# Weathering tariff risks: Richie Mashiko’s framework for lean, resilient CPG brands Brex’s CAO Erik Zhou sits down with Richie Mashiko, Fractional CFO, to cover tariffs, ad spend, pricing strategies, and profitability for e-commerce and CPG companies. **URL Source:** https://www.brex.com/resources/controllers-classified/season-2/episode-12 --- Episode 12 Weathering tariff risks: Richie Mashiko’s framework for lean, resilient CPG brands [Spotify](https://open.spotify.com/episode/5JIxIWJTLPBMK48bInjTrp?si=a7bb24de8f314b2e) | [Apple](https://podcasts.apple.com/us/podcast/controllers-classified/id1712897034?i=1000709120836) Episode summary Host Erik Zhou, CAO at Brex, sits down with Richie Mashiko, [Fractional CFO](https://www.brex.com/spend-trends/startup/fractional-cfo), to unpack the financial complexities of running high-growth e-commerce and CPG brands. From measuring the right things to navigating ad spend, pricing strategies, and fragile supply chains amidst tariffs, Richie offers a unique operator’s perspective on what it takes to drive sustainable growth in today’s market. Show notes - Richie's background and early ventures [00:51] - Basic e-commerce business strategies [05:04] - Impact of tariffs on e-commerce [08:18] - Managing margins and operational costs [19:23] - Capital structure and financing challenges [25:55] - Future outlook for e-commerce brands [31:11] - Finance leaders are fun too! [34:55] Guest bio ### Headshot ![Richie Mashiko](https://brand.brex.com/transform/6b82883e-483f-4b43-9219-06bc7ba423fc/Richie-Mashiko) ### Bio Fractional CFO, Iris Finance Richie Mashiko is currently the Head of Beacon at Iris Finance. As Head of Beacon, Richie serves as a fractional CFO to 8-12 ecommerce brands at any given time. These brands do anywhere from $5 to $500M in revenue and span from apparel to cosmetics to food and beverage. Before Iris, Richie was the Head of Growth and Head of Finance at a digitally native brand called She's Birdie, where he oversaw growth from $0 to $25M in revenue. “There are 4 things I look at in an e-commerce business: cost of goods, operating expenses, advertising spend, and profit.” ### Transcript **Erik:** [00:00:00] Welcome to Controllers Classified. I'm your host Erik Zhou, chief Accounting Officer at Brex, and I'm honored today to have Richie Mashiko on the podcast. Richie is a fractional CFO, serving a variety of high growth companies, especially in the e-comm and CPG space. Today we get to pick his brain on best practices for managing capital optimization, operation optimization of operations. Um, for these companies. Uh, so let's get into it and in a timely time because I think one of the topics today, uh, around tariffs is gonna be really interesting. Um, so Richie, welcome to the show. **Richie:** Eric, thank you so much. Um, I'm, I. I, I do a little bit of podcasting myself. Um, so know how hard the intros could be. So that was, that was an awesome intro, man. Love it. **Erik:** Uh, we should definitely trade notes after. I'd love to like talk to other podcasters and learn more. Um. How, how did you get into this business? 'cause I think you got an interesting background to share with the audience. **Richie:** Yeah, a hundred percent. Yeah. So, [00:01:00] quick, quick notes. So I, uh, grew up in la I. Um, went to high school, born and raised, um, I ended up going to Cal Berkeley, um, uc, Berkeley for a year, left school after the first year. So I don't know if I'm the first, uh, guess you might have who's not like a, a real accountant or, or whatever, but, um, don't, not have like a, a formal, a formal finance education. But I've always, um, you know, I started my first business and you actually kind of see up here. Um, I. That was my, my first business. I started when I was a sophomore in high school with my, uh, best friend, um, **Erik:** How did you get into that? Like what, what drove you to start a business in, uh, high? You get hustle, you wanted to make some coin, like what's the deal? **Richie:** yeah, so the, the, the, the quick story is that I, uh, wanted to become a sports medicine doctor. You know, maybe some, you know, that was, that was my dream. And then I, **Erik:** Do your [00:02:00] parents proud? Get into medicine? I, I, I can resonate. **Richie:** a joke, but, uh, you know, you know how it is, right, brother? Like, uh, you know, you know, those, uh, those, um, uh, that, those expectations. But, um, I, um, I. I played basketball and I broke my ankle. And then, when you break your ankle, you just sit on the couch, you know, for a pretty long time. And I watched Shark Tank, uh, the show called Shark Tank, and I was like, oh, that looks pretty cool. So I was like, Hey, what, what's a cool idea of me and my friend could start in? That was, it started the entrepreneurial journey. **Erik:** And so and so, what was that first business, just outta curiosity. **Richie:** It