Equation of Excellence

Rabah (00:01.843)
All right. my God. I think maybe third. I can't remember. You're so engaging. You just get nestled into my little smartest man in finance and also best looking nugget in the part of my brain. All right. Three, two, one. All right, folks. Welcome back. Welcome back. We got a good one for you. We got a good one. We have the Finance Wonderkin.

Drew Fallon (00:02.864)
Is this only the second time?

Drew Fallon (00:16.08)
Ha ha ha!

Rabah (00:30.899)
Could have been the next Jim Simons RIP, but decided to go into DDC and now is sailing a ship of his own, hailing from Chi -Rac, Illinois. Drew Fallon, welcome to the show.

Drew Fallon (00:44.88)
Thank you, sir. Pleasure to be here.

Rabah (00:46.675)
Yeah, and the puppy's birthday. Everybody loves puppies. You got a dog recently. What, two years ago? A year and a half, something like that? OK, yeah, super recent. Wilbur. Yeah, amazing. Those Dachshunds are incredible. For people that don't know you that live under a rock, let's jump into a little bit of bio. But I really want to get into kind of what you're working on now. And then also just kind of some machinations on the market. You've been.

Drew Fallon (00:53.648)
No, his first birthday is tomorrow, so shout out. Yeah, yeah, shout out Wilbur. The little wiener dog turns one tomorrow.

Rabah (01:16.659)
My heart's delight crushing the content dude. I've been loving the feed. It's hard.

Drew Fallon (01:19.504)
Thank you, I've been trying. It's hard, man. It's a lot of work.

Rabah (01:24.389)
It's worth it, but it is so hard. But I want to get into that hims thread. And you've had a couple other bangers. But yeah, so for people that don't know, how did you get into e -commerce? Give us your kind of elevator pitch story. And then what are you doing now?

Drew Fallon (01:37.936)
Yeah, so I started in EECOM, I was probably like 18, like freshman in college back like in the good old days. You remember like throw a dollar into Facebook, get four bucks back. Yeah. Like Oberlo, you know, like the, like the true like sort of like drop ship stuff. I started doing that sort of like pretty early on, like probably, I don't know. It's like eight years ago. And like messed around with all that through college. I graduated in 2019, which was when.

Rabah (01:46.388)
But it's... Exactly...

Ugh.

Drew Fallon (02:05.392)
Mad Rabbit tattoo launched, which with my friends from college, Oliver and Salam, were like the proper founders. I got involved in that business, you know, extremely early on, probably like their first six months I started doing stuff with them. And we, we continued to run Mad Rabbit on the side after graduation. So three of us graduated in 2019. I went on to do banking at an equity capital markets desk, specifically research on e -commerce. So.

I think they wanted me to come research their equities in e -commerce because I had done my own e -commerce and it was currently doing it. I don't know if they knew that. And then Mad Rabbit grew a ton during COVID. And that was the year that Salam Oliver and I decided to take the full plunge. So quit the bank, dove in to be the founding CFO of Mad Rabbit full -time. We grew that business. People seem to know about it at this point. We were an eight figure beauty brand, Series A backed.

You know, raise a bunch of money, grew a bunch of sales, launched Walmart at the end of last year. And as part of that experience, you know, I saw the problems with a one product Shopify store doing a hundred K a year. And then the problems with like a 25 product Shopify doing, or, you know, Omnichannel store doing eight figures a year.

and the one thing that I think, you know, always really kind of stood out to me was just like the, the pure lack of like financial rigor, knowledge and infrastructure in this ecosystem, in this industry is like so insane to me. And it's, it's for a good reason, honestly, like, you know, EECOM has been like a growth industry forever, right from, you know, six to 22, you know, it was just up into the right. and then in 2022, when, you know, EECOM for the first time ever, I think that was the year, where it like didn't grow year over year.

Rabah (03:50.387)
Yep.

Drew Fallon (03:50.512)
And all of a sudden, all the margin just starts getting ripped out of the system and everyone starts going under. The capital markets are extremely dry. And I recognize this like extraordinary need for like visibility into business performance from a financial lens, being able to understand unit economics, map cash flows, understand forecasts. And it was really like my expertise, right? So everything that I was doing, you know, in my prior days and my prior companies from like the financial lens, a lot of people needed help with, and I was getting

dozens of requests for consulting stuff, which I had zero bandwidth to do. And so this idea for Iris started where, you know, the whole thesis is kind of centered around the idea that a modern consumer brand, like every data point, every transaction occurs digitally, right? So like, even if you're selling in like a Walmart or a Target, like EDI systems are in the cloud, your payroll is on the internet now with like Gusto and Rippling, like Shopify and Amazon are certainly on the internet, Facebook, Google, TikTok, et cetera.

And so the problem of understanding, you know, profitability in real time is nothing more than a data orchestration problem. And so if you can connect to all those silos and centralized data, you can understand how your business is performing. And then from there, you can plan accordingly. Right. And so Iris was born. I don't know. We, I left Mad Rabbit in August of 23. We raised like a little pre -seed round. We raised a couple million bucks.

And we've been off to the races. So yeah, it's been, it's been pretty fun to help people with this problem because it's. It's really bad, man. I mean, people are, people don't really know what they're doing on this side of the house. They're just, they're good ads people and they're good creatives. And that's kind of all you need to be to a certain extent. but then eventually the cashflow matters, you know,

Rabah (05:33.843)
Yeah.

Yeah, well one definitely hot off of fundraise when you hear data orchestration. So well done there, sir. Well done. I'm in. What's the minimum? I mean, let me get in this round. Yeah. Yeah. you didn't say it. Okay. Yeah, we're there. And then now we're and is that Sequoia out there? Wait a sec. Yeah. No, dude, it's very interesting. And I guess.

Drew Fallon (05:43.248)
Hahaha

Drew Fallon (05:48.368)
Yeah, yeah, yeah. Well, you didn't even let me say AI.

AI powered data orchestration. Yeah.

