OPS UNFILTERED EPISODE 48

Brands Don’t NEED an ERP! (They Need This Instead)

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Meet Jon Blair

Jon Blair is an ecommerce finance visionary who founded Free to Grow CFO to fill the massive gap between a bookkeeper and a full-time CFO. His firm provides fractional CFO/Controller services, asserting that lean ecommerce brands can achieve 9-figure revenue without a bloated in-house finance team. Jon specializes in solving "upstream" operational problems that cause "downstream" financial issues, focusing on cash-led forecasting and making smarter, risk-adjusted inventory bets.

Episode Synopsis

What if your ERP is secretly costing you 4X the price? Jon Blair, Free to Grow CFO founder, reveals the true cost and operational drag of the "NetSuite Trap" plaguing $20M+ ecommerce brands. He details the blueprint for right-sizing to a specialized tech stack (IMS + QuickBooks) and a fractional finance engine to slash costs. In this episode, learn how separating your GL from your operations and using cash-led forecasting helps you scale efficiently and avoid Q4 working capital disaster.

Stop letting outdated habits dictate your fixed opex. Get the playbook for a leaner, faster, and more profitable operation. Luminous provides the right-sized operating stack to master your entire supply chain, giving you the clarity to make risk-adjusted decisions and avoid the ERP trap. Book a free demo today and see the modern solution in action.

Ops Unfiltered Episode 48 unpacks:

In this episode, Free to Grow CFO founder Jon Blair exposes the "NetSuite Trap," revealing why your ERP may secretly be costing your $20M+ ecommerce brand four times the expected price. He details the blueprint for right-sizing to a specialized tech stack (IMS + QuickBooks) and a fractional finance engine to slash costs.

Jon Blair's Blueprint for Modern Commerce Finance
  • Jon shares why the NetSuite trap often costs mid-market e-commerce brands four times the initial fixed-bid implementation price.
  • Jon reveals that the financial problems seen in reporting are usually downstream consequences of broken operational systems.
  • Find out what Jon believes is the primary purpose of a CFO—to assess the risk of inventory bets and secure capital, not just close the books.
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Jared: 0:00All right, welcoming back John Blair into the studio. This is actually John's first time ever visiting the Luminous Office.Jon: 0:07

Yeah, man. Uh our last episode must have gone okay because you invited me back.

Jared: 0:11

Well, more than that, we've been partnering together ever since then for a long time. So um when was the last time we did that podcast? That's 25 years.

Jon: 0:28

I actually don't know. It was a while ago. I was recounting the story yesterday and I was like, wait, that was a while ago. We've definitely done a lot together since then. And I mean it's actually fun to see how both of our businesses have evolved and grown in that short amount of time.

Jared: 0:43

It seems so coincidental because we're both solving the same problem, but two very different sides of it. So Luminous is we're the operating, we're the operations and system side of things. You are the financial services side. And they're so intertwined. Like one can't work without the other. Which is why I think everything happens so authentically.

Jon: 1:12

Definitely, definitely. No, I mean, um, as I've talked with you about before and a ton of people on our team at Free to Grow, um when we see issues, a lot of the stuff that comes to us on the accounting finance side, it's I consider to be downstream, like in the accounting or in the reporting. We're reporting on stuff on the financials that have already happened. Like the decisions were made, the transactions were processed or not processed if there isn't a system, but like that all happened upstream. And so when we have these recurring problems with our clients operationally, or well, I'll say financial reporting-wise, and we see the pattern that like numerous brands have that issue, we're like, okay, this is a pattern. Numerous brands have this. How do we get upstream from this? And as we go upstream on some of the most frequent issues we have with cost of goods sold, ultimately margin reporting, because cost of goods sold is such a key component in margin reporting, we always end up at this discussion about like what's the system that's managing all this? Because usually it's either the wrong system or just complete lack of a legitimate system for managing inventory and cost of goods sold that causes huge, huge issues for us. And the thing is, it's not just PL reporting implications, it's cash flow uh implications, inventory planning. I mean, it's it it just it hits the business's financials in more on more than one financial statement.

Jared: 2:41

So but I've we've got a bunch of topics that we're gonna go over today. Um before we do, quick recap, like give like the 60 second recap of both our businesses, because I think I do think it's really interesting about how how similar our growth trajectories are. So back when we talked in 2023, how many customers were you guys at? And then what has the growth been like today?

Jon: 3:02

Where are you guys at? It's funny, I I'm guessing because I don't have the numbers in front of me, but I think probably back in 2023, we most likely had somewhere around 15 brands we were working with. Today we have close to 45, so almost three times as many. Um, and we now have a team of about five really incredible e-commerce focused fractional CFOs, and then about 10 uh controllers, accountants, and analysts on the team, all e-commerce experts.

Jared: 3:35

That's awesome, that's incredible. Yeah, so Luminous, we've we back then we had probably like around the same. I don't know if the numbers are either, it's but probably between like 10 and 20 customers at the time. And then now we're we're over a hundred. So but what's interesting is we've we've followed like a similar path. For sure. Without, I mean, it's not like it was strategic or anything. It or at least like us following a similar path wasn't strategic. It's not like we talked to each other about the past. No, but it we naturally sort of found ourselves targeting the same ICP for different reasons, for sure.

Jon: 4:11

And with uh, I mean, honestly, I that light bulb went off for me within the last couple months, right? Um, as we have been seeing our pipeline naturally move up market. And when I say naturally move up market, what I mean is that like we're just getting a track record of working with more and more, you know, brands doing at least 20 million a year in revenue. The word is getting out that we are providing a great service and really helping take brands to the next level. And so as we work with more 20, 30, 40, 50 million dollar brands, we're encountering the same challenges that you guys are solving at Luminous. And from my perspective, what you guys are building at Luminous, you guys moving kind of up market to serving that same that same group of brands, I think it's natural because of the pain points of the brands and the growth the the what you have to do in terms of expanding the business's complexity into multiple channels as you continue to scale to that size.

Jared: 5:16

Okay, so the first topic that I want to go over is uh we call it the Net Suite trap. So as for the context of everybody listening, as we've gone up market, um, what's more and more common up market is most brands back in 2019 through 2021, they found themselves on Net Suite. If you were scaling from like 10 to 20, you're probably on Net Suite.

Jon: 5:40

Definitely, definitely. No, I mean, um, as I've talked with you about before and a ton of people on our team at Free to Grow. Um when we see issues, a lot of the stuff that comes to us on the accounting finance side, it's I consider to be downstream, like in the accounting or in the reporting. We're reporting on stuff on the financials that have already happened. Like the decisions were made, the transactions were processed or not processed if there isn't a system, but like that all happened upstream. And so when we have these recurring problems with our clients operationally, or well, I'll say financial reporting-wise, and we see the pattern that like numerous brands have that issue, we're like, okay, this is a pattern. Numerous brands have this. How do we get upstream from this? And as we go upstream on some of the most frequent issues we have with cost of goods sold, ultimately margin reporting, because cost of goods sold is such a key component in margin reporting, we always end up at this discussion about like what's the system that's managing all this? Because usually it's either the wrong system or just complete lack of a legitimate system for managing inventory and cost of goods sold that causes huge, huge issues for us. And the thing is, it's not just PL reporting implications, it's cash flow uh implications, inventory planning. I mean, it's it it just it hits the business's financials in more on more than one financial statement.

Jared: 7:09

So but I've we've got a bunch of topics that we're gonna go over today. Um before we do, quick recap, like give like the 60 second recap of both our businesses, because I think I do think it's really interesting about how how similar our growth trajectories are. So back when we talked in 2023, how many customers were you guys at? And then what has the growth been like today?

Jon: 7:30

Where are you guys at? It's funny, I I'm guessing because I don't have the numbers in front of me, but I think probably back in 2023, we most likely had somewhere around 15 brands we were working with. Today we have close to 45, so almost three times as many. Um, and we now have a team of about five really incredible e-commerce focused fractional CFOs, and then about 10 uh controllers, accountants, and analysts on the team, all e-commerce experts.

Jared: 8:04

That's awesome. That's incredible. Yeah, so Luminous, we've we back then we had probably like around the same. I don't know if the numbers either. It's probably between like 10 and 20 customers at the time. And then now we're we're over a hundred. So but what's interesting is we've we've followed like a similar path.

Speaker 04: 8:23

For sure.

Jared: 8:24

Without, I mean, it's not like it was strategic or anything. It or at least like us following a similar path wasn't strategic. It's not like we talked to each other about the past.

Speaker 01: 8:32

No.

Jared: 8:33

But we naturally sort of found ourselves targeting the same ICP for different reasons.