was a sock. It was like a, a sock brand. So at the time, **Erik:** No kidding. **Richie:** know, when I was in high school, like there was like these Nike, like Nike elites were like a big thing. Um, active socks, van socks, like Stance was like just coming out. So I was like, oh, wow. Like, this is like a, a fun, a fun market. Um, and **Erik:** you had an [00:03:00] entrepreneurial bug, right? And you caught it and you wanna do your own thing. You went to school, you know, went left after a year. Maybe just to dive right into the most burning question that I have, how do you go from one year of school or college to learning about all the debits, credits, finance things of being a fractional CFO and, and frankly like a, a pretty complex business when it comes down to all the operations of an e-comm and CBG company? Like what, what was your journey there? **Richie:** Well, um, I dropped out to try to do startups and really the first thing that really worked was, um, uh, this brand called Cheese Birdie. I met the two, I met one of the wouldbe co-founders, and uh, I kept in touch with her and she said, Hey, me and my sister are starting this, this thing. And I always had an interest in e-commerce. Obviously always had an interest in like selling, just like selling stuff. And, um, I said. She said, could you help out? And I was like, yeah, I'd love to. And [00:04:00] I really started on the growth marketing side. Um, but you know, a lot of what growth marketing is, um, in e-commerce and in general, it is a lot of, of data analysis. You know, numbers tying, you know, marketing metrics back to financial metrics. Um, so in order to do my job, um. It, it just was kind of natural to be really tied into like the finance side of the, the house and, you know, startup, you know, you get to do a lot of stuff. So eventually kind of. Transition and, and, and took over a lot of the f forecasting, the budgeting, you know, eventually kind of overseeing the accounting operation, you know, and then we did things like audit, so it was kind of really like learning on the job. Um, but super awesome experience and I've kind of taken that and I've tried to apply it and help, um, other like high growth, uh, e-commerce businesses. **Erik:** What years were this when you first started out working on growth marketing for these startups? Just outta curiosity. **Richie:** I dropped out in 2017 and [00:05:00] Birdie launched in **Erik:** Got it. **Richie:** so it's been a six year, you know, six eight year journey. **Erik:** What are some of the strategies that you leveraged and what are some of the calculations that you performed to assess how successful those, those strategies were? You know, like was it just paid ads and looking at like revenue generated from those? Or like how, how did you, how did you tie the two together? **Richie:** Exactly. So, you know, in e-commerce there's, I have this framework, it's not original. Um, really someone that I learned from, a guy named Taylor Holiday. Uh, big, uh, big, big person in e-commerce is really looking at this idea of like the p and l uh. Looking at it in four main buckets, uh, of revenue. You have like really four buckets of, of, of categories in like an e-commerce business. So the first bucket's like pretty common right across businesses like the cost of goods in e-commerce, that also accounts for shipping, fulfillment, et cetera. In addition [00:06:00] to the, the, the hard cost of the goods. Um, the sec, the third, second, uh, second bucket is the op, the GNA or the opex. So like the fixed costs of the business. then really, like the thing that makes e-commerce a little bit different is this, like this bucket of advertising. Um, you know, a lot of these e-commerce businesses are dependent on the performance and the efficiency of pit ads on like Meta or Google, TikTok, et cetera. and that's, you know, after cogs, you know, that's like a huge. That's like the biggest line item in, in, in, in e-commerce and could be even bigger than, than the COGS line item actually. Um, and then for the last bucket is profit, right? So, um, in an e-commerce business, you know, the magic four quarters would be like if each, each, each of those buckets was, you know, 25% each of revenue. that never happens, you know? Um, really like the way that e-commerce businesses work is, [00:07:00] You are able to, uh, have really high operational leverage, right? With softwares and employees, you know, to do an incremental one, $2 million in sales. It's not like a B2B, you know, sales business or SaaS business where you need to add AEs and CSMs and things like that, right? Um, you just push a button on Facebook and tell to spend more, uh, uh, dollars on ads. Um, kind of having that framework to answer your question, to have, having that framework of. Hey, like, these are the buckets that we need to spend in. Like do we need to get our gross margin down to, like, luckily, like we stumbled, like Birdie was like actually one of like a, a really perfect e-commerce business. Super high gross margin, super cheap, to ship because it's light small, compact. Um, and we essentially leveraged, uh, Facebook ad dollars to, to grow that business and, and, and kept, uh, opex, you know, or the GNA. Small. So, you know, basically, you know, once we have like, kind of like a, a configured p and l, say, Hey, like what does our efficiency [00:08:00] need to be? Or what percentage of revenue could we spend on ads? And essentially in e-commerce, you just kinda spend up to that threshold. **Erik:** I love that, uh, mental model, like the 25 25 25. 