[00:00:05] Melissa Traverse: Hello, and thank you for joining. I am Melissa Traverse, Director of Community here at BevNET Anosh, and I am excited to welcome you to the Nonbase Podcast, a podcast built to help CPG owners and operators navigate growth challenges and build more profitable businesses. Be sure to check out nonbase.com, BevNET's platform built for the CPG community, where you can find this episode and so much more. Scaling a food brand is rarely about one big decision. It's about a series of complex choices around channels, operations, and capital that all start to intersect as the business grows. Knowing when to expand, where to invest, and how to fund that growth without losing control of your company can be some of the hardest challenges founders face. Today, we are addressing exactly those questions through the lens of an early stage brand in motion. From operational scaling to fundraising realities, this conversation is all about building the right financial and operational foundation before things get too complicated. Joining me is Becky Pleat, founder of Day Out Snacks, who is in the middle of scaling her business and has just wrapped up in Angel Round. Phil Trowler, who now provides strategic financial support for CPG Brands, and was the former finance partner for Olipop, will provide some experience-based insight. Together, they'll explore how foundational financial metrics like burn rate and contribution margin show up in real decisions, why discipline compounds over time, and how early fundraising choices can impact a business long after the first dollars are raised. Becky and Phil, thank you so much for joining us today on the Non-Based Podcast. We've been talking about this for a while, so I'm so glad we're finally recording this and putting it into a podcast form. Becky Pleat's start with you. I think I met you at Expo West a year ago. It's so funny that it's almost time for Expo. Again, and I was just so incredibly impressed by your product. They're these little nuggets of deliciousness packed with energy. I think I tried the blueberry lemon flavor. Can you tell our audience all about DayOut Snacks, what the product is, and why you decided to bring it to market?
[00:02:21] Becky Pleat: So Day Out snacks, I always like to say we really exist to combine the best of both worlds when it comes to snacking, which for me, who has a huge sweet tooth is indulgence and protein, of course. So we make these dessert inspired protein balls. They are sweetened with dates, they're made with wholesome plant based ingredients. They have 12 grams of protein per serving and really the idea behind them is to be exactly what you said, like just a satisfying treat but also energizing and giving your body the nutrients that you need throughout the day. When I first started this company, I'm a pharmacist by background, so this was really born out of a real life need that I had. I was eating the majority of my meals and snacks out of airports and convenience stores and finding something that was satisfying but also had protein and clean ingredients. I was always faced with that problem of buying things that had a bunch of fillers and oils and just gums that I didn't really want to be consuming every single day. I literally just started making these in my kitchen. Before I knew it, friends and family were asking about them. I'm going back, this is like five, almost six years ago. It's been a journey. Like any company, it started out as a little side hustle, and we've been lucky enough to have great people supporting us, a great team that we're building out, and the support of a great community. So we've been seeing some exciting momentum lately, which is what is leading to this conversation today.
[00:03:56] Melissa Traverse: Yeah, wrapping up your angel round is big news. We're gonna get into that a little bit more later, but how do you feel now that you have that under your belt?
[00:04:06] Becky Pleat: you know, I would like to say, I feel, I thought I was going to feel so relieved and be like celebrating and, and like, like we made it. And I do, I felt that that way, but for maybe like 30 seconds. And then I think the reality set in of like, okay, now let's get to work. So it's, it feels great. It feels exhilarating because I know how much opportunity is, is out there. And I know we have so many plans to be able to, you know, deploy this capital capital strategically. Um, so it's, It's exciting and terrifying at the same time, if I can describe it that way.
[00:04:42] Melissa Traverse: I think every other founder in the audience is nodding their heads emphatically, yes. Thanks for that, Becky. Phil, let's introduce you to the audience. So you have, your background has always been in financial planning from what I could see on your LinkedIn, or at least for a good long time. Was Olipop the first CPG brand you worked for?
[00:05:04] Day Out: It was Yeah, I actually, I kind of got into financial planning sort of fairly soon after qualifying CPA, because I just preferred like the forward looking part of finance. I spent about 15 years actually in in sports betting, believe it or not. And looking at the you know, the planning for that. But yeah, back in around about 2018. Ollipop was, yeah, it was my first first CPG client.
[00:05:31] Melissa Traverse: Sports betting and CPG to me seem like two very different areas of business. Is there anything that carries over?