Jon: 8:39

For sure. And with uh, I mean, honestly, I that light bulb went off for me within the last couple months, right? Um, as we have been seeing our pipeline naturally move up market. And when I say naturally move up market, what I mean is that like we're just getting a track record of working with more and more, you know, brands doing at least 20 million a year in revenue. The word is getting out that we are providing a great service and really helping take brands to the next level. And so as we work with more 20, 30, 40, 50 million dollar brands, we're encountering the same challenges that you guys are solving at Luminous. And from my perspective, what you guys are building at Luminous, you guys moving kind of up market to serving that same that same group of brands, I think it's natural because of the pain points of the brands and the growth the the what you have to do in terms of expanding the business's complexity into multiple channels as you continue to scale to that size.

Jared: 9:45

Okay, so the first topic that I want to go over is uh we call it the Net Suite trap. So as for the context of everybody listening, as we've gone up market, um, what's more and more common upmarket is most brands back in 2019 through 2021, they found themselves on Net Suite. If you were scaling from like 10 to 20, you're probably on Net Suite. Um and you have experience with that. As at Guardian Bikes, you guys went from QuickBooks to Net Suite back to QuickBooks. Yeah. So w walk us through that. Like what what happened between 2019 and 2021? As brands were scaling so much. Why why did everybody go to Net Suite? And then yeah, and then we can revisit from our perspective now, five years later. Totally. How is that going for everybody?

Jon: 10:35

So we were scaling fast before COVID, but then in 2020, uh e-com exploded even more, and we're selling bikes. Bikes exploded because you couldn't do anything because everything got shut down. So everyone was buying bikes, even at physical brick and mortar retailers, people were buying bikes. So we were at the intersection of e-com blowing up, uh of our business already growing, e-comm blowing up during COVID, and then bikes blowing up. And so our the business went through the roof. Um as we started thinking about what 2021 was gonna look like, we had to start thinking about like what systems in the business are gonna break. And we did also know at that time, you fast forward to today, Guardian is a nine-figure brand and has a factory in Seymour, Indiana. Uh we have several warehouses that we own and operate. And so we knew we were gonna start a factory back then. Um, and so you know, our CEO was like, John, I need your help assessing like what system do we need to get on to support the business today, but that we can grow into as we turn into a manufacturing business, which we knew was gonna take many, many years, right? And so I went to survey the landscape. I talked with dude, I spent I spent months. It this was such a huge project. This I think it took me probably four months just to do discovery calls and demos and um and research on like what options seemed to be available to us. So I talked to Acumatica, I talked to Dynamic365, NetSuite. There might have been a couple other like obscure ones that I'm not thinking about.

Jared: 12:16

There's a couple things that I think are in common with other brands who chose NetSuite in like 2020. And it's you you guys were experiencing massive growth. Yeah. So you're sort of you were thinking that like, oh, this new demand, totally, this is just the new norm for us. It's here to stay. Exactly. And you're like, we need something scalable. Yeah. Like this isn't working, like we're gonna go to 100 million. No, Guardian did go to 100 million. But a lot of brands didn't. A lot of brands didn't after that. Especially five years later now, like you've the dust has settled. And so that that's interesting. I think that's a common trend.

Jon: 12:50

No, for sure. That's a good point. That like during that time, a lot of e-com brands were blowing up. And if you extrapolated the growth out in your mind, say three to five years, you're like, hey, I might be a nine-figure brand pretty soon here. And so the thinking, which this I would say is not faulty logic in and of itself, is that like I don't want things to break on the way to 100 million. I don't want to get to 100 million and be like, dang, I should have done this a long time ago. I want to get out ahead of it, right? And so from my perspective, here are the things that sold us on Net Suite. Uh, one, they and and they talk about this in the sales cycle ad nauseum. I mean, constantly. We're going to give you a fixed bid for the implementation. And they tell you everybody else is gonna give you an estimate that's really hourly time and materials, and you're always you always go over. And so like when they and mind you, because they said that to me, fixed bid, I spent weeks, I had multiple calls with them going over all of our requirements to absolutely confirm that all of our requirements were included in this fixed bid, because that was their selling point to us, right? The other selling point was, and I we were talking about this this morning, I can't for the life of me remember what this program was called, but they were selling at the time, they had a name for it, this I'll call it, they they pitched it as like Net Suite Lite, basically. It was for the lower to middle market, it was a web-based application, and they said it was trimmed down to like the core features that a brand of that size really needed, but you could easily bolt on the full-scale enterprise level Net Suite functionality as you continued to grow. And you know, they if I remember correctly, they were starting the pricing like in somewhere around $2,000, $2,500 a month. And so I remember the pitch.

Jared: 14:44

It didn't it so there's like the advanced inventory management system, there's like suite analytics and stuff. It was just like this condensed version where it's like, see, like we can get you on and then you can grow into it. And it sounds great, like, oh wow, I can get NetSuite for $2,500 a month.

Jon: 15:00

It sounds great. Um the implementation was a nightmare. Um, and you know, like I've been through a couple ERP implementations before. Every ERP implementation is a lot of work. Like, I'm not gonna like no sunshine and rainbows here. It's hard work. Um, it is somewhat traumatic. Like, even if it goes well in the end, it's it's a lot of work. And there's always, always unforeseen hiccups. There's no way around that. I don't care how good the company is that you're working with, it's just part of the complexity, right? Um, but it was a lot worse than we thought it was gonna be. And you know, the way that NetSuite controlled their cost on these fixed bids is we worked with a peep a team in Manila in the Philippines. Like and they were the nicest people, but they worked all night long, you know, local hours. Um, I got to know several of them very well. It it's just a group of implementation specialists in the Philippines, and you know, hard workers did the best they could, but very disconnected from the U.S. team that we bought Net Suite through, right? And so if you need to escalate anything, you're escalating it through this arm of the company that's in the Philippines. You're not escalating it through. And you know, I reached out to our sales rep a couple times, and he's like, Yeah, let me see what I can do, but it's like he's gotta figure out inside the organization who how how he how he really actually gets the problem solved. There's a big disconnect.

Jared: 16:25

So there's two sayings in like in SaaS businesses where like you don't want to be you don't want to be the biggest customer, but uh the inverse is also true. You don't want to be the smallest customer. For sure. And the thing is, even if you're a hundred million dollar brand on Net Suite, like you're a small fry to Net Suite. Totally. I mean, that's why they give you the the Manila team for implementation. It's totally you you want the $2,500 month package and 100%.

Jon: 16:52

And so like we ended up the the implementation took way longer than we thought. Um, I don't know how much how long it actually took because I actually left Guardian and started free to grow CFO while it was still going on. We thought it was going to be done by the time I left and and it wasn't. Um it I but I stayed close to it because my controller who kind of took over from there, he now works for free to grow CFO. So like he shared the war stories, but it went it went like six, seven, eight months longer than than they thought, and they still could never really get like the inventory data. They never they never got the outcome they wanted on like costing and financials and stuff. And so um a year later, they just canceled the contract or like canceled the renewal and just moved themselves back to QuickBooks Online and and uh moved on from there.

Jared: 17:44

So let's I want to go over because the all of the details in between that are so important. Here's operator or finance people who don't have a ton of experience with NetSuite, what they hear is $2,500 a month, yeah, fixed implementation costs, sign me up. Let's talk about the details of like because now at this point we've done we've done we've done a good amount of NetSuite migrations. We understand, you know, five years later where those brands are. Either you ditched early, like like Guardian, or you stuck with it. Okay, so if you stuck with it, where are you at five years later for sure?

Jon: 18:25

So I would say, and I'm curious to get your opinion on this, I'd say there's a couple different kind of archetypes here. The most common is, hey, NetSuite is doing uh after a very painful implementation, right, that went way longer than we thought and actually ended up costing more than we thought because we got through that fixed bid and everything didn't still work. So there was more money to spend, either via NetSuite or an independent consultant, right, to continue dialing it in. So all in all, like all these brands are like this thing ended up costing two, three, four times as much as that fixed bid that I made the decision on, right? Um and now it's working. It was painful, but now that it's working, our licensing fees have gone up for a number of reasons, whether it's number of transactions that are like the transaction processing limits or or like users, um, and they have either on staff and NetSuite admin developer, whatever you're gonna call it, or they use a consultant group that all they do is NetSuite, you know, um admin and customization, both of which are very expensive. And so then where they're at five years later is like, okay, it's finally working. We paid an arm and a leg for it, and we're spending two, three, four, five, six times as much as we uh as that twenty five hundred dollars a month we started with just to keep this thing going and keep it moving, let alone and part of that too is the the connectors. The connectors are all third parties, whether it's like Celigo or one of those other ones, you're paying a third party to build an integration. And e-commerce brands have even more connectors than a B2B wholesale brand, right?

