Transcript 0:00 Stop, stop feeling like you have to discount everything, right? It's just, it's not a sustainable way to do things. But this is a conversation for what happens after. 0:09 This is for after Cyber Monday and the weeks that follow. The delivery, the coordination, the back office, all those systems need to run smoothly to pack and ship. 0:20 And of course, the people that are back there doing all that work. Um, I wanna reiterate to everybody, like eliminate before you optimize, right? And there's, there's probably 0:31 a large percentage of things happening in your company that doesn't need to happen. You're listening to the Frankly Ecommerce Show, candid conversations about business with host Patrick Scott Pattman. 0:44 There's no s- end of the preparations for making a big peak holiday season come true, getting all the orders and customers to the website that you hope for. But this is a conversation for what happens after. 0:55 This is for after Cyber Monday and the weeks that follow. The delivery, the coordination, the back office, all those systems need to run smoothly to pack and ship. 1:06 And of course, the people that are back there doing all that work. Well, I'm excited to bring Steve Simonson to this conversation 'cause he knows a thing or two about this. 1:15 He's been selling online for the last three decades. He's disrupted industries going back to the dot com era. And early, he started investing in developing his own custom software to help power the back office. 1:28 That has evolved over the last decades, as his companies. But today he's leaned fully into the AI toolkit and has a lot to say about how to bring AI into the operational scheme of your business. 1:42 We'll talk to him about all of these things in today's Frankly Ecommerce Show. Welcome, Steve. Hey, thank you very much. Uh, I'm glad to be here. 1:50 And yes, those are definitely some memories that I have, uh, mostly painful about how to do things, uh, 30 years ago that are now easy to do, by the way. Well, yeah, I mean, I know a little bit about that. 2:03 Beginning in about 2002, I thought it was a good idea to start an ecommerce platform trying to build a catalog, shopping cart, and all of that to integrate with some back office software in the mail order catalog industry. 2:18 So building ecommerce systems, software systems in sort of the age before the word SaaS was kind of a word. Right. Um, just me and the boys at Rackspace trying to figure out what it, you know, what it would work like. 2:32 So I think what, what I've been curious about is you have from the very beginning... We'll talk about a little bit the background and some of the industries you've worked in. 2:42 But just, just to begin, you have leaned into using software to automate and expedite and scale up some very rapidly growing companies that you were working in. 2:54 And I'm wondering, as you think about how that compares to the opportunity today, you've really leaned into what AI is available and what's, what's making possible. So I guess I'm just wondering, as a sort of principle, 3:07 why have you felt it so important to prioritize essentially the technology or the efficiency that can come from it? So i- it's interesting. My approach isn't technology first, or at least not historically. 3:21 It's sy- systems first, right? And so I, um, you know, back in the, in the '90s, we were doing stuff. Believe it or not, uh, you know, our first online sale was in 1998 with a secure shopping cart, by the way. 3:34 We, we were fooling around as early as '96 online. 3:38 But what I realized once we got some of that secure cart to work, is that getting the order processed and figuring out how to ship it and all of those things we just talked about or you alluded to, uh, the back office, that was a massive problem. 3:52 Like getting the sale, that's problem one. Problem two is getting the sale delivered and having a happy customer. And my goodness, that was super, super difficult. 4:02 So the, the whole philosophy of the system runs the business, the people run the system, uh, was something that I, I bought into, you know, decades ago. And so I always thought systemically. 4:14 And to me, the, the ultimate system is a business process that literally, uh, or business software that runs every process that you have. So that to me was the gateway to from meltdown, uh... 4:28 In 1999 we had a little meltdown. So we didn't know how much shipping costs anyway and, you know, back in the dot com boom it's like, ah, just who cares? It's just revenue. By the way, we weren't funded. 4:39 We were funded out of my pocket from [laughs] one of my other businesses. And, uh, since we didn't know how much shipping cost, we're just like, "Hey, put free shipping on," you know? Why not? 4:48 And in like 14 days from February 1 to February 14, we completely melted down. More orders than we can handle. The suppliers were hating us. We were faxing orders around. Everything was a complete nightmare. 5:02 I mean, it, it was absolutely the dot com meme, uh, of the day. You know, where the orders are going [imitates fax machine] and then the operation just crashes right into the ground. 5:13 And I loved every second of it, honestly. But what it proved is, you know, if you build it, will they come? The answer is yes. Y- you know, if they come, will they buy? Yes. Uh, if they buy, can you ship it? 5:25 Uh, that one's still a question mark at that stage. And so that's why we built the software to, to put the guardrails around the, the pr- promises that we made online. 