Stock Issues Cost Me Millions
Happy Sunday friends!
It’s been a busy week in the start-up world…
Flew to New York for 48 hours to host an incredible Founder’s Club event
Went directly to Tulum and locked my cellphone away for four days to spend time with Lyndsey….no screen time for 96 hours!!!
My flight was canceled as I’m heading to the airport (of course) and miraculously got another one
Spent the last 48 hours preparing all of our inventory buys and sell-thru forecast for the USA, Canada, and Australia for DTC/Amazon/Retail
Highly suggest marrying your best friend.
If you know the CROSSNET story, you'll remember how we took the leap of faith with our 401k's and life savings to start our crazy little volleyball game. Yeah, it was a wild ride. We had some heart-stopping moments when our bank accounts were on the edge of oblivion. Luckily, we never hit rock bottom (well, maybe $400).
Today, I'm happy to report that things are on the up & up and we’ve got our mojo back. But here's the thing – there's still a ton of room for improvement and growth as we invest in CROSSNET & Good Sport’s future.
Without those fuck ups you never learn and you never get better.
Before we get into this week’s edition, I want to give a massive shoutout to Treat for sponsoring Crossed Commerce. If you haven’t heard of them they are a brand new AI tool that creates super personalized lifestyle photos for your brand for a fraction of a cost of a real photoshoot. More about them later!
Good Sport is Profitable Already!
Good Sport is profitable less than six months after launch because we ate shit for five years building CROSSNET.
We didn’t hire shitty email & Facebook agencies for $10000 per month
Didn’t sign annual contracts with distributors who never kept their promise
Didn’t mass produce SKUS that we had no idea if they could sell
Didn’t hire a bunch of employees to do busy work
We kept things lean. Focused more on what actually drives sales (good content, retail distribution & spending on Facebook) and the reward is getting to take home a paycheck at the end of the month.
Our new hero product SmashNet is a massive hit
Those first few years we threw so much money into the fire, but they are investments we had to make to get smarter and to get better.
My advice to you. Build a network of people who have been through it before. Learn from them. Be a fly on the wall. Don’t be annoying. Provide value in some way. Building a startup is like riding a roller coaster – it's thrilling & unpredictable – and sometimes the best advice comes from those who've just hopped off or are still strapped in for the wild ride.
Team Work Makes the Dream Work
Whether you're searching for the right supplier, warehouse, or retail store, partnerships are crucial. The way you treat people is the way you’ll get treated. Believe me, I’ve said some stupid shit and regretted it. But when you find the right partner it’s been a game-changer and they tend to stick around for a long time. The wrong ones? Kinda like an STD and they suck until they’re gone.
Moral of the story: Not all partnerships are created equal!
The CROSSNET Founding Team
You might receive proposals from big companies with impressive plans, but it's important to take a step back and evaluate their true value. Look for partnerships that bring tangible benefits to the table and most importantly align with your long-term goals and working style.
For example, a partnership with a company that shares your values, provides access to new markets & resources, and has excellent customer service will have a far greater impact on your bottom line compared to working with the cheapest company that you believe is saving your company money upfront.
The second option will come back to bite you. Trust me.
Look for people you enjoy working with and have your same drive
Seek out complementary skill sets. You can’t build a house if everybody is just a really good painter.
Make sure their communication style works for you. I need to work with people who are on Slack, can be counted on to big up the phone, or email back within the working hours of 9-5. I don’t want to work with a ghost, even if their price is better.
Don’t sign long term contracts up front. Ever.
Stock Issues Cost Us Millions
If you’ve been following along this newsletter then you know this year’s been a rebuilding year for us. Slow things down. Cut our spend and sadly our headcount. Shift back to immediate profitability month over month.
However, you can’t make money if you don’t have stock and these newsletter sponsorships don’t come close to covering CROSSNET’s overhead.
My new goal: Starting this August, don’t be out of stock for the rest of the year. For all channels. For all countries. For all retailers.
