The E-commerce Leader

[00:00:00] Kyle: one mistake I see people making with loan products is that they take that money and then they use it for operational expenses don’t. That’s a bad idea.
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[00:01:03] Michael: So gentlemen, welcome to the call in show for the e-commerce leader. Delighted to welcome back our friends, Jason Miles Khan, Haimer Chris green and myself, Michael VZ transatlantic crew. And today we’re going to talk about using loans and or credit. And is there even a difference discuss to fuel your e-commerce growth?
[00:01:19] Quite a hot topic at any given point. And, it’s always an interesting discussion whenever it comes up. So guys, interesting topic looking forward to this, who was to kick us off on this one. I’m going to pick on new car. Cause you’re smiling
[00:01:35] Kyle: again. Six kicking in here. I love it. I love it. Absolutely loans, lines of credit credit cards all have a purpose, I think in your business.
[00:01:43] My hot take on all of this off the top. If you were asking me what’s, what’s the one thing that first comes to your mind when dealing with any sort of loan. Loan products, credit cards, all that stuff. Don’t fix bad fundamentals in your business. And I think that has to be that’s my hottest take on that because people use these things and get into.
[00:02:05] Because they’re trying to finance growth, but they have bad fundamentals that their margins on their products aren’t good enough. They’re their business processes, their, their plan, their go to market plan. Isn’t thoroughly vetted and they’re trying to dump money into something. To then help them go to that next level.
[00:02:22] And the foundation that they’re building on is still got holes and flaws. So that was my first hot take. When we, when I was thinking about this topic, it was like, we use it as a crutch. It can be a powerful tool, but it also puts you in a, it can also be a weight around your business if it’s not managed properly.
[00:02:40] So that’s my hot take out of the gate on the topic.
[00:02:43] Chris: Well, I’m happy to jump on that because I think, It’s very common for people to think that they need to spend a lot of money or they think they need to take out a loan. They think, Hey, I want to start a business. I need X, Y, and Z. When I would make the case that arguably you don’t, you don’t need a lot of money to start an arbitrage business.
[00:02:59] They certainly don’t need a penny to start a print on demand business. So I don’t want people to go down this road of like, oh, I can’t. Until I get this loan, right. Or I got the money on my credit card. I’m going to, I need to buy massive inventory. I need a, I need a really good computer before I start my YouTube channel.
[00:03:12] And in a, in a fancy camera, you don’t right. You need to start, you need to validate, you need that minimum viable product. You need something out there to test the market. And I would make the case. You can test the market if you’re just starting out without. And if you need to buy some inventory yeah.
[00:03:25] You can buy him, use a credit card to buy it if you want it. I think there should be a very big differentiation between using credit cards and using like a formal loan from a bank, which has going to have very different payment or repayment options. But for using credit cards for quick access to cash to buy inventory, to flip on eBay or flip on Amazon, do FBA.
[00:03:41] I’m all for it. As long as you kind of know what you’re doing, have a little bit of guidance. You’ve read a book or watch a video or two you’re in a Facebook group. We’re going to ask questions. You can validate. Of your inventory instead of just sending it to Amazon. Cause you think it might make money thinking it might make money and then borrowing money against that thought is probably a bad idea.
[00:04:00] It’s not always about. Right. You might turn out to be, to be right, but you might be right because you got lucky. And that’s where experience comes in. So I would encourage everybody, just be careful, and, and just be discerning about borrowing any type of money. And there’s a great book out there by Daymond John he’s on shark tank.
[00:04:15] A lot of people know who he is. It’s called the power of broke, and he has story after story about how he kind of bootstrapped things and had to get creative, with his entrepreneur business and get attention and do marketing and all this things when he didn’t have. ’cause it’s like what necessity breeds invention or something.
[00:04:30] You know, when you don’t have that option to say, look, I’m just gonna go, you’ll take 20 grand out on my credit card. But if you don’t have that option, but you still have to make the business happen, your brain will get a little bit creative and all of a sudden good things can happen.
[00:04:41] Michael: I like that. Yeah.
