Strategies For Scaling Your Ecommerce Business with Matt Putra

Andy Splichal:

Welcome to the Make Each Click Count podcast. This is your host, Andy Spleichel, and we are happy to welcome this week's guest to discuss today's topic, which is strategies for scaling your e-commerce business. Today's guest leads a team of fractional CFOs at eight X, where they work with successful ecommerce brands that want to gain an economic edge over their competitors. A big welcome to Matt Putra. Hi, Matt.

Matt Putra:

Hey, Andy. Thanks so much for having me.

Andy Splichal:

Thanks for coming. Now, for listeners who may not know, what exactly is a fractional CFO? And at what stage of a company's life would a company consider using a fractional CFO?

Matt Putra:

Yeah. So what is a fractional CFO? I mean, a lot of us were corporate CFOs that were running larger businesses. We were running finance teams, mergers, acquisitions, all kinds of things. And most of us got sick of the corporate grind and wanted to do something a little different, maybe put some more good into the world. Then there are some fractional CFOs that were bookkeepers or accountants and what have you. But anyway, the big deal here is that we are finance experts that are trying to help business owners understand their finances, plan better, and generally make more money. And at what stage are they needed? So, generally speaking, a fractional CFO is helpful at any point at which you as a business owner cannot keep a handle on everything yourself. Typically, I find at around 2 million in revenue a year is when it makes sense to pay for somebody, or unless you're venture funded, then that would work.

Matt Putra:

But we have started working with people when they're at 500 grand a year revenue just because they were not the kind of person that either wanted to or could keep their arms around all the processes and bills and cash flows and inventory. But yeah, I would say the minute you feel that, you just can't keep on top of it, or your time is better spent on something else. Yeah. Look for a fractional CFO, and what.

Andy Splichal:

Are you providing as a fractional CFO?

Matt Putra:

Yeah, it varies in the industry. We do quite a few things, obviously, cash flow optimization, meaning how do you negotiate with suppliers, how do you manage your marketing, how and when do you pay your people and all of that stuff with making sure cash flow is optimized. We try to help you be more profitable. So, net margin, EBITDA, how do we give you a better net margin? How do we plan better for hiring? How do we plan better for the next moves in your business? And a lot of fractional CFOs do that stuff and do it quite well. Some of the other stuff that we do is we help you with mergers and acquisitions. So if you're selling or buying, we can help you through that whole process. Obviously, you still need a lawyer, but we'll help you on the finance side. And then the other thing that we do now is we're sort of business strategy and execution and traction, meaning how do we help you make the best decisions possible in your business? And then how do we align your whole team around the decisions that you as the owner have made and make sure everybody's engaged and moving forward to the goal that you're setting.

Matt Putra:

And a lot of fractional CFOs do one or all of those things.

Andy Splichal:

And you had mentioned, usually around 2 million is a good time to consider a fractional CFO. What level of business, as far as revenue, have you found where you need to bring in a full time CFO?

Matt Putra:

Yeah, I would say you could get by with a fractional up until 100 million, maybe even a bit more than that. Our biggest client is near that number. We work with them two, three days a week. But until that point, I would say fractional can be done quite well up until 100 million. Around that number, there's just a lot going on, and it helps when someone's online for you all the time. And some people might see it differently, right? Some people might say, oh, we have to have a full time at 50. Well, fine. But I'm just saying that it can work up to 100 pretty seamlessly.

Matt Putra:

Yeah.

Andy Splichal:

You had mentioned one of the things that you do is help companies with cash flow, and cash flow always seems to be an issue, regardless of the size of company. What are some of the ways that you recommend for a company to increase their cash flow?

Matt Putra:

Yeah. So there's a few things on the hit list that you always want to look at. One is controls. So when, let's say, for your marketing team, do they have a very clear idea of how much they're supposed to spend, then not only that, but what are the performance metrics that should guide them? Daily, weekly, monthly. That's one of the first things we'll put in place is here is the playground. Do whatever you want within the playground and come get us if you need something else other than that. What we do, obviously, is red, yellow, green light. So if your blended row as is, hit this point, keep going.