'cause then you get the 25% profit margin. Uh, I I think it's a great segue into a really interesting topic related to current events right now. So, tariffs, right? So, so a lot of, all kinds of CPG companies and especially e-comm companies, I think, you know, they're, they're getting their goods manufactured in a place that now costs 10% more. To import and so that, that drives your gross margin or your cost of goods sold up incrementally. And so how, how are people thinking about managing that risk and like, what's going on? I know there's a pause right now. It's 10% right now, but there's a pause that will get lifted supposedly in July, early July, you know, what's going on in your businesses, and how are you thinking about mitigating those risks uh, today? **Richie:** Obviously depends. It's depends on the business. [00:09:00] a lot of the brands, like more of like the hard good brands that I work with, um, that do manufacturing, do, do manufacturing in China, really like the CPG brands that, um, do like their fill, like, so like skincare, you know, hair cares that, things like that. Cosmetics, a lot of that stuff is like done. In labs and, and, and factories in, in, in the States. So the thing that they're getting hit on is, is, is really the packaging. Um, but you know, there, there, there's a couple things, right? From a a straight pricing standpoint, you know, this is like a. A really good time for, uh, brands to experiment with, with price testing. I think that's something that, they are, some founders are scared to do, right? Because it's like, oh, it's like my baby. And I'm like, you know, it, it feels like really, it's a really personal thing, right? Where you could just run like an AB test and see if, you know, you could, uh, essentially drive a higher [00:10:00] revenue procession um, you know, increasing your prices, right? Um, the other thing that brands are doing, and they've, you know, you if you're a brand that you should start to do is, try to diversify the su supply chain, right? Not be so, dependent on a single, a single source, right? And even if you know, and making sure those, those sources are kind of, uh, diversified, you know, in countries it's hard to forecast. **Erik:** has that been happening at at your brands? Have they been actually going out there and strategically thinking about, okay, I can't get my supply from this country anymore. I have to look for alternatives. Like that's actively happening right now, I'm guessing. **Richie:** happening right now. **Erik:** Okay. **Richie:** people are looking at Vietnam, other Southeast Asian countries, Mexico. **Erik:** just said all the phones that are gonna get shipped in the future are gonna come from India apparently. So even the, one of the biggest CPG companies we know is, is doing that. Right? So, [00:11:00] um, electronics, you know, electronics at the end of the day, but still consumer goods, right? I, I buy iPhones, et cetera. **Richie:** It's, it's, it's a longer term fix, right? And it's hard for these small, and that's where like a lot of these small businesses are gonna get crushed in my opinion, is, is these like e-commerce, CPG businesses. They already run on really like thin margin, right? Like a healthy e-comm brand might run at like 10, 15%. Like the idea of 25, 25, 25 never happens, **Erik:** Mm. **Richie:** People, if you have like a, a decent brand, you might run at, 10, 15% margin, like 20% is really, really rare. Um, so, and, and a lot of the times they're not, you know. Their supply chain isn't, um, super robust. Meaning like it's someone who contacts a factory on Alibaba, right? To say, Hey, like I found you. Could you like, [00:12:00] um, make my product for me? And that, and that relationship kinda scales up over time. But you know, there's not a lot of resources within these organizations to. Pivot on a dime, um, say, right. Maybe if you're an apple or like one of these, like larger conglomerates or whatever you might have, right? The operational to be able to, try to find redundancies in the supply chain versus like a small brand, you're like, shit. Like, how do I just keep paying the bills like this to my right? , and, and honestly like some other brands that I'm working with are like, you know. We're just gonna wait it out and see what happens. **Erik:** Are they looking for American suppliers? Are any of, are, is any, is there any chance of that happen? Oh, maybe not in the next 60 days, but I dunno, maybe you're working with a brand that has enough of a, um, runway, so to speak, to afford themselves to look for a supplier in the [00:13:00] US that obviously there wouldn't be tariffs then. But, but then the cost is high, right? 