A16.

Rabah (06:06.803)
because this is your world, and I came from an adjacent world. I actually wanted to be an investment banker, then I didn't, and then I ended up just getting an economics degree instead of whole hogging finance. So my move over wasn't that jarring, but there's some people that are just great at product, like you said, great at selling, great at just figuring it out, that have no idea what the fuck's going on. And...

I had a great finance professor. He said there's two ways not to be poor. One, be really great with your finances, or two, just make so much money that it just doesn't matter. And I think there was that bull market where it was just like, you're just making so much money that so much is just falling down. It doesn't matter your OPEX or what. There was so much making it down to the net that you're just like, dude, I'm putting it in the walls right now. But now that that environment has kind of shifted,

Drew Fallon (06:54.192)
Mm -hmm.

Rabah (07:01.043)
You're seeing a lot of the arbitrage eroded in the ads market, which is obviously knock on effects in the acquisition costs. Like, are you seeing more people coming hip to like, man, like you just said, like, you know, eventually cashflow matters. Like, and I think that's a dirty little secret in DTC is that yes, it's not that much capital to start, but it's a very capital intensive business.

Drew Fallon (07:29.52)
DTC is an extraordinarily capital intensive business. It's actually part of the reason I got out of it. It's like the only, it's the only business model in the world where you can make money and lose money at the same time. Right? So like if I make 10 % net income on my P and L, but I got to throw, you know, 15 % of revenue back in the inventory. Like I lost money. Like I made money, but I lost money. So like, and that's like kind of where the, you know, the, the, where the shit hit the fan, pardon my French. I've been told to swear less on podcasts.

Rabah (07:40.499)
Yep.

Rabah (07:59.571)
dude, this is not the podcast you need to do. I will definitely triple you up.

Drew Fallon (07:59.76)
that's like, that's like where the shit hits the fan, which is like when, you know, you're not generating enough margin to like cover any sort of like working capital requirements. And then like, you end up like not being like cashflow positive enough to like actually continue to scale up business. And like, people just have a really hard time like reconciling like their contribution margin and like their cashflow and like everyone's so obsessed with contribution margin right now, which is like part of why Iris is like being extremely well received. But what the marketer doesn't necessarily understand is like.

When the marketer is saying contribution margin, like that's just a proxy for cashflow, right? So like, because of what I can tell from like the unit economic level, like AOV, you know, cogs and CAC, for me as the marketer, that's where my job ends, right? Like I don't, I don't do like the OPEX, like I don't do the inventory ordering. And so because our system is dominated by marketers, they've latched on this idea of contribution margin instead of cashflow, when in reality, it's just one of the same almost.

Rabah (08:53.202)
Yes.

Yeah, well, one's a function of the other. Can you walk people that aren't as doogie -houser? Nobody gets this reference, but it's the perfect reference for you, because you're so young and so brilliant. A, what contribution margin means, and just give us that finance 101, and then what you mean when you say cash flow. And then, I mean.

Drew Fallon (08:58.)
Yeah.

Rabah (09:17.395)
And the other thing is for people following Long at Home, a P &L is a profit loss statement. So when you get into finance, there's the big three of the profit loss, the balance sheet, and the cash flow statement. Anyways, that aside, I want you to define contribution margin for the listeners, because then I actually have a question about contribution margin for you, because D2C sometimes does it weird. And there's this cost of delivery. Anyways.

Let's start at the simple how it should be. And then I want to ask you about that because I've always had weird times reconciling because there's almost like marketer accounting and then like gap accounting.

Drew Fallon (09:46.576)
Yeah.

Drew Fallon (09:56.528)
Yeah, I would actually appreciate the opportunity to define this. So contribution margin is anything that moves, any expense that moves with revenue. So any sort of variable expense. Another nerdy finance dude name for contribution margin is net variable cashflow. So emphasis on the variable cashflow, variable. So this includes, you know, most things that are associated with the cost of the sale, including shipping, including product costs, including advertising.

Go ahead.

Rabah (10:28.723)
Okay. No, no, no. This is because, yeah, this is where I was heading because that's where the chance. So for people like an example, right? So I I'm selling marble busts of Drew Fallon's face and they cost a thousand dollars. And then I have a cogs or cost a good sold. It cost me one hundred dollars per unit. And then you would take out in that sense your CAC as well as the delivery fees.

Drew Fallon (10:34.16)
Yeah.

Drew Fallon (10:58.992)
Yeah. And, and yes, and, and yeah. So.

Rabah (11:00.147)
So like you're picking pack and shipping. But you internalize the freight differently, obviously, right?

Drew Fallon (11:06.712)
So you can record freight in a number of different ways. It should be included in the contribution margin as a part of cost of goods sold because it is variably rolling off the balance sheet into the P &L as an expense. The same way that COGS does, like you can capitalize freight expense, right? Like if it costs you a dollar to make the product and then a dollar to ship it, like that product costs you $2.

Rabah (11:27.891)
Yeah, to deliver it, essentially. Because I think that's where people get, where they cost a good sold. It's like, that's not super aligned with kind of how marketers think. Okay, so yeah, so take, yeah, expand.

Drew Fallon (11:30.128)
Yeah, yeah.

Drew Fallon (11:39.568)
It's not, but let me, let me interject real quick because the whole, the whole purpose of contribution. So there's, there's two types of accounting, right? There's financial accounting and there's managerial accounting. financial accounting is like what you see, like public companies publish their financials under it. It's like a very like, you know, equity analysis, investment banker type, you know, framework for analysis. Yeah. Like, right. Like I,

Rabah (12:01.907)
There's frameworks, rules, assumptions that people need to adhere to if you're going to submit this.