[00:04:42] The power of broke. That’s a very cool country. Tier two title, Jason, what’s your take on all this? Yeah. I
[00:04:49] Jason: love the topic and it is, something to really think. I was trying to come up with a mental metaphor to what can I like in loan products is what I was thinking. And the thing that came to my mind was loan products are kind of like a samurai sword.
[00:05:06] You see a samurai sword, you know, one of the really super cool. You see somebody willed that thing. Now, my context for this, as I got addicted to this PlayStation game called the ghost of so Shima or, sushi monarchs, I like that. Last year during COVID and I played that game relentlessly for a year.
[00:05:25] And so this is my context for samurai sources, all fictitious, but, but anyway, I think loans are kind of like samurai swords. You see a samurai sword in the hand of a man. Dude, they just, they just use it like nobody’s business and it just is amazing, but it’s like, you know, in the hand of an incompetent person, you’re going to cut something off that you shouldn’t cut off and you’re going to wound yourself mortally or something like that.
[00:05:52] And I think that’s kind of the metaphor that makes sense to me. There, they are like a razor blade or like a samurai sword. You do not wield them casually and incompetently without tracking. And, but you can use them for dynamic, purposes.
[00:06:07] Chris: No.
[00:06:09] Michael: Yeah, I like that very much. That that ties in with the old rich dad, poor dad thing.
[00:06:13] Doesn’t it? This is Michael, obviously with a British accent. Easier to hear if you’re just listening on audio. A couple of things. I totally agree with you. Kyle VAT, trying to use a loan to fix a broken business is just going to increase the problem. It just pushes it down the line, rather like, you know, broken government.
[00:06:28] So I’m not going to name any governments near me. Hell everybody’s covered. Right. But you know, borrowing just pushes it down to the next generation, but it doesn’t solve the problem. The other point of that is related to that brace similar, is it only for proven profitable products? So if you’re launching a new product, I think that has to be on equity capital.
[00:06:42] And you know, if you haven’t got a slightly, you know, broader view is to Chris’s point for retail ARB, or a much by Amazon or related type print on demand type products, you probably don’t need to make a loan because of the capital requirement may be lower. In which case, if you don’t have much money, let’s flip it on its head and say, don’t try and do.
[00:07:02] Private label launch. If you’ve only got 5,000 in equity and you need to borrow $20,000 pounds, euros, whatever, I would suggest don’t do that, that, that is actually increasing the risk in an unnecessary way because the business model needs to fit your capital as well. So that’s the, the main thing that
[00:07:16] Kyle: a hundred percent, a hundred percent.
[00:07:17] And like one, one mistake I see people making with loan products is that they start, they take that money and then they use it for operational expenses that, that don’t. That’s a bad idea. Only use loan products to fund an asset. Inventory is an asset inventory of a proven product is a much better asset to Michael’s point.
[00:07:37] Don’t risk it on something that’s unproven yet, you know, use your equity growth, use your cashflow to be able to do that, to test new products. So, but what they end up doing is I can get that money and then they’re spending it on marketing or something like that. And what I think oftentimes people do, especially if you’re a physical product.
[00:07:57] Is that you sort of look at, some of the, some of the, like the SAS companies out there that can raise money by flogging a mirror at times. It seems like, but they operate on such a different business model. Like they can go raise capital, but even then when you’re raising capital as a, as a software company, you gotta be careful because to Chris’s point you, the money starts to flow in and then you’re like, oh, it’s okay.
[00:08:18] Now we just have to go into growth mode and they lose a little bit like innovative. And I think that’s really a great and valid point is that you are much more creative when you are bootstrapping your way through. But what my point with that is that you have to compare your, the, the business models that you’re into in terms of how they can process and return cash on cash.
[00:08:36] Investing in into software with that money is producing an asset. That’s going to build on the business, right? Because you know, if you have software and you have a good market match, you’re going to be able to run it and hopefully get acquire users and customers that are going to grow the network value of that business, as opposed to.
[00:08:52] Just paying for operational costs, which is an expense that you’re using your business to cover it, and that can get dicey and like, yeah.
[00:09:00] Jason: Yeah. But, agree and disagree. I think we have to be really careful because there is a valid use case for running all of your advertising through a credit card that gives you points.
