PART ✌️ So we pick up the story at the Detox phase To regroup before jumping back in, 2022 was an extremely challenging environment for us @swagup and many others, and its one that I believe maps well to the stages of alcoholism We got caught up in the moment and drank the cool-aid to a point that we were in denial about the strength of the business, leading to a loss of control and ultimately emotional and physical deterioration that necessitated major changes So let's get back into it Detox + Outpatient Recovery - End of 2022 to Q3 2023 If we were going to get things back on track we had to confront our challenges head on and make decisive moves, quickly We had built up a lot organizational debt that was accruing below the surface and only became apparent once things slowed down Before getting into operational changes, first and foremost we needed to address short term liabilities We had a ST revenue based credit facility that was, while solid terms, was eating up $200k+/month of cash, this was crippling us...we needed to get some relief here to reserve as much cash for operations as possible...but why would a lender just give us a break? Here's the thing about borrowing money, when it's a decent amount, it's just as much of an issue for the lender as it is for you, no one wants to lose money and generally people want to be helpful...so we picked up the phone and talked to them, super straight up and just outlined the situation, told them our game plan going forward, and asked for some help...and to their credit they agreed to exactly what we asked for (basically trimming the monthly outflow by over 80% indefinitely until we were on stable ground) With that off of our backs, we turned our attention to the business itself, we dug into every facet and with an industrial engineering mindset looked for improvements throughout and executed non stop against them I'm a huge proponent of driving GM gains as the bulk of it flows right to the bottom line, small gains her can be massive for overall profitability The first thing we looked at was vendor/product data and our pricing. Our data was either incomplete, out of date, or just wrong - so many different people had had write access to our system, we didn't have nearly enough control over product data We restricted access and started cleaning up the PIM - we went to vendors and got exports with up to date data to update our system. Why does this matter? We had costs that was 2+ years old, we had margins and data that were set by BPO reps that were under-charging by 20%+ in some cases, we were showing items as available that weren't and then having to upgrade to a new item and cover the cost difference. We implemented system changes to add pricing to our Purchase orders in order to catch discrepancies early in the process vs being billed whatever by vendors and needing to back track after the fact, if we caught it at all - this also created a feedback loop to improve our product data consistently We negotiated with vendors to get better pricing and rebates, payment terms willing to walk away from vendors unwilling to work with us. We changed our storage cost policy, historically a pay once to store your items and never pay again no matter how long it sits, to a recurring 6 month fee. We ran reports on inventory that had been sitting for over 2 years and worked with those customers to either move it out, donate it, or pay for storage again The space we were able to free up from this allowed us to cut our overflow warehouse that was costing us an additional $30k/month. We walked the floor with our operations teams for a few weeks understanding the process gaps, the inefficiencies, the tech limitations and started to address them one by one. Things like batching work orders so that pickers could go pick multiple orders at once. Getting new machinery that would allow us to do the work of 3 people with 1. We brought the number of hourly workers in our facilty form close to 60, to just about 35 We had storage locations with 20+ different SKUs spilling out of it, we were often pre-printing labels in bulk and sticking them on packages (super error prone) This increased picking times, it led to items not being shipped on time or at all, it led to shipping the wrong packages to the wrong companies, subsequently increasing refunds/credits, and hurting retention and word of mouth We shifted to printing labels on demand as barcodes were scanned, limiting mis-ships/picks, we used the new found space we were making in the facility ot bette organize stock and increased our cycle count pace to ensure inventory accuracy (in addition to changing the customer UI inventory to be based on physical counts and not assumed levels) Both inventory accuracy and the % of shipments going out of the door within SLA began to approach 100% consistently One of the areas that chronically plagued our gross margins was shipping (or more accurately, our services) margins, often times a single digit percentage or even negative margin on a monthly basis. We assembled a SWAT team to quickly assess the situation and get it back on track. The biggest thing we discovered was that we were getting killed on shipments in large boxes. The issue was that we had a shipping algorithm purely based on weight, sow hen we quoted shipment costs to