot more understanding, a lot more negotiating than when you’re on the client-side. It’s got great benefits, in the sense of we like it when we win and when our clients win, we win. Me and Brent built this company on some core principles. For example, working here at Stealth, not just who we service, we have a team that doesn’t have to work weekends. We don’t bother them.

I brought in professionals that are good at what they do and let them do what they’re awesome at. When you do that, there’s a little bit of magic. There were a lot of agencies that have people that can talk, but then the people that are active in the accounts are so far away from the strategy that there’s a loss of fidelity there. With us, you’re talking to the person that’s going to then get off the call and go in the platform and make the changes. It’s maybe a little less margin-rich on my side, but it leads to better service which ultimately leads to collective success. There’s darkness on both sides.

Let’s delve into team building. You can speak to VC setups, the Fabletics and Thrive Market. In 2022, if you were a growing startup, you’ve shown some traction and it’s been bootstrapped and basic, how would you structure your direct-to-consumer eCommerce business for scale? You’re looking to grow it to the $100 million-plus stratosphere. Who would you put in the mix to make this happen? You’re speaking to founders, essentially.

I’ve been a part of a lot of management systems like the Rockefellers, all these different tools that you can use to run your organization. We run something called EOS, the Entrepreneurial Operating System. Brent and I work hand in hand. They have something that’s called the VI combo, visionary and integrator. Visionaries are the creative people, the blue-sky dreamers, the people that are persistent optimists that can never be turned off, the this-is-going-to-change-the-world mentality. My business partner, Brent, changes the world. He’s an amazing person.

There are the integrators. That’s me, in this case. I make visionary dreams come true. I’m the person that is in there making it happen. I worked for dynamic duos in my whole career. Granted, there were only two other jobs before this. At the top of JustFab Inc., now known as TechStyle Fashion Group, you have Adam and Don. They were a visionary-integrator combo. At the time when I was at Thrive Market, you had Nick Green, you had Sasha who was another co-founder there, and you had a guy by the name of Gunnar Lovelace. They were visionary-integrator combos there as well. They had a vision and they have people to get it done.

If I’m starting a brand right now, I’d look at myself as an integrator. I need a visionary to be that blue-sky dreamer. Step one, get that in place. If you’re that visionary, get yourself an integrator because that’s how you make your dreams come true. Beyond building a team, now you got your two co-founders. You got your partnership going.

Let’s leave the fact that you need capital and all that, the fundamentals you need. When you’re trying to find growth and marketing, you want a marketer that understands philosophically what you’re trying to build. Call it your head of marketing. They’re probably a director or vice president level somewhere that can do anything. They roll up their sleeves.

Don’t skimp out on your marketer. If you are trying to build a direct-to-consumer, customer acquisition-focused company, make sure from the get-go, you have an awesome direct marketer on your team. An awesome direct marketer in your team doesn’t necessarily mean that they follow Gary Vee’s podcast and everything he’s done and they’ve read all the books. You need practical application. I look for people that have worked at big-budget brands, brands that I know spend millions a month because that experience is worth much more than every book you could read and every podcast you can listen to. The hands-on experience there, someone that’s managed millions of dollars themselves and it’s not scary to them, those are the people you need on your team.

If you’re trying to build a $100 million brand and you’re spending $30 million to $40 million a month a year probably on advertising at a certain point, you don’t want that mismanaged. You don’t want that to be on the CEO or the COO. You have a visionary who’s looking into the future, blue-sky dreaming. You have an integrator who’s rolling up their sleeves, getting the team right, and making sure that we’re scalable. That’s usually a COO profile. You have an awesome marketer. Don’t forget what matters most, your customers. You need somebody that is customer-empathetic. Usually, they are brand-focused that can be the voice of the customer and what the customer needs to hear. They need to be able to shake things up even at that founder level a little bit and have a voice at the table that says, “I hear you. You want to sell this for that price.”