[00:09:10] So credit card is different than a status product, and you have to be careful about what. You know, that, that absolutes, I mean, there, there’s usually a hundred percent products. That makes sense. Yeah, no, I
[00:09:21] Chris: agree. I think that’s a good distinction because I think you can use credit cards to run stuff through and you get the points for it.
[00:09:27] And as long as you’re managing your cashflow effectively, you’re essentially getting free, free stuff.
[00:09:34] Michael: She didn’t think I’d say about that. It’s technically a credit card used correctly is not actually a debt in the sense it’s not interest bearing debt. It’s about to become it. If you use it badly, it will become very highly interesting, but used well and paid off with the discipline.
[00:09:48] It’s purely just a means to get access to points and whatever else you get. And when I know someone was in service, the UK, you fly around the world based on their, you know, whatever credit card points they have. And I know Americans have many, many options when it comes to credit cards. Right. Chris?
[00:10:03] Kyle: And I agree with that.
[00:10:04] It can extend your terms essentially. Right? So, I mean, if you have net terms with the supplier or with any of your vendors and you play it with a credit card, you can then basically extend your terms out, even further, it helps your cash flow and it gives you more points. My, my thinking around this. But from an Amazon seller perspective, Amazon has some, some loan products that they like to give out to sellers, right.
[00:10:26] With ridiculous interest rates usually, but the terms are easy, you know, it’s just like hit the button, accept it. And then they start pulling the money out every single month and it becomes easy, but it becomes a sort of a, a reinforcing flywheel of like taking away. Spend the money, give it more, give more to Amazon.
[00:10:44] And I think you have to get off that don’t get on that train essentially is what would be my argument, unless you’re, unless it’s for really sort of scaling up an inventory of a proven. And that, you know, you’re going to get good return on that money that that’s to that return has to beat the interest rate, right?
[00:11:02] Like you’re going to be paying Amazon for that money, your return, you better be reasonably confident in your return of capital that it’s going to beat that, or it doesn’t make any sense.
[00:11:13] Michael: To that point. I think that, and to your point, Jason, that you need to, you know, summary master using a sword, use it’s a great effect in it.
[00:11:19] And, an amateur sort of cuts bit that shouldn’t be cut. I think one of the things we’re talking about with debt is it sits on one side of the balance sheet and everyone tends to operate businesses as if they’re only profit and loss things and balance sheets, like an incidental thing. Now, depending on your business model, that you can get away with that.
[00:11:34] But if you’re dealing with very capital intensive stuff where a lot of your, the value of your business and profit and loss is wrapped up in your internal. I really don’t believe you can. There’s a great book that I’d like to rent, and this is only for the nerds out there, but if you’re really serious, but called romancing the balance sheet, I do not have shares in this guy’s company, but Lambert.
[00:11:52] And one thing he talks about, which I thought was really important. I’d love to throw out to you guys is balancing the term of the debt with the term of the asset that it funds. And first of all, first point number one is like thinking in terms of there’s a debt on one side of the ledger, there’s an asset on the other.
[00:12:07] And to your point, if you exchange that, which is a solid chunk of money that you owe somebody else’s an asset in the bank, or whoever is lending it to you, and you owe that to them period, and you extend that for expenses that fly out the door, that can be a risky proposition. But if, even if you exchange it for assets, if you’re funding inventory, which is hopefully a short term, you know, asset that discipline, it gets turned back into cash within a year with a long-term loan.
[00:12:29] There’s a mismatch there because you’ve got to own that low in four or five years time, but you won’t have the inventory on the other side of the legendary. What do you guys tell us about all this stuff?
[00:12:37] Jason: That everything you just said? Sounds genius. Yeah. That’s that’s cool.
[00:12:41] Chris: I love it. That sounds like a good movie too.
[00:12:42] Romancing. The balance.
[00:12:49] Michael: into that stuff.
[00:12:51] Chris: I want to give some advice to the pro. I don’t know how big a chunk of the listeners are going to be thinking about this way, but I deal a lot with people getting started there. They’re sending in their first FBA shipment. They’re excited to get in the world of print on demand and probably a good piece of advice is if you don’t have a thousand dollars, you need to just kind of stop.