5:34 And ultimately it became our key strategic scaled, uh, asset. You know, we couldn't have scaled without it. Yeah, and I think you are describing... You used the word systems. Um, maybe I used the word processes. Yeah. 5:50 And so really defining what is to be done. And when you sort of replicate that in code, you have to logically, you know, determine what is the next thing and then what's the next thing after that. 6:01 And that really is just process building, right? Yeah, really. A system is orchestration of processes, right? And so everything's like what's the trigger to kick this thing off Right? Oh, you got an order. Okay. 6:12 Well, now what? You know, and, and you just look through every single item that could come up, and you... 6:18 You know, there's some edge cases you may not, uh, put into the system early on, but over time, you start to handle edge cases or avoid the edge cases, right? 6:27 Part of systemic thinking and, and process building is going, "How do you avoid that problem, you know, before it happens?" 6:34 And so all of that became just part of our core, um, you know, thought process, and part of it was necessity. Part of it was my own, uh, predilection to technology. 6:44 I do, uh, prefer to use technological solutions, but not because they're technology, just because I think they work. You see the difference is, is I'm... 6:53 I, I love tech, but it's not, it's not the use of tech that I'm seeking for the sake of it. I want it to make actual ROI, good progress. Yeah, sounds very entrepreneurial of you. 7:05 [laughs] Well, it turns out y- the money that you put in better come back with some extra money, otherwise y- the business stops real quick. 7:11 [laughs] Now, I don't know if this is true, but someone told me that, that going back in the early days, that you were among the first e-commerce stores to sell a million dollars in one day in an online context. 7:25 Does that have any truth to it? Well, I don't know all the, the stores that did it, but I can say our first million-dollar day attempt was in 2006, I believe. So nearly 20 years ago. 7:38 And, and I just remember, we, we were having some pretty good sales. We were doing, you know, probably $50 million a year at that stage. And, you know, when we started out, we're like, "Can we do a million in a year?" 7:49 And nobody knew, right? It's like, "Ooh, that seems like a lot." And then we're like... 7:53 You know, you kinda get going a little bit, your arms spread out and you feel confident, and you're like, "Yeah, I wonder if we can do a million in a month." And that proved incredibly difficult, [laughs] 8:02 and, uh, took a long time. 8:04 And then, you know, once you're, once you hit the million-dollar month and, and you're seeing promotions that are doing three, four, five, $600,000 in a single day, you're like, "Oh, I wonder if I could do a million dollars in a day." 8:16 And so one year, I, I marshaled the troops. I said, "This is the year. We're going up the mountain. Million-dollar day, it's happening." That was in my January all-hands rah, rah, rah. 8:27 And then in being a good leader, I kind of forgot about it and went about my business. [laughs] And then, uh, around September of that year, I realized, uh-oh, I made a promise. 8:36 I said we're gonna do this thing, and we're running out of time. We better, we better make it happen. And so I lined everybody up and said, "Let's give it the old college try." 8:44 And so our first million-dollar day attempt, in fact, did work out. Uh, not only did we pass the million dollars, we hit about 1.7 for the day, but nothing broke. 8:55 And if you compare it back to that 14-day period when we did maybe $40,000, by the way, you know, 40,000 over two weeks killed us, and a million, 1.7, in a day, you know, people were feeling brisk. 9:09 They were, uh, you know, felt busy. Personally, I wasn't even there. I was on vacation. Uh, [laughs] I... Turned out I had a family vacation that was planned, and I was going on whether I liked it or not. 9:21 So my little BlackBerry and me on the beach were following the sales. And so, you know, it was, it was certainly a, uh, a team achievement. They did it. 9:30 Uh, they brought it to life, and it was wonderful to watch a system that had previously crashed and burned, you know, over dozens of dollars a day, you know, uh, be able to see that kind of throughput without breaking. 9:43 Yeah, that reminds me of, of a, of a book Jim Collins wrote with this idea of a BHAG, big, hairy, audacious goal. Oh, yeah. Do- does that resonate with you? Does that- Oh, yeah. BHAG... does that kind of qualify? 9:56 I, I definitely, uh, I read Jim Collins' book. I love Good to Great. I, you know, that, that was basically... 10:03 I'm not sure if it was a direct link from his book to that proclamation, but I've always believed, and I think this is true still today, that the leader and the f- especially if they're the founder of the business, they've gotta set that vision, the house on the hill, if you will. 10:19 And it's like, where are we going? And why are we doing this? And that's, you know... The, the AI doesn't care about that, but the people care about that. 10:27 And not just the people who work with you directly, the, on the team, but your suppliers care, right? Everybody who's supporting that company cares. They like to see success. They like to see people succeed. 10:40 And even customers, they, they love the story of, you know, a plucky, young upstart that is, you know, going big. And if they get what they want and they feel like the promises were delivered, they wanna be a fan, too. 10:50 So it, it all works together, in my opinion. When you set a goal like that, how do you evaluate whether you have the people that you need? 10:59 Let's assume you've invested in processes and you've got some software systems running pretty well by that point, but do you have the right people? How do you evaluate that kind of question? 