'cause the labor is higher. **Richie:** Right. No brand that I'm working with is actually looking for us manufacturing from changing from, you know, so this whole idea of, you know, reshoring, a lot of these, these, these labor, these jobs is like, you know, I think it, I mean obviously like to set up the, the manufacturing infrastructure that a place like China has happen overnight. Right. so that's, that's. What we're, uh, kind of dealing with what I'm kind of advising my brands to do. Try to find those redundancies in supply chain. Increase your prices. then also if there's any other places where you could find margin in the business. Um, that margin, right? Maybe you're, you're overloaded on your GNA expe on, on your GNA expenses, right? **Erik:** Are you cutting down on ad spend? **Richie:** Uh, yeah, maybe you need to, you need to run more efficiently on ad spend. Right? [00:14:00] I think, and, and it's not as hard of a conversation, uh, to have than maybe call it two years ago when everyone, a lot of these brands in e-commerce were really drunk off of, you know, pumping spend and, and growing as fast as possible. Um. A lot of the, uh, the equity, you know, uh, dollars have dried up in the space. And even a lot of the lenders you know, I think have been pretty loose with their underwriting over the past couple years **Erik:** There were a lot of e-comm underwriters in the last few years. I'm not gonna name 'em, but, uh, they, they were out there in the market. You don't hear about them as much anymore. **Richie:** Yeah. And they're tightening the screws and, um, it's, it's, you know. The other thing about these businesses, they could become like, you know, nice cash flow businesses. Like you can make a founder have a really nice life. You could, as a founder, you can make seven figures a year running these, you know, one of these businesses. I'm not saying it's easy, but it's, [00:15:00] it's possible. Like why do you need to chase, you know, growth at the expense of, you know, uh, of profitability living to fight another day. So it's, it's. For some brands, you know, the ones that are lucky that do have like those that that fill, um, in. United States. Some, you know, clothing brands don't necessarily need to manufacture in, in China. They can make in Pakistan, India, these, these other Bangladesh, you know, these other places. But like, really like the, know, like a birdie, you know, it's made in China or, um, um, any like these hard goods or electronics. That stuff is, it's tough. It's gonna be tough. It'll be interesting. A lot of people are gonna get wiped out, but, we'll, we'll, we'll see what happens. **Erik:** I wanna go back to a comment that you made, uh, about like raising prices. Uh, I have, I have a saying, uh, in, in with my team and like, it's just happened now and then, but like, you know, don't let a good crisis go to [00:16:00] waste. I. **Richie:** a hundred exact. It's the perfect excuse. **Erik:** So if, if you see an opportunity to raise pricing then in, and, and, and there's appetite for it in the economy, you're almost forced to do it. 'cause you can't like cut marketing that easily. If you need that marketing to just generate the revenue to pay for everything else in the first place. Sure, sure. There are efficiencies that you can find in GNA, but it only goes so far. At the end of the day, there's some minimum amount of administrative work and overhead you need for any company. And so I'm curious, like, you know, you, I don't need all the details on what brands are doing what, but like how, how popular is that idea growing amongst the brands that you work with? Like just to raise prices? **Richie:** It's becoming more popular. Um. I think a lot of the reason why, like I said, why people, like why founders, brand founders don't raise prices is like their own psychology. Right, because they feel like their product is a reflection of themselves. Um, and, [00:17:00] and brand founders tend to over index on, uh, what their customers think of them, right? Everyone thinks like, you know, it's, it's, it's, it's human tendency, right? You think that everyone is always thinking about you when actually, like most people don't even care about you or don't give you the thought of day, except maybe your mom, your wife, your husband, you know what I mean? Your kids, , I'm working with brands that