[00:13:08] And make a thousand dollars, whether that’s working at McDonald’s or whatever it is to be like, you know, if you haven’t saved a thousand dollars, you need to be able to do that because that’s gonna be a useful skill down the road. Okay. So say you have a thousand dollars now you get all excited and you’re like, Hey, I want to do this.
[00:13:20] I saw a private label video. I saw a wholesale course. I, I saw all this stuff. You get really excited, but it’s like, oh, I got to spend five grand, five grand, five grand on my credit card. Oh, I gotta spend 20 grand. It’s going to take three months for the product, get here. And it looks like a slam dunk deal, but you know what?
[00:13:33] I could probably borrow. I would advise against that because you don’t have the experience to say, look, I know everything that could possibly go wrong with buying that product. And I understand the risks and it’s going to make a lot of sense. And my suggestion for the alternative would be to find someone a partnership and say, look, this is a good enough deal where you think you can spend 20 grand and you’re going to get a good enough return on your money.
[00:13:55] Then say, look, I am willing to share this deal with someone who already has the capital, who already has the infrastructure. It can also validate. The idea, validate the product, validate the purchase. So you don’t get yourself in trouble and yeah, you may make less money on that deal, but you’re a heck of a lot safer.
[00:14:12] And I would advise, I can’t imagine anybody. I would give the advice through, with no experience and a thousand dollars in the bank. If you go out and spend five, 10 or $20,000 on anything related to entrepreneurship, and I’m sure there are examples where I could be proven wrong, but as a general rule of thumb, I can’t say I can’t imagine giving that advice.
[00:14:29] Those deals are out there. So validate them by finding someone that you trust. That’s already been in this business and give them enough of a piece of the action that it’s worth it for them to get in there. Cause you’re going to learn on the way I would do that deal and make no money because you would learn so much.
[00:14:45] And the amount of, of kind of social equity you would get from another seller that you brought a deal to where they made 10, 15, 20 grand. You’re going to learn and you’re gonna have a networking or have a partnership if are so many upsides to practically no downsides. That would be my advice for people starting out
[00:15:01] Michael: just to flip that on its head.
[00:15:03] If you take a deal to somebody with money. Savvy. And they say no way, I’m investing in this. And you were about to put your own money in there, whether a thousand dollars is your entire net worth or whatever it is, you should pause for thought. Now, one person could just be cynical or just not believe in the product and they miss an opportunity.
[00:15:19] But if you take it to five or six and they will say no for similar reasons, you should take the hint. And that’s another very, very big bonus to, to that approach. I think,
[00:15:26] Chris: Free fee free validations
[00:15:28] Michael: free.
[00:15:29] Chris: Keep yourself out of trouble. Answer that you can get. And I’ve been there. Dude. I have imported a container of products from China when a friend of mine said, Hey, why don’t you like, just put up a website and maybe see if you get a little, you know, be pre-orders on that product before you’re like, nah, man, this is going to sell.
[00:15:45] No, I lost a lot of money. I got in over my head. I didn’t listen. I had to learn that lesson the hard way. There’s two ways to learn lessons learned from someone else who’s already. Or a learn the lesson by making the mistake yourself. My advice would be learn as many things from other people’s mistakes that you don’t have to make
[00:16:01] Michael: a hundred percent.
[00:16:02] Jason, what are your thoughts on all this?
[00:16:05] Jason: Well, we’ve done it all and I love what these, these con everybody’s wisdom on this stuff is so good cinnamon. And I’ve been in the game for a long time. So we’ve, we’ve used, I think probably every type of loan product, personal guarantee. Credit card, working capital loan, SBA loan, we’ve done it all.
[00:16:23] And I, I think what I would say is just in our personal experience, I guess what we, our personal practices, I think we’ve become very clear on the specific use cases for certain types of, of, of loan products or guarantees or whatever. And, we’ve just become comfortable with some things and not comfortable with others specifically.
[00:16:46] We don’t like to fund inventory with, any type of, you know, credit or loan product. That’s just not our game. We’re not good at it. We don’t like to do that. But what we have done is, used loan products to buy companies or brands, and that’s a whole. A kettle of fish in our mind. And so I guess I think what we’ve become comfortable with is sort of going big or going home and using loans for specific asset acquisition that we know what the outcome of that asset is going to be, because we understand that asset.