On the ground level, customers are going to buy that. That’s not a great customer experience. If you have those four pieces without the nuance of like, “We need technology,” or, “We need graphic designers,” and all these things. You need production work, but those four corners of the bedsheet, in my opinion, would help you build out anything. If you have those four people in place, you can build anything and do something well.

I was speaking with my business partner, the fourth role you talked about. We’re trying to dig get into the heads of customers because we’re in it. We come every day to the office for customers. How are we empathetic enough to get out of them? Who is their representative? Who’s in the business? I do have a question about that particular role. Would you say that person is a product market person because customer insight is part of product marketing or would you boldly go and say, “This is a customer success role.”

They need to have product-market skills and try to find product-market fit. If this person going to say, “This is what the customer would want or should want,” or is going to be that voice, “I’d say, “Show me the data.” I’m a data-focused person, at the end of the day. I try to quantify everything I can in this business. That’s what drew me to this business initially.

It’s got to be hypothesis-driven. It’s got to be able to say, “I have this idea. Customers are going to like this payment model and here’s why.” Get some customers on it and show me what it looks like. Show me their LTV. They have to be able to find product-market fit and be able to negotiate that through the proper channels to say, “Here’s what the user experience and onboarding look like. Here’s how we educate the customers about what our product is.”

The biggest mistake marketers make is they want to talk about the features of their product and they don’t talk about the benefits enough. Where I’m sitting here at Stealth, when we bring in our clients, most people having trouble coming to us have this problem. Take a meal-at-home company. A feature of meal-at-home, food shows up at my door and it’s good food. Those are features. Those are the table stakes, but what’s the benefit? The benefit is I don’t have to go to the grocery store anymore.

It takes me two minutes to cook this food, so now I have more time to spend with my family and friends. It’s convenient. I’m eating healthier and living a healthier life with your meal-at-home company, depending on their focus. That’s a benefit. That’s what people are looking for. They’re not looking for the features. You could rattle off, but that doesn’t make you unique. The benefit of your product is what makes it come to life.

A lot of brands, when we look at their ads, it’s like, “Same-day shipping and arrives in two days.” It’s like, “Great, but you’re not talking about the benefits that provide me. That means I don’t have to go to the store. That means I don’t have to miss my kid’s soccer game because dinner is going to be ready.” That’s one piece that I mentioned there. That’s one marketing thing that we see miss time and time again. That all comes back to, that person in that product marketing role needs to be able to understand that. They’re not just talking about features of what your product does, but they’re talking about how that product, especially in subscription, makes your life better.

The benefit of your product is what makes it come to life. Click to Tweet

Where are the key feedback outputs for that role? I’m thinking about further product optimization and then customer experience and probably the website. Pre-purchase, being there, post-purchase, being there, if shit hits the fan after a purchase, being there, and then product improvements and experience. The output has to feed into key components of the business to optimize it.

Their output got to be data-driven. They’re more of an integrator mindset, analytic-minded. They’re looking at the data, adjusting based off of data, and generating new hypotheses to test and experiment with. They have to be able to deliver that message to production in such a way that’s not like, “Make this site prettier.” That doesn’t help. You need to say, “I want to move the call to action here. I want to try a different product there and here, the headline and the sub-headline that I want to run.” They need to be able to articulate that. It doesn’t mean they’re writing it themselves necessarily. It depends on your company. They know something’s amiss. They know when it’s going to look right to fit their hypothesis and they’re delivering that. Their output is data on that.

One of the best people I’ve ever worked with is this guy by the name of Ryan Heller who’s the chief marketing officer at Fabletics now. There’s a competitive nature there. The competition in this case is with yourself, looking at, “We got a win. What’s our next win? I’m not satisfied with that win.” They’re looking to constantly evolve the product and they’re competing with their own results. That is super rare. In general, that is a hard thing to find because there’s a sense of, “I ran the race and the race is over. Good job, everybody.” Put my feet up and be like, “Let’s enjoy this win.” It’s like, “We got to win. How do we make this better?” Never satisfied.