are actively trying to increase prices, you know, 10, 20, 20 5%. **Erik:** Wow. **Richie:** and, you know, kind of how we measure that is on like an, on a, on a revenue procession basis. Um, that's, that's, that's the, the metric that we look at. You know, it, it ties in together the ad efficiency performance, you know, the A OV, the. **Erik:** oV for our audience? **Richie:** Average. Yeah, average order value. The **Erik:** Okay. **Richie:** on site. So it's not a single, you know, data point of did we generate more revenue or not? Um, is did we generate. More. How do you, like, essentially how do, how do we generate more, [00:18:00] more margin, uh, per, per visitor? but, you know, price testing is also something that I, I really believe that brands should be doing anyways. Um, and not to be afraid to take big swings, right? Like, don't be afraid to test your price like 25% higher, right? might miss, but maybe. 15% works, right? And then you kind of dial in, maybe test to 17 or 18% or 16%, um, than your baseline. Um, and typically what I see happen is brands that are in business, you know, for, for years don't increase prices. Um, you know, brands that were founded five, 10 years ago have the same price as when they launched in. You know, uh, the McDonald's dollar menu doesn't exist. It's the value menu now, you know what I mean? Because their price, their, you know, their, their prices, um, go up. So, you know, I think it's probably like, even outside of a time like this is just such an easy one to try to find more margin in the [00:19:00] business, that I think, um, people are, are, at least the, the cohort of brands that I work with are, are more willing to, uh, to implement that strategy. **Erik:** , I think it's gonna happen gradually. I think then right though, 'cause like, you don't wanna be the first, you don't, you don't want, you don't wanna be on the bleeding edge, so to speak, if that, that goes against what you're looking for to begin with. So it, it is a delicate balance there. Um, maybe, maybe just a segue into another topic, but related to this on like managing margins and. And, and, and also thinking about accounting operations and finance operations. So a big, a big portion of your p and l is that g and A function in the overhead. Curious, what are like, sounds like that's another lever to pull, to maintain your p and l. What are the things that kind of like you've been focusing on in your role the last few years to optimize the finance and accounting function? **Richie:** Yeah, so in, in the p and l spec, in the g and a, uh, piece specifically, [00:20:00] um, a lot of these brands, and I, I hope this is the answer to your question, um, the, a lot of these brands essentially load up with like a ton of like, like software debt over time, **Erik:** Hmm. **Richie:** It's so easy to get added. Like, hey, like use this software to increase your conversion rate. Use this software to increase your average order value, use this to get better tracking on your ads, et cetera, et cetera. Right? So, you know, part of the idea of e-commerce, right? That, like this framework that I, that I think about is, know, part, part of like, part of the appeal of e-commerce, right? Is that, oh, it's cheaper to have a website it is to have a physical retail location. Right. But what ends up happening is over time, um, it actually could cost like five to 10 x more to run a website because you have 50 different software providers, [00:21:00] saying that they could, they could add incremental revenue to the business. Um, and, and over time, like most of the, most people don't even touch all the software that they're using, right? So there's brands that are spending like mid five, even six figures a month on software that, that could be cut. **Erik:** And what do you, what, how, how do you advise your companies to like stay away from this? What's the. Like, are you in every decision since you are the quote unquote fractional CFO or, or like what, what's the, what's the typical, because you have someone in marketing actually that's at the companies you're working on, they're like insisting on like, well, I need to do this because otherwise we won't get the sales we need. What's your, what's your feedback to them or how do you think about it? **Richie:** Right. So I typically try to encourage brands, students on like a quarterly, like, call it like a spring cleaning, uh, exercise, right? Where we're looking at, like. Let's just do an audit of all the software co costs that we had last quarter. you know, obviously, like I'm not gonna tell someone in the, on like a CMO or head of growth or, or marketing [00:22:00] person, like, hey, like, you absolutely don't need that. Like, there could be a justification of why, a lot of the times, um, more of the exercise is like, Hey, I didn't even know we were still paying for this. I thought we