11:09 Well, o- obviously, people, uh, it remains, you know, part of the secret sauce, right? You have to have people who believe in the mission, who are willing to work towards the mission. 11:20 Uh, and I will tell you, uh, when I was setting up that whole, you know, "Hey, we're gonna get this million dollars," once I remembered that I made that, uh, proclamation, then I gathered up my team. 11:29 We, we had, you know, 2 or 300 people by that point. We were, um, maybe slightly less, slightly more, I don't know exactly. But my... 11:39 Gathered my team, which was kind of eight senior people, I said, "Here's what we're gonna go do." And after, after a couple weeks, I could kinda tell they weren't, they weren't really believing it. 11:50 And so, y- you know, especially when you have a, a physical business on site, you can walk around and you can feel how that business feels. Is it electric? 11:59 Is it, you know, everybody's excited, every- there's energy in the building? Or is the thing just kinda ugh, you know? And, 12:07 and, and you have to be aware that you, you walk around with your own little environment with you when you're the founder, right? Because people turn on a different face just 'cause you're around. 12:16 Then they'll go, "Oh, yeah. Well, there's no way we're doing that million." 12:19 So I realized that some of, some of my team was not believing, so I had them go write on the, the whiteboard what we were gonna do, just so they... 12:26 Some accountability Uh, in our culture, we call it putting your name on it. 12:31 I put my name on the billion-dollar day, and even if you don't think we're gonna do a million, I want you to write down how much we are gonna do, 'cause I want some accountability. 12:40 And so, uh, a lot of those people put less than a million, to be honest. [laughs] And so that's, uh, you know, that's on me. That's on the leader. 12:49 And so it's, it's not just having the right people, 'cause that is mission critical, but it's being able to lead them in such a way that they believe it's feasible, they believe in th-this thing. 12:59 And o-over time, and with a, a lot of or else from Steve, then, uh [laughs] they, they, they not just got the job done, they over-delivered, right? 70% above a million dollars is not a small, "We just barely made it." 13:14 It's a smashing win. And by the way, the next time we set the, the BHAG for two million in a day, everybody was way over [laughs] the number. We did hit the two million, but, uh, they all way overestimated, right? 13:28 So once we broke that barrier of what could be done, then they believed it could be done and, and now the, you know, they set their sights much higher. 13:34 So the people and the chemistry and the willingness, and then of course the belief and the vision, all of that is kind of like a recipe that you gotta get right. 13:43 Has that recipe changed in 2026 to the extent that we have AI agents running around in systems that might be more self-optimizing in a respect, or is there something timeless about this, this recipe? 13:55 Well, the, the first thing I would say is, um, th-th-this whole idea that, 14:02 um, you know, the end of the world's coming and doom is happening 'cause AI could do all of our jobs and blah, blah, blah, like, there are great things about AI, and I use it to a, uh, a level that I think is, you know, exceeds 99% of people. 14:17 Like, it, it's 15, 16 hours a day of massive, massive compute and, you know, billions of tokens, uh, uh, per week for sure. Uh, I... Just on OpenAI on Friday, it was almost 600 million tokens. 14:33 That doesn't count Claude, that doesn't count Glo- Grok or Muse or any of the rest of them. And I've got all these parallel jobs. 14:40 So I, I do wanna say I love AI, but I don't think it's the end of the world, uh, the way people think it is. Um, so I think it, it just... You want the people who will use the AI. That's the, that's the evolution. 14:54 The people who are afraid of AI... And I think there's reasonable concerns, right? You can have empathy for somebody going, "Ugh, is this gonna take me out? I'm an accountant," or, "Is this gonna take me out? 15:03 I'm a data entry person," or, "Is this gonna take me out? I'm a customer service phone person." There's some legitimate, um, questions that need to be answered. 15:13 But our focus has been, how do you move those people from the low-value add to the high-value add? 15:20 And my vision is, like, if you move them up with AI, then you want as many people as you can using AI, because your competition is gonna be doing the same thing, right? 15:31 And there's still a human element to figuring out what needs to be done, you know, beyond the systemic basics. 15:38 Oh, let's make sure that, you know, emails are answered in a, you know, reasonable time and, and some of those things. There's many things you can do with a system, but humans absolutely have a place. 15:49 I think it's evolving, but it's the humans who will use AI that will replace the job much more so than just AI itself. [dramatic sound] It's a timeout from the podcast. I wanna introduce you to E53 Fulfillment. 16:02 I met Amar, who started this a couple of years ago at the Austin Shopify meetup, and in the years since, more of the brands that I've sent him have been happy to have their CPG fulfillment turned over to his team. 16:16 He spent the last I don't know how many years working in places like UPS and UPS Store and shipping and logistics in all kinds of ways, and he's taken that experience and bundled it into a very modern warehouse and fulfillment system based in Austin, Texas. 