So here’s how I plan on getting ahead of it:
1) Monthly revenue forecasts where each department head will be responsible for sharing projected sell-thru by SKU for DTC, Amazon and retail
Can’t share the sheet with you but here’s a snippet
2) Calculate the inventory I need for the next 90 days and place purchase orders with China. Our manufacturing time is 30 days, shipping is 20-25, and I add in a month buffer to simply get ahead of things for holidays, delays, etc.
3) By placing large buys for a three-month period I can get my cost per unit down. On our latest buy we just cut our cost of goods by 6%. This is huge savings on our bottom line and annualized out is hundreds of thousands of savings.
4) Setting clear communication with your supplier that you are doing everything in your power to maintain 100% stuck rate. There may be a week or two that they will need to hold the inventory at their warehouse if we over-ordered but that’s the trade-off if you’re going to take our large orders. It’s much better to have China hold the goods than pay any storage facility.
We just received half a container of damaged product. The pallets were stacked incorrectly and hundreds of boxes smashed and unsellable. Make sure you hold your supplier liable and get your money back.
5) Mid-month forecasting to see if our projections are accurate or how bad things are up or down. Lower than expected sell thru sucks but atleast well have inventory. Higher than expected sell thru is amazing but that means we run out of inventory much quicker, which leads to missed opportunities of making more money for the business and requires me to place an order asap to recover. This is where ordering for 90 days works in our favor because if sales are up way past what we expected we can snag some of those units from the third month and place a new order because our true lead time is more like 60 days.
6) During these monthly forecasts you should also be preparing your bank accounts for the expected spend that you believe will be needed to generate these sales numbers.
For easy math's sake, I’ll break down a scenario:
We are expecting to sell $1,000,000 worth of products in July.
Our target is a 5 ROAS (return on ad spend) which means I need to budget $200,000 in advertising spend
If my gross margins are 70%, then I know my inventory costs on $1M of sales is roughly $300k
All in, I’m spending $500k to profit $500k
Next factor in your monthly overhead (which you should know down to a science) and you’re left with your expected profit
From there you can build out models that include:
Can we afford more inventory?
Can we push more than $1M of sales & if so what happens to our ROAS?
What happens when sales are at $2M but ROAS is a 3? Did we yield more or less profit for double the work?
The one nice thing about math is it doesn’t lie.
Creative That Converts
Tired of paying for expensive photoshoots? Waiting weeks to get content back? On a tight budget? Welcome to my life.
Treat’s AI uncovers design concepts that resonate with your best customers and then effortlessly generates on-brand ad creative and lifestyle photography to help you acquire more of them.
Treat is offering my readers FREE AI-Generated product images & giving y’all early access to their groundbreaking technology.
I’ve never been one to be preachy and be an oversharer on mental health, but one thing that has really helped me lately is putting my phone away. Endless scrolling, my thumb constantly crooked, my neck hunched down, ignoring my wife and friends. So I started a new tradition this weekend. From Friday 5PM onward I locked my phone away for the entire weekend and scheduled this email out.
Daily screen time since I’ve been back from vacation… disgusting.
Here are some things I’ve been enjoying instead: Being present, pilates, reading, playing padel, working out, long walks, going to the beach, spending way too much time in the bath, working on the outline for the Founder’s Club, and this new childish habit of spending my money on very expensive LEGOS. On #3 in the past month, Harry Potter nostalgia baby.
Any book suggestions for me?
Enjoy Your Time Off
I’m now going on nearly a year and a half of writing CROSSED Commerce. Building this community and following has been of the best things I’ve ever done for myself. I put a lot of time into this weekend’s send and hope it was super beneficial.
Massive shout-out to the team over at Treat for sponsoring this week’s article. I am so damn excited to start testing more AI-generated content because it’s a pain in the ass to get somebody to go set up a CROSSNET, get four friends and a photographer to go anywhere these days.
PS. Struggling with anything or need feedback? I’d love to help. Just shoot me an email back at [email protected]