Drew Fallon (12:08.496)
I covered e -commerce businesses and online advertising businesses in my Wall Street days. Contribution margin is not a concern. It's not a thing. It's never been set on Wall Street. However, internally, it's an extremely important metric. This is because it's part of the management accounting school of thought, which is where the whole purpose of contribution margin is used in a breakeven analysis. Okay. So like,

The breakeven analysis is, you know, a breakeven is achieved when the contribution margin equals the fixed expenses and the fixed expenses are fixed expenses. Right. So, the whole point of tracking contribution margin is because you're, you're performing this like, you know, crossing of the lines analysis type thing where it's like, yeah, it's like a, it's like, it's literally like accounting 300 in college. Like it's like, you take a managerial accounting class and like, they teach you about the margin of safety and contribution margin and how.

Rabah (12:51.539)
trying to find the equilibrium.

Rabah (12:58.163)
Yeah.

Drew Fallon (13:03.76)
you as a manager should budget your contribution margin to whatever the overhead of your department is. And so anybody who thinks differently is wrong, honestly, to say it like, they just like, I didn't swear, I didn't swear. Yeah, no, I mean, like if you don't think that's right, you just.

Rabah (13:17.587)
You said you weren't gonna swear on here.

Drew Fallon (13:28.368)
I don't know, like you disagree with like the general consensus of like accounting as a whole, which is like a very established like practice. So like, yeah, no, it's like, it'd be like kind of saying like the sky isn't blue. So like, I mean, yeah, sure. Go ahead. But like, we don't, we don't believe you kind of a thing.

Rabah (13:44.787)
Yeah. And so the reason that your contribution margin is going to be so important is because then that's where you can start to back into some kind of unit economic style calculations, right?

Drew Fallon (13:57.424)
It tells contribution margin tells you where your sales should be at in order to break even. So it's actually like a proxy for like a sales goal. Like there's no point in running, you know, an apartment that has a million dollars in overhead at 500 K contribution margin because you're losing money. So like if the contribution margin goal is equal to the OPEX, the overhead at, you know, at the break even point, the sales has to be at a certain point where that's, that's the contribution margin that we're generating. So it's actually like, we should find.

like if you, I wonder if you like Google contribution margin graph, like you'll probably see like, yeah, I wish, I wish I could share, I wish I could share the screen. like if you just Google contribution margin graph, like there's all it's there's always like, it's always demonstrated and like the, the sense of like a breakeven point. So it's like this like triangle looking graph. do you see what I'm talking about?

Rabah (14:46.259)
Yep, yep. Yeah, so your sales, your variable costs, and your contribution.

Drew Fallon (14:52.496)
Yeah. so yeah, I mean, I think it's, it's like a pretty simple idea that some people have sort of like misconstrued for like whatever reason. Like if you just click on this link, it's accounting, it's literally called accounting for dummies. Like,

Rabah (15:09.139)
Yeah, because where I would always get tripped up is shipping and handling. Because I've heard of people doing it different ways. So I'm glad that there's that consensus from you that it's how much a variable, because that does vary for me, right? And so I always, but I had other people be like, well, no, I actually just have it in my shipping because it's actually an operational expense. And it is. I'm talking to the wrong people.

Drew Fallon (15:26.192)
Yeah. Yeah.

Drew Fallon (15:36.464)
I actually think, so I've written like a whole, I've been meaning to get this out for a while, but I've got a whole thesis about like why venture capital and DTC sort of combusted. And that's like very core to it where like these DTC brands like in early stage investors were trying to inflate gross margins by like including shipping and like an SG &A or an OPEX type account. Because what's better than a 60 % gross margin and 85 % gross margin, right? So it's.

Rabah (16:04.211)
It's like SaaS money.

Drew Fallon (16:05.584)
Yeah, yeah, yeah. Well, that's what they were, the whole point of the whole reason that DTC doesn't work with venture capital. And I've written 5 ,000 words about this is like, they tried to look like SAS, right? Like I have an 85 % margin because shipping doesn't count. I have recurring revenue because my payback period's five years. So now they're talking about like recurring revenue on a high margin business. Like what people basically failed to underwrite between 2018 and 2022 was the fact that gross margins are not actually that high.

Rabah (16:15.923)
Yes.

Drew Fallon (16:35.504)
And the revenue is not actually that recurring and the inventory required is actually quite crippling. That's the short of it. But yeah, it's actually, it's pretty interesting thing. Cause like when you look at like the perfect DTC model and the perfect SaaS model, they are actually very similar, right? Like if you do have like an 80 % margin product that people buy every single month, it looks a lot like SaaS and it's a potentially very, you know, high earnings power business.

Rabah (16:50.355)
Yes.

Rabah (17:01.779)
I couldn't agree with you more. I think the big challenge is one speed and two scale. I think that's the biggest things that VCs missed about D2C where a lot of these monsters just don't grow overnight because you can't. You just break, like we're seeing this a little bit right now where the server, the Evershiv has just all these great little frameworks, but basically the muscle to generate demand.

Drew Fallon (17:12.368)
Yeah.

Rabah (17:30.739)
and the muscle to fulfill demand are two totally agnostic things. And so if your marketing team crushes it, but you don't have the, whether it's account people to manage or whatever, like if Iris got a thousand accounts tomorrow, like that's actually obviously a good thing, but it's a bad thing because you just can't, you don't have the systems yet to service them, if that makes sense. And so 10 ,000, whatever, pick the numbers. And that's analogous to inventory. And when you're small with D to C,

Drew Fallon (17:49.712)
Right. Yeah.

Drew Fallon (17:55.696)
yeah, for sure.

Rabah (17:57.971)
you're very rarely a price setter, you're a price taker. And so like, I actually had this happen when I was running accounts for a friend where he makes big orders out of this. He does like supplements, like gut health stuff, and he has his own formulas. And there were certain ingredients that basically they just cut them and they're like, hey, this account that basically pays for this whole factory needs these, you're gonna have to wait another three months. And it wasn't his projections or anything. And so,

That's the speed, the speed part of it. There's rarely like, or like, I mean, Lululemon is arguably probably the best D to C success. They're not D to C anymore. But if you look at their revenue curve, it's not a hockey stick by any means, dude. It's just this, this absolute march towards this monster number. So I don't think they grow fast enough. And I don't think they grow big enough to warrant the amount of investment where like when you're investing, you're this isn't like,

Drew Fallon (18:37.84)
yeah.