Matt Putra:

If it hits this point, you got to slow down. If it hits this point, you got to pull back. So we're very clear about how people should use the funds in the business. Next is inventory. So the actual, just mapping out what you think sales might be, what are expenses, what are inventory? Just mapping that all out is a big part of control, because what someone can then see is, oh, man, if I do things this way, six months from now, I have a cash flow problem. So just visual planning is another thing. Supplier negotiations is a huge part. Some folks that we work with are getting net 30 terms from their chinese suppliers.

Matt Putra:

Others are having to pay before they would put stuff on the water. So supplier negotiations is a huge, huge part. SKU rationalization, meaning which SKUs should you sell or not sell, is a very important part of cash flow management, because you could put money into slow turning SKUs or fast turning ones, and sometimes that can make or break the business. And probably the last thing is teaching through the team, sort of a conservative mindset when it comes to spending and resource planning. And we help to sort of communicate through the ranks of a company how people should use money and how often and what they should ask for and controls around new projects and things like that.

Andy Splichal:

Now, one of the favorite subjects of business owners is how much could I get if I sell my company? It's always a dream for most people, a dream when they start up, they're going to make a million dollar company, and they're going to make millions of dollars on a sale. But how does a business owner know how much their company is worth?

Matt Putra:

Yeah, if you're in ecommerce, then right now it's very much about EBITDA, right, and growth. So it used to be you could think of your business in terms of a multiple of revenue, maybe one times revenue, or even one and a half if you're under 5 million. Now it's very much about what is the profit that you have, and it's three times EBITDA when you're under that 5 million. And EBITDA, for people who may not know, is your net income. And you add back interest, taxes, depreciation, amortization to your net income, and that will give you EBITDA. And you would multiply that by three, basically, sometimes less right now. And then you can add a bit more to that. If you've been growing very fast and you still have EBITDA, you can add a bit more to that.

Matt Putra:

If you're growing fast and you have multiple strong sales channels and you have EBITDA. But if you're flat and you're dependent on, let's say, shopify and Facebook ads, buyers tend to notice that these days, and that will go the other way. So make you less valuable.

Andy Splichal:

I'm sorry, what was that last part? If you're reliant on Facebook ads, reliant.

Matt Putra:

On Facebook ads alone, let's say, like.

Andy Splichal:

If that's, oh, you have one marketing channel.

Matt Putra:

Yeah. One marketing channel. Yeah. That would make you less valuable in people's eyes right now, because as we all know, Facebook is really hard these days. Got it.

Andy Splichal:

What would make you more valuable?

Matt Putra:

Yeah. So Facebook runs well, Google runs well, TikTok runs well, email brings in revenue. So what I'm saying is you have multichannel revenue. Right. Furthermore, sales velocity, so you're growing 30% every year. That would increase your valuation. EBITDA above 15%, that's maintaining as you grow is great. Organic reach, like virality, will make you more valuable, because, again, you're not dependent on spending money to get eyeballs.

Matt Putra:

Right. A very good product would make you more valuable. There's a lot of apparel companies, but let's say there's, and when you look at apparel companies, if there's something, that's a very desirable product. So not just a regular t shirt, but let's say it's a t shirt that has something special about it. Or Stoko. Here's, I don't, I don't work for these guys, but Stoko is a great example. It's sort of like performance compression clothing, but they have underwiring in the clothing. So you don't have to wear knee braces, but there's wiring in their leggings.

Matt Putra:

Basically. That is a product where if, indeed, I don't know if they've resonated with their market, but if they have, that makes you more valuable.

Andy Splichal:

What about owner involvement?

Matt Putra:

Well, that's a great question. Can the business run without you as an owner? So at 5 million, it's a non issue because it's not going to work for most businesses at like 20 or 30, 50 million, 80 million. Your exec team needs to be able to run the business. If you were hit by a bus or won the lottery and ran away at 5 million, nobody expects the business to run without an owner. And so what they'll do when you get acquired is you'll just stay on for three years and transition, or two years or what have you.

