Happy Sunday!

If you’re reading this, I hope you’re sinking into a couch, feeling hydrated, and have the AC pumping. I’m in New York City, I ran a half marathon this morning, and I am gassed!! I want nothing more than the AC.

Today’s newsletter is going to be fun, diving deep on the most requested questions that Moiz and I got in our Limited Supply slack community. If you’re not already there, you’re missing out! Before we get into that… we have some more open roles at Sharma Brands:

If you are this person and you’re looking for a switch, or you know someone who could be a good fit, please share the link above with them. I appreciate your help!

This week I have a bit of sad news. As you may have heard, my co-host, Moiz Ali, is taking a break from Limited Supply. 


We did 96 episodes together over 8 seasons. That’s wild.

Without question, recording Limited Supply with Moiz has been one of my favorite projects that I’ve worked on in my life. To celebrate the final episode of season 8 with him, we did what we call a “Listener Mailbag” episode where we answered some of the most upvoted questions from our Limited Supply slack community. 

In this week’s email, I’m going to share some of the nuggets that we covered below. 

Also, don’t worry, Moiz will come back as a guest on future episodes and I will continue the show. I have a lot more planned for season 9 and there may be some really fun guests coming on soon. So, without further ado, let’s get into some of the nuggets we covered from our listener mailbag ep this week! 

If you want to listen to the whole thing, you can do so on Apple Podcasts, Spotify, or YouTube as well. 

The biggest mistakes early stage DTC founders make: 

The first question we got was from Robert. He asked “What are the biggest mistakes new DTC founders make when starting out and how should it be done instead?” 

According to Moiz, the number one mistake new DTC founders make is not focusing on sales. When Moiz meets founders doing less than $500K/year in revenue, they don’t seem to have a repeatable sales channel to drive revenue. 

They rely on things like “word of mouth” and referrals. They might be trying a lot of things (i.e making content, running ads, sponsorships, etc) but nothing is repeatable and predictable for them. Moiz advised that finding your repeatable sales channel should be your number one priority when just starting out and I couldn’t agree more. You just have to find one single channel whether that’s paid ads or email, or influencers, or affiliates, etc. that can repeatedly drive revenue for your brand. 

You don’t need 10. You need one. And for most founders getting started, that is typically paid ads on Meta or Google.

Another mistake we both see early stage founders making is overestimating the lifetime value of their customers via DTC. A lot of founders start their growth journey by acquiring customers at unprofitable and unsustainable prices. They say, “We’ll make it up from repeat purchase rates and LTV.”

9 times out of 10, their projections are too optimistic and it doesn’t work out. With that in mind, I would urge founders to work on getting as close to possible to first order profitably as they can. A lot of times that simply means raising their prices so the unit economics make more sense for your brand. 

You don’t want to fall into the classic DTC trap of spending $1 to make 50 cents. Unless you have a massive warchest of capital and you can afford to lose some money while you test, that almost never works out, only in rare occasions.

Spending too much money as soon as you raise your round:

Another big mistake that I personally see new founders make is that they spend $250-300K+ on a branding agency before they even have a single sale. As soon as they raise money, they spend a ton of capital on their website, their packaging, their creative, etc before they even know if there’s any demand. 

This is exactly what NOT to do. You need to validate demand (with a simple landing page, simple ads, and no custom packaging) before you scale and invest in all of this. In fact, I’d maybe say once you do this and then spend on a branding agency is actually really smart. These are my favorite clients to get at Sharma Brands… Tattoo Numbing Cream was a product business with a ton of sales, they came to us, and we helped them build that brand. Not only did it end up supporting their personas perfectly, but it’s also based on data. 

If you don’t have those sales, think about having a world class site, packaging and ads, as the reward for achieving initial success and sales. Get your brand to $500K-1M/yr in revenue first, before you start spending on what I would call “luxuries.”

The other obvious things are simply choosing the wrong agency, wrong contractors, wrong 3PLs, wrong software providers, etc. That and also not getting your legal paperwork done correctly for contracts, employment agreements, PO orders, etc. 

There are so many potential mistakes that you can make and these are just a handful that I’ve regularly seen. 