Rabah (18:52.563)
a P &E that I'm going to go take over a Red Lobster and carve it up and make some money. You know what I mean? Shout out Cheddar Biscuits. This is like, hey, this needs to be a hundred X return or I don't want a part of it because I need something to pay off the portfolio. I'm not investing for five X hits.

Drew Fallon (18:56.524)
Yeah.

Drew Fallon (19:08.016)
Right. And it kind of, yeah, I mean, I think like when you look at like the growth of venture capital, just in terms of like, like AUM, like assets and our management and venture capital, it grew so quickly over the course of last, I think like 2005 maybe is like when I pegged the beginning of it. it's grown so quickly that there are not that many good deals. It's a lot of capital chasing very few, like real, truly venture backable companies. And so when the DTC companies started to look quite a bit like software,

Some of the more potentially foolish investors were like, okay, like I can't get into that sweet software deal, but this shoe company is basically the same thing. So I should put my money in there. And to be fair, a lot of those vintages, you know, 2009 to 2016 probably crushed it. You know, I mean, like the layer, the layer of hippos of the world, the forerunners of the world, you know, those, those early vintage, those early DTC vintages did very well.

Rabah (19:58.899)
Made a lot of money.

Drew Fallon (20:06.48)
I mean, they produce a number of public outcomes, a lot of &A like, you know, Dollar Shave Club like wasn't a good investment for Unilever, but it was probably a great one for, you know, Chris and Green at Forerunner.

Rabah (20:09.747)
I mean Harry's...

Rabah (20:15.635)
Exactly right. Exactly right. So I guess kind of landing the plane. How do you explain the importance to like give us an example of me selling a bust or whatever? Like how do you explain to me dummy Robbo that sells drew Fallon calm busts online like why I need to care about contribution margin or like what do I do? I don't know anything about marketing. I just know that the contribution margin has two different names now because I heard it on the podcast, but I still don't know what it does.

Drew Fallon (20:44.272)
Yeah. So I mean, you know, in, in short, like it's the lifeblood of the business. I would probably go as far as saying, because like without positive contribution margin, like generating positive cashflow is extremely difficult, if not impossible, you know, governed by a certain rate of growth. and so like, if you want to be, you know, a sustainable business, like contribution margin and cash flows are the only thing that matter. It doesn't matter how fast you're growing. you know, there's this idea of like cash conversion cycle and how you can, you know,

Rabah (20:56.339)
Yep. Yep.

Drew Fallon (21:14.288)
If you have a negative enough cash conversion cycle, you can experience contribution margin negativity and still generate cashflow. However, the, sorry. Yeah. Yeah. Good.

Rabah (21:21.555)
That was the Gymshark. That was like the Gymshark.

Drew Fallon (21:42.64)
it. I heard you start to say it like I can eat whatever I want and not get fat. Yeah. But like, you're, but like, okay, like wait till you're 35. Like, you're kidding. You know, that's exactly, that's actually a great little analogy. So like, yeah, like, I mean, people experiment with that stuff all the time. I actually generally don't advise like cashflow conversion cycle, like engineering, at least not in like a huge, you know, aggressive way. Like sure. Is it great if you can sustain like a negative days cash cycle? Like, yeah.

Rabah (21:51.699)
Yeah. Yep.

Drew Fallon (22:12.56)
Is it okay to be like, you know, 10, 30 days if you're like generating good margin? Like, yes, of course. we have, we have, we have a whole universe of credit facilities for that kind of a problem. Like it's a whole, is it an entire trillion dollar industry? so, so yeah, I mean, it's just like, it's the contribution margin is effectively like the best way for a marketer to under, and I've been screaming this for years, the best way for a marketer to understand cashflow given where they live inside the business every single day. And that is why people have sort of latched onto it because.

Rabah (22:24.083)
Yep.

Rabah (22:37.651)
Yep.

Drew Fallon (22:40.88)
these marketers in these DTC companies, they understand finance very intimately. They just don't really understand that they understand. And they have this idea of contribution margin, which is like very easy for them to grasp onto because it's, it's, it's, it's, it's, it's, it's driven. It's derived from where the P and L where their job in the P and L ends, the profit and loss statement as a marketer, my job.

Rabah (23:04.883)
Yep, exactly right.

Drew Fallon (23:08.24)
starts at revenue and it ends at marketing and I don't care about the balance sheet. I don't care about the cash flow statement. That is all I have. So for their context, they're, they're on the right path and it's not, it's not wrong Their job is done. If they generate positive contribution margin, it's up to the ops folks to, you know, do all the other stuff in the, in the CFO finance team and to kind of make sure that everything else is optimized. so yeah, I mean, it's a fantastic metric that everybody should run their business on. If you want to make money. I guess.

Rabah (23:13.715)
Yep. Yep.

Rabah (23:34.419)
And so for you guys, are you guys selling into with, because one of the challenges I had with when I was running accounts and doing contribution margin is, again, not to beat a dead horse, but the shipping and handling, because we got billed every month. If that made sense, like, because we would just be on an invoice and you just clear out the month and then the.

So I would have a certain contribution margin, but then I would have at the end of the month when I would get the shipping stats in, I'd have to reconcile that into my spreadsheet. And then I was like, my gosh, I was at X contribution margin, but now I'm at Y and the profitability starts to get hit. Are you guys bringing all that in?

Drew Fallon (24:08.016)
Yep. Yeah.

Drew Fallon (24:15.792)
Yeah.

Drew Fallon (24:22.864)
So, Rob, this is a genius point, and this is why Iris is not a ledger, right? Iris is not an accounting ledger. We are not competitive with QuickBooks or any of the AI bookkeepers. The AI bookkeepers are incapable of recording those expenses that you just mentioned in real time because they are not available in real time. So therefore, in order to have perfectly accrual accounting ledger in real time is still impossible.