He’s one of the best I’ve ever worked with that did that. I try to find that in other people that we’re hiring because that means that they will never stop pushing the ball forward for your company. You need to appreciate them because they can be the difference in your company from being okay to being incredibly successful. They are on the ground being an agent for change and not just talking about the things they’re going to have. They’re like, “I got 10 tests deep and I got 10 more coming. Here’s what we’re testing. I’m going to deliver results.”

They take more from losses than they do from wins. They say, “This lost, but why? Why did it lose?” They’re pushing that and they’re saying, “I was wrong about this. Let’s try this.” They get up and do it again. That is a changer for your business. Finding that person and having them be not so high up that they’re just talking. That’s a graduation point. When you’re an executive, you’re just putting things into action, usually. They’re in there and they’re making change happen. That will make your business so much better.

That’s an amazing insight, constant improvement. I can’t let you go without speaking to subscriptions and retention, and it’s placing commerce. Are you a fan of Shopify?

Yeah, big fan.

In the ecosystem with the rise of Shopify, which some may beg to differ now with their share price going down, and D2C eCommerce, they do embody this mission of D2C eCommerce, where does subscription fit at the moment? How do you see subscriptions in the ecosystem of eCommerce? It’s a staple in SaaS as we all know, but where does it sit?

eCommerce is subscription commerce and subscription commerce does a lot of things. I’m such a big fan of it. I’ve been doing it for over twenty years, so my bias is there. Subscription commerce creates predictable revenue. It creates a relationship with consumers that is more than just a transaction in and out of your store and has to live up to a certain set of promises. Meaning, right now in the world that we live in, you can’t just throw stuff in a box and ship to customers and say, “Here’s your stuff.”

You got to be a company that has its own identity because you are now most likely optional, for most subscriptions. You’re saying, “Let’s have you give me money as a company. Let’s have you give me money for a while and I’m going to deliver on this promise time and time again.” Customers are fickle. If you miss on that promise, they will remember that, they will talk about that, and they won’t let you live it down.

Shopify is an amazing platform to get a business off the ground. It’s one of the most friendly eCommerce platforms out there as far as its ability to work for my first business to my $100 million business or more. They do have a broad scale. I am personally biased on the Recharge app for subscriptions. It covers most use cases.

They’re about to sponsor our show.

There we go. Also unplanned. Brent is close with Oisin in there. Brent was one of the first customers to ever use Recharge when it first came out. It covers most use cases. Subscriptions can get unique and out there, and it may not be able to do everything. You can handle 95% of subscriptions with that platform and it works well. It’s so easy to use.

I’ve shown this to people several times over. I’m going to plug part of what we do here at Stealth. We have something called the Impact Lab. It’s a nonprofit 501(c)(3). We created an academy for people to launch their own businesses and teach them step by step to inner-city kids here in the US how to launch their businesses. We fund them with their first $5,000 in advertising.

We built a product to show them how to launch from ideation on Shopify, all the way to deliver using the apps that we would recommend and get businesses off the ground because it’s so easy. You can do it yourself over a weekend. I’ve done this myself over weekends. My business partner has done it. Once you do it, you’re like, “Just click, click, click.” “I need access.” You got to get all your stuff in a row. Building an actual working store over a weekend is amazing and it looks good. You can make a good-looking store. You can market that store. You could decide on a Friday night what business you’re going to build it. If you got inventory, you could be selling it on Monday. It’s so cool to me.

It’s freedom.

I came from the early 2000s, where the first thing I had to go do was find $1 million from somebody to be able to go get a developer to build me an eCommerce store and go hire these people. If you’ve got the stuff, you can launch your stuff over the weekend. That’s amazing to me. I’m a big fan of Shopify.

Speaking to the topic of subscriptions and a product stack, your product offering to your customer, for readers who are like, “Screw it. My products don’t lend themselves to subscriptions. We sell this and that. We sell chunky items.” From your experience, how would you start to think about subscriptions at a product stack level, product offering level, in order to drive that predictability from a customer relations standpoint, which translates to revenue?