Andy Splichal:

So an earn out?

Matt Putra:

An earn out, usually.

Andy Splichal:

So is there an example I'd love to hear about how you guys have helped a company grow at eight X with your fractional?

Matt Putra:

Yeah, I can't give any names, but there's a company that I joined in November 2022, and they made negative 600,000 in income in the prior two years. And just cash was a nightmare. And so when we signed up, we said, okay, let's get the ship under control. So the first thing that we did was optimize their marketing planning. So how much do you spend? When do you pull back? When do you push harder? Things like that. The owner had been working on finding a new factory, so we helped them sort of with some supplier negotiations and whatnot, and we ended up getting from 50% gross margin to 70. And then it was, how do we control the growth? How do we get the right amounts of debt? How do we refinance their old debt so that they could have the room to grow, as most of us would know, Wavelier, Shopify, Clearco, they're taking a lot of money every month when you have a loan with them. And, for example, it's 15% of revenue is getting paid to these people, and it's very hard to invest in inventory when that's happening.

Matt Putra:

And so we helped them figure out, where are we going to get debt from? Who's the best debt provider? How much debt should we take? When should we take it? How do we derisk it? And that was a very big part of freeing up cash flow for these guys. Then with the marketing, helping them figure out how and when to push, helped them figure out how to grow profitably. Probably the next piece, the first six months, we turned around to profitability within six months, but we still had a lot of debt to figure out. So the debt took a while. Then it was negotiating with suppliers. What should we ask for? How do we ask? How do we give the supplier comfort? So now what we have is a very good relationship. And actually, we encouraged them to go visit the supplier in person, which they did.

Andy Splichal:

Where was that? Overseas?

Matt Putra:

Or was that overseas? In Asia. In Asia. So we encourage everybody with asian suppliers to visit them in person, go do the thing culturally, and go drink and go bring gifts. Interesting.

Andy Splichal:

And do you find that why? I mean, does that improve the relationship that much?

Matt Putra:

Yeah. The two people that I know with the best terms visit their suppliers, maybe not quarterly, but twice a year. So they go to Asia, they party, they bring gifts, this whole thing. They know the supplier's kids, sort of, and they have wonderful terms. And so this client that I'm talking about, they went from 30% deposit balance before shipping to 30% deposit balance on delivery. Now they have 30% deposit balance 30 days after delivery, which is unheard of for an asian supplier. But it's because they went there, shook their hands, partied a little bit, and treated them like a people. You know what I mean?

Andy Splichal:

And do you advise? So how do you help negotiate that? I assume just going over there, they're not going to be so happy to see you that they're going to offer you these great terms.

Matt Putra:

No. And it takes time, right? I mean, this client had been visiting their supplier a few times, and then it's sort of, how do you structure the ask? And what we advise people to do is take nibbles. A good friend of mine named Kevin gave me this term, and you don't go from 30% deposit 70% before shipment, and you don't go and ask, hey, can I have 60 day terms now? No, the next thing is, hey, can I do 30% deposit 50% on shipping and the balance when it arrives? Then you do next quarter when you fulfilled your end of the bargain, you ask for a bit more, then a bit more, and you just structure the asks so that they ladder up to where you want to go over time, and you hold up your end of the bargain. But now this client, even now, they have 60 day terms, and the supplier is holding safety stock that they don't to pay for. And part of that, part of the way you get there for the listener is, again, going to meet them, but also doing a bit of planning, showing them, hey, here's where my revenue is today. Let's say we're doing 10 million a year today. I'm going to do probably 1520 next year. However, if you can give me 30 day terms, I can turn on more marketing and I can do 25.

Matt Putra:

So you're telling your supplier, here's where you can help me grow, and the money comes back to you. In some cases, you can also offer to pay them more. So it does make sense to do this where, let's say, for 30 day terms, you pay them an extra 1%. The interest rate on that is, I don't know, 15%. But it's not a loan on your books, it's a supplier loan, and you're paying a little bit more in your cost of goods. So massive, massive upside to supplier negotiations.

