The road to $50M

The journey to $50M is a difficult one. 

As Ryan McKenzie from Tru Earth explains, you need to switch and adapt your tactics along the way to maximize growth at each stage. 

Many founders have said that the phase between $1M to $4M is the hardest because expectations are high, but you haven’t really reached any kind of scale.

 It’s also the most interesting to people like Andrew Faris, because it’s where you’re most likely to see massive growth if you play your cards right.

He recently spoke to Richard Gaffin from the Common Thread Collective about scaling from $1M to $50M.

Usually, we go over a number of topics every week, but today we’re going to focus on the stages of this journey: 

• Stage 1 - $1M

• Stage 2 - $1M - 5M

• Stage 3 - $5 - 20M

• Stage 4 - $20M - 50M+

• Quick Hits ← Find a rundown of Sendlane’s Commerce Roundtable here.

Stage 1 - $0 to $1M

Social media is littered with people telling you they know how to get you to $1M. And hey, they might. 

But let’s make one thing clear first: breaking 7-figures in revenue is not that crazy. According to Statista, global eCommerce is worth about $4T as of this year and is expected to hit $6.5T by 2029. The million you want is 0.000025% of the pie. 

You can do it. 

Don’t be fooled though. You won’t end up with anything near $1M in your bank account. More like $100k if you’re lucky. A lot of founders might take a salary at this stage, but most of the money you “make” will right back into the business.

But we digress. 

You want to make it there? Ryan McKenzie says it’s all about product-market fit. 

Do people want what you’re selling? Focus your resources on identifying and understanding your audience. This will help you:

• Define and position your brand (and its story)

• Build your messaging

• Make better ads

This stage of growth is simple but not easy. If you’re a founder, or you have a founding team, all the above stuff should be done by you. 

• You won’t have the resources to pay high-priced talent or vendors

• You want to be intimately involved in the key aspects of your brand because that’s how you learn what’s working and what isn’t. 

A lot of ideas die before hitting $1M because there simply isn’t a business there. But if you hit 7-figures annually, then it’s on to the next stage…

Stage 2 - $1M to 5M

You’re clearly onto something if you’ve made it this far. 

Now, what you want is to set profitability as your north star.  

According to Andrew, the two crucial things you need are:

1. A model for how contribution margin is generated in excess of your fixed costs

2. An execution plan

As a reminder, contribution margin is:

The “unit variable cost” is the average cost per product you produce. Subtract this from the average revenue generated per product, and you get the contribution margin, or in other words, the product’s contribution to your net profit. 

⚠️ It’s easy to get distracted and overwhelmed by the amount of data and spreadsheets at this stage. This contribution margin model is meant to contribute to a larger forecast of the value you are going to produce over time. Hopefully, it should indicate profitability at some point in the future.

Andrew’s advice: take the time it takes to build this forecast, get help, whatever you need. 

Then stare the numbers dead in the face. COGS, CAC, Opex. Is there a point where your growth curve turns positive despite these? 

If yes, you’re looking good. 

In the meantime, how will you execute?

You’ve probably got hints at what works for you at this point: strong organic, paid, a blend of both… 

Double down. If you’re all in on Meta ads, increase campaign spend and optimize based on performance. 

Start building a high-volume creative pipeline and maybe experiment with new channels a little (e.g. TikTok, YouTube). 

It’s a this stage where you will have enough money to start hiring. Look for team members who can fill vital knowledge or talent gaps, but also have a founder/builder mentality. 

Your business is still relatively small, and will be subject to rapid (and sometimes seismic) changes. Not everyone can handle this rate of change in their day job, so you need to add people who contribute and help you build the foundation for future growth.

Stage 3 - $5M to $20M

Do you have scale potential? 

Two really good signs you do are if you have high margins and strong LTV. 

Small tangent, Andrew thinks that CAC correlates more to AOV than LTV. 

It definitely correlates to both, but he thinks first purchase revenue will usually affect CAC more than LTV. Why? Well because repeat purchases will be driven more strongly by a different set of campaigns than those you used to acquire customers the first time. These could be organic, email, retargeting, customer support, retention and loyalty programs, etc.

The point being that if true, this means you can acquire a high LTV customer for the same (or a similar) ROAS/CAC as a low LTV customer. So think about building out your LTV plan separately and before reinforcing your customer acquisition. 