16:32 He's got other locations, though, as he's expanded, and he serves brands around the country. Check out E53 if you're trying to take that load off your shoulders. All right, back to the show. 16:41 [dramatic sound] It sounds like describing your token usage, you, you haven't slowed down. Something that you're doing now seems like you're, as you described earlier, your... 16:51 The, the million-dollar day being kind of brisk. Seems like your office experience is kind of brisk in, [laughs] in here going into almost November 2026. So 17:00 what are you up to now that gives you that reason to be so engaged in the AI platforms and tools? Well, the, the first thing is, um, 17:09 you know, when, when you have software that runs a company, you need to make sure that y- it's, it stays on the cutting edge, right? 17:16 You cannot, you know, have a basically the fax machine running your business in, in the 20... you know, mid-2020s. Uh, and that's really what kind of the... Just think of it like the, the history of software. 17:30 First you build the monolith, and then you... Some people SaaSed out pieces of it, and then some people SaaSed the monolith. 17:36 And, uh, y- ultimately, now it's like you can do customizations on levels that have never been contemplated and do it in a sophisticated, in-depth, thorough way that has never been possible before. 17:51 So for me, it's a very exciting time, and it's, uh, ultimately mission critical to be able to take complex supply chains, for example, and be able to systematize those in a way that all the humans, their life just got... 18:06 You know, the weight off of them just was lifted by 90%. Yet that higher efficiency allows them to move more stuff. 18:14 So that same team of, you know, five or six or eight supply chain people that are moving, let's call it 150 containers a month, they can now move 300 containers a month or 500 containers a month with using a, a good system. 18:27 So my, you know, quest is to make sure that we maximize the technology, not, again, for technology's benefit, but for the benefit of the people and the process underneath. Yeah. 18:39 Now, early on, I think my understanding is that flooring was the industry that you leaned into at the start. Yeah, true enough. Over the years, you've sourced and imported all kinds of products. 18:51 Is that true beyond the flooring side? Oh, yeah. Yeah, far beyond. Uh, everything from, you know, consumer electronics, uh, flooring, household goods, cabinets, furniture. Um, you know, e- e- every kind of... 19:04 Whether it's a toy or a steel, you know, uh, [laughs] structure or, you know, outbuilding. Like, every kind of thing. Uh, we've been-- I've been in thousands and thousands of factories globally. 19:16 And, and we leaned into China very early. In around 2001, 2002, I started going there. And in the same way that people are like, "You're selling stuff on the internet? That seems weird," right? 19:27 That's, that's what people said back in the late '90s. "Nobody's gonna buy anything online. They're certainly not gonna buy flooring online. And by the way, nobody's gonna use a credit card online either," right? 19:36 All, all these proclamations, again, that people told me, "This for sure won't happen," they all happened. And so my approach has always been, all right, what do people think is the next crazy thing? 19:47 And so China was one of those next crazy things, right? Where we were-- we needed to find ways of having margin on product. 19:55 And it turned out we could actually build it even better than some of the, the current, you know, in-market opportunities, and that taught us a lot about manufacturing over the last, you know, uh, two and a half decades. 20:07 And so, um, you know, then of course we had to become good at geopolitics [laughs] in 2015 timeframe. 20:13 And so we've leaned heavily into Vietnam and, and other places, including the United States, um, based on, you know, where the market is going to buy the stuff. 20:23 We try to put reasonable supply chains around those marketplaces. Yeah. Well, I- I'm curious how you see then China in the present day as a source to be getting your products from. 20:36 Um, we're here on this Frankly Ecommerce show. Tomorrow, I'm interviewing Adam Allen, and he's going to the Canton Fair in a few weeks. 20:45 He'll be walking the floors, trying to help connect the, the brands in the United States with their potential suppliers in China. 20:53 Do you see that as a, a good place to be today in sourcing, or are you interested in other places? You mentioned Vietnam. Well, so it really depends. Um, the context is always king, right? 21:05 And so the, the first thing it depends on is what product do you sell? Because certain products can be made in certain areas of the world, geographies, uh, better than other places. 21:17 So if you said, "Hey, I wanna sell a wool product," um, China could do a great things for you. Vietnam could do great things. But that wool's probably not coming from either of those places. 21:27 It's probably coming from, you know, New Zealand or something like that. 21:30 And so I always say, you know, you start with the product and figure out the entire supply chain, every component of it, and then you figure out what is the best place to, to maximize those. 21:40 And I've been to Canton Fair countless times. I can't even... I, I, I don't even know the total numbers. 21:46 I probably have a badge around here somewhere, uh, 'cause they're like, "If you don't bring your badge, we're charging you 200 bucks." And so [laughs] I got a badge from, you know, 2002 or something. Um, 21:57 anyway, the, the point is I think China still is a high, high opportunity, especially for a lot of products, especially for consumer products. 