Andy Splichal:

Interesting. And do they take their fractional CFO with them on these trips?

Matt Putra:

They do. They unfortunately do not. At least not yet. But I haven't been needed in the actual things. I've just been advising how to approach.

Andy Splichal:

So I'm curious, how did you get involved with AdEx? What is your background?

Matt Putra:

Yeah, so I was a CFO for a private equity group for a number of years, and we did really interesting stuff, and I just didn't want to do the corporate grind anymore. So I live in a suburb of Vancouver, Canada, and I was commuting 3 hours a day, so I missed dinners with my kids for about two years straight during the week. And I had a friend that said, hey, I know you do the CFO thing, but I need help with my own business. Can you help? And I said, yeah, of course. So I went over there and I saved them 50 grand within two weeks, and I gave them a cash flow plan, and we found out they're going to run out of money ten months from now. And we went to the bank and got an appropriate size loan, and they didn't run out of money, and they kept growing, and so really enjoyed that and found that helping this friend of mine was just a great feeling. And so then he told a couple of friends, and I just kept doing that. And then eventually I quit my job and did this full time.

Matt Putra:

And so now we have a team of almost, I think we're 18 people now, bookkeepers, accountants, CFOs, and we're trying to help businesses between ten to 80 million, basically. And we do work with some smaller businesses as well.

Andy Splichal:

Now, are there any challenges that you guys have in a fractional CFO role, that people aren't responsive? Or, I mean, where do you might struggle to get results that you.

Matt Putra:

Yeah, that's the big one, I would say, when people aren't responsive. So by way of, we, someone called me last May and said, matt, I have four weeks of cash flow left. Can you help? And I was like, yeah, I can help. And we joined them and we looked at the books and we said, well, to get profitable, there's eight steps. So we said, fire everybody that's not doing their job well. Your brother that you're paying, who is not doing really anything, let go of your brother, too. And we gave them a whole bunch of recommendations and they said, well, we don't like any of those. Give us different ones.

Matt Putra:

So we're like, okay, no problem. So we gave them a few more, and they're like, we don't like those either. I was like, well, what do you want us to do? You have four weeks of cash left, and you're not willing to make our decisions. We can't help you. And so we parted ways and got no results. Right. But I would say the big two things that stop us from getting results is a, when people call us too late, and B, if people aren't willing to make hard decisions and do hard things. We even gave this person, like, look, you and your wife move to, I don't know, Colombia, Argentina, Bali, where it's super cheap to live for a while.

Matt Putra:

So you need less money from your business. Nope, don't want to do that. Like, well, then, you know, nothing we can do in any business. Even my wife and I, for example, we have an agreement where as we grow, if the cash flow hits this number, we're going to move to Argentina for a year to keep growing.

Andy Splichal:

Really?

Matt Putra:

Yeah. Well, because we believe in this business, and I love it. And she also believes, which is great, and we just think that we'll move to somewhere super affordable for a year, continue growing the business, and then come back when we're profitable as we want to be. And luckily we haven't had to do it, but there's been a few months where we're like, oh, shit, it's coming.

Andy Splichal:

Why Argentina?

Matt Putra:

Oh, just because we have four staff members there now, and it's a wonderful country and it's very affordable. There are some challenges. There are, for sure, but, yeah, we have four staff members there, and they're quite wonderful.

Andy Splichal:

Interesting what you had mentioned. Maybe they're not willing to make hard choices, or it's too late. When is it too late?