Jared: 20:10

That right there, it's it's the delta between what you thought was going to work, which is fixed implementation cost $2,500 a month. Yeah, maybe they'll raise prices 20, 30% a year. Uh whatever. So the delta between that and what it actually takes to work. And I'll give you some very specific examples. You already brought uh a couple of them. But this is what we see. So an e-commerce brand, omnichannel. It's very common that you've expanded you you go to Shopify, maybe you have a 3PL uh fulfilled by TikTok, FBA. Well, guess what? NetSuite doesn't integrate with any of those out of the box. And then something as simple as my 3PL needs to pull in my fulfillment data from my sales orders from Shopify, push the fulfillment status back. Or let's say you do merchant fulfilled TikTok. You know, uh I need to pull in that sales order, route fulfillment orders to my 3PL, push back status. Net Suite does not do that. Like that is so basic.

Speaker 01: 21:11

Yeah.

Jared: 21:11

To e-comm. Plug into my e-comm sales channels, push to my 3PL, push back stat. Like that should be basic e-com use case. It doesn't work. First off, so to connect with your 3PL, you will have to use SLEGO. SLIGO will cost anywhere between 15k to as high as 50K a year, depending on on the usage. Um then Soligo will tell you like, all right, well, I mean, we can't push the order status back, but you can use Net Suite Connector to do that. So boom, okay, you already have two connectors to do a basic e-commerce use case. Net Suite Connector will cost, again, between like 15 and 50 gay, depending on how many channels. Okay, but you're still not done yet. What about pushing in like something as basic as, all right, we got the we got the basic IMS and it's kind of working, but like we got to push available inventory to our channels. Or we want more of like PIM functionality where, okay, uh, you know, I'd I'd want my product listing details centralized and I want I want to push my description and images to from Net Suite to Shopify. Doesn't work out of the box. You have to expand Celigo for that, or you have to use another connector. Um another another use case is say you can't stand your FBA replenishment flow and it's like seven steps because you just get the Net Suite out of the box, the basic version. All right, well, you want to make it two steps and you want to integrate it with a 3PL. Well, you're gonna have to customize it.

Speaker 01: 22:45

Yeah.

Jared: 22:46

So so like customization, then then like another one that always happens. So you have Net Suite finally implemented and you you add two connectors and you have a developer on staff for customizations. Um the the next most common thing is like, okay, extracting my analytics. The analytics that they give you, oh my God, it doesn't work in the dude. I have to have somebody to build a report who's a Net Suite expert.

Jon: 23:10

I can't do it. I hate that they call it analytics. They they sell that so hard, the whole sales process, like the dashboards, the customized dashboards. Those dashboards are garbage. I mean, I'm sorry. I'm not trying to like like anyone from NetSuite is listening, I'm sorry, those dashboards are garbage. Like, and uh, but like there's a couple things you're saying that I want to like draw out. The first one is we we got lured in, and I think a lot of brands get lured into Net Suite can do anything. I think that's generally true. It is Net Suite can do anything. The second, the follow-up question to that though, that everyone should be asking is how? How do you do that? And and when you answer how, that's where you start figuring out like, oh wait, I gotta use a third party for this, and then I need, and then every time I want to change this, I gotta so I want to actually like now take that, and I don't mean to segue we don't have to segue to this subject yet if you've got something else for us to chat about, but like the the issue with how the cost of adding on the functionality you need to NetSuite grows, I think is actually unique for e-com brands as they grow. Because let's just contrast this to a wholesale manufacturing business. They manufacture and they wholesale the retailers. They may have no connectors, right? Like like with the first ERP system that I was a part of of running where I like cut my teeth and managing ERP, it was a factory. We didn't sell direct to consumer, we sold to retailers.

Jared: 24:49

You might just have like an integrated with a TMS and that's it.

Jon: 24:52

That's it. Like we had we had no no connectors. E com brands, we are in the world of connections, we're in the world of API connections. And furthermore, as you scale, the playbook of scaling generally is you know, maybe start D to C, that has a connector, and then add Amazon. Now, now another connector, maybe more. TikTok. And then like, yeah, now TikTok. And then you're like, oh, EDI would target. And so the point I'm making is as if you're scaling from say 10 million to 100 million and you're adding on all these channels, each of which has at least one more connector, there's a very unique problem that eat multi-channel e-com brands have on Net Suite that not all other business models have on Net Suite. And so I think what we're seeing five years later is like the aha mom aha moment with all these brands of like we didn't grow as big as we thought, and we didn't think, and I don't think Net Suite, I don't think Net Suite thought about like what a brand's monthly cost is gonna look like all in if they're e-com multi-channel. That's not if you look at the legacy of NetSuite, that's not what they built their business on. Right. They didn't build their business on on the that business model. For them, it's probably great from a revenue standpoint, and all their partners and like third parties are pumped, but like it just doesn't fit with the modern e-commerce brand PL. Look, I look at hundreds of e-commerce brand PLs every year between our the the companies that we work with and all the CFO audits I do as a part of our sales process. And the modern e-commerce brand is lean and mean, like 10% fixed operating costs. The 10% fixed operating cost does not align with this bloated fixed opex that it takes to manage a multi-channel e-commerce brand on Net Suite.

Jared: 26:42

And to give a very specific answer, where where are these brands at five years later? Well, they're getting off of Net Suite and we're migrating them off. But here's what we see. You go from $2,500 a month, fixed implementation costs. Well, guess what? Five years later, that that $2,500 a month, just the through price raises of NetSuite, even if you haven't grown at all, that's probably more like between five and ten thousand dollars a month, just as your base fee. Okay. Uh then you have potentially two developers on staff to maintain customizations. Um they might be fractional, but still that's probably another five to ten thousand dollars a month on top of that. You have Seligo, Net Suite connector, an EDI connector, maybe multiple EDI connectors. So that's that's an additional, let's call it, I'll be generous here, like or rather, I'll be conservative. That would be an additional cost seven thousand dollars a month to have all of those connectors do just basic e-commerce API connections.

Speaker 01: 27:42

Yeah. Then crazy.

Jared: 27:44

You'll you'll have um you probably didn't want to use either you're paying an additional $2,000 a month for suite analytics because you need some analytics, or you're you had to do some custom like Snowflake connection to pull out your data, put it in your own data warehouse, and then you you plug in Power BI. Like that has an extra associated cost. Um you might have a a net suite sort of like admin that just teaches you how to do stuff that will cost like we see it all the time. Yeah, totally. A salary five to seven K a month. Anyways, so to just give you that answer, you go from $2,500 a month to an all-in cost of like $20,000 to $30,000 a month. So just anybody considering Net Suite, if you're mid-market e-commerce, just understand that what they're pitching you isn't what it it's actually going to take to get the value you're you're being sold on. So we've uh we've at this point completed a couple Net Suite migrations, um, quite a few. And we have a bunch more on the pipeline. So I mean, after talking through the Net Suite problem, or I guess why brands reasonably chose NetSuite back in, you know, late 2010s, where they're at five years later. Um what is we've sort of found this offering that's really hitting right now. And it's it's the fact that Luminous and Free to Grow, we we give people the expertise to write say to right size your tech stack. Yeah. And that's key. Like you you I mean you can't just actually this is a question I would have for you. Do you think this is something, you know, getting off of NetSuite and Silico and all the you know, the the ecosystem of tools and and the NetSuite going from the Net Suite ecosystem back to like a right size tech stack, QuickBooks and an IMS and uh whatever else. Do you think it's something that a brand can just spearhead on their own?

Jon: 29:50

Not unless they have the right talent on their team. Um now I will I think you have to separate the general ledger component from the IMS or or like what you guys call operating system component because um there are some accountants who are capable of migrating the general ledger accounting from a Net suite to a QuickBooks online. But the operating system andor IMS, WMS, like all the components that go into like an operating system, doing that implementation, it's very complicated. And there's a lot of configuration, customization, and it takes a long time because of the complexity. And it's tech heavy. It's definitely tech heavy and it's not just configuration of an out-of-the-box out-of-the-box system. There's there's also coding that happens to actually customize things. I don't generally recommend that anyone try to do that on their own. Like I mean it's short of trying to build their own system but then at that point you're like you're trying to build a you're trying to build a SAS a SAS tool. I guess what I'm saying is a SAS tool takes a whole company to create because it's that complicated.