[00:17:22] And then we have a comfort level of doing that. And we’ve done that now at 13. And that is the way in which we use, the know credit or loans to grow our business. We don’t monkey around with spending $14 for a new toner cartridge on a credit card, or just, you know, we just don’t go small. We just only go.
[00:17:43] And I think there’s wisdom in that because we then can be more thoughtful, more deliberative, more, precise about what we’re doing and really evaluate it so that we don’t have, you know, they say the small foxes spoil the vine or whatever the foxes spoil the vine. We don’t want to get in a situation where we don’t pay attention to stuff and it comes back to bite us.
[00:18:01] So anyway, that’s, that’s kind of how we personally, approach.
[00:18:04] Michael: That’s really interesting. I mean, for me, there’s, there is also some more dangerous sometimes in that middle ground. I think sometimes there is a danger that we’ll talk about debt as if adding more debt increases risks. The traditional wisdom is the simplistic person is more debt is more leverage or gearing, depending which side of the pond you are.
[00:18:22] Which increases returns on the good days and, and, and decreases, you know, increases risk. I would argue though, that there are some businesses that I’ve looked at and I’m actually encouraged to go and get loans or not go into market or not going to product line, because being stuck halfway between the capital requirements, if you need the working capital of a hundred thousand euros to, to, you know, expand the business in a part of the European market, like one of my clients recently, and you have 50, you’re going to go broke and that money can, you know, in the end Cassius cash, that the people who need your money when it’s.
[00:18:51] In other words, not going bankrupt then would he care the source of cash? That’s kind of your problem to sort out. And I would argue being under-capitalized is more dangerous sometimes, which is not quite the same situation, but there are situations where you have to go bagel, go home to your, to your phrase.
[00:19:04] Jason
[00:19:05] Jason: In that situation, you take, you, maybe you see an opportunity and it’s just not yours to take because unless you want to be insanely risky. Business you, you would be unwise to take that big a leap where somebody else would be like, I’m just financing this with my checking account balance.
[00:19:21] So just writing the check and putting this whole thing together with the cash on hand, no big deal. And so sometimes entrepreneurs can see things that they can’t reach the rancher to the young green hoards that never mistake a clear view for a short distance. You can, sometimes you can see stuff you can not.
[00:19:41] And that’s the curse of an entrepreneur, you
[00:19:43] Michael: know, so it’s like nice Texas weeds to my light that never was taken clear view for a short distance. I like that. Any final thoughts on this guys? Instant topic.
[00:19:57] Chris: I think we covered it. I think we gave advice for the newbies. We gave advice for the
[00:20:00] Jason: established.
[00:20:03] Michael: I want one polar question. I’d love to get a quick run up on you guys. This is a amongst your friends and clients, particularly in the capital intensive sort of custom products, private label types, worlds.
[00:20:13] What’s the reality on the ground that you see that people use loan products, a great deal to fund their businesses. I’d be interested to know what you guys experienced. I’ve got some experiences.
[00:20:22] Chris: Yeah, I’ve seen them run the gamut of between Amazon loan products between local bank products. Lines of credit are pretty common and you can re you can get really good competitive rates for pretty decent size lines of credit, for your business, as you get more established and then I’ve also seen them, obviously, you know, using credit.
[00:20:43] As a, as a means, like we mentioned before, as is not common, the SBA during the old pandemic was handing out money by, by the, by the ton. And so a lot of these businesses picked up SBA loans along that, really, really ridiculously competitive rates as well. So, yeah, it kind of runs the gamut, I think.
[00:21:02] And it kind of, it kind of comes in, in, in flows. Do I think for many businesses, so they ebbs and flows like some. Ended up getting a loan product for a certain more, over a certain period of time to do something specific. Like, for example, it’s not uncommon for like, if you try to break into like sample like retail and you get a deal with Walmart, but Walmart it’s going to go big.
[00:21:25] They might order a hundred thousand units or something to test, and to go into actual retail. And you’re like, oh, if you’re not prepared for that, you might need to go get some sort of financing to pay for your inventory. Then it gets it into Walmart. So there’s just a, there’s a risk profile of that as well.