22:08 But I, I do think there's a lot of risk in China, and I do think that that risk is not going down, it's going up. Uh, 22:17 and so I wanna be able to understand that risk d- depending on the product category, and I wanna hedge that risk, uh, to the greatest extent that I can. And so, 22:27 um, my, my general input is if you're just starting out, do the easiest thing for the best quality product and, and get the job done and, and just get things started. You'll have plenty of future problems to deal with. 22:39 Let the future you deal with those. Um, but if you are large and sophisticated, then you better have some backup plans, because disruption is the name of the game. 22:48 And anybody who thinks that the tariffs or the shipping or the geopolitical shocks are over, they have not been in this business very long. It's, it's a recurring theme. It will happen again. 22:59 And I suspect, again, China will become, uh, more difficult in the future. In fact, I, I've been on record saying this. 23:08 2019 was the best time to buy, that or before, and it's gotten harder after that, and I think that's continuing to be true. There is a 23:20 maybe unique moment in sort of the geopolitics of the world now, but for maybe someone like you, you and me, who was working on shopping carts in 1996, where I got started, there is a sort of cyclical quality to the business world too, right? 23:35 You can see a broader pattern over this period of time. I wanna, I wanna share my screen for a minute, and I, I wanna bring up a, a newsletter that I appreciated, um, put together by Aaron Orendorf. 23:45 This is the Operator's Newsletter, and they had a article a month or so ago about looking ahead, you know, the challenges in 2026, looking to 2027, how not to get cooked. And so Sean Frank writes about that in here. 23:57 And, and one of the things he comes down to, number one, is the product times that addressable market is more important. Don't get bogged down in your ad creative. 24:07 You really absolutely have to have the product that, um, that distinguishes it today. Whether that product comes from or is sourced or manufactured in China, I guess, is... 24:18 kinda depends on what's suitable, um, for what the product is. But the things he says here, the, the other one, you know, is make friends with suppliers. Could you speak to that? 24:27 'Cause I think you've somehow mastered that over these, over these decades. Well, [clears throat] first of all, I, I, uh, I totally agree that having a supply chain that you understand and that you, 24:41 um, that- That you have deep relationships with is, is, is important today as it always has been. And, um, I, I will just say that this is a timeless, uh, principle, right? 24:54 If you were really good with your suppliers in 2001, you won. If you were really good in 2021, you won, right? 25:03 And, and I could give you examples of cases where we would show up, and we're looking eye to eye with the factory. Doesn't matter where in the world. 25:10 Could be China, could be Sweden, could be America, Canada, Vietnam, India, doesn't matter. Like, you look them in the eye, you give a good sense of who you are, you tell that story, that house on the hill story, right? 25:22 Here's where we're going. We want you to be a part of it. And you build that relationship. Uh, in Chinese, it's guanxi, right? Everybody hears about guanxi. Well, that is really, really important. 25:34 And I'm a, I'm a massive believer in, um, having good, good relationships. I do wanna give this caveat, though, as a guy who's been doing this more than, uh, an average person. 25:47 Read the book Poorly Made in China by Paul Midler, uh, because relationships aren't always what they appear. 25:55 Uh, I have had many, um, Western people tell me how what a great relationship where they have their supplier and this and that, and sometimes there can be some, uh, lightning bolts, as I like to call them. 26:07 And we've had our fair share of lightning bolts, even though we are way better than average [chuckles] at managing a supply chain. We're talking about inspections. We're talking about, you know, QC systems. 26:17 Like, we have so many checks and so many things to avoid trouble, and yet trouble still will f- find its way through from time to time. And that's, that's why the book Poorly Made in China still, uh... 26:30 And by the way, that applies really to, you know, any supplier relationship, not just China specifically, but it gives you some cultural understanding as well. So I, I love going to China. 26:40 I love working with Chinese factories and the people, and the food's amazing, but you gotta know who you're dealing with. They're the best trading companies, the best factories, and they're the most sophisticated. 26:52 And if you're not ready to play in the big leagues, you are going to get rolled. Whether it's margin, quality, like, every single piece of that needs to be dealt with. And so that's my free tip to you. 27:03 Read Paul Midler's book, Poorly Made in China. You'll thank me later. [chuckles] All right. Well, you, you mentioned margins. 27:10 I'm gonna go back to, to, uh, Sean's article, and number six on hi- his list is fix your margins. Number seven is get profitable right now. Kind of, you know, two sides of the same coin there. 27:24 S- speak to me for a minute about how the technology has enabled you to achieve some sufficient margin, 'cause you said earlier you're not a technologist for its own sake. You're trying to achieve efficiency. 