customers through the platform, it was purely based on weight, but the size matters just as much if not more. In some cases the weight based rates were fine, but when you had large items that weren't heavy, for example a blanket, or duffel bag, we were losing hundreds, even thousands of dollars at a time. I worked closely with one of our core engineers and we worked on a new algorithm for shipping rates based on dimensions of products and packages. We worked with our sourcing team to update unit dimensions and packable dimensions for every item in our catalogue. It was a mad dash to get this in place, but within 30 days it had completely flipped our shipping margins. In addition to these changes, we signed on a shipping analytics service that helped us analyze our costs, identify potential opportunities, filed claims on our behalf, and helped us negotiate RFPs. We introduced new carriers for certain routes, moving form primarily 2 carriers, to over 5, dynamically going with the most efficient label for each shipment We also increased our pricing on shipping generally - I think as founders we often want to keep prices low for our customers, but if it creates an unsustainable business and an inability to invest in innovation, that's not good for anyone We looked at things like shipping supplies (blank boxes, tape, packing fill) and determined we were sitting on way too much inventory at a time + was overpaying - we found a new supplier with lower prices than Uline who was also willing to sit on the stock and ship it same day - this lowered our costs and freed up more space in our facility All in all, the impact on margins was dramatic 🤯 Services margins (largely shipping, but also storage and some others) went from mostly negative, to around 40% Overall gross margin, which had dipped to as low as 23% in '22 also began to reach 40%+ As we moved down the P&L, we looked at one of our largest cost drivers, the sales and marketing org to understand where the opportunities were First off, we cut paid marketing spend by about 40% and worked on addressing attribution gaps and the customer journey, while historically efficient here, we needed to be more critical of the spend here and ensure were getting a clear return, quickly - we cut out lots of unnecessary costs on SwagUp brand keywords that for the most part we were capturing anyway whether spending a ton or not - we restructured the campaigns ot have higher levels of control per ad group and keyword to set more granular cost caps and reporting (still more to be done here) We made another cut that largely effected the sales org trimming ti by about 40% and putting more of our best accounts in our best reps hands and shifting some lower value functions to an awesome BPO (thanks @mo_amdani @ammaramdani 🙌) We had a liberal commission structure that was still paying out for underachievements...we created better alignment between reps and the success fo the business, implementing floors to achieve variable comp, and accelerators for overachieving - when we succeed you succeed, when we don't you don't - this ultimately brought our variable cost of sales down by over 20% We were largely treating all of our customers the same, irrespective of spend or potential...We pushed a cultural shift towards not treating everyone equal, and doing more with our best customers and better segmenting out of rev org to reflect this reality...if you want to progress in the rev org, you need to grow a concentrated base of accounts, not simply hit a rev number by any means necessary (ie pulling a new inbound to cover up account base decline...bottoms up brick by brick account building Even with these changes, we needed a better mechanism to create stickier customer relationships and rewards our best customers. In Summer '23 we rolled out our first ever recurring revenue memberships, these memberships would give our best customers prime-like benefits for consolidating their spend with us and let us know who our serious customers are. Since launching several months ago, over 200 customers have become members and members are ordering 3X faster than they were before (and 5x faster than non-members) with a 30% higher AOV - it's the cornerstone of how we build accounts going forward and we will only add more and more value to them over time...and we built the whole system including loyalty and rewards form scratch within 75 days While on the topic of product and engineering, we ended '22 with multiple product squads focused on parts of the experience + traditionally sprint planning. We were falling behind because we were over planning, splitting up our best people, and lacked leadership willing to make strong decisions on the fly. While not ideal, I decided to personally take over the core SwagUp product team, we combined the squad together, and split out a separate group led by our CPO and Head of Eng to work on net new infrastructure we'd migrate to over time. This gave me full autonomy to control the day to day SwagUp roadmap and address customer feedback and issues as quickly as possible. We moved away from lots of planning and more into an agile-type environment, working on the next most important thing as quickly as possible and staying flexible. Our team thought the approach was crazy at the time but it proved right The detox