canceled this. Like. Like, let's, let's figure that out, right? so that, that, that's more the exercise. And then, if a company's in like a really bad spot, you know, sometimes I'd say, Hey, let's go negotiate with a software vendor, um, to try to get, you know, better terms or lower pricing. sort of, if that, if that, if that piece of software is, is a core, is, is critical infrastructure. Um, so there's that, that, that's kind of the exercise there. And then also like. You know, really in like the past, like year and a half, two years, like one thing that I've also been working, working with brands is, is that headcount piece, And, and not only internal headcount, but brands also tend to load up on, uh, freelance and agency costs. So a lot of, a lot of brands have maybe like very small amounts of like W2 [00:23:00] employees. Um, there's a lot of. Like vendor agency, service businesses, myself included, Um, you know, most, you know, if you're a brand that does $10 million, you don't need a full-time CFO, right? Your, your, your dollars are more better invested in, uh, strong growth marketing, strong product of, uh, people, you know, channel distribution, um, Amazon, you know, uh, retail, et cetera, as opposed to, um, you know. Making sure your financial model is like within like 1% accuracy, like that, you know what I mean? Um, it's also, it's easy for brands to load up on those things, right? Like the start is I need a paid media agency and then I need a, an ad creative agency, and then I need a conversion rate optimization agency, and then email, SMS agency and then all, all of a sudden, you know, kind of going back to that, that, that model of, hey, how much does it cost to run a [00:24:00] retail store? Versus an e-commerce business, now all of a sudden your fixed costs are $50,000 a month. Um, just from a labor perspective. Right. Um, and, and, to say that's, that's, that's completely wrong or anything, but it's just something that brands need to be aware of. **Erik:** Have you been feeling any pressure for your role? Like given that you are an agent of all these brands, like. Where they're trying to reduce potentially your investment. I, I, I, I don't know. I've been, I, I, um, I've been in accounting and finance for almost 20 years. You know, my, my craft, right? And the work that I end up doing on a month to month, day-to-day basis to some extent, like times are good, times are bad. You seem to get your debits and credits right? Like, so I'm just curious, but maybe some of these other things that you work on have been impacted. **Richie:** Yeah. So what really does not get impacted to your point is like everyone needs their accounting. They, they need their books in order, right? you're gonna go do a debt rate, if you're gonna go try to raise debt, if you're gonna try to go raise [00:25:00] or whatever. Like I mentioned earlier, like a lot of these lenders are that you might have, like you said, that are, that you might have been hearing a lot about, you don't really hear about a lot. to name any names or you know, a lot in my experience, like people are tightening screws and that's like a core function of like the work just needs to get done. **Erik:** Yeah. **Richie:** I, I will be, I have had conversations with founders and be like, you guys should not be paying me anymore. **Erik:** Hmm. **Richie:** Like, you need to fix your business before it makes sense. Like paying someone like. Like me, like if you, you, and, you know, um, it'd be great for me to take your money, but best thing to do for your business is, you know, on, um, on how does it survive over the next, you know, couple months, 2, 3, 4 months. not die. Right? And part of that is role reduction. That's, that's, that's what it is. **Erik:** On that topic going to like, okay, so how is that business gonna survive and what's the runway there? Like the capital structure for like these different brands that you [00:26:00] work on. You know, how do, how do founders typically capitalize, uh, their brands when they're just starting out or even as they scale? **Richie:** That's a good question. Um, a good answer is themselves, uh, they, a lot of these brands are bootstrapped, right? Someone taking 10, 20. Maybe $50,000 and buying first round of product, getting websites set up, starting to run some ads. Um, really that cohort of brands that raise a lot of, of equity, um, at least in hard goods, doesn't really exist in CPG. Like, um, you know, like true CPG, like food and Bev, that, that still, you know. You have like Unilever Ventures, um, some other like consumer, consumer, uh, good, um, like CBG funds. Um, but I would say that's maybe like five to 10% of the market. It's really not a large cohort of brands [00:27:00] that, that go and raise equity. Um, a lot of the brands are self-finance. They finance through capital, and then kind of like the next, the