There are few businesses out there I don’t think could have some form of subscription or recurring revenue model attached to them. I get this challenge every so often. If your physical product doesn’t necessarily lend itself to a subscription, maybe it’s incredibly chunky or maybe it’s valuable. Rolex maybe is not going to have a recurring revenue model anytime soon. However, I don’t know this for a fact, they might have a recurring revenue model and it’s in the form of service or it’s in the form of extra content.

In their brand, they could create something where like, “You buy a Rolex and you can join this club to also be able to go to any Rolex store. They’ll fully clean and refurbish your watch.” You bought a $50,000 watch, which is another $500 a year, $50 a month to make sure it stays in perfect working order. I just pulled that one out. There’s a hesitancy to it because running a subscription business and recurring revenue business is harder than having a store with doors opening say, “Pick what you want and I’ll ring you up at the counter,” so to speak.

It’s so much more rewarding because of the predictability of your revenue. The ability to have deeper relationships with the customers that you do have in the form of communications, loyalty to them, and authentic consumer emotions towards your brand and what it stands for is so much more worth it. There are few brands where you could find a way to create a recurring model. What you need to do if you’re trying to get one is to look at what could you provide your customers that they would need on at least a quarterly basis.

Subscriptions don’t have to be monthly. They could be annual. Thrive Market was an annual subscription. I love quarterly consumer packaged goods because monthly stuff can get overwhelming. Anecdotally, the majority of monthly subscriptions, customers turn out because they have too much of your stuff. Unless it’s a total consumable like food or something they got to eat or it spoils. Quarterly paces that out.

The moment you’re 2 or 3 boxes deep and say, you’re six months in, on the 7th or 8th month, they’re like, “I got too much stuff and I got to cancel or come back to it later.” Quarterly, you’re only getting four shipments a year, or five including the first shipment. Chances are, you’re not overly using that product. There’s a good balance there. It’s great for fashion. We see that a lot with fashion brands that do deliver quarterly trends and stuff they’re trying to do monthly.

A subscription does not mean a monthly bill. It could be an annual bill, it could be a quarterly bill, it could be a semi-annual bill. You could find something that your business can do that you could spend money on. Say, you’re someone who wants to have a personal stylist service. We’ll charge you $50 a quarter and you get a one-hour consultation with a stylist. You’re paying that stylist $20 to $30 an hour. There’s additional revenue there and it’s also going to increase your LTV because that stylist could then convince that customer to buy 20% more things and add 20% to your LTV.

A brand I work closely with sells automotive DIY paints, sprays for your car. What they did is they created a membership and that membership gives you 5% off purchases, which is encouraging that repeats customer rates, and then it gives them a series of perks like expedited shipping. It’s like an Amazon Prime of sorts. You pay per year and there’s net saving for the customer if they don’t spend a certain threshold, but because they’ve put that upfront payment there, they tend to be better repeat customers. Their purchase frequency bubbles up.

It’s good for everybody. They get products and if they get discounted products, they buy more often. There’s more net revenue per customer, which is interesting in itself, but it hasn’t hit critical mass. It’s just for certain cohorts of customers, which brings me to my next question. In your opinion or from your data at Venture Labs, what’s a good customer retention rate for a non-subscription business? What is the potential if they were to take subscriptions commerce a bit more seriously?

There’s a wide range for non-subscription but on average, if you’re getting 2 to 3 orders per year from a customer on a non-subscription basis for consumer package goods, online eCommerce company, and your customer LTV is AOV times three, great, that’s good. When I say online, I mean vertically native online and not dealing with the complications of omnichannel. Anything less than two, it’s going to be hard to spend advertising on.

I’m always looking at, if you’re getting three or more purchases a year, you could spend some money on advertising to acquire them. You have a margin for that. Subscription, on average, even if it’s quarterly, I use this number all the time. I have a lot more data on subscription. The average customer subscription is about 5.25 to 5.5 orders per year. If they’re on quarterly, it’s 5.25 orders per lifetime, which goes into about 1.5 years. That has been a tried-and-true blended average for online subscription consumer packaged goods. Higher for things like meal-at-home, things that are consumable, so definitely a lot more orders per year for that.

