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240: Launch to Traction: The Scaling Series, Part 2

Posted by Austin Brawner on February 25, 2020

 

We’re on to part 2 of our scaling series, where we talk about the stage from launch to traction, when you’re on track for, or surpassed, the $100K mark.

At this stage in the business, you’re moving from selling something to having consistent sales. Today we’ll talk about some of the common problems people run into during this stage, critical questions to answer before you can start scaling up, and where to seek out support.

We’re bringing you our knowledge and experience from working with brands that have successfully scaled up, and seeing others that haven’t.

In part three, we’re going to be talking about traction to scaling. So enjoy this week and stay tuned!

Episode Highlights

  • 4:42 How to know when you’re in the traction stage of your business growth.
  • 7:59 Your goal during this stage of scaling up your business.
  • 8:45 Places you can turn to when you’re looking for guidance.
  • 10:31 Focus on customer acquisition in the early stages of growth.
  • 11:26 Why you have to distinguish between signal vs. noise and listen to a diverse set of sources.
  • 13:06 One question you have to ask yourself before you continue to scale up.
  • 14:48 You must become a channel expert before you outsource.
  • 17:13 The minimum AOV you need if you want to acquire new customers via paid ads.
  • 20:33 Great opportunities for you if you’re in this stage of growth.

Links And Resources

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Transcript

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Austin Brawner: What's up everybody? Welcome back to another episode of the Ecommerce Influence Podcast. My name is Austin Brawner.

Andrew Foxwell: And I'm Andrew Foxwell, here with part two of the scaling series.

Austin Brawner: Part two of the scaling series, 100 percent. And if you want to start at the beginning, you can. Go back and check the episode before this in the scaling series where we go over zero to launch. When we say launch, it's like selling your first hundred or so products, and you can start there. Or you can start on this episode, because it doesn't matter where you're at.

The idea of this scaling series, we put this together to help you wherever you're at in your journey, whether that's you're trying to figure out which product, you got a product where you're trying to figure out how to sell it initially, or you are later on and you're trying to grow from like a million to $12 million.

Wherever you're at, there's going to be an episode for you. That's the goal of the scaling series is to share some of the stuff we've learned from working with literally hundreds of direct to consumer, direct response e-commerce businesses and share the differences between the ones that have really grown and the ones that we look at as a beacon of success in our industry, and the ones that don't. What makes the difference between those two?

Andrew Foxwell: Yeah. I think it's an exciting time and exciting episode, because this is where we really start to get into the meat.

Austin Brawner: Yes.

Andrew Foxwell: And not that the last one didn't have meat, plenty of meat, steak, pork, beef, chicken, but this one really is where we start to talk about really traction.

Austin Brawner: Yes. And what does that mean, traction? The way we're going to define this is like we said, the first episode was zero to launch. And we say that it's like zero to selling your first hundred or couple hundred products. You're selling something and you're getting some feedback.

This episode is moving from selling something to having consistent sales, and there's a big difference there. That means not just sporadically selling to some people and getting some feedback. It's like you are going from a couple thousand dollars to $100,000 a year-plus in sales. This is the range that we are talking about.

Some of the common problems that we see during this range is, "I've got a couple of things going. Is this working? Am I doing the right thing?" Big questions that we see in this space. "Can I scale this thing up?" These are the questions we're hearing at this point in the business.

Andrew Foxwell: Yeah. I think a lot of it is, first of all, going to your first point of when you're in this space, you start to see some success. You have sales coming in. The first question that they have is, "Can I take this somewhere?" And I think that a solution to that right away is, 1) what are your numbers? What are the numbers, and getting a true understanding of what those numbers are.

These are things like gross margin. These are things like cost per acquisition goals. These are things like what you need to be able to pay to acquire a customer. Because what ends up happening in this stage is you inevitably start to take on harder expenses, harder costs.

You're going to take on email, you're going to take on paying for Facebook ads and Instagram ads, and so that's a really big one right away, is clearly understanding the numbers.

And I've spoken to at least five companies I can think about in the last quarter that are in this stage, and they say, "We know our CPA, or we know our return on ad spend needs to be at least a 1.7," and I'm like, "Where did you get that information?" And they won't have an answer.

Austin Brawner: Yeah. When you say CPA, just to be clear, that's Cost Per Acquisition.

Andrew Foxwell: Right.

Austin Brawner: Cost per acquisition, and a 1.7 would be-

Andrew Foxwell: The return on ad spend, yeah. That would be that for every $1.00 you spent, you made a $1.70 back.

Austin Brawner: Yes. And I think at this point, and when we're talking about this launch to traction stage, if you're spending anywhere from $1,000 to $8,000, $9,000 a month on advertising aggregate, you're in this space. That's where you're at right now. You're in this launch to traction space. And what Andrew's talking about is very, very important.

Your goal at this point is to find a channel that works for you consistently and that makes your business money, actual profit, and allows you to move from being kind of an idea of a business or an arbitrage. Basically you're just trying to find an arbitrage at this point, and you want to find a place you can put money in, get money out that's more money than you put in, and that allows you to start to pick up sales volume.