Remember I said at the beginning, it's a data centralization problem. Data availability is table stakes. If there's no data availability, there's nothing to centralize. And so Iris has avoided becoming an accounting ledger for this exact reason, mostly to do with balance sheet accounting and this certain type of accrual. So we make a good guess for it is the answer. Like we're usually within one to 3 % based on...

Rabah (25:15.059)
Love it. that's totally usable.

Drew Fallon (25:18.928)
Yeah. And if you have a, if you have like, you know, a ship station integrated into Shopify, like our system can pick that up in real time. So like, there's a number of different ways to estimate it. You can use, you know, some fancy ML to kind of like get a good guess based on the historical QuickBooks data or whatever. But yeah, Iris, I tell people Iris is not, does not make your accountant's life any simpler, honestly. It just makes your life simpler from like a strategic view, right? Like.

Rabah (25:33.779)
Yep. Cross.

Drew Fallon (25:48.464)
If my, if my profit and loss is one or 3 % different and I can see it on June 1st and it's 1 % different than what my accounting team comes up with three weeks later, it's not going to change it.

Rabah (25:48.755)
interesting.

Rabah (25:59.955)
Dude, I would absolutely take a plus or minus 3 % to get real time or as close to real time data as possible. Because a one to three point swing isn't existential. But me making a bunch of sales, but my shipping person is charging me all this money. Or I don't know, there's just three weeks is a long time, especially if you're cash poor, where it's like you don't want to be burning $100 bills if you don't got them kind of thing.

Drew Fallon (26:05.872)
Exactly.

Drew Fallon (26:22.448)
Yeah.

Rabah (26:28.179)
That's so fascinating. So marketers are some of the people, like the high, like the sophisticated marketers are coming in and driving from this.

Drew Fallon (26:35.568)
Yeah. So to be honest with you, we sort of thought that like the fractional CFO would be like our best customer. It's a lot of marketers. Part of like what you can do in Iris is you track contribution margin, ad spend, CAC, MER, AOV, new customers, returning customers, et cetera, which are all financially, you know, financial levers of the business, but are all kind of in the hands of these marketers.

And so I would say like to our surprise, you know, I don't know if it's for better or worse, honestly, at this point, but it is a lot of like growth marketers that come to us. You know, like Cody from Jones road is like one of our, like, he's like one of our most active and engaged customers. Like he loves Iris and he's not, you know, a CFO. But yeah, at the same time, like we, we're still generally trying to sell into like the head of finances because it is like very much like a budgeting and planning tool.

Rabah (27:13.171)
Yeah.

Rabah (27:17.651)
I love it.

Drew Fallon (27:30.224)
But we're actually, it's like one of the things that maybe you guys have experienced with this, but like this user permissions idea where like the CFO wants to be able to set like the annual plan in Iris, but they want to be able to add their head of growth marketing to like the, you know, daily tracking of the spend kind of a thing. So it's becoming this like interesting, like sort of central operating system for like a multifaceted, you know, department or like a cross departmental type function. I think it's like, kind of like what we're learning.

Rabah (27:39.091)
Yes.

Rabah (27:44.083)
Yes. Yep.

Rabah (27:54.611)
Hey.

I mean, for just selfishly for us, like that could also be like a not pivot per se, but more. But B2B is there's nothing really out there right now. Like we basically are VP of Finance. We have a bunch of stuff like smashed together and stuff. But we we have the same where it's basically like she has to do she has to be fair. Like this is her world, obviously. But like in terms of like.

Drew Fallon (28:21.648)
Yeah.

Rabah (28:24.883)
For me, I have to get, like I have my own little data. So I have like my own budgets, my own looker dashboard. And then we have something else for actuals. And I'm like cross -referencing. Like it's a nightmare, man. Probably not as big of a deal because we're so much different in terms of business composition, where like D2C is so much more volatile than SAS is really, where you don't have this, yeah.

Drew Fallon (28:37.072)
Right. Right.

Drew Fallon (28:50.96)
Yeah, that's exactly, that's why I say, I say like high velocity commerce. So like, yeah, it's like anything that transacts like multiple times per like hour. like dude, like as a DTC brand, like I can have a 65 % gross margin like today and then like run like a discount tomorrow and it's 50%, you know, and it's like, yeah, yeah, exactly. So it's like, that matters. Like I've run a SaaS company now, like would Iris be like a great tool for me? I don't know.

Rabah (28:56.531)
That's very well said.

Rabah (29:10.963)
Yeah, but make a bunch more money.

Drew Fallon (29:21.328)
I collect a certain amount of money every month and I pay my people a certain amount of every month. So like until those two are like, you know, yeah, it's like, it's way more predictable, way more stable. Like DTC is like, yeah, I mean, like being a face. Yeah. Yeah. High velocity. It's like, it's like being like a day trader. It's like being like a, you know, a hedge fund trader. Like you're sticking your nose in the fucking Facebook ads manager for 10 hours a day. Like just absolutely optimizing, you know, it's like, it really is.

Rabah (29:25.3)
It's different problems.

Rabah (29:33.171)
I like that high velocity. That's a bar, that's a bar. Yep.

Rabah (29:49.747)
That's so, I never thought of that because you're so right, because there's the volatility in ARCAC is not really that acute because ARCAC is pretty much amortized across the quarter already, if that makes sense. We're very rarely marketing is like that, you know, DTC brand. Like most, that had to be a weird shift going from, cause most DTC people I know they think in almost weeks and a month max kind of thing. And like,

Drew Fallon (30:03.76)
Yeah. Yeah.

Rabah (30:18.419)
In SAS, there's nothing less than a quarter, really. Anything smaller than a quarter is pointless, because you're like, dude, I need time to cook, to marinate. The sales cycles are longer, et cetera. You just don't think in months. You think in quarters or half years. And that was something that is really interesting when I juxtaposed D2C to SAS, amongst a bunch of other stuff. But.