[00:21:40] That’d be aware of, but that’s, that, that can happen.
[00:21:42] Michael: the one things I’ve seen a few similar things amongst the mass. My mom’s here in, in the 10 K collective mass mine in London. So by bounce back loan, similar to SBA loan is basically being put out with a sort of non too subtle side order of, by the way, we may never expect you to pay this back. So kind of grants in the other name.
[00:21:58] But also specific reasons. I am. I’ve seen a lot of people. Quite modest amounts of money relatively for Q4, specifically Q4 stock to, to bridge that awkward. We ran about August, September that the cashflow spikes downwards that I’ve seen. So people often take a loan out, sometimes friends and family type things as well, which has its pros and cons, but they, there all things being equal they’re friendlier.
[00:22:18] But of course, if you mess it up, the relationship’s messed up, which is possibly a reason to be careful with it again, going with proven inventory.
[00:22:25] Jason: Right? Yeah, totally. I think my other, this observation about this over time. When you need, when you, when you’re early in your venture and ventures and you feel like you need a credit or loan product, generally, you can’t get it.
[00:22:38] You in today’s world, the world is a wash in cash and you can get money from anywhere almost, but in normal time, it’s back in my day, three years ago. If you, if you. Loan products. They wouldn’t give them to you, but if you didn’t need them, they would just get bombed. You get, you get flooded with offers for all of the products in every way.
[00:23:00] And it’s a, non-stop no Fest. You’re just like, no, I don’t need money. No, I don’t need that. No, I don’t. No, thank you. We don’t do that. We don’t need, you know, and so it, that’s just this odd situation and, the only other wisdom on this, I would just say is Paul Hawkin in his great book, growing a business.
[00:23:19] You need to figure out your credit worthiness and your ability to get capital before you need it. And it’s a prudent thing to do, to think through ahead of time. Am I going to need loan products? Am I going to need credit? Should I get my, you know, my, my credit score sorted for my business and, you know, dun and Bradstreet, you know, info and all that kind of stuff plugged in so that you do have a credit worthiness that develops over.
[00:23:44] Even if you don’t need it. And I think that is, that’s why it’s.
[00:23:49] Michael: Yeah, I think my final thought on that one is, similar to your idea, Chris, if you try and ask a bunch of people to invest equity with you and they all refuse, there’s probably a hint that you shouldn’t be doing it. And equally, I think you’ve your businesses on lendable.
[00:24:00] It’s probably not in very good shape. That doesn’t mean because people will lend to you that you should take the loan. But I think there’s a big difference into your point. Jason, I think that above all, what banks hate and, and they’re quite right and, and investors hate if they are on the, on the ball or they’re often not.
[00:24:15] Is sudden need for cash because that implies you haven’t seen it coming, which means you’re not doing your job as the entrepreneur. Right. So the CEO, so I think either which way, seeing stuff coming and the need for cash, I think that’s a broader topic. There actually be a very interesting to discuss at some point.
[00:24:29] And it’s kind of sounds nerdy and abstract until you running a business. And then it suddenly becomes very, very real sometimes roundabout now, actually. So, I think that the whole thing of, of planning cash needs is a really nerdy but critical topic, but. The moment, it feels like we’re, we’re done with the loans things.
[00:24:44] So, thanks very much guys, for your thoughts. If you’re listening to us, then don’t forget to come and join us. We’ve got various places you can find us now. So the e-commerce leader calling shown on the call in app CA L L I N only venom on iPhones at the moment, but it will be on Android. I imagine fairly soon.
[00:24:59] And the general idea of that is we have a nice sort of quick interactions that the sort of hot takes, but we’re, we’re looking forward to being able to interact with you. They’re listening. So come and join us there and we’ll get that ball rolling. Meanwhile, we are on all good podcast players near you for the e-commerce leader podcast, which is.
[00:25:15] I think we’re beginning to coming out three times a week. We got some sort of tip of the weeks, shorter staff discussions between Jason and myself. And then of course, these hot takes for the four of us as well. So thank you so much for listening. Gents. Just reminds me to say thanks for everyone’s input.
[00:25:30] It’s great stuff. Love
[00:25:31] Chris: it. Love it. Fun times.
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