And to do that, you got to understand your business and understand your numbers enough so you're not putting good money after bad, if that makes sense.

Andrew Foxwell: Mm-hmm. I think a lot of this is... And I've had people that have gone and worked with different accountants on this. They've gone to local entrepreneurial communities. They've actually gone into startup hubs or whatever and said, "I need to work with somebody that can help me understand this."

Because if you're not a math person... I'm not, personally. You need someone that can help you understand truly what the core business is and what's you're paying in terms of costs, what your subscription costs are and things like that.

And so those are two solutions you can do, and we'll mention this solution a number of times this episode. But another solution is going to something like your community, Austin, and being able to say, "Here's my numbers. Here's what things look," either to you privately or publicly in the community, to be able to have it. I think a lot of the things in this stage can be solved as well by peer-to-peer discussion and guidance, because you're not the only one that has this question, these questions.

Austin Brawner: No, 100 percent. And I think one of the biggest challenges people face at this point is once you start selling and you start having a business, well, you get this thirst for learning and you want to learn more about what other businesses are doing, how they're growing, how you can grow more, because you get positive feedback from the growth that you've currently had. And you might go and attend a conference, great places to learn.

But one of the challenges early on is you're going to see all these people talking about how they've had success growing their business, and they're going to tell you definitively that this is the way to do things. "This is the way to do it. If you do this, you must have this, and it's going to help you grow, and it's going to add 58 percent to your bottom line."

We hear people talk like this all the time at conferences. Your goal early on is to separate signal versus noise and figure out what actually matters for your business, and then to become an expert in customer acquisition.

That is so important, and customer acquisition is different than customer retention or driving repeat purchases. You need to bring in new customers at this point.

And so I always advise people at this early point... And I work with a lot of business owners at this point in the Coalition, my coaching community. A lot of people, they're at this stage, kind of later edge of this stage, and I always say, "Let's focus on getting new customers, and then once we have a steady stream of new customers, then we can focus later on on getting them to come back and buy multiple times."

Andrew Foxwell: Yeah, I think there's a number of things to address there. One is, I think, when we first started talking about this episode and talking about this range of revenue, we talked about what's the big problems?

And the first one that we talked about right out of the gate is signal versus noise. People taking in advice. We see this all the time from a lot of different places, because it's natural. It's human nature. You think, "Ah, there's something I can learn about this." And because a person that says it, one way that's somebody that you've heard, might be somebody you listen to, you start doing it that way.

And I think you have to be very careful in this to, one, double down on what you know as a solution. Double down on truly who you are and what you feel is right in your gut.

An example of that is I see a lot of times with people with Facebook advertising, they're going to start to go in and then they're going to start to take courses in Facebook advertising, and they're going to start to test all these crazy strategies I've never heard of, or I've heard of but I know don't work, and then they're lost basically a couple months later.

Separating those two things and saying, "Okay, that's interesting," and listening to a diverse set of sources. I mean, that's something that we on the podcast try to do very consciously is to bring in all different people that have done all different types of things in different stages of growth. You can get what a crazy growth story looks like, but you can also get an idea of what somebody looks like who's just kind of getting started and how things are going.

Austin Brawner: Sure.

Andrew Foxwell: So that's one thing, is really separating those two things out.

Austin Brawner: Well, I want to hop in and I want to say one thing here. When you're trying to decide specifically what channel to go down and where to invest your time, one great question you can ask yourself at this point in the business is, and you may want to ask yourself before this point, but if you haven't asked yourself this, it's, "Is my business a demand capture or demand generation business?"

Andrew Foxwell: Yeah, that's really crucial.

Austin Brawner: And a demand capture business, you're looking at something like auto parts is a great example of demand capture. You've got something broken in your car, you've got to go find it, you got to go search it out. What's the channel that's best at that? Google search is incredible at demand capture.

Demand generation, total flip side. That's creating demand for a new product that people don't... That they've never seen before or something that's incredibly unique.

What are some of the other channels that demand generation? Facebook's incredibly good at that. Facebook, Instagram, TikTok, Snap, all these channels. Those are more demand generation.

And the difference between demand generation and demand capture is you've got to understand that the return on ad spend is going to be much, much higher for demand capture than demand generation. Because when you're creating demand, you can only expect like a 2X at best return on ad spend from anything on the demand generation side, because you're educating people. Whereas there's pre-education going on on demand capture, so you can expect higher results from what you're doing on demand capture.

Andrew Foxwell: Yeah, I agree with all of that, of course. I think as you start to walk down that road, I think talking about being a channel expert, going back to that point is huge.

And I think the people and the companies that we've seen be successful, one of the founders has taken on, generally it's a founder, has taken on a responsibility of becoming an expert in customer acquisition. Most commonly it's going to be Google shopping or YouTube or Facebook and Instagram advertising, because those are probably the most common, I think, that we hear.

I think the demand capture versus demand generation is huge to differentiate, but you have to become an expert in one of those. One of the mistakes we see is people outsourcing that part of it too quickly.

Austin Brawner: Yes.