next step is, or the, uh, sorry, finance through their own, their own, uh, reinvestment of capital. then really to grow, like, one of the hard things in, in e-commerce or in these brands is like, the cash conversion cycle, right? Um, given that you have to pay for your, your manufacturing and assuming you don't have great terms with your, with your manufacturing, you need to pay for that inventory before you sell it. Um. But we could, we could get down that, that rabbit hole. But kind of the next graduation from self financing and capital reinvestment is, um, a lot of the, uh, these like e-commerce lenders, um, you know, these companies that are really set up to integrate with your Shopify, Amazon, et cetera, Facebook account, Google account, look at all like the data and, you know. automated underwriting process. Right. But, um, they really [00:28:00] understand these businesses compared to, or that's like the pitch, at least compared to, you know, maybe a traditional bank where like if you go apply for a line of credit after being in business for like two years with like, you know, drastically different numbers from year one, year two, you're gonna like, what the hell is this? Like, I don't know how to like, you know, underwrite this. Right. So that's kind of the, the, the next step in the graduation is are, are these like e-comm lenders? **Erik:** How's that? How's that credit market going right now? Are, are you still seeing across your bands, like, um, you were mentioning earlier that lenders are tightening up. Is that 'cause of the tariffs or is that 'cause of other economic, uh, uncertainties or, uh, um, the environment in general, or maybe it's idiosyncratic to the businesses themselves? Like each business kinda has a different story. **Richie:** Yeah, I think it's all of the above, to be honest. Um, I read a tweet somewhere, I need to validate this. So, um, take it for, take that for what it's worth is that, um, one of these [00:29:00] lenders are, uh, aren't, aren't under, aren't giving anything to brands that where they're manufacturing is in China. I've never heard that question over the past, you know, five years of, of having conversations with these people. Um, it used to be like easier back like, you know, even like two, three years ago where you could just kind of plug, like I said, you could plug in your Shopify, your Amazon, Facebook account, et cetera, and know, they're pretty loose with your underwriting. They just look at the, you know, you also integrate or you plug into your QuickBooks or Xero or NetSuite, whatever you're using. And it was like, you know, pretty easy. But you know. Now just like much more, more diligence like their underwriting is actually digging into like every single line in on the balance sheet, they're running their ratios. They are asking about why revenue has dropped in Q1 after Q4. Even though like obviously Q4 is like a huge time for e-commerce. Um, but they are, and, and the amounts that they're giving out aren't as loose [00:30:00] as, as they were. Like, and that's probably honestly why you probably saw some of these, lenders, um, kind of go under, right? Because they were just, their underwriting practices were so loose and, um, know, they were just giving out bad loans **Erik:** Yeah. **Richie:** uh, to, to, to say it bluntly, but, . That's, that's kind of been the experience over the last, um, year and a half I would say. And even in the last four months, it's become a lot tougher. Um, you know, this one brand that I have on the top of my mind. were able to get a facility from a lender last year. This year, you know, we were like, Hey, can we, could you get extend that same amount? They said, no. They said, we can't, we can't get you anything. Um, and I was like, wow. Like that's, that's, that's pretty, uh, that's pretty crazy, you know? So, um, we'll see. We'll see what happens. **Erik:** Because [00:31:00] you're exposed to so many different brands and companies that you work with out of curiosity. 'cause you have, because you're talking to multiple people who are facing the similar issues. Where, where do you think this is going? **Richie:** If I had to be super honest about that, which I'll be super honest about it is I think. There's gonna be a large cohort of brand, like these small, uh, owners, brand owners call like sub $10 million in revenue that are just gonna like, get wiped out, right? That stage of growth from three to 10, um, figuring out how to financing that. Like, I don't, if, if they can't get, you know, and, and, and some of these, these interest rates, these APRs that they're borrowing against are just like super high, like almost higher than credit card, credit card debt. Um, not to mention that advertising only gets more expensive every year. CPMs like the, the cost per the cost [00:32:00] to advertise on these platforms gets more expensive. I think