[00:05:43] Day Out: ultimately managing risk. I mean, you know, I, from a sports betting perspective, like you look at how players, and that is particularly like, they manage like the cash that they have and the risks that they're willing to take. And, you know, the best ones aren't really betters at all. You know, they're investors, and they, they know where they're going to place their money for the best returns. And, you know, there is a, Bizarrely, there is an overlap and you learn to take risks, but take the right risks and manage your cash well. I did manage to find an overlap.
[00:06:19] Melissa Traverse: It's certainly rare that I talk to somebody with that kind of background. I'm just curious, are there any just mind-blowing facts about how sports betting works? If you think about CPG, I think one of the most surprising things for folks who don't come from this industry is exactly how much net profit you're left with after you pay your distributors, your retailers. Is there anything crazy about sports betting that most people might not know about?
[00:06:45] Day Out: I mean, the numbers are enormous. So even if somebody's talking about making $1 or $2 million of revenue, usually that's $1 or $2 billion that's being turned over in terms of betting because a lot of the betting goes from one person to another as opposed to the actual company. So the amount of turnover of actual bets just for them to make money is huge.
[00:07:09] Melissa Traverse: Well, now I know something about sports betting that I didn't know before, but let's get back to CPG. You know, Becky, you had some really, really fantastic questions that really drove this episode. So I'm going to hand the mic right over to you so you can ask all of the questions that you have. You know, I'm sure leading up to your angel round, but everything that you're left after with, so please take it away.
[00:07:31] Becky Pleat: Yeah, thank you. And I have to say that this, this couldn't have come at a better time because, you know, you think you're, you're sort of somewhat becoming an expert and learning more about this fundraising landscape, which by the way, I know everybody says it's literally a full time job and It is. It's like full-time plus, you know? So I think what was very surprising to me was I ended up with a lot more questions than answers as I was starting to move through this early phase of fundraising here. you know, I think at the end of the day, once everything was kind of signed, sealed and delivered, your mind, even though, like I said, you celebrate that for a quick second, but your mind immediately jumps to the future. And I know for me, as a founder, like many of these early companies, you know, your mind is sort of what does the next five years look like, you know, is the goal to have a strategic exit, which I think a lot of us, that is the ultimate goal, right? Because we're trying to bring these better food sources to people and then have it be able to be readily available everywhere. So that is the goal, ultimately. So for me, after I finished this first fundraising round, I was like, okay, what does this next five-year landscape look like for me? Because this is From what I've heard, a continuous thing that I mean, hopefully it's not a continuous thing, but but I'd love to understand a little bit more from you, Phil, maybe just about what that landscape looks like for an early stage company that is now ready to start fundraising. You know, there's obviously lots of strategic areas to deploy this working capital. But I would love a more in-depth understanding of what that journey looks like and then ultimately what that means for me at the end of the day as a founder. It's a very loaded question, but how can I make sure I'm maintaining the amount of ownership that is appropriate and not getting completely diluted. There's a lot of directions we can go here, but maybe I'll just start there.
[00:09:38] Day Out: Well, firstly, I will say I've chatted to many, many founders now over the last couple of years, and I just admire the grit and the determination and what it takes to actually start one of these companies. But you touched on it. I hate to say this, but you've closed around. You've got the money in the bank. And the next thing is, okay, we need to prepare for the next round. And it's unfortunately like it's that kind of the way that's just just kind of the way it is. Now, obviously, you don't have to be like organs right now. But but it is I can clearly see from your question. That's like, that is part of like what you're already thinking. Um, And then I think, you know, just also to put it in perspective, I think a lot of times, people always ask, like, you know, how long should it last? Or when's when should the next one be? And it's not really a matter of time, I think, you know, it's more about milestones, I guess, to that end, you know, if you you know, if you took your money and you, you hit your revenue goal in six months time, you're going to raise again. But if it takes you two years, then you then then then the question becomes how you're managing the burn to get you to the two years. So no one is the same. No journey is the same. But yeah, I mean, we can go into some details. But I would say that really, it's about identify what those milestones are. And usually they're going to be revenue milestones, because that's what's going to improve your valuation, and then also your your unit economics. And then, you know, there's going to come a point when you forecast that when you're going to run out of cash, and then probably sort of six months before that, you need to be thinking about like, what does evaluation look like? How much more money do I need? And taking it from there, really?