Jared: 31:13

So why would I I don't know why you wouldn't insource that right well we we even we've seen people who are like no just gonna try sin7 and we'll try the GL migration ourselves. So far it's never worked it's or it's like half baked. I I think the what we found, especially like in our migration with Fathead, um the people who actually want to write size their tech stack who, you know, they've woken up five years later, they're paying, they're all in cost to NetSuite is like 20 to 30K a month. They recognize that you need a professional that understands the migration of the GL uh from NetSuite to QuickBooks. And then you also need a professional SaaS tool and people that understand operations. Yeah. And when you when those two teams can spearhead it's it's like it's you we get it done the right way for sure.

Jon: 32:07

Well I will say this let me say this if you run just a Shopify only brand you might be able to get away with doing a self-implementation of Sin7 or of the or the like although I've talked to I've talked to more than one brand who tried to do that on their own and it didn't go well. But let's just say there's a greater probability that that might be able to work. But what we're seeing in the marketplace we're organically just starting to work with bigger and bigger brands. And so like if you take a brand's a digitally native brand meaning a brand that started on a single digital channel right um and you follow them through the life cycle of growth. So like four years ago when I started Free to Grow CFO, I didn't see this so clearly because we are working with brands at different revenue levels. Now that we've been here for four years and we have several clients that have been with us for a couple years and we've gone on this growth ride with them, what I see like we talked about this earlier the channel expansion that starts happening if you start having Amazon, Shopify, you know, maybe a few marketplaces Walmart.com and you know Nordstrom.com but then you also are selling to physical retailers all of those require different connections and maybe even different order routing depending on where those orders are getting fulfilled from and trying to use a Sin7 or the like to like implement trying to implement something like that yourself is crazy.

Jared: 33:43

That's when you need something like a Luminous because the the point here though is Sin7 is purely tech like sure you can get a consultant somewhere to like help configure Sin7 for you. But when you think of for example the wholesale AR problem that does like all those wholesale connections that you just named yeah just configuring your tech is is a piece of that but what about the question of like John how is how is this whole new wholesale AR piece and collections how is it even going to work with QuickBooks and Sin7? Yeah like what how are we even supposed to do that? There's there's there's so much consulting that has to happen. Migrating from Netsuit to QuickBooks um when do you do trial balances versus like all the transactions?

Jon: 34:46

It's like there's so many there's a lot to consider and it's unlikely that you have people in your team here's the thing if you have a good finance team and you have a good operations team what are they likely really good at? Being operators being a good operator is quite likely not the same exact skill set as migrating and configuring and setting up your tech stack. Like it's just not the same skill set right and so you gotta be mindful of that I always think about like like I think a lot of people let's just like even outside of e comm just like business owners uh consulting you hear a lot of times that consulting is expensive consultants are expensive. Well it's like consulting is all about capturing the value of a very concentrated and focused area of expertise for a time right and going much further in a short period of time than you would have gone by using a generalist to figure that thing out and so so that's in essence what we're talking about here is the difference between an operator and a true like consultant and utilizing consulting to get a focused like get focused expertise in a specific area to get things set up the right way so that you're set up for success going forward.

Jared: 36:06

Yeah I when when you said that that I I think what you get with the free to grow and luminous migration team is you get two sets of specialists. You get a essentially like e comm omnichannel finance specialist who understand NetSuite and QuickBooks. For sure they get it and then with Luminous we understand every everything that Netsuite and Selego and your EDI connector all everything they're doing, we get what Luminous is going to do, maybe what other tools will do.

Jon: 36:41

And together we we just spearhead that migration well you know actually I wanna I want to just elaborate on that for one second because so like um Matt Matt the guy named Matt on my team he heads up um our QBO migrations right now my former controller from Guardian Bikes um we developed the process together and it's interesting because you say that like you were talking about like e-commerce you know finance specialists when he is helping me scope out these migrations you know what he's asking me because he is and has been a controller for e-commerce finance companies he's like hey John we gotta make sure that we understand if they want us to set this up so that they can tag P ⁇ L transactions to sales channels because he's like I as a controller for the the e-com brands that I handle at Free to Grow, I know that we need to see sales channel PL visibility. So he's not just some random consultant saying like oh yeah I'll move your data he's a controller who actually closes the books for several clients and has done for years in the e comm space and he knows what brands need to see for the reporting to be helpful. And so he questions sometimes the setup that we should be doing which allows us to ultimately make sure that we offer to brands like when they're trying when we're trying to scope out these migrations like hey do you need to see sales channel visibility because that's that's very common right and so we can ask that up front and make sure that we set things up properly so that they have that reporting they need.

Jared: 38:19

Well there's also there's also a good amount of chemistry between what Luminous naturally does and what you naturally do. So for example, you guys it would be much more work if you had to get all the historical data and map it to all of the SKU catalog the historical purchase orders. That's something that we naturally do that as just part of the implementation process. So like that marriage you get the financial experts that understand how you're basically like stay in parity with what you're what you're extracting from Netsuite and make sure you get in QuickBooks, but also not lose all of the transactional and historical data.

Jon: 38:55

I'm smiling right now because like I'm gonna say a really cheesy joke. It's like when you're you you think you're about to buy it and do a peanut butter and jelly sandwich and there's only peanut butter in there like luminous and free to go CFO is like the full peanut butter and jelly sandwich. And it tastes way better than just peanut butter or just jelly.

Jared: 39:16

Sorry I had to do it manot another part that I would add and like we that's what we experienced with with Fathead for example um it was both teams getting together spearheading towards one unified go live and yeah they've been happy and uh live for for months now um we're doing more we've got a lot more on the pipeline uh the last thing I would say for example uh we just kickstarted value pet supplies oh oops we just we just kicked off value pet supplies so you guys are doing the GL migration Lumis doing the migration of all the operating tech part of the scoping out on the operating tech side was okay you guys use Siligo to um not only push all of your uh all of your orders from Shopify and Amazon into uh into your WMS but you also have to use another NetSuite connector to push back the order statuses we also uh in the scope we understood that they're essentially using NetSuite and Sligo as a PIM to push back product listing details to Shopify and to Amazon. So part of that scope out we identified like okay if we're gonna get you up from NetSuite and you're gonna still have the same operational workflow just less cost same features um we recommended a PIM called store automator. It's somebody that we already integrate with and so there's there's this complex there's this complex mapping of what exactly you're using in Netsuite for the operation side and the GL side and then making sure it's not just like all right here's Luminous and QuickBooks and you'll figure out later on that oh actually you needed a PIM and we just didn't know. We we scope all of that out from the beginning and we spearhead whatever tools you're going to need to get to the other side like we will make sure that we that that's we'll make sure that that happens in the migration.

Speaker 04: 41:20

For sure.

Jared: 41:20

So that's I don't know that's another thing that um I think is very important. It's not just well if if Luminist can't do it or if free to grow doesn't if they can't see it in their scope then like good luck. It really is a comprehensive scoping and migration to the other side. This brings up another question what companies actually need an all-in-one so like we you know we've dogged on Netsuite for omnichannel e-commerce now but in the reality like the reality is NetSuite is an amazing tool. It's incredible it can it can basically do anything if you put enough money into it in time. So what what company actually does need NetSuite in your opinion?

Jon: 42:01

Yeah so uh there is a use case for it don't uh you probably think up to this point if you've been listening to all this that that we just think that there's no use for NetSuite and that that's not the case. It's just the market that we are focused on it generally is the exception not the rule. We have a couple brands that we work with successfully that are on NetSuite um but they do what I call complicated manufacturing um complex manufacturing. So what does that mean? Let me differentiate it from simple manufacturing. My definition of simple manufacturing is effectively assembly or sometimes you might call it kitten meaning you buy in stock components you don't have to process those components other than put them together right you're not doing additional transformations on those components to turn them into different components or to subassemblies you're just going you're taking a set of components you're assembling them together and you're good to go. So like basic depleting of depletion of raw materials or components that turn into a finished exactly so an example that would be um at Guardian Bikes before we fully started our factory and started like actually making our own components right that's complex manufacturing we were importing containers of bike parts a container had a complete bike a bike's worth of components but we were not making any of those components all we had was an assembly line where we picked a bill of material for a single bike and we assembled it right that's simple manufacturing uh that you can even get away with aluminous you know like like you can definitely do like that kind of stuff in in aluminus complex manufacturing is where you start introducing things like your making components so for example I used to be the head of finance at a factory in Southern California that made decorative plumbing fixtures. In one side of the factory came just raw brass bars and on the other side came out shower heads and faucet fixtures and there's multiple processes we would send parts to a machine shop and there'd be a work order where just a raw piece of brass becomes an unfinished part just made out of brass machine that then goes to a plating shop where they'll plate it in one of many different finishes then it goes to a polishing shop where it gets polished. Then it might get assembled onto something else and then put away and stocked as a subassembly then work orders will come out where someone will pick all of those finished components and assemble a faucet and send it out the door that required a comprehensive they use Epicor ERP but NetSuite does the same stuff. Yeah and so it had functionality like work center tracking meaning you could get a work order for all the components that you need to pick to assemble a faucet but you might need to split up half of the components to go to polishing and half of them to go to plating. And so that work order's bomb actually gets split apart and there's things called shop travelers that get printed out and you actually scan them with the barcode so that you can actually look up in NetSuite at any point in time oh the components for this work order are these ones are in plating these ones are in polishing this one just exited polishing and so the I was telling you this story the other day the alternative to that is we used to have a dude before we implemented this ERP system we had a dude his whole job was to run around this 100,000 square foot factory just trying to find where the heck all the components were right but with this what when that system is dialed and what one other thing it's that plus what's called MRP material requirements planning. That's different from just straight up cutting purchase orders for finished goods. MRP takes multi-level bills of materials and it identifies if a part it will it will take a demand plan and it'll say here's everything you need to purchase and make and then assemble to fulfill this demand plan. So you get automatic purchase orders pushed you you get all kinds of stuff pushed.