If I say consumer packaged goods, you’re talking about a double LTV. With an LTV that’s double, here’s the beauty of it, you can’t spend advertising on that. We don’t have the margin, which is a lot of how eCommerce is because there’s no guarantee on those subsequent orders. Your ROAS has to be three or more for it even makes sense to acquire a customer. You have to be sure you can make that money.

With subscription, you can break even on that first order. Most subscription brands technically are in the red on that first order, and then they don’t make their money back after advertising to order three. Everything after order three, orders 4, 5, and 6, pure margin, more customers, more predictability. You’re not overbuying inventory. The predictability comes at a cost of labor, but the predictability makes everything so much easier to run your business.

What are your thoughts on subscription maximalist brands where its subscriptions are nothing? JustFab or ShoeDazzle had a similar model. Versus we sell to any and everybody, and by the way, you can subscribe to save.

I get subscriptions for nothing versus subscriptions for a physical product. Whatever you provide for that nothing, you have to put a little bit more effort into the relationship you build with the customer. They have to get intrinsic value in your company based on what you stand for and what you do. Or know that they can extract value for that down the road in the form of, “I’m not ordering today but I’m going to order later.” This was, at the time, that JustFab model of like, “If you’re not going to order this quarter, that’s fine, but now we have your money and you have a credit you can order later.”

The complicated part is you have to deal with making sure you live up to customer expectations. The customer’s money goes out of their bank account all the same. They need to be able to know that when they look at, “Why am I spending this money per month, per quarter? Am I getting the value out of that?” “Will I get the value out of that?” It almost doesn’t matter if it’s a consumer packaged good or not. With consumer packaged goods, at least you’re like, “I got this thing in my hand. I got a thing I feel better about. I didn’t waste my money. It’s not just gone in the ether.”

Amazon Prime is the most obvious non-physical, biggest subscription that there probably is, but look at what you do get with it. I have mixed feelings about consumer packaged goods on Amazon but the fact of the matter is, for that $10 or $12 a month or whatever it is a year at this point, you get ultra-fast shipping, you get extra support, you have movies, you have all these things.

Prime has the pass that gets you into a lot of things and it’s a hard value to beat. Even if there’s a month that I don’t order from Amazon, which I don’t know if that exists, if something like that happens, I still know I have value from it. I still know I have a bunch of movies I could watch. I still know that I’m going to get that value later. I feel like I’ve always gotten value out of that. They’re the prime example of that. I didn’t even mean to say prime in that way. It’s true though. What do you get for that $10 a month? Everyone’s answer is going to be different, but you get something.

That value stack mentality and continuously stacking it up regardless. We’re thinking about the synergies. One of the things we discussed with them was partnering up with other frenemy brands and then getting their discounts, so there’s a stack. If people buy these spray kits, they might want to buy alloy wheels or have you partner with them so it creates a circle of value.

I don’t know whether you do it in the States. I subscribe to certain things. When I order and I have a subscription box coming, there are pamphlets, direct mail in the pack for other brands, probably funded by the funds of this particular commerce brand. You know it’s all congruent, the experience when you’re looking at the other offers from other brands. They’re not run by the same CEO or the same team, but it’s all synergizing, which makes a lot of sense.

If we break Facebook, Google organic goes down because people look your product up. Click to Tweet

It’s a great way to increase LTV as a brand though. You partner with other brands and you say, “I’m going to charge you $0.50 to put your flyer in my box.” You’re already shipping out the box and now you subsidize $0.50 on the cost of shipping that box. If you’re a bigger brand and you’re shipping out 100,000 boxes a month, that’s $50,000 in margin you can have.

Let’s say you sell sunglasses and another brand sells watches. They’re not directly competitive, but you say, “People that buy sunglasses have a high propensity to buy a watch.” Everybody can win with that. I’ve been in charge of a lot of those programs over time and those start materially adding up to large in dollars. I’m a huge fan of that.