[00:11:26] Becky Pleat: That's exactly the art of fundraising. It really is. I feel like it's all about timing and projections, which can be so difficult. from what I've been seeing is kind of like, okay, you have a best case scenario, you have what most likely will happen. And then like, what happens if it's a little bit slower than expected? So it's, it's such a range, but it can be such a swing to your point in, in terms of how quickly you need access to capital or to get moving on your next round. But you had mentioned before, and I'd love to just understand this a little bit more, just the ratio that you were talking about with burn rate to your revenue. So maybe with that concept and then other key metrics, what are some things that founders really need to be focused on that will give them inklings of how much money I need to raise and maybe how soon that's going to be happening.
[00:12:28] Day Out: I'll start with the ratio because I don't think it's hugely common, but it's something that I would look at. What you're referring to there is I look at what the revenue run rate is. and I divide that by how much money you've burned since you started. As an example, if you're doing 20,000, or actually better example, 200,000 a month right now, then that's 2.4 million roughly in your run rate. Then you look at how much you've actually burned since you started, if that's also 2.4 million, then your ratio is one. But that's actually pretty good. Like most most companies, you know, they're, they're burning much, much quicker than their run rate to begin with, because they're, they're actually having to invest capital to get up to speed. And so, you know, normally, that might be between a half and a half and one. And and not to try to overcomplicate it. But the reason I look at that is you can take your revenue run rate. And if you multiply that by three or by four, that can give you a rough guide to what the valuation might be. You know, so if your run rate is 240, you might sort of be able to say your valuations between you know, one, you know, three quarters a million to a million. And so then you want to just make sure that your valuations always staying ahead of the money that you've taken in significantly. So that that's kind of the that's what I look at. But you know, that that is something you kind of as a goal as you're growing through series, your season and your series a to begin with, that ratio is kind of like it's a little bit all over the place because you just invest in money to get to get started.
[00:14:11] Melissa Traverse: Can you explain the relationship between burn rate, revenue run rate, and profitability?
[00:14:18] Day Out: So burn rate is just, I mean, it's a cash flow. So it's essentially like how much money that you've spent to date. And then you look at that on a monthly basis. You know, revenue run rate, that is a little trickier. The simplistic way is to say, you know, we did $100,000 this month, so our revenue run rate is 12 times that. Obviously, the seasonality can can play a big impact in some businesses. And so it might be wise to take the last three months and multiply it by four. But whatever, whatever your business is, there's an area where you can kind of roughly gauge what you think your run rate is at that point in time.
[00:14:57] Melissa Traverse: And how do those two relate to profitability?
[00:15:01] Day Out: your burn rate over time will equal pretty much equal your profitability. But where it where it doesn't is, for example, you know, you're especially in CPG, where you're creating products, you're going to be investing cash upfront. And so you might be burning more more cash, that's that's that you're using more cash, that's going to be supplementing building out inventory, or it's going to be sat on your accounts receivable, because, you know, you're with these big distributors aren't paying you. So, you know, you do have to be more focused on cash over time, they will sort of even out. But to begin with, certainly for smaller brands, you really want to focus on cash.
[00:15:41] Becky Pleat: Is there a ratio that you see that's like a good inclination of like, okay, this brand definitely has some traction or they're using their capital the right way and it's balanced the right way with the revenue? I know you said one is really good, but like you said, as you're expanding in your retail journey here, it's a lot of cash upfront just to even start these relationships with retailers. So is there sort of like a ratio that you see that seems to, have good signals?
[00:16:12] Day Out: I mean, anything above anything above a half is good. Because, you know, because if your if your valuation is three or four times, then that means you can afford to be a quarter to a third to be at least on par, but you want to be ahead of that because you want to be going to be growing value. So anything above above a half is good. But in terms of just going back to the cash as well, that's one ratio. It's hard to have a ratio of cash to profitability because because different brands have to operate differently. And so some brands might have to produce all their inventory up front, because of like, crop yields and things like that, whereas others can produce a small amount every single month, that's much easier business to manage, because it's more consistent. Whereas if you are starting off a business that relies on a coffee or a strawberry crop somewhere, then you you know, and you have to buy it in bulk, then then that's a different, different story.
[00:17:09] Becky Pleat: As you're going through this journey of expanding and growing, what are other metrics that founders should be able to really rattle off? I think in a lot of these early conversations for this round, at least with potential investors and investors, there was a lot of focus on margin. That's a big one. I know we also touched on contribution margin a little bit, but are there any other things, I guess, that as we start to think about our next round that we want to have in the forefront and make sure that we can show that effectively?