Jared: 46:13

The stakes of not having the full visibility of what's in process and what that actually means like what assemblies and subassemblies are not finished, what it's going to take to build the subassembly like the stakes of not having that dialed and fully visible it's like it it could be massive you you'll be constantly out of stock or under purchasing over purchasing you have to have the full visibility from start to finish of all those stages.

Jon: 46:41

So so complex manufacturing those being examples NetSuite and the like you should not not could you should implement if that's your situation. We have a couple we have one brand we work with does about 40 million a year in revenue they make very expensive very complicated products out of metal and they fabricate them from scratch in their facility they're on NetSuite and they're successful with their Netsuite implementation they have a full-time system admin in-house who customizes things and they have a full-time controller who is amazing at managing the gener the general ledger those are those are like kind of non-negotiables for them though they wouldn't be able to make it without that mind you it was a very painful implementation it took well over a year it cost a lot of money but the juice is worth the squeeze 100% isn't that interesting like when you when you look at it's like what brands should go to NetSuite for it's like really complex multi-stage manufacturing we need full visibility and the awesome MRP and analytics what they actually go to NetSuite for.

Jared: 47:50

Yeah connect API connections totally I know e-commerce it's like that they don't they don't do that at all.

Jon: 47:58

I will say one other potential and I this one like I'd be a little more cautious if you think this applies to you like actually maybe call me to to confirm right but like um if you're truly a multinational business when I say truly because we work with plenty of brands that have Shopify stores in multiple countries that's not a true multinational business. That's like you just have a Shopify store where you sell in other countries and we have FBA stores that I'm talking about you have you own your own factory in another country or you own a distribution arm of your business in another country but you're a consolidated entity and you actually need to have multi-entity multi-currency across and you're doing like transfers of inventory between entities.

Jared: 48:54

Okay and so a separate question with this it it seems it seems like um a lot of the fractional accountants like a subset of accountants in the e-commerce market they have a difficult time understanding separating an IMS from your general ledger. So my question to you is for the market that we're talking about you know omnichannel mid-market e-commerce should the GL always live separately from the IMS slash operating system?

Jon: 49:32

Well I think the answer is it depends but um it it actually comes back I think further upstream to our conversation from earlier about like if you want them to be combined right do you have a clear answer to why? And if you do have a clear answer to why do you then have a clear answer to how right um and whether or not it's worth doing that. So for example if you think the answer to should they be combined is yes and you think you have a good rationale if you go out there and you find that the way to do that is either by implementing Acumatic Acumatica or fulfill or you know or NetSuite or the like you then and that's the how you have to ask yourself if again the juice is worth the squeeze and in just for that outcome of them of them being combined. Because if if the offset is all these other issues that we've talked about, I don't know that it's really worth it. And so if you I guess the another way to frame the question is is it actually a problem for them to be disconnected or in two different systems? Is it actually a problem or not?

Jared: 50:42

Well I so uh I think the question before that as well is why why do you think so we find we run to a lot of brands and a lot of accountants that they ask oh great like we we demo Luminous okay yeah we can handle your wholesale and all these integrations and your inventory and your costing like great okay so you're pushing all the sales orders and invoice like you're pushing everything into QuickBooks right and it's like no no like we summarized in fact like that's gonna bog down QuickBooks and you're gonna hate your life nothing's gonna load why why do you think accountants why do they want that? Why do they want it in two places?

Jon: 51:19

So I don't know for sure I'll give my hypothesis based on my experience I think it's because back in the day like if you're working with an accountant who came off they learned on QuickBooks desktop like me QuickBooks Enterprise right which had not a full IMS but a more robust IMS than QuickBooks Online does right um back in the day before all of these like like when we first started Guardian Bikes and we didn't have like the A2X's and this is even before a2x's predecessor called WebGility I don't know if you ever heard of we were using WebGility desktop man bringing me back right um but you were tracking things if you were organized as an accountant you were tracking things in QuickBooks's IMS to to try to keep track of like what was happening at a customer level or a channel level and the old school way like I've been doing accounting for long enough been doing it for 16 years. When I first got out of college in 2009 like it was just the first several jobs I had my boss was like yeah you just enter everything manually that just there was no questioning that that is like historically accountants are known historically accountants are supposed to be the best damn data entry people in the entire world and they pride themselves I know this for a fact they pride themselves on like man I entered 5,000 transactions today. That was what it meant to be an accountant now fast forward to today right 16 years after I've um I graduated and I've and and have actually worked in the e comm world the thing is the benefit of working in e-comm as an accountant is you everything has an API. That wasn't the case back in the day 30 years ago everything didn't have an API so yeah you did record all the detail transaction by transaction that was how you had the analytics available was that accountants worked their butts off entering in every single transaction all the detail it's just a it's a it's an ingrained thing in the profession that like either you're you've latched on to like the new way of doing accounting which is leveraging data and leveraging tech or you're still kind of stuck in the old days because that's just the way that it was and believe it or not there's still a lot of accountants that are stuck in their old ways. But I will say furthermore the other issue is when you bring in accountants who haven't been in e-commerce for a long time. I've been in e-commerce for about 10 years. A lot of my team has been in e-commerce for a long time. So we're accustomed to knowing how to pull data from APIs or report exports and like actually do data analysis and then summarize what needs to be posted into QuickBooks right and so my philosophy and this is why I love Luminous we already do the accounting on a summarized level at Free to Grow if someone doesn't have a Luminous we do go down to like sales channel level like we do some segmentation but we don't go down to the uh SKU level because there's actually numerous different ways to get that data elsewhere and pull together SKU level analytics outside of QuickBooks much faster much more flexible and um refreshable and reusable and tweakable there's just there's better ways to do it than inside the rigidity of General Ledger. So when I talk about when I think about Luminous like us us doing QuickBooks accounting alongside Luminous I'm stoked at all the detail that Luminous is keeping track of at the SKU level and the customer level and the sales channel level because that is the place where we can go to do that more granular analysis.

Jared: 55:12

It's it sounds like it's fear of losing those specific drill down like those reports views like at a SKU level list out a couple like what what are those things that accountants fear to lose by just pushing summaries.

Jon: 55:30

Well and and yes I think that's a good point. I haven't thought of it that way before but for sure and furthermore the way that accountants know how to drill let's say I don't want to overgeneralize but the typical accountant the way that they were trained to drill down is to drill down through the GL. That's they understand the from the GL to the transaction. Yes exactly um we take a different approach at free to grow and I know numerous accountants who take the approach that we take as well which is like let's get the totals to the level of granularity that is um goes as granular as we need to within the general ledger but for you guys it's like sales channel obviously the exact assets exactly but let's keep the other detail in supporting schedules or export data from like the supporting sources like for example I'll give you an example Shopify this is in the example that someone doesn't have Luminous because if they had Luminous we would go to Luminous to get this data. But if someone doesn't when we're recording Shopify sales we're pulling reports from Shopify to do that. Guess what all those reports exist at the order level and the SKU level so we can just export the exact supporting data that supports the financials but if we were to import that all into QuickBooks it's it's a it's subject to error right in terms of the import. It's harder to reconcile and quite honest we used to do it at this level at Guardian Bikes and we just didn't use the data as much as you thought we did we end up just going straight to the source.

Jared: 57:08

But but I thought this right here is what what gets people to go to Netsuite though. It's like there there's this fear around like oh there's there's two systems like uh we need all of the transactions so like I if I see an issue in QuickBooks I can drill straight down. Why? Like w I I think this fear more than anything drives people to NetSuite. Yeah I and it comes from CFOs and accountants.