They tend to have unique codes to claim.

It all tracks back. Beautiful.

Speaking about credit systems and the important points you spoke on value, which is people need to know that look. Even if there’s no utility this month, there’s utility long-term. What are your thoughts on a credit system? Does Recharge’s current offering support it? With Shopify, can you implement some sort of bank?

I don’t know if Recharge or Shopify natively has some of that capability. From my time in JustFab in the past, having a credit system for running a business gets complicated. I’m going to butcher some of this because I can’t pretend to be a total expert on it. You have what’s called deferred revenue. Deferred revenue is money that’s in your bank that’s sitting on your balance sheet, but it’s not yours yet.

It gets complicated. There are ways to do it. It’s probably different in the UK versus here in the States. It’s great to fund your business. You have deployable cash for future orders and things like that, but how you have deferred revenue, if you’re hoping to be big enough to be on Wall Street someday, can be a challenge to explain your deferred revenue and how it sits on your balance sheet.

You’ll say, “We did $1 million in sales this month.” It’s like, “How much of that is credit?” They’re like, “$400,000 in credit.” “How much of that credit is still on your balance sheet?” “We have $1.2 million in credit on our balance sheet right now.” All of a sudden, you have this gigantic thing of deferred revenue that there’s not going to be a run on that deferred revenue. With how your business looks, there’s a part of that that’s never realized.

Even just a prepaid subscription, if you pay for a year of a product, the way that that company accrues that on your P&L, say it’s $50 a month and the whole year is $600, you got $600 in cash but on that first month, you have $550 in deferred revenue from that, and then the next month is $500. You deprecate out of that deferred revenue account. That’s predictable.

A building system of deferred revenue can be tricky for your business. It’s great for cashflow, but it can be hard to explain to investors. It can also be a big liability. If you spend that cash too early, you don’t have the ability to buy inventory. It’s great. However, proceed with caution and make sure that you are accounting and create a way to recognize deferred revenue, which is things like, “Here are some mechanisms that I know have been employed in the past.”

After a period of time, say 18 to 24 months, you issue a gift card back for any credit that people have, and then you have breakage on those gift cards down the road. People don’t spend them or whatever. Now you get to claim that revenue and that revenue is not sitting on your balance sheet, but it’s now claimable revenue. You need a mechanism to do that. There are some tricky ways to do that. That’s a whole different can of worms to go into about how to make that work in the blockchain.

In the Shopify ecosystem, are there any solutions?

You can build that out. There are a couple of ways you could do that. With Recharge, you could create a subscription with a virtual product, and then you would need some mechanism to retrieve or spend the credit that you’ve put in on virtual products for say, a physical product. It would probably, in the shortest term, require some manual intervention. If not, you’d have to build your own app to sit on top of Recharge to run that balance of like, “I’m Evan. I’m on this product. It’s a virtual good. I’m paying $15 a month.” Then some reconciliation when I finally spent 45 of those dollars.

There needs to be some checks and balances. It’s going to have to be an app that sits outside of that. Recharge can do the billing. I don’t think that they can create a credit bank. At that point, as much as I love Recharge to death, if you’re building something like that, you might want to look at natively the Shopify subscription API. You might want to start by building your own FIFO, first in, first out, tech to monitor income and create reporting for any deferred revenue balance and the debit of that.

You could do things like, “I built in Shopify that if somebody has X number of valid store credit that’s building based on this credit system, and then they deprecated that with an order, there’s got to be an app that logs that transaction and reduces that liability. Then it shows up on your balance sheet or it shows up in your P&L.”

There has to be a reporting system for deferred revenue.

I don’t think Shopify or Recharge does that out of the gate. I could be wrong.

We could go on and on. This is a super interesting conversation. To be respectful of your time, one more question on your thoughts around this post-iOS 14.5 world we’re living in. Facebook has a hole of $10 billion thus far. They did mention that this is going to affect small businesses. How should you future-proof yourself as a D2C eCommerce business?