[00:17:49] Day Out: First and foremost, always know where your cash is. Always know where you feel like your sales are. And I think it's also a good idea to understand your velocity, because that's such a key part of how well you're doing and how well you're going to do. As you're talking to investors or you're having done an angel round, really, you're now at the point where you really want to lock in your unique economics and that gross margin. That does become important. There's where you're at. there's also where you would be if you had more volume. I differentiate that because there are some things that you could even have a contract that says when you hit this amount of volume, the price will be x. You already know that your unit economics are going to get better. That's always good to know. Then there are other parts where you don't know, you know, they got improved, but you don't know how. And that's things that you need to work on. But, but yeah, that's crucial. And then the other the other side, I always like to like with the brands that I work with, we always have what we call the product margin. So that's just the how much you're spending to produce the product, which is typically carbs. But there's also another line. I actually like to call it it's like the ocean line. Like, it's the line where, you know, you've, you've just produced a whole load of sleeves, and there's a spelling error, or, you know, and you've got to do more, you've opened like some too many like barrels of juice and you've got to throw four of them away. It's not really doesn't really impact your true margin, but it is called good either. It is something that you did at that point in time. But I'll always separate those two because you can put them together and just make sure you you explain it and tell the story. I just think it's handy outside. And so what you want to do is you obviously slightly improving your product margin by by getting these volume discounts and by renegotiating. And then you want to improve by not making mistakes, this other one. So that one needs to, you know, there's always going to be an element there, but you just kind of want to let that sort of go down. So I think at the stage you're at, that's the next stage is to is to get that gross margin, you know, as high as high as you can and get those unit economics really, really tight. I can go on to contribution margin. I'd almost say that's almost like a stage two. So contribution margin is now we're adding in our freight out and our warehousing, basically the cost of fulfilling the goods, which is still variable. So for example, you know, if you're shipping out cases of product, you might be, you might be spending five or $6. Like at the high end, for every case you ship, which is crazy amount, it's probably you know, it's eating in it's it's mean you're not getting any margin whatsoever. But that one, you know that when you start to get bigger, and you start to fill trucks, and you start to have like more efficiencies in a warehouse, then you're going to die is going to lower down to sort of under $1 a case. And so I put that in the in the ones where okay, we need to, you need to track it, you need to follow it. Because you need it to come down. But also, don't like don't waste huge amounts of energy, trying to get your freight down from $5.50 a case to 535. Because it's like, you know, you just focus on the sales, because I'll take care of itself. Once once you get those sales. So that's, you know, so that's really the, that's how I get down to sort of the contribution margin and think of it like that.
[00:21:26] Becky Pleat: And then where in that when you start to think about, maybe it's like the next level or the next layer, but marketing costs and like associated marketing for the money that you're bringing in, where does that kind of come into play when you talk about contribution margin?
[00:21:45] Day Out: So that will come into your income, your margin at the end of the day, your profit. Contribution is just the variable cost that you need to spend to get your product on the shelf and out and sold. marketing, even though it'd be crazy to run a business with no marketing, it's still kind of discretionary. You know, you're still choosing, there's probably a base amount that you want to spend, you know, these days, these days, it's going to be probably on social could be on Amazon, if you're there, you know, you're going to have that you're not always going to get be able to just look at it and say, I got an ROI of x on this spend. So that just comes with gut feeling and experience, and also how you want your brand to be seen and perceived. So it's very, very difficult at that point to know, to know what what you should spend on marketing is going to be more of a more of a gut feel and and make that with one eye on how much cash you have, how long you've got to spend that to hit your revenue for the next raise. Don't be too flippant with the spend.
[00:22:59] Becky Pleat: I think the marketing costs in itself, and like you said, that ROI is just so hard sometimes to figure out. I think for us, a lot of what we look at is our customer acquisition costs. Again, with so many different e-commerce channels right now where people can go to, if you're running an ad on Instagram or TikTok, maybe they're not clicking right on that ad, but they're going on Amazon, or maybe they're already subscribed to your newsletters and then they buy through your website. It's very, I guess, tough to quantify some of those efforts sometimes.
[00:23:41] Day Out: it's much harder to quantify the stuff you're spending that's brand and that's going to impact the shelf. Certainly from my online gaming experience as well, there is an element, you can go quite deep into getting acquisition costs for online, whether it's Facebook, Instagram, all these different things. If that just becomes, but what you mentioned also is true, it's like, attribution, like we, we used to, you know, we'd spend money when I was in gaming, and we'd spend it on Facebook, we'd spend on Instagram, we'd spend it, I know, just online with different like, companies. And, and every time we got a report back from every one of them, they'd all be taking credit for the for the one person that signed up, you know, and it's the attribution, you know, it's like, it's like, because the reality is these people do they go on a journey when you're online. So you do have data, and you can do your best to try to get to a number. But again, I'll always say don't overcomplicate it, don't go over into the details, because you'll just drive yourself crazy. And you'll end up making assumptions that really, to get you to an answer that really just kind of like make the whole thing irrelevant anyway.