27:38 And isn't that also another word for the, the outcome of lots of efficiency is a margin? Yeah, that would be operating margin. Yeah, so the, the first thing, I, I haven't read Sean's article in full, but 27:50 the first thing is have adequate gross margin, right? The, the contribution margin, you know, for your product after the cost, after the shipping, after the platform fees if, if applicable. 28:01 That contribution margin needs to be sufficient. And then you have the operational piece below the line where you're like, "You better be good at that." The problem is it's kind of a, 28:13 uh, an upside-down, uh, situation because the, to build your scale of operations big enough to really make that margin efficiency costs a lot of money up front, right? There's, there's some investment there. 28:25 So you can't build to have that million-dollar day on the first day because you, you- the, the money is impossible, right? It's, so it's an upside-down problem. 28:36 And so you just have to work your way into operational efficiency over time. And so you start out, uh, you know, I f- I think the phrase in that article was, "Get profitable right now." 100% agree. 28:47 Like, I, I say so often, "Know your numbers. Get your numbers, your basic unit economics. Get your house in order." And so many times people tell me, "Oh, well, you know, my cost is $3.50, 29:03 and I'm selling it for, you know, $12, so I'm, you know, obviously [chuckles] I'm doing pretty well." And then you, uh, you start breaking it down and go, "Well, it's not actually $3.50. By the time it's landed, 29:14 um, you know, you pay your duties and your customs and all that stuff, it's, it's actually closer to $7." And once you take it on the platform fees, that's another 30%. Now you're at $10. 29:22 So you're making a buck 50 a unit. You sell 1,000 units, you made $1,100, right? You're killing me here. But they don't actually even know that oftentimes. 29:31 And so one of the tools we built, um, over at Catalyst88 is a forecast tool to where you can put your basic unit economics in. I think there's a free version of it, but don't quote me on that. 29:43 But the, the whole premise is know your numbers. Every line item in that SKU, not just the obvious cost to the supplier. The shipping, you know, the, the cost for drayage. 29:54 Like, every part of that import, people really should track that. We call it a land of cost voucher in Parsimony. Every part of that should become your land of cost, and it changes with every shipment, right? 30:06 Because there's differences in freight or, uh, occasional, you know, differences in, you know, duties or tariffs or what have you. And so by tracking that over time, that's how you capture operating margin. 30:18 That's how you capture gross margin, is understanding those basic unit economics. Yeah. It reminds me of a workshop that I hosted as part of this Frankly Ecommerce series in Austin. 30:30 A few weeks ago, we had Rob Green help lead a workshop. It was foc- focused on acquisition, ad spend, creative AI generated systems. 30:40 But it ended up yielding a conversation where we pulled out the whiteboard and were able to sort of break down the numbers of a company's business. 30:48 Talk about knowing the numbers, it was remarkable to watch Rob start and ask some big sort of top-line numbers, and then he would intuit the next line, the next number. 30:59 He, he could understand and guess the next margin, the next little question, and really just kind of mapped out, w- we're going Shopify on one side, Amazon on the other, kind of how the whole thing played out to what that- Yeah... 31:09 bottom line number was. Yeah, I love Rob. Uh, a great, uh, great guy, uh, Catalyst AD alumni. Rob and I go way back, and one of the things that he's always been good at is understanding that basic unit economics. 31:23 Uh, I really want operators... If you're truly an operator, if you're a founder, you must be an operator at heart if you're gonna succeed and, and be long term. 31:31 You can't just, you know, go, "Oh, I was told there would be no math," right? You've gotta do the math. And now with AI, it's much, much easier to do. It's, it's accessible to everybody. 31:42 Just start dropping your stuff in and let the machine fill in your financials. 31:46 And that's one of the, the great evolutions is all the things that people hated about CRM or ERP or any of the rest of the software operations, now you can get your bots to do that. 31:57 And you take that, the kind of the worst part about operating a system out of the equation. That friction then starts going away, and now your, your system starts spinning instead of conflicting. 32:08 Yeah, you can really lean into the part, uh, that the founder or the creative, um, person, their real strengths are. Correct. 32:14 Whether that's imagining the next product or maybe telling the story to a social audience or what have you. Yeah. I, I, I absolutely want people to focus on their strengths, without question. 32:25 We had another workshop following Rob's where we brought in Dan Hansfeld, and he helped us think about modeling your Black Friday offer, whether it's a discount, a special promotion, and so forth. 32:37 And the room, I have to say, was more engaged going through this spreadsheet than I've ever really experienced, a crowd of people getting excited about a spreadsheet. 32:44 But it really helped reveal how making decisions about is it 15% off or is it 20% off? Big difference, actually, when all the numbers play out. Um, one of the conclusions also, I think, in the room was 33:00 maybe we should just sit this out and not offer a big discount on Black Friday. Maybe that's the better way to be profitable and profitable now. 33:07 So that speaks again to this importance of really understanding the numbers and the consequences. 