Drew Fallon (30:22.224)
Yeah.

Drew Fallon (30:43.504)
Yeah, no, I totally agree. It's, it's just a little bit more straightforward and slower on like the tier point, like the sales side. Like, I mean, there's like, hasn't been like a SaaS company in the world that's acquired, you know, 60 ,000 customers in a month, you know, kind of like some of these like scale DTC brands do it's a totally different ball game. I totally agree.

Rabah (31:04.755)
Speaking of different ballgame and Totally Agree, I want to jump into a couple of your analyses. You did the one, well first the Hymns one. Yeah.

Drew Fallon (31:14.128)
Well, did you see him's I literally I literally called him's it went up like Frick. It's been up like 40 maybe more. I don't even know. I double.

Rabah (31:19.955)
That's what I told you. Yeah, so we're recording this May 22nd. What's him's out right now? You shouldn't have called it out or they're back now hold on It's down it. Yeah, it's down 8 % today. Damn it. You see we could I could have just fucking Two days ago is up almost 30 % But any who for people that don't know or that are just listening not watching so Drew's drew Fallon 12 on the Twitter's I'm gonna call it Twitter cuz I am old

Drew Fallon (31:26.832)
It's taking a slide over the last couple of days.

Drew Fallon (31:31.952)
No, it got crushed, but like...

Rabah (31:49.747)
But he has these really cool deep dives into company financials. So I guess give people the little podcast version of this. So this is the update with Drew Fallon. What do you think about a stock name Hymns? H -I -S is the ticker. Give me the three minute spiel.

Drew Fallon (32:06.256)
Drew Fallon (32:10.064)
So like, I've always been pretty bullish on him. So I think I first got into it like, like three years ago at like 10 bucks or something. So I've been in the red. No, well, no, I've been in the red for years. but I've, I've held onto it because to me, it's one of those like categories and where DTC actually just makes sense. I mean, like, I think like 90 % something of their revenue is like recurring and like, there's just not another category where that's like, I.

Rabah (32:18.771)
Stop. So you're 2X. it did pop. You're right. You're right.

Drew Fallon (32:39.312)
honestly feasible, like maybe pet, you know, or like Chewy is like also a public company that has been able to reach that kind of scale.

Rabah (32:44.179)
But I lost a ton of money on chewies, not to bite your flow down, but you know where pet gets fucked? What we were just talking about. Shipping, exactly. Fucking dog food is heavy to ship. There's nothing that medicine's not heavy. Sorry, okay.

Drew Fallon (32:50.608)
Where gross margin? Yeah, gross margin. Yeah.

Right. So these HIMS margins, HIMS is actually the perfect idea of what VC should have gotten into in terms of stickiness and margin. So HIMS is like the, it looks like a software business. It truly does because they have, they measure their long -term retention in 24 months. So they're not even talking about long -term retention, like can we keep people around for two quarters? They're talking about multiple years of retention.

Rabah (33:05.619)
And yep.

Drew Fallon (33:26.992)
And like when you have gross margins like that, like I've always loved it because it looks like a software business. Like it really, really does. And it has a consumer sized market. Right. So like, you know, some of these consumer markets are absolutely massive. Like, I don't know how big this. Yeah. Yeah. Cause it's like, you know, software I might be operating in like, you know, FP and a let's just say is like a $5 billion market. Skincare alone is 20 billion. I don't know how much weight loss is. Let's actually Google it. I bet you weight loss is like.

Rabah (33:39.187)
That's a bar. I like that.

Rabah (33:48.531)
It's a bar, I really...

Rabah (33:56.723)
Monster dude the Nova Nordis that makes these GLP one drugs just past LVMH is the most valuable company in the world or in Europe, excuse me, and the that's basically all they sell is insulin.

Drew Fallon (33:56.912)
tens of billions.

Drew Fallon (34:08.976)
Yeah.

Drew Fallon (34:12.624)
Yeah. So dude, 150 billion, the weight loss, the global weight loss market is 150 billion. The global skincare market, which is where you're seeing like Olaplex, not Olaplex maybe, but like, you know, these massive companies that operate in skincare, like

Rabah (34:24.787)
Sephora's or what have you. Yeah.

Drew Fallon (34:27.632)
Like 150 billion is nutty. Like I think like the global like enterprise SaaS, like analytics markets, like 60 billion. This is like triple that. So you had this like software type model, right? That works amazingly. And it's consuming a significantly larger market than any sort of B2B software ever could. And so that's why I've always liked it. And they came out and they reported earnings. I think I hammered like, I hammered the stock like right before the earnings.

just because I've always, I've always loved it and I thought they were like, kind of due to come back. and they, they, you know, they, they raised their revenue guidance. They raised their earning guidance. These guys know, they know exactly what they were doing. because they raised their guidance to a certain point, 120 million of net income or something. So the stock's trading at 21 times at the time of the, of the call, I think, you, and then two weeks later, they announced the, Ozempic stuff or the GLP one stuff.

Rabah (35:25.107)
Yeah.

Drew Fallon (35:26.608)
because now they're going to absolutely crush through the guidance that they just raised and the stock's just going to keep going up. So we saw a trade down here pretty well. You know, it, that happens when you go up, you know, double in a day. So like everybody anticipated that I'll probably get more on this dip here. It's a little bit overheated, I think. But like long -term thesis still remains the same. Like I'm just looking at some of the stuff that I made, like, and I kind of, I kind of came up with like this CAC for instance, like 600 bucks.

Rabah (35:32.275)
gonna scream.

Drew Fallon (35:56.24)
Like dude, like they're literally paying $600 per customer in CAC because it's worth it. Like, do you know how insane that is? Like that can literally go forever. Like if I just have, if I spend $600 every time I have a customer, like, and they have, you know, the resources to do it. yeah, I don't know. It's a, it's a beautiful business and it's like, kind of like a, it's like the, the best sort of market to business model analogy that I can think of in consumer. I've been pretty down on consumer in general, honestly, like.