Andrew Foxwell: And they'll say... Actually, I do get inquiries quite often. "Hey, can you help me manage my ads? We're spending about a thousand bucks a month." I'm like, "No. You don't need me now." You can take one of my courses, but I'm not going to add any value. It's more important actually that you understand this first and you understand the levers, how to pull the levers and why.

Because through that process of creating personas, through that process of creating ad creative and putting out different pitches and hooks out there to different types of people, no matter where they are or who they are, you're going to learn a lot more about your business and who is responding to things as well, which is a huge part of it too. That's another one that's big. Becoming that expert is another huge one.

On the demand capture demand generation thing, just to comment on that briefly, that's really interesting because maybe about a year ago I had a gentleman contact me, and he ran a furnace filter business. He ran one of the biggest furnace filter online businesses in the country, in the United States, and he was trying to get into Facebook. He'd been doing search engine marketing. He was trying to get into Facebook, and his goal was he felt like he could sell different packages.

And he said, "We really feel like this is a way to unlock our growth. How do I come up with product offerings that are going to be something that's palatable?" And I asked him what his average filter sold for, and he said, "We usually sell a pack of three for something like $17."

And so that's the type of numbers that I just want to reiterate. I've said this on previous podcasts too, but you really, at this point in the United States and even in Europe for a greater sense, you really need to have an average order value of at least $50, because it's really, really hard to get cost per acquisition, that price that you're paying to acquire a customer under, let's say, $30 to $35.

If you can do it, which I've seen people do through complicated funnels, then God bless you. That's awesome, but it's very rare. I think that's just important to mention if you are one of those businesses to set that up.

Austin Brawner: 100 percent, and let's be clear a little bit on that, that it's not necessarily the average order value. That is important. I mean, the average order value is very important. The idea of it needing to be $50 is to be able to make money on day one. And that's where if you have a high lifetime value product that is subscription, over a period of 12 months you could make 150 bucks, that may work as well.

The problem then is you're going to run out of cash, and so you'll need to raise money in order to be able to finance growth, because you're not going to make your money back fast enough to continue to pour money back on the fire in that specific instance. And that's why average order value is important to be able to make money back in your first 30 days, so you can be profitable and reinvest in more growth.

Andrew Foxwell: Yeah. I think let's just recap. We're talking about numbers, your core numbers. Can you scale this? I think that's a really important one in this stage of growth, and understanding what those are.

I think two is establishing some set of peers or some set of advisors. I would recommend having more than one person you're listening to in terms of what do I need to be doing? What else do I need to be thinking about? Maybe a first hire within this stage too. We talked about maybe a customer service person you'd hire on this.

Understanding a set of peers, your numbers, making sure that information that's very superfluous doesn't infiltrate your mind too much, and then becoming really an expert on a customer acquisition channel.

Do you think email rolls into this part of it as well? Is this where you'd start to integrate email from a scaling standpoint?

Austin Brawner: What I would be focused on at this point is capturing emails, making sure you're building your customer list and communicating in a very consistent way, but not expecting email to... It's not a customer acquisition channel.

And that's where I think people can get confused. They're like, "Oh, I need to do email marketing." You should be doing email marketing. It's a very, very great way to drive profits, but it's not a way to acquire new customers generally. It's a part of the package and you should be thinking about it from the perspective of capturing emails, building your customer list, and continuing to follow up with them even if it's once a month with an email, but not probably investing as much as you would be in in the next stage of growth, which we'll talk about next.

Right now if you're in this stage, a couple of the things that are great opportunities for you, one, you can go and join my community, The Coalition, and get help coaching from me and from the community. We have training courses as well to help you become an expert in some of these things, or go and buy some of Andrew's courses. Find the course. If you're trying to become an expert in a channel, go look at Andrew's courses. Find the one that will help you become an expert and invest in yourself at this point, because this is a really, really good stage to double down on quality education.

Andrew Foxwell: Mm-hmm. Absolutely. And I think the courses are good, because they build off of foundations that you're already learning and testing as you go through things. Yeah, if you have questions on this episode, please always let us know, and we're happy to hear from you. Otherwise, we look forward to part three.

Austin Brawner: Part three. In part three, we're going to be talking about traction to scaling. That means $100K to a couple $100K in sales per year to up over a million, and what that looks like, what challenges you're going to face, and how to unlock growth in that stage. Excited to talk to you guys on the next episode.

Austin Brawner: Hey guys, it's Austin. And if you've been loving the podcast, you got to go check out brandgrowthexperts.com. That's where I work one-on-one with my clients to help them build faster-growing, more profitable online stores. I've got coaching programs and workshops that we host all over the world.

Would love to have you come check it out. If you're a fast-growing e-commerce business or you want to be a fast-growing e-commerce business, you got to check it out. That's the spot for you.

We go more in-depth than we do in the podcast with comprehensive trainings and coaching to help you scale up. Check it out. Brandgrowthexperts.com. See you there.

Austin Brawner: What's up everybody? Welcome back to another episode of the Ecommerce Influence Podcast. My name is Austin Brawner.

Andrew Foxwell: And I'm Andrew Foxwell, here with part two of the scaling series.

Austin Brawner: Part two of the scaling series, 100 percent. And i...

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