[00:24:57] Becky Pleat: it can kind of be a huge drain on resources if you really start trying to nail down those numbers there. And I guess, you know, as long as things are moving in the right direction, I feel like that's, you know, you're actually increasing your revenue. That's probably the most important thing overall.
[00:25:14] Day Out: Yeah, always start always start macro, like look at your total spend and look at the total revenue. And, you know, and then, you know, if you can, and you've got the, you got the support to look at things by channels, then that's the next, you know, that's the next stage. But, but yeah, you just have to, you know, you, you're a founder with limited resources, and you have to figure out where the best focus for your energy is.
[00:25:35] Becky Pleat: And kind of to that point, you know, a big part of the raise that we did, like if you look at a bucket of where this, most of the capital would be allocated, it is towards like marketing initiatives or, you know, you can also, I guess, expand that into like promotions or, or, you know, things that you're doing, um, to help drive velocities on retail shelves. But, um, kind of through that lens, if, you know, you were me and you just raised, you know, a good amount of money, it can be, you know, general, we're right now we're in roughly around 800 retail doors, like the goal is to expand that significantly over this next year. You know, our other goals are just increasing our Amazon presence, website presence, you know, so that we have all of those buckets that need attention, but where would you kind of look to deploy capital in the next 90 days?
[00:26:29] Day Out: I think I'll go back to like, you know, every time you do a round, like there's a certain like, there's certain things you want to hit with that money. So, you know, angel round or seed round, I think what you want to do now is you want to prove velocity, and you want to tighten your your your unit economics, because the next round is where I think you would get a big series a that's when you deploy capital to go maybe nationwide. And you need to do that with economics that are going to make you money and not spending money to lose your money. So, so your focus right now is velocity. So you're right. So that that's the marketing efforts that may be demos and just trial like getting people to, to get the product in hand, and then following that up with with data to show that actually you're getting repeat purchases and more people are coming into the same locations that you were in, but you're actually getting more velocity through them. Then I would also use some of this money to just look at your command and your distribution network and just look at the ingredients. Can you tighten those or can you at least start to come up with agreements where you're going to get better economics with more volume? I think that's really where I would totally focus that money and save the next check for going wider. When you say you want to expand, I wouldn't want to be expanding across the nation right now. I would be carefully picking the regions you think are doing well and just really going deep there.
[00:28:05] Becky Pleat: If you have the chance to either gain a boatload of more stores or just really execute and kill it in the stores that you're in, which path would you go down? And yeah, it sounds pretty clear that velocity is really the main signal here for for how well received your brand is and the potential that it has. So really focusing and honing in on those stores and increasing the velocity seems like the right path.
[00:28:30] Day Out: You want to look and see if you've made mistakes in the way that you're explaining something isn't working. And you want to find that out now, locally, or in the region you're in, then spread it nationwide and be like, Oh, down, like, that doesn't work, that doesn't resonate. So you almost thought, you know, you almost want to be finding the problems with your brand, with this money so that you can fix them before it gets bigger.
[00:28:52] Melissa Traverse: It's a lot more expensive to fix national mistakes.
[00:28:56] Becky Pleat: On the flip side of that, what would be the worst use of any new funding or capital that a brand has? And maybe even like anything that you've seen where you're like, oh my gosh, you really just shot yourself in the foot by doing it that way. But what are some mistakes there to avoid?
[00:29:14] Day Out: the worst mistake, you know, again, is, is just going to national distribution or going, going really wide, probably, you know, overspending on too early on a big agency to help you with stuff like I still think you, you know, you're probably slightly beyond scrappy, but you're certainly not like, we want a big agency to come in and do a branding campaign for us, like or, or, you know, something like that. And, you know, an expensive hires, it's very tempting to think we've got like to get like now a a VP of sales or VP of ops or whatever that that top level higher is, you probably need to be going in and managers and directors and getting people that are kind of like possibly also still learning that you can work with. Because you you know, I've seen it where you go for a big VP. And they're like, right, I'm going to need like two directors, I need three managers, you know, and it's like, all of a sudden, you think you're just doing one higher, but that higher actually needs another three or four. So, you know, so that that's not the right and that the time to spend that money is a series a when you're like, now we're going national, we're going to get money for that we're going to get money for people, you know, that's, that's when you turn that kind of cash.