Spending too much on ads, too soon:

This goes hand in hand with a lot of what I said above but another common mistake I see early stage DTC founders make is spending too much, too soon on ads. 

As soon as they finish their first landing page and round of creative, they begin cranking up the ad spend on Meta and burning capital without understanding some super basic things about their brand. 

In my opinion, I would be much more cautious and much slower with paid ad spend and begin testing different LPs, copywriting, offers, imagery, ads, etc. and trying to get some early reviews from customers before scaling up the ads. To spend efficiently on paid ads you need to know that your product works, your funnel works, and that you have tried some different copywriting, ads, angles, and positioning to know which variants perform better. 

A lot of this testing can be done organically or with low amounts of paid spend to test the waters and help you refine things before you scale up. If you don’t do this and you spend a bunch on paid ads inefficiently, it’s very hard to recover. You don’t want to drive the car (run paid media) on an unpaved road (brand awareness).

Making mistakes with out clauses: 

Another big one to look out for is making simple mistakes with legal paperwork. I have invested in a few brands who sign contracts with agencies, with no out clauses and they have mandatory 12 month commitments. It may sound like a good deal up front, but this is predatory, in my opinion, especially to first time founders who fall into this trap.

If there is no out clause, don’t sign it — that’s a trap. You, as the brand, or the payer of the service, have all the leverage. 

What are the biggest mistakes that brands north of $10M in revenue make?

Moiz hopped in and then asked what are the biggest mistakes that brands doing over $10M/yr in revenue make? 

And to be honest, it’s a lot of the same things. At the end of the day the success of a business depends on its ability to allocate capital efficiently in order to achieve a return. If you are spending too much on agencies, on the wrong ad channels or influencer partnerships, etc, it’s easy to burn through a lot of cash. 

Thankfully, brands doing $10M in revenue have more of a cushion to make these mistakes. 

That’s generally the work we do at Sharma Brands. We work with companies doing anywhere from $30M to 500M/year in sales and we tell them where they can improve, and do all the execution. 

We audit their ad channels, creative, website, landing pages, general strategy, tech and tools etc. to see where they can optimize and generate a higher return. 

This is pretty much the same problem for all businesses. The ones that struggle just aren’t spending on the right things. They accidentally burned $300k on influencer ads when they should have been spending on advertorials or they spend too much money on TV ads when they should have allocated more to Meta, etc.  

Moiz agreed but had a few more nuggets that he added. 

He said that if you are at $10M/year and you are operating with 4-5+ agencies, that is too many. If you are using 1-2 that’s totally fine and makes sense. 

He also said that if you are at $20M and your business falls back to $10M, don’t panic and simply try to spend more. One of the biggest mistakes that private company founders make is that they feel like the business has to go up and to the right every single month and year. 

It’s a flawed way to think. Businesses fluctuate and if you are running a profitable business, it’s okay to have sales drop from time to time. 

As a private company, your single biggest advantage is that you aren’t judged on your quarterly performance in the public markets. If sales are down, you just need to regroup and update your strategy. You do not need to panic and simply spend more on Meta ads where your acquisition cost keeps rising and now your unit economics are even more upside down. That is a huge mistake that Moiz sees from brands doing $10-20M/year in revenue making. 

If you're a completely new bootstrapped brand, what is the best way to get customer number one in 2024?

Here was another question from the community about how to get your first sale. 

I took this one and said: The easiest answer is obviously social media. You're sitting at home with your thumbs glued to a four and a half inch screen that allows you to reach millions of people without moving. Start there!

Beyond that, launching on a platform like Product Hunt is another great place to get your first 10-100 sales. Native even launched on Product Hunt back in the day which helped generate some initial buzz. Another great channel is Reddit, where you can go into communities there and be a solution to a problem that is being discussed. 

Literally just join subreddits and provide thoughtful comments that link out. 

You can also DM creators one by one and see who wants a sample to try who will post for you. And then of course you can tap into marketplaces like Amazon, Meta Shops, TikTok Shops or wherever there's already traffic to go get your first customer.

Moiz agreed and added one more thing. 

He basically said, getting customer #1 is super easy. It will be a friend of yours or from paid ads. Customer 1 should be a piece of cake, but getting customer 1000 is super hard. That’s where the real game of DTC begins. 