33:12 Well, I, I, uh, you know, not having sat in that session, uh, although I'm sorry I missed it, hearing the, the great stuff, uh, I wanna just reiterate to people, like, our weakness is I need more sales, I should do a discount. 33:26 I need more sales, I should do a sale. Like, we're, we're always promoting our way out of fear or weakness or whatever the case is. 33:34 And I would say, you know, going back to, uh, Sean Frank's point, your product should be awesome. 33:40 And if your season is the Christmas season, then make it awesome during Christmas and promote the benefits of that product. Stop, stop feeling like you have to discount everything, right? 33:51 It's just, it's not a sustainable way to do things. And you can get on a promotional treadmill, and yes, you'll, you'll have those highs. 33:59 I know, you know, even our million-dollar day, we had some promotions helping, you know, push that thing. 34:04 Um, that high is great until it sucks the air out of the room, and the next few days are kinda sluggish by comparison. Still, high, high lift overall for us. But I wanna just reiterate your basic unit economics. 34:18 That includes a profitable cost per acquisition, whether you do it on your first sale or on your lifetime value. I implore you, know your numbers and do not compromise. 34:30 Find out what message it takes to sell your product for the appropriate price all the time. That's how you know you have a real business. 34:41 Now, the next workshop in the series is gonna think- thinking about lifetime value and retaining that customer after the, the big sale or, uh- Yeah... the first purchase, getting them to come back and buy again. 34:52 So that'll be tapping into retention. Uh, Klaviyo's gonna sponsor that. But the following workshop, the end of October, you're gonna join us in Austin. Exactly. 35:02 And we're gonna dig into some of these questions about what it looks like as operational excellence. 35:06 I have a sense that in some ways we'll touch upon all of the subjects in the preceding workshops, just maybe we just can't help it. 35:13 But if you were to, to encourage someone who isn't as comfortable with their margins or they're having built the infrastructure that you said needs to be incrementally optimized and refined as their business can afford to do so, 35:31 what sort of encouragement would you have for someone who really feels like their efficiency and their margins aren't where they need to be, and they need to invest in the back office, so to speak? 35:42 Well, the first, the first thing is, you know, just relax. Everything's gonna be okay, right? 35:46 Uh, uh, you definitely have the opportunity to come and hang out with us in Austin, and we'll talk you through a bunch of use cases and, and real-life scenarios. 35:55 But you, you get to piggyback on so many different things these days, right? From the platforms, whether it's Amazon or Shopify, right? They've built these giant platforms that make your software costs tiny. 36:08 My software costs were millions. Your software cost is 30 bucks a month or 90 bucks a month or whatever your plan is, right? So, uh, you know, next-day delivery, forget about it, right? 36:19 Th- they've got the infrastructure built. You get to piggyback off of it. Uh, and so there's so many aspects that you have absolute advantages. 36:27 Now, you know, the admitted downside of that is everybody's got that same advantage. That playing field is level, which means you have to out-compete on product. 36:36 You have to out-compete on, you know, benefits of that product and, and the overall offer. And, you know, price is not irrelevant. 36:43 I, I don't wanna, um, make you think that I don't think that pricing correctly is, is important. But if you can't do it profitably, then what's the point? You're not gonna make it. So, you know, my 36:56 My instinct about operations is it's easier than you think. It's much more accessible than people realize. 37:02 Once they have a systemic mindset, it doesn't matter if you're starting with, you know, spreadsheets or, um, I forget all of these, uh, different pieces of software. You know, the Slacks of the world and the, um, 37:16 uh, you know, base camps. There's about a million ways to skin this cat, right? 37:20 I'm, I'm in my own world because w- you know, kind of handles things top to bottom, so I don't always get out into some of these other things. But every, 37:28 every place that you are, you can get the job done if you have a good product and if you have an adequate margin. That's the point. Now, you have your own sort of platform- Mm... 37:37 that I think you mentioned the word accessibility, and whether it's Shopify at 30 bucks a month, whatever the tool is. Is it also the case that you are selling in sort of almost a utility pricing model as you, as you... 37:50 More, how should I say? Um, you can buy it in little bite-sized pieces, the kind of efficiencies and operation stuff that, that you're making available to the market as well. Well, this is k- part of the effort, right? 38:01 Is instead of somebody paying millions of dollars in developing stuff or learning the lessons or what have you, you can just go rent it essentially, right? That's what SaaS is. 38:10 You're just renting that capability for some period of time, and now you have that capability that you invested probably nothing up front in. Like, that, let's not con- confuse it. 38:21 Like, SaaS, a bunch of money went into a bunch of these products, and then you get to come in and just rent a little piece of it. That is, uh... It's a utopia, frankly [laughs] compared... 38:31 You know, I had racks of servers and complex, you know... You mentioned Rackspace. We had a bunch of stuff at Rackspace. Total nightmares. 