is the greatest thing that ever happened to us - it forced us to look our biggest challenges in the eye and address them head on. One of the biggest blessings of it, it brought the tea way closer together. For those that made it to the other side, and especially the exec team, being in the trenches solving problems together at that intensity level has created bonds that will lats lifetime. I'm sure there's more, but these are the major things that come to mind, and with much of this behind us, we've been able to move into the next phase Long Term Recovery - Q4'23 and Beyond By no means have we solved all of our issues, by no means can we rest on our laurels, if/when you lose the continuous improvement mindset is the day the decline starts, it's possible to relapse, but we've done a lot of the heavy lifting over the last 18 months that gives me the confidence going into 2024 that we are the path to Long term recovery Aside from the above, here's why I believe 2024 will be the best one yet for us Our entire rev org has been architected around building deeper relationships with our customers. Every rep must know their top 50 accounts inside and out and grow them a certain % this year. More questions, more learning, more providing solutions, less sitting and waiting for orders, and with Ops stable, they have the time to do it We've built incentives and a career path within the rev org that continuously rewards doing more with less customers, allowing us to recycle accounts down to more jr reps to give them the opportunity to grow the accounts that weren't the other reps top priority - We want to leave no meat on the bone We've layered in a dedicated Creative Strategist to work with our top customers on product ideation and design to be a proactive thought partner vs a service provider We've reorientated our New Business AE's to not just close the first deal but to be judged on their ability tog et new customers to their second deal quickly, creating true customers and not just initial transactions - this creates alignment to ensure we are onboarding successful customers that go on to place 10+ orders over time, dramatically increasing LTV We are building what i call a scalable "Revenue Factory" that on one side takes in noisy new business and young reps and deliberately turns them into raving fans and seasoned sales execs with multiple 7 figure + relationships With some of this + what was mentioned earlier, we are seeing early signs of retention improvements with the % of customers placing a 2nd order within 3-6 months up almost 2X from their bottom - still more to do to get the new biz flywheel going to create chunkier cohorts to get future repeat revenue from Additionally, we've got a ton of big product launches in the works for '24, two of our most requested products coming in Q1 alone, native storefronts and integrations. The team has been hitting a stride + we brought on a new UX designer a few months back that has been awesome and fully ramped = we are getting much more done Looking ahead to the rest of the year some product development themes include first of it's kind enterprise-level capabilities, growth hacks in platform, robust ecom, and a new market we plan to serve which we feel is super untapped and a trojan horse int the door with the best companies in the world 🚀 Keeping with the innovation theme, we started building an operating system for running a swag business like SwagUp from the ground up at the end of last year, we call it Quilt. Quilt has the potential to transform how we run our business, our costs, our ability to automate processes, as well as deliver new, better customer experiences. We are migrating a major portion of our existing infrastructure over to Quilt in the next 8-10 weeks and from there it's off to the races. In '23 we also successfully rolled out our first in-house manufacturing capabilities. It was profitable within 60 days and helped us build some new muscles that we plan to flex in '24 with at least 2 new vertical integrations, helping us expand margins while gaining more control over our supply chain and customer experience. It's no secret what's been happening in the tech economy and we have a ton (60%+) of tech customers. Tech is the first to pull back, but also the first to recover (cc @JesseTinsley), given how nimble it it is but also how far out on the risk curve it sits. Going into '24 there are early signs that the tech ecosystem is springing back to life, with AI, the prospect of lower rates, and future IPOs all leading companies to get more confident about future prospects and the need to continue investing into growth. We can't model this exactly but it has the potential to "raise all boats" Lastly and most importantly, is we are/have been making the shift from a defensive mentality to an offensive mentality. Mindset is so important and when you are in a fight for survival, there's not much else you can think of. Making investment into growth in that type of psyche and position is just very challenging. As we enter our Long Term Recovery, we are looking to the future with enthusiasm, knowing the work required to stay on the right path, yet grateful and excited to build back our new life 2024 🚀

Toasted ravioli or T-ravs (St. Louis, MO)

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