Jon: 57:37

Totally I really honestly think like genuinely think it's because CFOs and accountants traditionally the only way they know how to drill into data traditionally is through the GL right um but I think there's a new way of doing accounting which is like you can close the books faster by summarizing everything and teach and have your accounting team go directly to the sources of the data that drove those those summaries to do further analysis. That's what we do and you know here's the outcome this is what's important this is the outcome and the value to the brand we close the books faster more accurately so we can get to insights quicker right and here's the thing when you talk about I I think of this hierarchy of analysis accountants traditionally love to start in the weeds to try to then see the forest I highly recommend trying that it's impossible. You can't start at the weeds and get to the forest you have to start at the forest to so like let's talk about the PL. This is how our CFOs analyze a PL. We look at the company level trends of margins and fixed overhead and then we notice something that is weird and then we look at the sales channel trends that roll up to the company and if we see something weird in that channel then we might dig into product categories and SKUs. But to try to go into product put all the product categories or skew margins on your screen and try to discern a trend you can't it's impossible it's it's it it's it's overload for our human brains. So you need to start up high and then drill down from there. So what that looks like practically if we're talking about QuickBooks and luminous look at the QuickBooks PL to assess margin and overhead trends notice something weird then go to the QuickBooks sales channel PL to look further. Notice something weird go to luminous and look at the margin data for that sales channel.

Jared: 59:41

So this reminds me Brendan and I were having a a conversation with an accountant with a CFO um and he was he was a net suite he was a net suite person. And we were trying to understand his rationale behind this conversation right here. It's like we're it the question was but why Do the transactions have to be there? Why can't you just log into another system like you just said? And so what we got to was like basically we so we were pushing kind of like, okay, so um first off, uh is Net Suite summarizing transactions where it so the answers were yes, NetSuite's already just doing summaries every what every week that push to a GL code. Um and then we were like, okay, well Luminous would do the same thing. So we were asking, well, so why do you need the transactions in one spot? Like what's the difference between just going to another system? And we we kept trying to like push further and further. And all it kept going to is just like, it's it's just better if it's in one spot. It's just better if it like if I drill down to the sales channel, then I see an issue, then I can just click on the transaction. And Brent and I were just like, well, it's the same concept. Like you're just going into Luminous and you're going to the report and you're just copying and pasting some. I guess maybe the volume of I don't know.

Jon: 1:01:03

It's it's it comes down to first principles thinking, right? Like I think Elon Musk probably has made the concept of first principles thinking famous. He talks about it a lot. I think all professionals, like technical professionals, can get really stuck in not thinking from first principles. First principles means like breaking something down into the components that build up the outcome and asking yourself if that's the way it should be built. Not like an example of this is like not thinking through first principles or from a first principles perspective is like that's just how we've always done it. We've always done it that way. Why? We've just because everything should be in one place. First principles thinking would say, does it need to all be in one place? And if so, why? And you ask why and you answer it. And when you get the answer to that question, you go, okay, but why does it that that need to be done that way? And what you're doing is you're peeling away the layers of the onion. You're taking this, we've always done this this way, and we're breaking it down to the the first principles that actually build that thing up. And accountants, and look, I'm not, I'm not trying to, you know, poo-poo on accountants. I'm an accountant, right? But like we're a, we're a we're a we're a bunch of people. We're we're we're a we're a bunch that is very set in our ways, generally speaking, right? And first principles thinking is scary. One of the reasons it's scary to accountants is because they get held to this standard of quality assurance. That's a big accounting principle in like public accounting is like that you have reasonable assurance that the data is accurate. I think a lot of these guys are freaked out that like, hey, I'm gonna lose the control to audit the accuracy. First principles thinking would say, how can I use Luminous to audit the accuracy of this, right? And so I guess the point that I'm making is our one of the things that makes Free to Grow unique is that like I'm an accountant, but I'm also like, I'm also a visionary that comes with cra comes up with a lot of crazy ideas, and I'm like, why do we need to do it this way? And the funny thing is, we started out doing accounting the way we did at Guardian Bikes, which is like super time consuming, super granular. But you know why I started pairing it back? Because I was like, this isn't scalable. We can't do this for multiple brands at once. It's not possible. And then I started asking, well, do we need to do it?

Jared: 1:03:36

Yeah, is the juice worth the squeeze?

Jon: 1:03:37

And we started asking ourselves, is the juice worth the squeeze? Why, why, why, why, why? And now we do it this way, summarized, get the books closed by the 15th or sooner every month. And guess what? The outcome, the outcome expectations being met. Brands are getting accurate books faster, making good decisions, growing their brands. So the question is, the real question is, why do you need to go more granular? And is there value to the business to go more granular? If the answer is no, there's not value to the business, then you shouldn't do it because it's just a waste of resources.

Jared: 1:04:11

So this this is my last point, and we can close off on this topic. But I also think on the flip side, so one side being we need an all-in-one so that I can audit from the top of my GL all the way down to the transactions, like this. So there's that mindset. But then on the other side, you do have like the super glued, like half-baked sin7 implementation with spreadsheets and chip station, and it didn't plug into your 3PL and and then they didn't have the FBT integration. So like I get like the conflate, yeah, oh, luminous, like, but I'm gonna have to like log into my 3PL and get like they they're thinking like super glued mess.

Speaker 01: 1:04:52

Yeah.

Jared: 1:04:53

When like, no, there actually is an operating system or an IMS that will plug into all of your stuff. Yeah, like it does exist. So I I'm just saying, like, yeah, I want to throw that out there. I do understand people probably get so sick of like Fishbowl and Sin7, like and all these things that don't fully work. Totally. Like they don't have all of your transactions. Totally. Um, so anyways, okay. The last topic that I want to go over is at so at Luminous, we always talk about the gap between Netsuite and QuickBooks. That's more tech. We've talked about operating system versus general ledger and all in ones versus you know IMS and uh general ledgers. So I'm I'm curious. Free to grow, you guys are solving a gap in the market. And it's something that we've realized over the past three years or so. Um I'll give you my perspective and then I want to get your perspective as a founder who literally started a company to fill this gap. So at Luminous, we implement a ton of brands between call it like twenty and a hundred million in revenue. And here's what I see either you have a $1,500 a month bookkeeper that closes the books, and the the founder thinks that they're the CFO and they're not. And basically one day you have a CFO, like a like a a you know, six-figure salaried CFO, and you implement that suite. Like there's no in between. It's like you have a $1,500 bookkeeper that's just struggling to close the books, CEO thinks they're the they're they're the CFO, and then one day you don't. There's like nothing in between.

Jon: 1:06:38

Like there is a huge gap. Um so what what I see is a spectrum of misguided allocation of accounting and finance resources. And yeah, I would I would agree that like on one side of the spectrum is a mediocre bookkeeper that may be called all kinds of things bookkeeper, finance manager, VP of finance, CFO, but they're just a bookkeeper. Like literally, they're just keeping the books, they're usually doing it wrong. And I'm not trying to be not trying to say that with hubris, like usually they're doing it wrong. And then on the other side of the spectrum, I'll actually say is a CFO and a full in-house finance team. So it's like CFO with a controller and then some amount of accountants under that controller, potentially. And what I find is that there's no thought, there very few brands are thinking really hard about like what are the outcomes that I need functionally from my finance team at each stage of growth. Like, what am I missing in terms of like financial-driven insights and decision-making tools to get me to the next level? And so what we find is this massive gap of like in between those two endpoints of the spectrum, um, a misallocation of different versions of accountants, CFOs, and analysts at the wrong time without thinking about like what do we actually need?

Jared: 1:08:18

Well, break it down. So the the omni channel brand that we've talked about, that's on D2C, wholesale, like a bunch of retail connections, they have a bunch of wholesale AR that has to be collected and managed, um, bunch of revenue recognition. What are the functions that you have to fill?

Jon: 1:08:38

Yeah. So let's start first. And and what the way I'll define this, this is an omnichannel, this is a digitally native brand. So a brand that started on Shopify and or Amazon and is now doing 20 to 40 million in revenue, and they have a growing wholesale business. The other channels might be growing too, but they're seeing more growth potential in wholesale than maybe those other two channels, or maybe it's about blended and easy.

Jared: 1:09:08

Can I add in one more complexity? If their purchasing has started to get a little bit more complex, maybe they buy components or raw materials for sure. They want landed cost.

