Avoiding the complexity tax with Matt Putra

Hey everyone, 

Welcome back for another bite to chew on. 

Today we’re going to try something a little different. 

Instead of going over our own strategies and experiences all the time, we want to feature some of the many dedicated and talented people we know in the DTC community from time to time. 

To kick things off, here’s a sit down we had with Matt Putra, founder of Eightx - a fractional CFO service helping DTC and CPG companies buff up their finances so they can profitably scale and maximize an exit.

Matt has years of experience as the head of finance for both private equity funds and DTC companies, including Fikse Wheels and Little & Lively, as well as the fractional CFO for brands like Tumeric co and Tru Earth. 

Matt’s background as a chartered accountant and controller means he is grounded in GAAP fundamentals and the foundational aspects of financial management. 

But he has also spent time on both sides of the table - as an operator in consumer businesses and as a finance leader in private equity - giving him a unique perspective of each side's pain points, incentives, and needs. 

In this discussion, we got to pick Matt’s brain about what he has seen as a fractional CFO for a variety of e-commerce brands. 

We also asked him how DTC companies should approach their finances and business operations as they pursue profit (and exits).

On the Menu:

• How to focus (and avoid the complexity tax)

• Test to expand

• Case Study - Going from $600k in the red to a life-changing exit 

Avoid the complexity tax

Focus is something Matt sees DTC operators consistently struggle with. 

“One of the things I've been counseling a lot of people to do lately is  - do less stuff. You know how they say culture eats strategy for breakfast? And I think focus eat strategy for breakfast. Because the people that I've seen that focus on a very specific thing have been the ones that I watch succeed quite a bit. ”

SKU expansion, channel expansion, market expansion, new ideas, new opportunities - they all take time, money, and capacity to execute. 

“Shiny new object syndrome” is a bad habit for brands, both big and small.

“So generally what I see happen is something like this - they start out, hyper-focused, right? 

‘I have this idea. I have this thing, let's do it.’ And it goes well. And then they think, ‘I should probably improve my AOV.’  

And so then they add some adjacent (or not that adjacent) products. Now they're managing SKUs and a safety stock level at their 3PLs. So what happens is you get working capital sucked into these SKUs that don't really turn but for your cart-building activities. 

But that working capital could be spent on other things, like marketing, growth, creative and things like that. But it's stuck now in these SKUs.”

There was a competitor of one of my companies, and they were hyper, hyper-focused, meaning they sold, like, two SKUs compared to our 400. They started after us and leapfrogged us to get to multi-nine figures way faster with a leaner team. 

And I was like, oh my God - that's the power of focus.”

Focus doesn’t just come down to your inventory management or working capital. Matt noted that premature marketing and sales channel expansion can also complicate things for DTC operators. 

“What people want to do is diversify against risk. And so they're like, ‘I don't want to do Meta only because if something happens with Meta, then we're going down the tube.’ 

There’s also obviously Instagram, and then there's Google…so the argument for not expanding your channels is that now you need to have people or an agency that can do both. 

When you add people or agencies, you're adding connection points. Connection points are expensive because they grow exponentially. So now you have an agency that talks to the marketing manager, but also talks to the other marketing staff…you have an exponential explosion in communication, which means more meetings, which means less time to create and work.

Someone I know recently called it the complexity tax, and I like that a lot.”

How to test to expand 

So what do brand owners do when they are considering bringing on a new product? Matt has advice on how to look at your inventory and finances to understand when it makes sense to move beyond your core focus. 

“Look at what your SKUs turn at today, the good ones. Then, look at what your not-good ones turn at. 

Then you should try to model this out for this (new) SKU - what should the turn rate be before you buy it? It should be somewhere in between your best and your worst product. Preferably closer to your best. 

I've talked to multiple M&A folks and you don't get credit for adding new SKUs that do, like, 2% of sales. A material amount of sales for a new SKU is 10%, minimum.”

Being ruthlessly focused doesn’t just apply to adding new stuff. Matt says you should be evaluating your existing catalog as well. 

“Every six months I'd review your SKUs and which ones are turning, which ones are growing, rate of sale, all that kind of stuff. 

And if they're not materially growing, I would cut them. Because to me, adding like $5 to your AOV, means you have to hold a bunch of safety stock and do all the purchasing and the MOQs (minimum order quantities) and figure out all that stuff. 