Whichever way you look at it, you need eyeballs. How you get eyeballs, is up to you — whether it’s cracking the paid funnels or getting your organic content engine so smooth, it drives the eyeballs you need. 

What impacts have we seen from AI? 

I think both Moiz and I agree that we haven’t seen a ton of game changing AI tools just yet. 

We both like ChatGPT… I like FlockShop.ai where you can create renders of models using different shades of cosmetics on different skin tones etc. 

Moiz has seens some interesting tools for AI being used for customer service and chatbots where it can handle simple questions and responses. And I have seens some pretty unique AI content on TikTok where people are using Eleven Labs for AI voice overs and both Dall-E and Sora for AI images and videos. 

They use ChatGPT to generate the script. Eleven Labs to make an AI voiceover. Dall-E and Sora to generate images and videos based on the script. These are great tools for making trending, interesting creative right now, but none of it is quite ready for major brands. I don’t see LVMH or BMW running AI ads. There are still a lot of questions for the big brands about copyright and usage since sometimes AI can just plagiarize other works and they brands don’t really know. 

That said, it’s a very interesting space and we will continue to watch it closely over the next few years. 

How much should brands be spending on paid media as a percentage of revenue? 

The next question that was asked was about how much should brands be spending on paid media/marketing as a percentage of revenue? 

Moiz thinks that high AOV, durable products that have more of one time, or very infrequent purchase rate, i.e mattresses, jewelry, cars, etc, can spend upwards of 50-60-70% of your total gross margin on marketing. 

So if you're selling a $2,000 mattress and your COGS are $400, and you have $1600 left in margin, you can spend up to 50-70% of that, i.e $800-1100 on paid ads which still leaves you with a profit if it’s high AOV. 

If you are in a repeat purchase category, 25-40% is a good benchmark to spend on ads. I agree and think anywhere from 30-50% of revenue on marketing is a good benchmark for a lot of DTC brands. 

How do you get customers excited about leaving reviews, posting about you on social media? 

Getting people to organically post about your product or brand on social media is really hard. IMO, it is not a good north star to have. Just think about yourself. How many times have you bought something and then posted organically about it on your own? Or gone to the brand’s website excited to leave a positive review? Almost never! Usually you go leave a review when you are upset… it’s rare people will, on-their-own, leave a positive review.

This rarels happens with the very best brands, so it’s not a great goal. 

As far as reviews, you just have to ask! It’s amazing how many brands don’t have a simple evergreen strategy to get reviews. You just have to be persistent and ask as many ways and as many times as you can until you get the reviews. Pay ‘em off, even — incentivize them!

The strategy that I like best is to send a plain text email from the founder a few days after the product lands at someone’s door asking for a review. Use this template:

xx

Hey! My name is {your first name} — I’m the founder of {brand}.

I hope that you are loving your {insert product name}. We had so much fun creating that product with our team and ensuring it helps customers like you {top benefit}.

I would love for you to leave us a review! We’re a new brand and every single review we get means the world. 

You can click this link to leave a review!

Thank you so much! 

xx

If you don’t want to offer a discount right away for a review… leave the offer for the second email. If they don’t respond to the first email, follow up a few days later and offer a discount on their next purchase, or a gift with their next purchase or a a gift card or cashback, etc. Personally, I’m a huge fan of leveraging cashback as a lever here — the $40 cashback amount may really be $18 in COGS to you.

You could also run contests where you give away free products each week to one person who leaves a review.

Moiz agreed with the plain text founder email strategy but had one more thing to add. He said one thing they did in their emails was say:

Hey {first name}, did you love our product? 

Please leave a review here. 

If not, just reply to this email so we can make our product better. 

Moiz said that asking them to reply with feedback is much better than posting a negative review so he wouldn’t just ask for a review (since it might be negative) he would ask them to reply to the email instead. Pretty smart! 

Which large retailers might not make it next year? 


This one was a little dark... One of our listeners asked us which brands we think might go bankrupt next year. I hate answering these types of questions because I never like to put out negativity — I’m a firm believer that what goes around, comes around.