Jon: 1:09:19

Yeah, so that needs look, I'm I'm hard pressed, I still haven't found a brand that truly needs what we consider a CFO to be full-time. I have brands that have someone full-time that they call a CFO, they usually are really a controller. Right. And so just to say, like, I think you probably the first full-time finance hire you probably need is probably more akin to an accountant or a controller. Uh long before you ever need a full-time CFO. But that aside, fractional CFO and the CFO is focused on their primary goal is focus on strategy and looking forward and advisory. I hate saying the word advisory because it makes us sound like a law firm or something like that. It's your right-hand strategic advisor, right? Like, think about the present, the president and his cabinet of advisors. He goes to them for advice of like, hey, the country's facing this problem. I'm not an expert in everything, right? As the CEO of America, you're an expert in this, you're an expert in this. Your CFO is your financial strategy expert. So they're responsible for assessing the risk and reward, the potential risk and potential reward of all the bets that the business places as it's scaling. That is the primary strategic objective of the CFO. So they're there to go, are we placing risk and reward? What I call risk-adjusted bets. We're adjusting our bets for the risk inherent in them as we purchase inventory, as we scale ad spend, as we as we expand into new channels, as we hire new people, as we maybe vertically integrate. Their job is to sit down with the CEO and say, okay, I see that we want to do this. Here's the risk. Here's the bet we need to place and like what the financial investment is. And here's the performance I need to see as the CFO for this to be a good allocation of the company's capital that doesn't put us at too much risk as we're growing. Inherent in that are the tools that the CFO uses to do that. Projection models that project the PL and the balance sheet and the cash flow statement, different models that get into different areas of the business to assess things like marketing performance, inventory health, things of that nature. And then their job is to help look at the capital structure of the business, which is what most people don't realize about capital structure. That's just, are we funding the business with debt or equity? That's how simple. That's what capital structure is. They're looking at that at all at all times and they're saying, is it healthy to protect owner wealth creation? Should we leave capital in the business? Should we leave retained earnings in the business? Should we borrow money or should we take money out and pay it to the owners? And at all times using that as a risk mitigating tool alongside being a wealth creation tool. That is what a CFO is supposed to do. Notice I didn't say anything about accounting or closing the books or anything. Reconciling transactions doesn't mean that the CFO is also the head of the finance team. So if there's a problem with the month end closed process or there's a problem with personnel, like, and they're having issues further down the department, yeah, they are the coach and the leader and help help the team down below them to problem solve, but their job is not to be hands-on to that. Next, right beneath them is the controller. The controller is the owner of accounting, and I'll call it the spreadsheet jockey, like the spreadsheet support to the CFO. And so it's not just spreadsheet, but the analysis support to the CFO. So they own the closing of the books process, which usually, if you work with Free2Grow, they have an accountant underneath them. So the accountant underneath them is the one doing the heavy lifting on the data entry, the reconciliations. The controller is overseeing, reviewing, making sure, like doing an accursory analysis QA to make sure that the output is actually accurate. And then they're owning the data that gets passed up to the CFO to do their strategic analysis. So like financial modeling and things of that nature. There's one other person that a brand of this size probably needs. Usually what we find is very successful is if a brand has one in-house person full-time, they don't even necessarily have to be a trained accountant. They're a financial operations person, is what we call them. Financial operations meaning managing daily AR, AP, payroll, the daily operational finance, right? And the reason why we recommend a brand of that size, omnichannel, growing with wholesale, having that person in-house, is because invoicing happens all the time, daily basis almost, right? AP can happen all the time. Your fractional team, CFO, controller, and accountant, they're still working with you day in and day out, but they're not in-house dealing with those nuanced things, right? And so I recommend a financial operations person. We have several clients. That's the setup. They use our fractional CFO, controller, and accountant, and we interface with the financial operations person. We support them, we coach and lead them. But that's really what you need. And honestly, it's it it's it doesn't need to be full-time. We work with brands that are that are nine figures that don't have any of those people full-time in their business. You shouldn't hire one of them full-time until you have a clear rationale of why they should be full-time, the value they're gonna drive in the business, and what you're gonna do to keep them busy 40 plus hours a week.

Jared: 1:15:10

When when do you think a brand does need a full-time CFO? At what point do you actually apply? Have you guys ever fired yourself because you're like, no, you it's time you guys need a full-time CFO?

Jon: 1:15:22

What is the rationale? I don't think we've ever been replaced by a full-time CFO. We have been re So between between controller and CFO, there are other positions out there like VP of Finance, Finance Director. Some brands can get away with that. It's usually someone who's very is a bit more of an individual contributor. They're very hands-on in the accounting and or the FPA, and they're not nearly as strategic. So you're gonna get quality financials, you're gonna get quality forecasts, and you'll get some commentary and advice from them, but it'll be more tactical in nature and not so strategic. So for example, hey, I noticed this change in our margins, it was caused by this. End of story. Instead of CFO, like, hey, I noticed our cash conversion cycle went up by 15 days. And I'm wondering if we need to get on the phone with our suppliers and try to squeeze out another five to 10 days out of our payment terms, right? Completely different stories. Or finance director saying, hey, I just finished the financial model. I think we're gonna be really tight on cash in three to four months. End of story, right? Or and what's driving it is inventory purchases. And a CFO is like, hey, I know three banks we should go talk to right now. And I know we're in their box, and I'm almost positive, I feel really confident I can get us the capital that we need and we won't have this cash shortage. Right. And so some you can go far with a finance director and VP of finance, but you will be missing a layer of true strategic advice. Think of strategy as like like a finance director will tell you we've reached a constraint. A CFO will say, I know how to get through this constraint, or I'll give you three options to get through this constraint, and I'll get on the phone and I'll call them and we'll get this figured out.

Jared: 1:17:29

I just think uh you guys are positioned so well to to keep growing in this market because the new trend is, you know, VC money came in in the 2010s and played in e-commerce and it allowed for these bloated tech stacks and bloated COO and CFO hires. But now that the dust is settling and you have to just be a defensible, profitable brand, I think, and and especially how AI is coming in, AI-enabled tools, I think that the day of fractional CFOs and a fractional financial team, it's here to stay. I I think you can you can be a $200 million brand with a with that makeup that you just talked about. I think you probably have to have somebody full-time financial ops, yeah, but you can have a fractional CFO, a fractional bookkeeper, an accountant.

Jon: 1:18:22

But can I dare to say to tie this back into the rest of our conversation, I think I think there's more runway with a fractional team in e-commerce than there is in other verticals, because other verticals don't have the access to the data that e-comm does. So there aren't these tools like Luminous and the like where I don't need to enter every single transaction. There are other businesses like go contracting um in different like construction trades. There ain't no APIs for anything you're doing. It really is all manual and you do have, and now I'm not saying that that people aren't trying to work to automate that, but it's actually when you talk about like automation and using data to speed up administrative things like accounting. I personally believe my take is e-commerce is light years ahead of most other verticals because everything we use has an API. That's not true of every other vertical out there, right? And so because of that, you can access data through these different platforms and exports, and you can go really far, really fast with a part-time fractional team who automates the crap out of stuff and can just get straight to advisory because the data is readily available. Whereas in other verticals, it's like you do need to pay someone to like keyboard mash and enter a bunch of stuff and reconcile it and then say, okay, here's what's going on. So I I think that there's you uniquely have longer runway. And I didn't know that when I got into this business, but I've realized like, no, we can definitely ride with nine-figure brands. I think another place where you might need a full-time CFO is not is when you're looking to try to do a really big exit or go public.

Jared: 1:20:15

Oh, that's good.

Jon: 1:20:16

If you want to go public, you do need a CFO who knows how to take companies public. I will be want to be straight up about that. Like you if someone's going public, I will tell them, no, free to grow is not the fit. It takes it's highly regulated, and you want someone who has done that before, and ideally someone who's done it multiple times. Right. That's where you probably need a full-time CFO.

Jared: 1:20:39

Yeah, I'm we especially as we're going on market, um we have yet to acquire like a hundred million dollar plus brand that has there is one brand. They have a CFO, but I'm pretty sure he was just recently fired. I I think I don't think we have a brand that has a CFO that's above a hundred million dollars in revenue.

Jon: 1:21:08

I gotta say, I gotta be honest, and I'm I'm not saying this to like scare anybody or like, you know, doomsday theory, but if you're in e-commerce and you're a CFO, uh honestly, you're probably better off becoming a fractional CFO if you're gonna play in in the the middle market because they're just there are gonna be very few full-time CFOs in in the middle market. Now, what what I will say is I held a hybrid role at Guardian Bikes, COO slash CFO. Actually, I think there's a really good case, there's a strong case to have a COO slash CFO in the middle market. The problem is they're kind of unicorns. They're hard to find. There's only a few, they're the exception, they're not the rule. So if you can find that, great, but you're fighting for a small talent pool and an expensive purchase.