Regarding margins, what to do if they’re low? Go back to your vendor or your 3PL and figure out where you can get more. Then, look at your cost of inventory. Optimize this and you’ll have more cash on hand. 

Oh and one more thing. Core to eCommerce as a business is the ability to stay lean on Opex. You should really keep it under 25%, 20% is possible. It is easy to suffer from all sorts of bloat at this stage, including salaries and tech stack/tools. 

If you check all these boxes:

• High margin ✅

• LTV ✅

• Low Opex ✅

Then you’ve got what it takes to hit $20M. 

If you don’t, run through these. 

• Margins good, CAC bad? Check your Meta ads.

• Margins low, CAC bad? Fix your margins. 

Can’t fix your margins? Your business might still be a good one, just not suited for scale as a pure DTC play. Try Amazon and other marketplaces or even wholesale/retial distribution. 

Channel diversification will probably be a key part of your growth to $20M anyway. 

Stage 4 - $20M to $50M

This is the stage where you refine. 

Where you unleash your OCD. 

Everything can and needs to be dialed in across your organization.  

Start with operational excellence. 

• Make sure your inventory management is on point. Inventory management tools or an ERP will be a must.

• Optimize your supply chain by negotiating better deals and faster routes with 3PLs and carriers. 

• Find ways to scale and automate customer service and order fulfillment. 

Be (even more) data-driven.

• Segment customers using frameworks like RFM (Recency, Frequency, Monetary value) to identify valuable customers and target them accordingly. 

• Ruthlessly A/B test things like pricing, landing pages, product offerings, and optimize conversion rates across the board. 

• Forecast demand and ensure you have the cash flow and inventory to meet growth.

• Break out your sales channels into their own P&L to understand what is driving profit and what isn’t.

Optimize LTV. 

• Customer service makes a difference. AI bots will help you scale, but you still need humans in the loop. 

• Retention and loyalty programs should be explored, optimized, and scaled.

• If applicable, consider subscription models. 

• Understand your cohorts and what products/content/buyer type drives long-term sales. You want to know what creates loyal customers vs what just acquires a one-time buyer.

Diversify your channels.

• If you haven’t started already, get on Amazon, go global and consider retail. 

• When going for retail, you can start small. Think independent retailers or smaller chains to test your viability in this environment.

• New sales channels are like new, separate businesses. Be prepared to have to re-learn the fundamentals. Partner with established vendors or hire people with specialized knowledge to get you over the hump.

Build your brand out (more). 

• Your brand is becoming well-established, but you can likely start to shift spend and attention to brand marketing from performance or direct response.

• Develop the story-telling and invest in community-building (social media, UGC). Make it about more than just the products. 

• If you are in retail, consider investing in packaging that stands out on shelves.

  • Additionally, use geo-targeted ads and in-store promotions to drive traffic to your retail locations. 

Master paid media. 

• Many brands still hire agencies and vendors at this stage, but you should in-house a lot of the vital marketing roles as well. 

• Your CMO will need to be a master across the various DTC marketing domains - paid, retention, CRO. 

• Read the DTC Times every week ;)

Manage your cash flow. 

• Profit is important, always, but cash flow management becomes a vital skill. 

• They are related but not the same.

• Maintain a cash buffer to handle operational hiccups, marketing budget increases, and inventory purchases.

• Build a funding stack that includes accessible loans or lines of credit.

• Find ways to improve your cash conversion cycle by extending payment terms with vendors or through fintech tools. 

Become a leader. 

• As a founder, you won’t be able to have facetime with everyone anymore. The culture you build will dictate the company’s level of purpose, and it all starts with you as a leader.

• Who you hire to delegate to and manage the different arms of your company is also critical. Choose them as much for their contribution to the culture as their competence. 

And Boom. $50M.

Easy right?

THE TAKEAWAY

Your priorities and focus will change as you move through the growth stages.

At first, you’ll have to do everything, just to be sure you have a viable business. And because you’ll have no money.

After that, you’ll have to expand your view and reach new levels of mastery in marketing, finance, forecasting, and leadership.

Quick hits

• Amazon fees have risen 30% over the past 4 years. 😬

• How to think beyond the 1 to 7-day attribution window, socractically demonstrated by Preston Rutherford from Chubbies.

• How to make winning Facebook static ads by Alex Cooper from adcrate.co.

• Did you miss the Sendlane Commerce Roundtable in San Diego? Jon Snow has a rundown of the biggest takeaways from the event.