Hey friends, unless you are in AI, crypto, or high-growth tech, the market is telling us that profitability still matters! This past week I hosted a dinner with a number of founders and marketers in NYC, and profit, aka money in the bank, is the #1 focus.
In recent years, there have been a number of surprising business outcomes for CPG brands. Many of the names we all know and love are down significantly from their IPOs/direct listings. Casper, Allbirds, Blue Apron, Honest, and others continue to struggle. Even Hello Fresh, which is profitable and has billions in revenue, is not well-loved by Wall Street — it makes zero sense!! But, alas, profit is what we want.
The reason why?
Many of these companies were losing money year after year. Their margins and their OpEx just didn’t make sense.
For today’s newsletter, I partnered with Highbeam. We wanted to create something valuable, so I gathered 6 key insights from bootstrapped and post-exit founders about their views/tips/tricks/hacks for achieving net profitability.
Here are 6 tips to make sure you stay on the right track.
1. Charge more than it costs you to make.
This sounds silly, but it’s important. The definition of a business is an entity that makes more money than it spends by selling a product or service to customers. If you don’t make more than you spend, it’s more like a “charity” in which you are paying $1 to make 80 cents.
Now, I know that there have been great outcomes for companies that have used venture capital and debt to grow quickly while being very unprofitable, but here’s the thing: Most of the time that doesn’t work!
The number of unicorn businesses that raise 10s or hundreds of millions to grow for years while losing tens of millions and then magically become profitable in years 5-10 is very, very low. Remember, this is not SaaS. There are real hard costs to producing our products.
We have more labor costs, physical product costs, ad spend, creative spend, warehouses for our inventory, 3PL and shipping costs, return costs, etc.
So, in order to be successful, you have to have a deep understanding of your overall COGS, and you MUST make sure that your overall unit economics make sense. Otherwise, you’ll be deep in the red on every order.
Customer acquisition costs being factored into your margin is the biggest thing most people don’t account for.
2. Don’t Take Predatory Loans or Forms of Capital.
Listen, I love my friends in the world of venture capital, but for some CPG brands, it adds unnecessary pressure and stress to achieve unrealistic or unsustainable growth outcomes when you raise VC.
I love bootstrapping because you get to decide your own destiny. Want to grow and scale? Great; you just have to do it profitably and sustainably. Want to build a lifestyle business that pays the bills? Great, you can do that, too.
Separately, I don’t disagree that taking capital to drive growth on something that is working is a good idea. I think once you find something that works, you should hit the gas. But taking venture capital at a high valuation, which you need to then catch up to in order to raise again, all to figure out if you have product-market fit, is a very stressful position to be in.
No matter what path you decide to take, I think it’s critical to understand what you are signing up for before you take someone else’s money. This could be money from a VC, a loan, excessive credit card use, etc. They all have their own pros, cons, and associated risks.
The other thing to note is that US interest rates are still high. Credit card APRs are at all-time highs, and variable-rate revenue-based loans can also have some seriously predatory APRs.
If you need capital, I recommend getting a line of credit from a provider like Highbeam.
Highbeam gives you an unsecured flexible line of credit with a flat APR – you only pay interest on the amount you use. Plus, your credit is instantly available, so there are no 5-day waiting periods when you need to make a crucial payment to your supplier or fulfillment center. With Highbeam, you get the capital you need without overburdening your business.
All sophisticated brands have lines of credit – it’s an important strategy businesses use to grow and ensure they have a safety net to make the payments they need. I’ve warned against taking fixed-fee MCAs that advertise low-interest rates in the past due to their high all-in APRs. At the end of the day, you’ll end up spending a lot more money on fees that will add up to a real burden for your business. A line of credit offers your brand true flexibility - you know you can count on capital when you need it, but you won’t feel like you’re stuck with it once you use it.