That said, as far as public companies, I said Big Lots, and Rite Aid might file for bankruptcy next year. I have no conclusive data other than all of their stocks are down a ton, and I can’t remember I went to either. Rite Aid I actually used to go to, but they’ve either been overrun in NYC or closed down. Big Lots also reported a net loss of approximately $480 million last year.

Their stock price has dropped significantly from its peak of around $66 to about $4 recently, marking a decline of over 90% from its high. And the current market cap is around $115 million, which is a massive decline from its peak when it was over $2 billion. Rite aid is also down 99% from their high. 

Moiz said the container store which is also down 98% from their IPO

It’s interesting to think how these could become turnaround projects for someone in private equity. They are all recognizable, household brand names, each with a big customer base. They just didn’t innovate to keep up with the times, aka Amazon and Target. Being a retailer isn’t just being a marketplace, it’s building that affinity so when someone wants a skincare product, they only go to SEPHORA to buy it. 

How can a brand with an AOV of $30 survive in direct to consumer world? We're Amazon only for now, but trying to make the switch to direct to consumer, but the math doesn't seem to work. What do we do? 

The next question asked us about moving from Amazon to DTC with a $30 AOV. 

In general, both Moiz and I believe that in order to do this you need to work to get your AOV up so you can spend more on ads. That means either raising prices, offering bundles, offering a post purchase upsell, only selling in bundles/packs, or offering a subscription that gets refilled every quarter, etc. 

If you want to make DTC work, you need to get your AOV up so you have more room to spend on acquisition. Otherwise, just by using simple math, it won’t work.

Additionally, Moiz said that he rarely sees Amazon brands that are 100% Amazon make the switch to DTC and eventually make DTC larger than their Amazon business. There are many successful DTC brands that eventually sell on Amazon but it’s harder to do it the other way around. 

If you have a healthy business on Amazon, perhaps just double down there and try to 3-5x the business before moving to DTC. Another option is to make your DTC offering very unique and special. 

Try offering some exclusive products that are only available via DTC that you can’t get on Amazon at all. There needs to be a clear reason for your customers to shop direct and change their purchasing behavior from just finding you on Amazon. 

And that’s it for this week! I hope you got a ton of value from almost 9 pages of questions and answers all about marketing and DTC. 

Next week, I’m planning to write about the M&A process as a brand, and I’m interviewing someone who’s done a number of deals.

Now, onto some fun stuff…

Vendor of the Week:

SARAL — The marketer’s favorite influencer management software, powering creators for Brooklinen, Legends, and others!

Most influencer platforms do the same thing, and they lock you into 12-month commitments without getting to even trial the platform. Luckily, DTC Twitter showed me the software that the people love, it’s SARAL!

Ok, what all does SARAL do at half the cost of it’s competitors? Everything you could ask for:

  • Influencer search engine: find any influencer on the planet
  • Automated, personalized outreach and built-in comms
  • Relationship management system (aka CRM for creators and influencers)
  • Affiliate tracking & Payments (finance team will thank you)
  • Social Listening

Now, what makes SARAL even better? Their red-carpet onboarding process. Their customer happiness team will support you every step of the way. Red carpet onboarding, weekly check-ins, and strategy calls to help you make the most of the tool and your influencer marketing program. Tell them you want the Sharma Red Carpet!

Get a quick demo or an extended trial on this special landing page from SARAL! Worst case, use it for 3 weeks and dump it. But at least give it a shot, it’s been the golden horse that everyone has been looking for with influencer/creator outreach and management!

Sign up for an extended free trial or book a demo here!

That's all for this week

I hope today’s newsletter gave you 1 or 2 things to think about. If I wasn’t so dead from this half marathon today, I’d go ahead and answer the remaining questions we got in the Limited Supply Slack Community. I’ll save it for another newsletter though — and if you have any questions you want to add, just hit reply and send them over!

It’s a Sunday night, which means one thing… 9 hours of sleep is the goal for tonight! Makeup for that crazy Friday and Saturday night, even if you stayed in but slept late. Your body will love you for it tomorrow morning, and there’s no better way to start the week off than with a full sleep.

Next week, I’m excited to dive into all things M&A, prepping your company for an acquisition, how to think about who to shop your brand with, and how to get that whole process started. I’ll see you next Sunday, same time, same place!