[00:30:21] Becky Pleat: You're kind of like reading my mind, I think, with the direction of these questions, because it is very tempting, I think, when you get to these different stages where you start to feel the growing pains a little bit. And I think there's definitely a real reason to bring on, maybe not like expand headcount like crazy, but just really figure out the support that you need to make sure that you're making the most out of the capital that you have and the partnerships that you have. And it can be a little bit challenging as a solo founder, kind of like wearing all of those hats there. You mentioned like bringing on headcount because now I'm starting to see as we get into more retail doors and we're trying to go deeper with those relationships at at store level and figure out promotions and what's the right track for us to go down. I'm like, I definitely need ops help. That's something, but to your point, it's not like I need to bring on a head of operations. It wouldn't be a good use of funds that way to have somebody just solely focusing on that. It's almost like, can I find someone that is fractional or just other ways to assist in those growing pains, I guess.
[00:31:37] Melissa Traverse: It might even be investing in a system.
[00:31:39] Day Out: You've seen more and more of that, you know, especially these days with, you know, the, I'm not even gonna say AI, but just just the, the simplicity of bringing in automation tools, like, you know, I'm working with a brand where we're, we're trying to set it up so that every time we get an email with a purchase order, like instead of all the manual work, like there's automations that just look at it, they know it's an order, and they'll drop it into a table, the table will then tell the 3PL, the 3PL send it out, and it all talks to each other before you even get anybody. I mean, that takes time too, but yeah, systems are definitely going to be on the up over the next year or two, I think, and really helping certainly early stage companies. it really depends on the founder. Like if you were, if you basically came into this as like, head of ops for Diageo, and you started your own brand, you clearly not only opt out. So you know, you just have to fill the gaps that you have, like, I found that most people are like, they're either the the product developer, or the marketing. And so that's where I kind of like, find a lot of, it's very rare, you get somebody from finance going, Hey, I'm going to start a CBG brand. So they nearly all need finance help, which is great for me. But you know, you just have to, you just have to kind of supplement the, the, you know, the gaps that you have in what you can do, but you, you know, you, whatever you can do, like, I've, I've, I've spoken to people that are that have asked for, you know, for my help. And they've actually been more finance literate. And I kind of say, no, like, like, I mean, obviously, I would help them. But I'm like, that's not a good use of your money. You know what you're doing, at least for next year or two. So just, you know, go spend that money on on somebody that knows marketing or ops or what have you.
[00:33:26] Becky Pleat: Yeah, it's really refreshing. Because so many times, you know, I listened to a lot of podcasts around, you know, when you're, you're building a company, and it's like, okay, it's almost like a checklist, like, okay, you need a marketing person, then you need an ops person, then you need to finance for and it's almost like, to your point, though, it doesn't necessarily need to follow that structure and trajectory, like based on the strengths that like, maybe the founding team has. I guess is there anything else that emerging companies can kind of look to to to really figure out what we were talking about earlier in the episode, even with like unit economics by channel or just I don't know anything that you find that's been a big help for founders?
[00:34:04] Day Out: First of all, I encourage anybody to get a bookkeeper as soon as they as soon as they feel like they can. Because I think that's just having the fundamentals in place is you know, is so important. Most of the bookkeepers are like they're really good firms and most of them they will help bring on whether it's an automation tool or something that will help you process all your bills, like send out your invoices. There's all these now where they can manage your trade spend, which is becoming more and more important. There's some really good companies out there that are helping automate that. That's something that you probably want to get in place as well. Unit economics is a is a slightly different one, I would have somebody that's I'd call them FP&A, which is financial planning and analysis, which is which is the forward looking, I'd always, I'd always lean on trying to have somebody that you know, and trust, whether it's fractional, or, you know, internal, I would, I would, you know, have sort of somebody in the company, if I could. And, you know, so so at some point, the first, I would have an outsourced bookkeeper, my first finance hire would be a manager or a director of FP&A, they probably own a few hats, but they will be really focused on, on that kind of like forward looking unit economics, fulfillment costs, anything like that. You know, that's, that's the first hire I'd make in finance internally.
[00:35:29] Becky Pleat: I think is so important as you start to think about your next fundraising round too, because that's the first thing that everybody is going to ask for is, what do your projections look like? And going back to what you said, like, what's the path to, you know, increasing your margins and, and hopefully decreasing that like rainy day fun that you that you add in there for any mistakes on packaging and stuff like that. So yeah, I can definitely see that being a key hire.