What’s happening now is the start of a major shift in advertising. We’ve had a few of these throughout the years. Major Facebook algorithm changes the actual launching of Facebook’s advertising platform way back when. Every result has been the same and here’s what we’re doing. One, channel diversification. It can’t be stated enough in places like Snapchat or TikTok.

Rates are cheap and CPMs on Facebook for like-kind audiences that we’ve been able to measure, in some cases, are up over 100% year over year. Facebook’s going to try to fix that hole. I can’t speak for Facebook, but one in $10 billion in lost revenue seems low, if I’m being honest. What they’re going to do to fix that hole is they got to find more advertising spaces.

I’ve noticed when I’m going through Insta stories, I’ll see three ads in a row, straight up swiping through if I’m moving too fast. They’re going to create more advertising placements to try to find ways to monetize and keep people spending. With that should come CPM decreases because there’s more inventory out there. We’ll see if that manifests itself.

With channel diversification, regardless, Facebook is still a world-class marketing platform. Small businesses are going to struggle the most because they need a little bit more capital to get that traction and for the Facebook algorithms and everything to learn. Get in on other channels where you can, TikTok, Snapchat, Pinterest even, which is not new but you can make that work now. The rates on them are much more attractive. That’s one.

Two, work on attribution. You can triangulate well. Even in the absence of Facebook data between, say using Shopify, using GA with UTM tags properly placed on all of your ads, and using Facebook and Facebook API information, you can still get a good read. They call it 60%-ish fidelity on what you used to have on last click attribution and be able to track it back to channel performance. You need to be managing your business on a fully blended basis.

We’ve been working with our clients on that. Of course, we are focusing on channel performance, but we’re not cutting off our noses to spite our faces as far as blended. Blended is working good. Things are good even if Facebook says it’s not doing that well. If we break Facebook, Google organic goes down because people look your product up. That happens. That’s number two, get your data and attribution in place.

Number three is up to your creative game. You can’t just run a single frame image that’s got a starburst in the corner that says, “50% off. Join today.” Listen to your consumers and make ads that are relevant to them and also relevant to the platform. If you’re running TikTok ads on Facebook or Facebook ads on TikTok, you’re doing it wrong. You got to put in the extra effort and say, “TikTok has a different type of engagement. It needs a different kind of ad than Facebook does.”

Facebook and Instagram need their own little ad unit, even though they’re both running stories. Don’t be lazy. Put time in to educate people about your product, have a lot of fun with your creative, be experimental, and don’t accept, “Here’s my image. Here’s a starburst, 50% off.” That doesn’t work. If you do those two things, you’ll find a way to make your marketing work.

I want to thank you for coming to the 2X eCommerce podcast show. It’s probably not the last time you’ll be coming. When something happens, we might have you back again. For those who want to find out more about Stealth Venture Labs and want to follow you on any major channels. By the way, the website is StealthVentureLabs.com. Are you active on any social media platform?

Find me on LinkedIn. I wouldn’t say to the point of being a prognosticator there yet, but I will occasionally post a good gem. Feel free to add me on LinkedIn. I love talking about this industry. I feel like I’ve been in it forever. I’m always available to answer questions, Evan@StealthVentureLabs.com, if you’d like to reach out to me.

We have a 501(c)(3). You can find information about that on our site. We love taking donations to help put more kids through this because we have a firm belief in our company about entrepreneurialism starts young. There are a lot of kids that don’t have the ability to launch their own business. We’re fixing to change that. You can read more about it on our site. If people out there want to donate, we are a fully-fledged 501(c)(3), tax-deductible, and all that. We’d love that because we’re trying to build the entrepreneurs of the future and make sure that everybody out there has a chance.

We’ll have a conversation after this on the Impact Lab. I can’t thank you enough. Cheers.

Cheers. Thanks for having me.

About the host:

Kunle Campbell

An ecommerce advisor to ambitious, agile online retailers and funded ecommerce startups seeking exponentially sales growth through scalable customer acquisition, retention, conversion optimisation, product/market fit optimisation and customer referrals.

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