Rabah (36:05.683)
It's incredible.

Drew Fallon (36:25.776)
I don't love the model, but this one's just a total exception to the rule. So it's a very, very beautiful P &L. They'll do well.

Rabah (36:37.555)
Yeah, and yeah, that was well done. We could tighten up, tighten it up a little bit, maybe give you mom markers, but I think you're going to be giving Jim Kramer on Mad Money a run for the inverse Kramer. I just, no, it was great. That was great.

Drew Fallon (36:47.216)
You put me on the spot there. I don't know. I mean, they put a lot of good stuff in their presentations. You can kind of pick apart their P and L yourself.

Rabah (36:57.011)
I want to ask you a couple follow -on questions, but I thought this was such a bar and to take all those words and put it into a thesis and push back, but these are your words, so I'm pretty sure you're okay with this thesis. But ultimately, HIMSS is a critical distribution node for modern developments and medicines. Like that is such a bar. Like when I think of it that way, it do like you just Googled.

weight loss, but what happens when they can start? I mean, they can basically sell anything, right? Like the Viagra is like all these things, all these markets and you can honestly, shame is plugged. This is like a perfect example for Firmont where you're going to have all these different people that have all these different product needs for different reasons. And like, I don't know, I think it's brilliant. And to your point, the unit economics never break because, you know, 90 % of medicines are small and cheap to ship.

That's where like the pets .com fell over. That's where the chewy falls over. That's where all these liquid beverages fall over is like, that's why Liquid Death sells only merch on their website, dude. It's much easier for me to sell freight, but retail is really hard to get into. And so I have to sell water online, but shipping water online is forever. And you don't, there's no way to disturb those unit economic costs because it's big and heavy. Like I'm not just because you're buying more, whereas a DTC, like I can put.

Drew Fallon (37:49.168)
Yeah, yes.

Rabah (38:17.107)
$500 worth of stuff in a $7 box. Perfect. You buy $100, you buy $500. My unit economics don't change. I still spend $7 where there's only so much shipping you can push onto it. So I love that. And I loved your idea of SaaS business economics applied to a consumer market. That really, to me, that's a whole fund. That's a thesis, if I've ever heard one.

Drew Fallon (38:20.432)
Yeah.

Drew Fallon (38:41.552)
Yeah, yeah, I mean, you'd be hard pressed to find those, but yeah.

Rabah (38:49.587)
Yeah, that's definitely the show. The question I have for you is, if you are like, if you're running your data see business now, one, like where do you guys have like resources on Iris or like, how can I get kind of more skilled up in this like, kind of financial world into like, what would be the first thing you would look at if you hadn't really audited your finances for the year like?

Is it putting your P &L together and looking at your gross profit? Is it looking at op -ed expenses? Where can I find stuff on how to do this? Do I just book a demo? Do you have any knowledge stuff? And then a quick recommendation for people at home listening.

Drew Fallon (39:33.552)
You know, I've got, probably 30 ,000 words on this stuff that I haven't published. That's just like sitting in a Google folder, like pretty useless. And I swear I'll get it up on the website.

Rabah (39:45.395)
Dude, put in a notion and give it to people.

Drew Fallon (39:48.528)
I dude, I got to, I have so many templates and articles and everything that I like. I, I very choppy with my content. Yeah.

Rabah (39:53.043)
We'll sponsor you. It'll be fun. We'll sponsor you. I'll tidy it up. It'll be a dual effort. We got to get this out into the world.

Drew Fallon (39:59.696)
That would be, I, that's like what I need just to actually get out the door. So no, we don't have anything right now. we will at some point, I think, hopefully maybe, as far as like what I would, what I would do if I was trying to learn this stuff is like the first question that I'll answer that you didn't ask. which is like, if you can even just like have like a slight semblance of like how to put together a three statement financial model, it will require you how to think about, to learn how to think about.

revenue modeling. So new customer, returning customer, wholesale, right? Like how to think about those from like a quantitative aspect, how to think about your cogs from, you know, a quantitative aspect in terms of like skew number of skews times cost per skew, you know, at the most basic level. It'll, it'll force you to think about, you know, OPEX and how are we really, you know, fitting the OPEX into, you know, sort of the net variable cashflow of the business and, you know, with the remaining sort of leftover being that income. And then.

When you model out a balance sheet, it kind of forces you to think about, okay, like what is that cash conversion cycle? And like, where does the cash go when it looks like that versus when it looks like this? And so not everybody needs like pick up and like become a banker right away, but even just like going through, there's like this, this resource called dollar cave club, by Troy Henikoff, who's a professor at Northwestern. So if you Google dollar cave club, he's got like this Excel template. Yeah. he put together like basically like this, like really good course. It's one of the first things I ever.

Rabah (41:19.379)
Illinois boy at heart. Let's go.

Drew Fallon (41:27.344)
sort of use, and I actually have gotten to know Troy a little bit over the last year or so, that just teaches you step by step how to model this stuff. And then once you kind of know how to put it into an Excel sheet, you know how to think about it and then you don't really have to do it again. So like, just, it's more about just like learning it and like, not like doing it all the time. but as far as like, if I were going to like do a quick, you know, the question that you did ask, would be like, if you don't, if you at least can have like a cash based income statement, like,

At the very, very least, you can understand like what expenses your cash is going to. That's not sufficient, but it's a good start. Right. So like, just like, and I can't believe I'm even saying this, but like just have an accounting software and Iris is not an accounting software, right? So this is not a pitch for Iris. Just have a, have a QuickBooks account, have a Xero account, a NetSuite where you can at least just see what you're spending money on. Because I guarantee you, there's a lot of things that you're spending money on that you do not need to be.

and conversely places that you're spending money that you shouldn't be spending, you know, that are, that are better spent dollars that are better spent, you know, elsewhere. so just having an eye or like a pulse on like, Hey, like this is the cash that was in the business. This is the cash that went out of the business. Like, this is why it went out. Okay. Like let's, let's work from there.