[00:35:54] Day Out: And you might be able to if you can't afford the higher just yet, like it might be that you you just get someone that you that's a good referral, someone that you trust, and actually use them, use them for sprints. And what I mean is like, you don't necessarily, you don't want them on the books when you don't need them. But probably every quarter, there's there's stuff, you're doing a fundraising round, you need to relook at your economics, whatever. Like that's when I, you know, maybe get them in and just use them for like, small pockets of time like that.
[00:36:19] Melissa Traverse: Phil, where would somebody look for somebody like that? Like, is that the sort of thing you do? Is there is that a fractional CFO? What is that?
[00:36:28] Day Out: It's funny, like, so there's a lot of fractional CFOs. And I would say that that is probably a little too, too senior. But I think there's probably people that that might sort of overlap and actually do that work. Because maybe, you know, maybe they've kind of like, been an FP&A person historically, and that's really what they are or what they do. Bookkeeping firms often will have an arm that will, where you can just pay by hour for just some extra work. So certainly start there.
[00:37:01] Becky Pleat: Say you are a profitable company, and I know everything's going to come back to what you're looking at in terms of growth. If all of a sudden you take on 5,000 doors. Yeah, sure. That's like a no-brainer that you're going to need to raise capital. But I guess, how do you think about if a company is profitable and they're growing at a steady rate, at that point, is it still something where your Series A is going to be on the close horizon because you are growing steadily and you know there's just going to be a bubble where you're going to need a huge cash influx there? And I guess, are there any other levers that founders can pull that are maybe non-dilutive from that standpoint? So kind of like a loaded question, but it may be going in the same direction.
[00:37:52] Day Out: Yeah. Well, I will say, profit is amazing. If you do want to grow, and you realize you need capital, profit just gives you more leverage. We always used to say there's three variables to a project. There's time, quality, and price, and they were interlinked. If you needed a project done really, really quickly, you had to do it today. then, and you wanted it cheap, then quality was going to be pretty, pretty poor as well. But you could you could overpay and then you get quality up. But it's all because you need you need it done now. Now what profitability does it means that you don't have that time constraint, you could, you don't have to, you don't have to like raise today, you can pick when you raise. So what that does, it gives you leverage with the arrays, so you can pick the investors you want. You might pick people that are strategic or that you've had good referrals from, they've been helpful in the past. You can go and find those investors, and you'll get a better price, i.e. valuation, because you're not under any pressure to raise the money. You can set the timeline to what you want. So profitability is really helpful, and you then decide who you want and how much when you want to grow. It also does open the door to debt, which obviously is non-dilutive. Sometimes dilute is good because you might get somebody on the cap table, like we just said, who's very, very helpful, who's strategic and open doors. If you don't want that, there's a lot of great like ABL's asset-based lending firms. where you can basically, you can just borrow money based on what your accounts receivable is, and how much inventory you have, you know, whatever you spend today, how long does that take you to get that money back? When when a customer pays you? And you're just trying to eliminate that by using debt. And as you grow, that kind of cycles up and up. But it's a really effective way of not needing to take on more.
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[00:40:15] Day Out: More capital than diluting yourself.
[00:40:19] Becky Pleat: Do you see brands taking on or I guess using like debt financing too early? Or is that, is there, I guess like a, a right point in time where, where it's like, okay, this is, this is definitely the right angle to go for, for this type of business.
[00:40:36] Day Out: Yeah, I mean, it's so sophisticated that it's hard to say they take them too early, because they will just look at your books and go, your revenues too small. Your your gross margin is terrible. If you're losing money, like basically, you know, I've had a lot of those conversations. And I've kind of know the answer before I had the conversation. Yeah. So you know, it's kind of almost impossible to be too early. And then the only way it might be is if you get some crazy shark that's charging you a ridiculous interest rate, so you wouldn't want that anyway. The only thing is, once your revenues are starting to get into the millions, over the annual revenues are starting to get to millions, then you can really start to look at using these facilities. Also, the economics, the unique economics comes into play, because what they're looking for is like, they want to they want to fund that top of the panel, the unit economics and make sure that that's okay. They don't want to be funding your, you know, $2 million brand campaign. You know, because that's, that's not that's not gonna work for them. So. So yeah, once once you can, once you have that, once you're at, say, a few million in revenue, then it just becomes a bit more of a this is where you might need the finance support as well. But it comes a discipline to make sure that you're using that money for inventory. And it just and the cycle just just keeps rolling over the money comes in, you know, you pay them off, then you can draw down more money for inventory again, and it just keeps rotating around.