Matt Putra:

Yeah, four weeks. Cash flow and lenders knock on the door. I mean, that's almost too late, right? Here's the thing, right? So when someone calls me, I don't know a lot about their business, or they call my other, my other CFO, right? We don't know much about them. We have to learn about them first to be effective. So if you call us and there's four weeks left before a d day, that's not even enough time for us to really learn about you and what are your unique challenges? Who is your team and who's your senior decision makers and who are your lenders and what's the relationship with your clients? There's so much to learn that if there's only four weeks before Dday, it's very difficult to be effective. So, yeah, it's just like there's a learning curve with us before we add a lot of value. And that would be, I would say, at the shortest amount of time, it's like two weeks to add value, and usually it's four just because we come in, not, let's say you called me like, hey, I need help. I don't even know all the things that you do.

Matt Putra:

Right. I need to figure that out first, then I can help. Right? Sure.

Andy Splichal:

Now. I mean, nobody wants to get to the point where it's too late. Where, I'm curious, is it that people usually say, oh, I need help? Is it a trigger event? Or, I mean, what are they seeing?

Matt Putra:

That there are two moments that most people call us. One is my business feels like it's going great. I want to turn on the rocket fuel, and I don't want to fuck it up. So that's one, I'm sorry if I shouldn't swear on the show without asking first, but the other one is, I'm quite worried, and I want to not tank my business. Can you help us? So both of those moments, the one with the growth before you do the rocket fuel, is when you want to call a CFO. It doesn't have to be me. Right, because why? When you grow very fast, obviously your business moving fast, you have to hire people, you have to buy a lot of inventory, you have to do marketing and do new projects. Well, a CFO will help you put guardrails around all those things in such a way that they will know when things are breaking and you need to pull back.

Matt Putra:

We had a business where they raised multi seven figures, and they threw it all down on a few projects, and it all went to shit. Right. But if they had called us and we had the guardrails, we would have been able to help them pivot in that journey. I don't want my business to go downside. I would say you'd want to call somebody when you think there would be six months, I would say, before there's a big, big problem. I would say when you start to not sleep very well, that's when you should call somebody. That's what I think at that point. Because the earlier you call someone, the more we can do.

Matt Putra:

And it's not just me. There's a bunch of other wonderful CFOs out there. But the earlier you call us, the more we can do. That's why? I said, when you start to feel like you can't keep a handle on everything, that's when you call someone.

Andy Splichal:

So how can somebody get a hold of you if they're experienced one of those two things right now?

Matt Putra:

Yeah, I would say LinkedIn. I'm on LinkedIn. Matt Putra. You could look at our website. Eightx Co. LinkedIn and my website are the two best ways to get in touch with me. You can book directly into my calendar in both places or just dm me if you have a question. We answer tons of questions when people ask us.

Matt Putra:

Yeah, that's how you connect with us.

Andy Splichal:

Well, this has been great. Is there anything else you'd like to add before we wrap it up?

Matt Putra:

Know, the one thing I will add is we are opening a community on school and we'll give a code to your listeners. Andy, I'll get it to you.

Andy Splichal:

That'll be great.

Matt Putra:

Yeah. And so we'll give you. I don't know what I mean. My team is figuring out what the discount would be, but we'll give Andy a code and we'll make sure that your listeners have one specific for them. And in that community, you can expect weekly ask me anything, office hours, questions, answers, free tools, all kinds of stuff to help you with your. And that would be for people that maybe either are earlier stage or couldn't afford to hire us full time. But you can get insight from us and our analysts in that community.

Andy Splichal:

Well, it'll be great. We'll put that into the show notes for listeners if they're interested. All right, well, thanks for joining us today.

Matt Putra:

This was so wonderful, Andy. Thank you.

Andy Splichal:

All right, for listeners, remember, if you like this episode, please go to Apple Podcasts and leave us an honest review. And if you're looking for more information regarding eight X or connecting with Matt, you will find the links in the show notes below along with the coupon code. In addition, if you're looking for more information on growing your business, check out our podcast resource center, available at podcast makeeachclickcount.com. We have compiled all of our different past guests by show topic and included each of their contact information. In case you would like more information, any of the services I have discussed during previous episodes. Well, that's it for today. Remember to stay safe, keep healthy and happy marketing, and I'll talk to you in the next episode.