Rabah (42:42.963)
And if I have all this stuff but don't want to do it and I come and sign up for you guys, do you guys help out with this or do I need to get all my shit together before I come to you?

Drew Fallon (42:54.32)
We help out with this. It's actually an increasingly good business for us. So like, we can help you, we can point you in the right direction, we can structure everything. And then once we do that, our software sort of automates the rest of it.

Rabah (43:07.411)
Love it. I love it. OK, one last question and then we'll let you go. Man, this has been good. You've renewed my love for finance. I never had a disdain for it, but it was just always, especially when you start going down. And no offense, the accounting aspects of it, it just is so dull compared to. But without that dull, you can't have the exciting like.

Drew Fallon (43:15.92)
Hahaha

Drew Fallon (43:29.328)
dull.

Rabah (43:35.635)
thesis building or like seeing patterns and stuff. So it's this weird kind of, you know, do the basics before you can do the fun crazy stuff of like, this is why hims could be a monster because I'm matching this and that. Okay, last question I ask everybody at the end of the show. What is your equation of excellence? What do you think excellence is a function of?

Drew Fallon (43:37.104)
Yeah.

Drew Fallon (43:58.704)
I think more than anything, it's a function of like dedication, I suppose, or discipline. I think like, there's a lot of like extremely like smart people out there that like, maybe are like less dedicated than like they could be. conversely, there's like a lot of like not so smart people that like have spent a lot of time doing stuff. Like, you know, people, people, you don't have to be a genius, but if you, if you just learn and like read and like care about stuff.

Rabah (44:17.267)
Yep.

Drew Fallon (44:27.536)
you know, you can get pretty, pretty good at what you want to do. So I think as far as excellence goes, it'd be like, find something that you like care about and then like, don't like give up on it. Like you like be dedicated to it. Right. Because like not everyone's going to have a ton of interests. Right. So like, if you do find something that you are interested in, like commit to being interested in it and then like become excellent at it is like kind of, I think like the best, cause it's, it's, it makes it easy. Right. Like nobody wants to be excellent at something they hate. Right. So it's like, identify what you like and then like commit to being, you know, dedicated to it.

Rabah (44:58.355)
Love that. My man got bars today. Has the coffee, came with the mic, the back set up looks great. Wilbur didn't bark. Yes.

Drew Fallon (45:02.096)
I bought this mic because of you because of because last time you said that I said my audio sucks right now I have a freaking $200 mic in front of me.

Rabah (45:12.339)
Let's go send it. Drew Fallon, thank you for coming on the show. You're just one of the best humans. We'll talk offline, because I think there's definitely some financial stuff that we can do. Because the other thing that's interesting to me is being able to not only skill up this cadre of marketers and business owners, but also agency owners. I think agency owners getting more involved in the partnership of, at least to your point, understanding the

Drew Fallon (45:33.872)
Mm -hmm.

Rabah (45:40.275)
why gross margin matters, what to do, because not all revenues created equal. And if you're running a bunch of paid ads to really low margin products, it doesn't really matter that you're selling a bunch of them because you're not keeping a lot of that money versus when you could be running them to high margin products, et cetera. And so I think there's just a lot of service area for us to spread that beautiful knowledge sauce.

Drew Fallon (45:43.344)
Yeah.

Drew Fallon (46:02.96)
Yeah, yeah, there's a, everyone's coming into this stuff. So I, you know, I see a big pull from agencies. I see a big pull from operators, the finance people have always been kind of talking about it, but, it's time to get fit. You know, I mean, it's been time for two years, so yeah.

Rabah (46:16.499)
That's it. That's it. New year, new me. It's May, but hey, got to start somewhere. Day one or one day, you choose. Drew, where can the people find you? How can they get more involved with Iris? This time it's yours, my friend.

Drew Fallon (46:31.344)
yeah, so I'm on, I'm on Twitter, drewfalen12. I think Rob gave me the little plug earlier. bro, I started on LinkedIn too. So I do a little bit of that now. not much, honestly, but follow me on LinkedIn or connect to me on LinkedIn, whatever they say. and then Iris wise, we do free trials. And if you go to the website, you can get a two week free trial and just set up a demo and either me or my co -founder Alex will hop on the phone with you, get you all set up and then you'll be off to the races. So.

we have never had anybody do a demo or excuse me, a free trial and then, you know, not like the product. So, there's really nothing to lose. So that's my, that's my shameless plug. God damn it. I'm such a sass guy now, dude. It sucks.

Rabah (47:14.419)
love it. When you send in emails with the HubSpot connector, I was like, my man, my man came to the dark side. Get the get your shield on, baby. It is all good. It is what it is, man. You're you're making people's lives better, helping them save money, pay for their kids school, buy the Range Rover. You're enabling dreams, Drew. You're enabling dreams. It's exactly right.

Drew Fallon (47:18.992)
Yeah.

It really is like that. It really is like that.

Drew Fallon (47:38.992)
That's what I should tell them, yeah.

Rabah (47:41.651)
Go check out irisfinance .co. Wonderful human. Go follow Drew. He really is doing an incredible job on the content. And I'll figure out a way to squeeze this knowledge into some sort of product that you all can consume, because I will be consuming it as well. This man knows finance like none other. And he's a hell of a human. Dude, tell Wilbur High. Thank you so much for coming on. And this has been great.

Drew Fallon (48:03.631)
Yeah, thanks again, Rob, always a pleasure.

Rabah (48:05.939)
Alright folks, make sure to go to FormatCommerce .com to book a demo so my boss doesn't fire me. We do a bunch of really cool stuff if you want to make the money printer go brrr. We also have a great newsletter you can subscribe to, Geometry of Growth, also on the website. Awesome, that's another show on the books. Thanks everybody, bye bye.