[00:42:14] Becky Pleat: I heard that like if a founder retains like 30% of their company at exit, that's like a huge win. Is that like the real, like, I guess, trajectory of most companies or, you know, maybe ones that you've seen?
[00:42:33] Day Out: It's very high reward and high risk. You know, CPG companies usually sell for a lot of money, or they go bust. You know, it's not unfortunately, there's not really much in between. And so you know, 30% of you know, $100 million exit is better than 80% of like, half a million dollar exit, you know, so that's really what it is. And you because you need so much cash to keep this thing moving and going. I would always think of it like every time you do a round, you're probably going to lose 20%. Now the reality is, depending on whether you get the valuation you want, or how much money you need, it might be 15, it might be 25. But if you kind of think of it as 20%, then your first round, you're going to be at 80. You're gonna have 80 left. In second round, you're gonna have 64% left your third round around 50. Your fourth round around 40. So then your fifth round around 30, which is what you just said. So that assumes that you've basically had like, five, five funding rounds. So it's not that's not, that's not uncommon. And I've seen, you know, seen companies go lower, because the valuation just keep going up and up. So it makes it makes sense. 30 to 40 from a CPG brand if you exited, I would imagine that's pretty standard.
[00:43:50] Becky Pleat: That's, that's the goal, right? That's the benchmark.
[00:43:54] Day Out: And you know, it's, it actually is quite critical early on to not, it's a fine line between trying to get the highest valuation you can, but then then getting yourself stuck when you go for the next round, because you're, you can't get any money and because your valuation is too high. So you also do have to be, be careful not to over, overvalue yourself. And that's because it all forms part of this all forms part of this equation.
[00:44:19] Becky Pleat: and even raising more money than you need. Sometimes I think the approach is like, oh, I'll just raise as much money as I can in this one round, but not really have it tied to these concrete milestones, as you said there. And you think it's good in theory, and then all of a sudden, if you blow through that and whatever you really accomplished with it, I feel like that's not really setting yourself up at a good starting point.
[00:44:49] Day Out: Let's say you just finished your angel round or your seed round. Who knows how much money you need? You've just guessed, which you have to. Maybe you are tightening these economics up, and your revenues got great traction, but it's not there yet. Then that's where you look at something like a safe note. And you're just trying to bridge that, that gap to your Series A. So you're giving them a real deal on what your Series A is going to look like when you hope that you're in Target and Walmart and Costco or wherever, you know, because you've got everything. So you're just buying time, but they're getting maybe a 20% discount on what that Series A will be. But it's still not as good a discount as what you've just done your seed round on. If you're growing your revenues, you should always be able to find a way to raise money, whether it's a safe or a round. The biggest killer really is just lack of momentum. If your revenues are static month after month after month, that's when it becomes really difficult to drag yourself out of that.
[00:45:55] Becky Pleat: Yeah, you gotta do everything you can to keep the momentum going, right?
[00:45:59] Melissa Traverse: Well, Becky and Phil, that was fantastic. Becky, you had such great questions. And I think they're questions that other founders certainly have at the moment or have had. So it really was so helpful to see this through your eyes and think about it through your brain to see how some of these concepts really apply to a CPG brand. in real time. So thank you so much for having this idea and for joining the podcast and for asking such amazing questions. Phil, we can't thank you enough for knowing what you know and for sharing it with us and with our audience. I think that some of these concepts, no matter how many times you hear them, it's always helpful to hear them discussed again because they're a little bit more esoteric than some of the marketing or sales concepts that people are familiar with. Thank you so much for being so generous with your time and information. Becky Derry, founder of Day Out Snacks. Thank you again. Phil Trowler, Strategic Financial Support for CPG Brands. Phil, if folks want to get in touch with you, what's the best way for them to reach out?
[00:47:09] Day Out: Just through my website, actually. It's Phil Trowler. There's a link there.
[00:47:14] Melissa Traverse: Becky and Phil, thank you so much for everyone in our audience. Thank you so much for tuning into the Non-Based Podcast, and we will see you next time. That concludes another episode of the Nambase podcast. If you enjoyed the show, please leave us a review and follow us on your listening platform of choice. You can also watch and listen to past episodes on nambase.com. And don't forget to join our Nambase Slack at slack.BevNET.com for company updates, industry networking, and community discussions. See you next time.