38:40 And now with the cloud and, you know, the AI and this and that, it's, it's way, way easier. And everybody from an operator founder perspective, you can just come in and it's like a, a la carte menu. 38:50 I'll take a little of this and a little of that and a little of this, and, you know, by the end you got yourself a nice salad. Yeah. Well, we can talk about that more in the workshop in Austin. 39:01 If you're curious, you can also go to parsimony.com and see the kind of things that you are building, all the different resources that you can rent, little pieces of, um, probably some, probably some real distilled life lessons, Steve, that you've kind of turned into a, an agent or a software feature now at this point. 39:16 Correct. Yes. Yeah. Uh, I definitely encourage anybody who's, uh, around Austin, come and see us. 39:21 Uh, I'm gonna also bring along my brother, by the way, who's run, uh, dozens and dozens of people in his departments, all hardcore operations. Uh, claims, client fulfillment, customer service at high scale. 39:35 You know, uh, you know, offshore. You know, we had a, a 24/7 call center in the Philippines, onshore as well. 39:42 And just, you know, uh, we're both gonna be there, and really, we're at the service of any founder entrepreneur there. 39:48 And Patrick's kind enough to invite us in, and we'll do everything we can to, to deliver, you know, uh, insane value. And, uh, you know, if we fail, then, uh, blame Patrick. That's my policy. 39:59 [laughs] Well, Steve, we'll, we'll wrap it up here in just a moment, but I think, you know, one, in one case, uh, where we met was at a conference that was put together by Kevin King. 40:10 And he described these sort of hot seat situations where an entrepreneur would sit at the front and there'd be these experts advising them in one way or the other. 40:18 And he remarked to me afterwards that, um, he likes you to be involved because after an entrepreneur has been subjected to- [laughs]... 40:26 90 minutes of advice, then it's like, okay, overwhelmed, all the things you're doing wrong, all the things you should be doing. You know, the list of shoulds just piles up. 40:36 But I think, Steve, you, we represent in those situations a chance to really simplify and prioritize. And it's probably simpler than, than you think or you feel what really matters. 40:49 And I think that was what I witnessed in your speaking there, was the ability to sort of distill down, okay, but really the next most important thing is this. And really to take it bite by bite, not feel overwhelmed. 41:02 How would you react to that? Well, first, um, I wanna reiterate to everybody, like, eliminate before you optimize, right? And there's, there's probably 41:12 a large percentage of things happening in your company that doesn't need to happen. They happen because it would be nice to have or, you know, this thing would be cool, but nobody really looks at the report. 41:22 Stop doing all of that. Like, just eliminate before you optimize. That's first principles thinking. 41:29 And then whatever comes next, whatever that next priority is, what is the key win that's going to move the ball forward, as you've described to yourself? What is the ball? Where's it going? 41:39 If you don't have that, you better get it, right? That, that kind of helps [laughs] set the playbook. And I find a lot of, uh, founders, they're like, "We're just trying to hang on. We just wanna stay in business. 41:49 We wanna grow." Like, they, they say things, but they don't actually have a plan. And so, you know, my, 41:55 my general advice is, you know, make sure you know where you're going, focus on that next thing, and eliminate everything you possibly can that is not necessary. 42:05 Well, such good encouragement when we have so much of the inclination to just add more. And so I love the way that you're encouraging to simplify by taking away before you start to add more and optimize. 42:17 It's really encouraging, I think, for anyone who might have a feeling of overwhelm to know that maybe they should be doing a little bit less. Uh, all of us have a complexity bias. I admit it. I've encountered it myself. 42:28 If, if a PO process, uh, is eight steps, you know, 20 steps must be better for security and optimiza- And it's like, no. What if you can get it down to three and still not go broke? That, three is better. 42:40 [laughs] Three is better. Steve, I've enjoyed the conversation. I look forward to our workshop in Austin. Thanks so much for joining me on the Frankly Ecommerce Show. Pleasure, Patrick. Thank you. 42:50 [upbeat music] We hope you enjoyed this episode of Frankly Ecommerce with host, Patrick Scott Pittman. Read episode notes and get links to learn more at franklyecommerce.com. 43:01 Next time you're in Austin, check out the Austin Shopify Meetup. It's open to all. 43:08 There's a good chance you'll meet just the right person, as it's one of the longest running meetups with 2,600 participants going on 15 years. 43:18 If you'd like to get more involved beyond the meetup, then Frankly Ecommerce pass holders participate in workshops and special invitation-only events. Subscribe to our newsletter at franklyecommerce.com to learn more. 43:32 This episode is sponsored in part by the friendly team at eBusiness PROS, a marketing firm in Austin, Texas. If you're a brand seeking to connect with an enthusiast audience and hold their attention, 43:45 if you want less discounting and more story, if you're curious about what we might mean by attuned marketing as contrast to behavioral trickery, then contact us at ebusinesspros.com. Ask for Abigail. That's me. 43:59 [upbeat music]
