Jerry Hum | Hustle Con 2018

Jerry Hum

Alright hey everyone I'm jerry ceo and co founder of touchup modern and I want to talk to you guys about the decision between profitability and growth this is one of those things that's often a trade off that startups have to make because in a perfect world you can do both but in reality if you could do both you would never tell anyone about it and so we wouldn't be talking about it so just some facts about touch of modern on the kind of on the bird's eye view founded in 2012 16,000,000 registered users and we launch about 30 brands a day on our site because really we're all about discovery and we're going to be showing something new every single day obviously this is a great challenge to be kind of doing this on a day to day basis and so we've grown to about 130 in annual sales and we got to a. Where we had to decide whether or not to keep on this venture funded growth path or make the pivot to profitability and I'll talk to you about some of the decision points that we had to weigh in to make that decision so some of the factors that are really important are the amount of money you've raised versus the annual revenue and this is something that's often overlooked by young entrepreneurs because in silicon valley you go out there and you just want to raise as much money as possible obviously that's good to give you a cushion because you always need more than you think but the bad thing is when you raise too much for the actual revenue that you're generating it limits your options in terms of what you can do next because with raising money comes expectations from investors of how much you need to grow before the next round some of the other things to consider are also the past valuations again everyone wants to pump their valuations super high because it feels good but again limits your options for your next round as well because obviously the next one needs to be multiples higher than that and then for us we were practically near ebitda profitable as a company the way we run the company we always kind of looked at it as swimming with one hand close enough to the edge of the pool where even though we're growing we always knew that if we needed to become profitable we could obviously there's still some unknown of where that could pull it off but we had a pretty good idea that we could and also not our investors burned by e commerce failures but in general a lot of folks in the space had become kind of jaded by ecommerce because of some of the other exits that happened in the recent years right gilt you know a lot of investors lost money on that some made money obviously and likewise the other companies that are near it so what are some of the risks you have to consider when deciding between profitability and growth right when you decide to become profitable obviously the company culture really changes you start managing to a much smaller number which is the money you actually bring in versus the high level number which is just gmv revenue whatever it is for you guys and then also you start thinking about competitors who are pouring 1,000,000 of dollars into acquiring possibly the same market that you are if you're going to decide to become profitable you're not going to be spending as much as they are and you need to figure out what you're going to do about that so for us we finally decided to shift from growth to profitability this is about sometime mid last year and the reason we were able to do that is because we did really deep research and analysis about our most loyal customers because for us and for a lot of companies in silicon valley the greatest cost is marketing and growth right and so if you're going to pull back on that what are you going to do to make up that revenue and for us we found that we had a really loyal user base that we can actually nurture and grow to offset the amount that we were pulling back so here are some stats about what we found about our users which is actually really unique for an e commerce company so for this and this chart shows anybody who's ever visited touch of modern the site or the app in 2012 and we found that 10% of those people actually come back every single day which is really like gaming level economics for a or gaming level metrics for an e commerce site right and about 40% of that entire group actually come back at least once a week which means they pretty much see every single thing that we put up at any given time and 80% of anyone who's visited in 2017 not just purchased by anyone who's ever visited actually come back at least once a month and no surprise people who come back more often are also more likely to purchase so someone who comes back on a daily basis is about 10 times more likely to buy than somebody that only comes back once every 3 weeks and this is a little bit also about the category preferences so this is important because if we're going to talk about how do we serve our best customers we need to know how they're actually different than some of our less profitable customers and what we found is that the category preferences are actually completely inverted from someone who so for someone who visits every single day and purchases a lot it's actually completely inverted from someone who doesn't visit at alpha and maybe purchases once a year or less and this is really important for us because we found that okay well we can't actually cut any category because people that are new actually want the things that our most loyal customers are not that interested in right and so if we just cut the categories that are not as popular with our most loyal customers we lose a user acquisition channel for new users right and so we couldn't really cut that but what we could do is really beef up on the things that the most loyal customers want just to give you an idea of the scale of the spectrum about 80% of our revenue comes from the top 20% of customers and so when we did this this is a little bit outdated from the first time we put this together but we're now 10 months ebitda profitable after having made that shift and focusing more on the repeat customers and a little bit less on user acquisition and so what are some of the key takeaways and how should you decide about becoming profitable versus sticking to growth and there is a few things that you really need to factor in decision making the first one is understanding the market and what is actually more valuable at the given time so your main responsibility as a ceo as a founder is to produce the most valuable company that you can possibly produce right and depending on investor sentiment depending on what competitors are doing or whatever market forces there are at any given.

Jerry Hum

Growth could be valued more or profitability could be valued more and in the years prior to this decision that we've made growth was obviously you know in style you know the other companies were growing like crazy but then when they started suddenly failing investors suddenly got smart and said you know what maybe burning a ton of money just to grow the top line revenue is not the smartest thing for this kind of company right because e commerce is not like a saas company it's not super high margin and you can't just kind of make small tweaks and right the ship if you needed to become profitable so they started looking at you know how do you actually become profitable right because all these other companies that spent so much to grow couldn't do it so that was something that factored into our decision making right in general what my philosophy and philosophy of our founders has always been is that growth for any given category comes in and out of style but profitability is always cool so it's also the harder thing to do another decision you have to think about is do you actually have the levers or do you understand the levers that you can pull to achieve that desired result right and for some companies it's easier to become profitable because you know you've been close or you really understand the metrics and what you can tweak to get there or it's easier just to raise money because I don't know you have the connections or you have an existing investor base that can introduce you to other investors who can get it done right both of these carry their own execution risks because if you were a growth company and then you decide to become a profitable company and you can't get there then you're neither profitable nor are you growing and that is really the worst position to be in obviously and you know if you bet your chips on growing and raising money to grow and that doesn't happen well you also fall flat on your face and thirdly and I think this is probably the one that is least talked about in the valley is that even though you're aligned with your investors because of the equity and all that the way that you think about risk is also different than the way that your investors think about risk and you should have a very honest conversation with your board and with your investors about that right and I think oftentimes when you're starting out you think oh this is great I'm putting in my time the investors are putting the money so the risk is really more on them it's actually not because you only have your given amount of time the investors have a large portfolio they have a lot of companies that they're betting on right you're just one of them so they're always going to ask you to shoot for the moon because if you fail you know there's a bunch of other companies that that might make it for you if you fail that's your entire livelihood that's all the years that you spent on this company right and so you're going to be a little bit more risk averse when it comes down to making that decision so you know talk to them and figure out what's really the best for both of you thank you