I would rather somebody was first purchase profitable, and just grew more on the “primary” SKU by improving the customer experience…getting more LTV from that thing, etc.”

Tool of the Week 

Let’s talk about lowering your complexity tax a little bit before moving on.

We did that at Obvi a little while ago when we moved our retention programs over to Sendlane. 

We all know managing email and SMS can be messy.

Multiple flows, segmentations, and campaigns. And there’s a good chance you’re using more than one platform to do all of this stuff. 

Not only did we want to consolidate SMS and email, but ideally we wanted a tool that would improve our retention performance as well. 

Oh yeah, and we didn’t want migration to be a nightmare. When you have thousands of subs, dozens of flows, and millions of dollars of revenue on the line, a long or disruptive migration is a nightmare scenario.

Luckily, Sendlane checked all of these boxes for us.  

Their onboarding team not only made sure we had a smooth migration but also leveled up our strategy – by moving email and SMS to one platform, they were able to:

✅ Clean up our contact database and increase subscriber value by 32%

✅ Upgrade automation flows

✅ Add fresh email content that increased click-through rates by 8%

✅ And create new customer segments based on missing attributes

The best part? Their Move Now Pay Later offer —>

It’s as simple as it sounds. You don’t pay until you’re fully onboarded, warmed up, and sending emails again. And they do everything they can to help you out. 

So if you’re thinking about consolidating your retention and lowering your complexity tax, there’s never been a better time to give Sendlane a chance. 

A Case Study - from $600,000 in losses to FU money

We asked Matt about the power of proper financial planning and forecasts. He was able to share an inspiring story of how understanding your numbers can completely turn a business from a loss to a major liquidity event. 

“Here’s a great story about a client that’s exiting this year. 

When I joined them…they were doing $2-3 million a year. They had around $600,000 a year in losses in the prior two years before I met them. 

They had piles of debt - and all the worst kinds. One of the things the founder had done is they had flown over to Asia and found a new supplier and cut their COGS by 2015, 20%. 

And so they were getting more margin, but they were like, we have so much debt. We only have limited money. What do we put the money into? Marketing? pay down your debt? Or buying inventory? And so for us, we jumped in.

We built a financial forecast, a SKU inventory forecast, and capital and debt forecasts. 

And we were simulating outcomes. Whether you paid debt, did marketing, bought inventory. The simulations would show one thing or another, and based on what they would show, we would make the decision. Most of the time, it was ‘try to buy less inventory and spend more on marketing’, because what we ended up finding out is they were first-purchase profitable.”

But what about the debt obligations and cash flow?

“It was giving them very, very clear guidelines on their marketing and communicating those to their agency with red, yellow, green lights. 

They discovered they were capped out at a certain MER (marketing efficiency ratio). We told them if ‘you spend more money, your MER can drop because you technically will have more contribution dollars, not contribution margin, but you have more contribution dollars to the bottom line if you continue to spend.’ 

We would model the impact of how much could they spend and what could MER drop down to, making sure that we had more dollars coming in.”

As the company went from red to green, Matt helped them expand (the right way). 

“In the meantime…they figured out what people were buying from their competitors. They launched a complementary product, and we had to help them plan the launch dollars and everything. 

They sold $250,000 on the first day. And then obviously we started to figure out, okay, this thing sells, but we sold out. So now how do we buy more with a four-month lead time? 

Then it was constant back-and-forth communication with the CEO, purchasing, marketing, finance - trying to figure out how we're going to cash flow. 

This year they'll do $15 million at $1.5-2 million EBITDA. And they're gonna exit this year for some life-changing money for the founders. 

So that was a good one. It was really fun.” 

Sum it up

We’ve said it before and we’ll probably see it again - once you’re beyond product market fit, you need to take your numbers and financial planning seriously. 

Even if you have a great product, great marketing, and a great team, you can still end up lost and broke if you don’t know your margins and can’t forecast your cash flow. 

Matt’s perspective on focus is also a key insight for founders. It can be easy to constantly chase every new tactic, every new platform - wonder if that new product will put you over the top. 

But you can end up running in a dozen different directions and getting nowhere. 

It’s easy to be distracted by shiny new toys, but doing a lot of things kind of well is often not as powerful as doing a few things at an elite level. 

Thanks again to Matt of Eightx for taking the time to share his insights and expertise. 

All the best,

Rona and Ash