Jared: 1:21:57

That's actually a great point right there. It's yeah, the the hire to make would be the the unicorn COO CFO. Exactly.

Jon: 1:22:04

That would be incredible. If you find it John Blair, basically.

Jared: 1:22:22

But he is so disconnected from the operations, he has no clue like what Luminous does. And anyways, it's uh there's a bunch of commentary there. But um all right, so the last topic that I want to go over is um we've talked about forecasting offline. So Luminous, uh the operating system is tangential to forecasting. Like it comes up all the time. When we get somebody implemented, they always ask, like, so what does what does Luminous do for forecasting? And it's such a broad term that and there's so many different tools out there, everybody does it differently. If I had to break it down to it's if if I had to say the the approach that we see most operators take is they look at forecasting as they do a simple top-down approach with their historical data from Luminous, where everything's consolidated, you have all of your sales, you have all of your sales history, and they'll sort of just make decisions based on like, hey, are all right, we're gonna grow 20% this year on Amazon, all right, drafting the POs. When I I think the biggest gap in mid-market, in my opinion, is forecasting coming from cash flow. And this this was a big thing that you were talking about, um, where there's a myriad of forecasting tools that your customers could use. They could use inventory planner and fleeper and yeah, cogs. I could, it's a million of them. Yet they're still going to you guys and they're like, hey, can you help me with forecasting? Why is that?

Jon: 1:23:59

Great question. Okay, so I am of the opinion, I read this book, Future Ready, a few years ago about forecasting. And it's it's just uh it's not doesn't have a bunch of formulas in it. It's not about mathematical forecast forecasting, it's about the philosophy of forecasting. And what I learned from that book is that one, a forecast and a projection are not the same thing. Let's be clear about that. Most people actually use projections to order inventory, which is dangerous business because a projection is just a what-if scenario. It could literally be anything, right? A forecast attempts to use historical data to forecast forward a trend. It's a statistical, it's actually a statistic a statistical model that takes historical data and uses that to forecast. And there's different methods, there's exponential smoothing, there's linear regression, there's all this stuff, right? What I learned from this book is it's suggested to think about your forecasts in two layers. One, what's called the momentum forecast. The momentum forecast is using your historical data to forecast for the statistical momentum, right? Of in this case, sales and maybe sales by SKU. Then that's layer one. So that's that's your base forecast. Then there's the intervention forecast. The intervention forecast is well, this data last year doesn't take into account that we're doing this brand new promotion in October this year. So we're gonna put a momentum or an intervention layer. We're intervening on the momentum forecast by doing this promotion, right? Or we're intervening on this by by launching a new product, right? Or by cranking up ad spend, right? There's number, I'm not gonna get into the mathematical models you should use to calculate those numbers, but conceptually, that's the best way to forecast. Now understand that your intervention forecast introduces more risk into the forecast because you're now making an assumption about what your intervention is going to do. And what the no data on it. Exactly. Coming back to your question, why people ask us about forecasting on the finance side of the house is because I'm just gonna assume, and this is not usually the case, but I'm gonna assume a brand has a momentum forecast they calculated using historical data, and then they say, I want to adjust it for this intervention, increasing sales, new offers, we're gonna increase AOV and conversion rate, whatever. Assumptions. Ultimately, that's a bet. That extra delta between the momentum forecast and and the intervention forecast, you're placing a bet, right? And you're placing a bet that has a certain amount of risk. And the question is, do we have enough cash to place this bet? Right. And so to give you an example, it's kind of like if you go buy a house and you your mortgage is gonna be 50% of your monthly income versus if you buy a house and take on debt and your mortgage is gonna be 10% of your income. Which one is riskier? The one where the payment is 50% of your income. It's the same concept here. They're coming to us and saying, based on your cash flow forecast or our current cash reserves, the makeup of our capital availability, how risky is us adding this intervention layer? So the point being, you should do some of that traditional forecast math, but finance needs to sign off on whether on on whether or not there's enough capital and other risk mitigating factors in the business to be able to place that bet safely.

Jared: 1:27:37

But I I want to like a real life example, it happens all the time. Top down. And then um you're prepping for Q4 and you're drafting all of your POs, a bill comes. Uh let's just let's assume like I've I've done all my purchasing, my lead times 120 days, whatever. Um I I do my purchasing like basic so many companies they run totally try on capital by the time the by the time Q3 comes around. And then a lot of times you can't even afford to pay the freight bill or the you know, or you the it get the the inventory gets to the port and you didn't thread the needle because you didn't consider all of these things like, oh shoot, wow, we really we really projected like 300% growth for Q4 on these SKUs, but we didn't consider like all of the bets that we placed before, so we ran out of cash.

Jon: 1:28:38

Yeah, and the fact that October sucks every year. Sales are down, so you're you're buying the most inventory you buy all year in the month where sales are down before the holidays. And so that that's why it's a perfect example of why you need a CFO who's forecasting cash flow on a on a regular basis every single month. Because there's a snapshot of what your capital looks like today, but then there's this forward-looking forecast of the impact of all the decisions you have made and things that haven't happened yet. And you have to assess all of those to assess the risk of that judgmental or intervention piece, which is like that's where the risk is. I'm gonna take the momentum and I'm gonna adjust it based off these assumptions. And then your CFO, again, needs to assess the risk of that bet. That's what their job is.

Jared: 1:29:25

Very cool. Well, um, are you helping any of your customers? Have you guys done official forecasts for your customers at this point?

Jon: 1:29:35

Yeah, so we don't usually do SKU level forecasts because there's a lot of nuance that whoever runs product and whoever runs marketing, you know, for example, like we may know that ad spend is going to increase, but the growth marketing team may know that they're gonna do a campaign around a specific product category, right? So we leave SKU level planning up to the brand. There's just a lot of nuance that we can't see in our data, but we give the sign-off on like it's safe to order that dollar value or it's risky to order that dollar value. Or if you want to order that dollar value, we're going to need to go get this debt facility. So like we will definitely forecast financially the decision that they're going to make. And we'll even go look at sales forecasts that are like lower than what the brand thinks is going to be. And we'll go, uh, what if what if we haircut sales by 20%, 30%, 40%, and then go back and look and see if they'll still be alive after ordering that much inventory? So that's our way of assessing risk. And if like we can cut the sales forecast 20, 30, 40%, and they're still safe, we'll say, yeah, you're good, you're probably good to buy that. So we don't do SKU level um analysis, but we'll convert their SKU level replenishment plan to a dollar value. Got it. Run it through our financial model and confirm if we feel comfortable with it or not.

Jared: 1:30:57

Do you guys work in tandem with um with a inventory forecast? Like uh what what what did you call it before? Uh the two types of forecasts. Oh, like the momentum forecast and the so like Will you basically tell them like, oh, you guys could use inventory planner for uh to get your momentum or your Google Sheet to get your momentum forecast and then run it by us? For sure.

Jon: 1:31:18

Like um the it depends on the brand and the resourcing that they have internally. Like we're not like huge fans of of any of those tools. Um, mostly just because it's so they're all like self-implementation and and like it just so easy to mess to mess them up and garbage in, garbage out. But we want to get more integrated. Like we don't know whether or not we'll get into actually like helping create demand forecasts, but we want to figure out a way to get more involved there because so many financial commitments end up happening in that act in that exercise or the or the lack thereof. I will say what we do at the financial level is we will look at the aggregate sales or the sales by channel that is being forecasted by somebody else, and we'll run it against historical financial data to assess year over year change, month over month change, okay, and and assess like, well, how much ad spend do we think we'd have to spend at our marketing at our row at the ROAS that we see historically? So we'll sanity check assumptions using our financial statement data. It may not say why they're wrong at the SKU level, but you know, if someone brings us a forecast, we'll look at it against our historical trends on the PL and we'll go like, I don't, we've never achieved this kind of growth before. I need to hear more from you about why we're gonna achieve this and how. And so we we definitely, definitely sanity check at that level.

Jared: 1:32:53

Okay. Very cool. Well, it's been a while since we've done this, man. Yeah. Uh where can everybody find you? Because I know you started a new podcast with one of your marketing agencies that you guys work with.

Jon: 1:33:04

Yeah, so I host uh host one podcast, co-host another. Um, first one is the free to grow CFO podcast. You can find that wherever on YouTube and wherever you listen to podcasts, and then the e-com scaling show, um, which is a really great one. We it's uh we talk about the intersection of finance and marketing, which is really cool. And then follow me on LinkedIn, John Blair, or check us out at freetogrowcfo.com.

Speaker 05: 1:33:25

Okay.

Jon: 1:33:26

Well, awesome, man.

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