With Highbeam, the bank and credit provider are in one place, so you can have instant access to money whenever you need it. Plus, you can always pay back your credit line early and stop the clock on interest. Instead of offering large headline limits and reducing your ability to draw, Highbeam offers lifetime capital that you can consistently rely on as your brand grows. They take a true partnership approach to credit. Check out
this tool to see just how much you’ll be saving with them.
3. Earn Yield on Your Idle Cash
I call this “farming.” You put your money into a high-yield account, and it just farms 4.5% for you.
Given current interest rates, if you have money in your bank account, it’s pretty silly not to be earning 4-5% interest on your idle cash. That said, most banks don’t natively provide this feature. Chase doesn’t, Mercury doesn’t (unless you have over $500K in deposits), but a provider like Highbeam does. They provide daily auto-compounding yield on any amount of cash with up to $3M in FDIC insurance*.
Right now, they’re offering up to 4.5% interest on high-yield accounts and interest in their checking account. That means if you have $100K sitting in your high-yield business bank account, you could be earning an extra $4,500 per year for free. If you have $1 million in your account, you could be earning up to $45,000 extra per year.
As a special offer to my readers, Highbeam is also waiving minimum balances for their 1.5% APY checking and 4.5% high-yield accounts for the rest of the year if you sign up by May 1st! Highbeam has never offered this deal to anyone. Typically, you need $1M in your high-yield account to qualify for 4.5% APY. Just click this link to sign up and get more info — creating the account should take just a few minutes!
This money adds up quickly!
4. Monitor your Cash Flow
The next most important thing to do is to monitor your weekly and monthly cash flow. As a CEO and definitely as a CFO, you need to know how much money is coming in and out of your business every month.
If you don’t have time to look over this manually, hire an accountant, a controller, or a CFO to send you weekly and monthly reports.
Your bank should also be able to give you a breakdown of revenue and spending. I like using Highbeam because it shows me all of this info in real-time on a single, unified dashboard. It’s like the executive summary of your business — consumable within 30 seconds.
At one glance, I can see my revenue (i.e., money in) and my spending and expenses (i.e., money out), and I can forecast my cash flow, profit, and expenses 30-60 and 90 days out if this trend continues.
Their software also automatically categorizes my spending so I can see how much is going toward marketing, payroll, third-party vendors, etc., each month. It’s a super simple dashboard, and understanding the health of my business takes less than 30 seconds each day.
5. Cut or Trim Unnecessary Expenses
After you review your revenue and expenses like this, you can also make more informed decisions on where to cut or trim. If the work isn’t generating revenue, it might be time to cut or trim. That said, always take a long-term view. There are many “hidden expenses” to making large changes inside an organization.
For example, let’s say you want to change software vendors from Shopify to BigCommerce to save money on the annual subscription. That process might take you a few months, which inevitably costs you MORE money in the end. You also lose access to Shopify’s app ecosystem. How do you quantify this “loss” in dollars to your org? Sure, you might save on the annual subscription, but ultimately, losing out on the value added to the Shopify Ecosystem is going to cost you more over time. So whenever you make decisions like this, I encourage founders to think long-term.
Regardless, being aware of your expenses and knowing your projections will help illuminate what you might need to cut or trim. For a bootstrapped business, it’s in our DNA to check for extra expenses on a monthly basis. We audit extra seats on Figma, Dropbox, Fireflies, etc., monthly, and we save thousands of dollars because of it.
6. Pick a no-fee banking partner that can help automate your banking and cash flow
Unless you have reached the scale to hire a finance team, managing your cash flow, debt stack, and yield is difficult for most people. The reason why? It takes time!
More founders should consider tools that can help them automate many of the key components of their finance stack so they can focus on what matters most, which is growing their overall brand.
Highbeam has been purpose-built for DTC, and it’s my favorite banking software.
I know that no one wants to spend all day sitting in spreadsheets trying to figure this all out. They’d much rather have a clean dashboard with smart software features to manage their money and spend for their brand.
If you’d like to chat with them, just reach out here.
Okay, that’s it for this week. As a reminder, don’t forget to take advantage of the special offer to join Highbeam and waive your yield minimums for the rest of the year!