you're gonna really see a bifurcation where a lot of, maybe like the mediocre or subpar, you know, call it bottom, you know, thirty, forty, fifty percentile, these brands gets wiped out, you know, and really the. The core thing that will prevent them from getting wiped out is how much, how emotionally invested is the founder and putting in money, you know, getting a second mortgage on the house, a heloc, et cetera. and putting that, putting that capital to work in the business. Um, but a lot of these businesses, like I said, that were already walking on tight, you know, profit margins. If it's just gonna get tighter, I don't, I don't necessarily see how there's a path forward. Right. Or, um, for a lot of these [00:33:00] businesses, I think businesses that have a lot of returning customer revenue, right. So any consumable, businesses. Good. Um, so that you're not relying on, on new customer acquisition, you're having like a, a, you have a channel of like really high profitability. Um, that, that's, that's, that's helpful to have. Um, but it is just, it's just gonna continue to get more tough. And I think, you know, I grew up in, you know, the like the 2010s, you know, in uh, e-commerce. And feel like, you know, looking back, you know, always looking back, you see there's like a lot of alpha and I feel like. Just having a conversation with, uh, with another friend recently and saying, yeah, I think a lot of this alpha's getting competed away, right? Um, where, you know, you had like low, super, low cost of advertising, um, et cetera. And at some point is it just like another pizza shop and. How much better is your pizza shop compared to the, the pizza shop [00:34:00] down the street? You know what I mean? Is like Dave Port, I gonna come and give you a, a better, uh, one by pizza review rating than, uh, than, than, than, than the person down the street. So **Erik:** I love that analogy. I love that analogy. I will say the pizza shop, right? The differentiation, it ends up being your supply, your, your ingredients. So if you can supply better flour, better tomatoes, better, you know, all that like that, that's what ends up differentiating. And so it goes back to that to some extent. You gotta put in the work to find. A different supplier from your stuff to save on that cost, cost of good, sold, uh, to keep your business going. Um, that's interesting. And then, and then if you could do that, but you still get the benefit of increased pricing, right? 'cause other people are increasing pricing because they haven't changed their supply. That's an interesting way to think about, again, going back to don't let a good crisis go to waste as long as you put in the effort. We always end our shows with a fun little segment called finance [00:35:00] Leaders are fun too. Um, and I prepped you for this, so I'm curious what you have to say, but I'd love to know the funniest, worst accounting debacle you've ever been a part of, or some unusual expense report or, or just a, a finance joke, you know, uh, for the audience. **Richie:** Yeah, so, um. Uh, I, I, I don't know how creative I am, but I love Parks and Rec. Um, so I was like, Hmm, I'm gonna steal a joke from Ben Wyatt and or if, if people who know that is the, the count on Parks and Rec. So I'll, I'll take the one where he is like, Hey, we're all, all we do is like, uh, kick assets and take names. You know what I mean? uh, I'll leave it at that. **Erik:** You are, are you kind of, uh, shortening the motto for every budget cycle basically? Uh, to some extent. Yeah. It makes sense. I, um, I wanna remark on one thing before we wrap up here, which is I love your story [00:36:00] of, yeah, I know you went to school for a year, but you are extremely well versed in. Finance and accounting related to this particular field that you've specialized in, in e-Comm and CPG. And I think it goes to show like, you know, many, many years in America, um, everyone has taken on all the student debt to go to college and to do all that right? And like, **Richie:** I could talk about this topic probably longer than I could about eCommerce. **Erik:** instead of going to school. And I, I did value my time in school as well. I learned a lot. I. I, I learned, I, I use some of the stuff that, I use a bunch of the stuff actually that I learned in school, uh, both in the classroom and out, uh, in my day-to-day life and, and work. I went to school in dc I went to Georgetown. **Richie:** Oh, nice. **Erik:** Yeah. And, but like, what's wrong with having an apprenticeship over that time period and learning the skills in the field, [00:37:00] right. Versus just in the classroom. **Richie:** I, um, have a family friend, uh, who's high, high school senior right now, graduating high school, and she's, um, she's an actress. She's like a child actress, and brilliant, brilliant young girl, right? And, um, she's gonna go to NYU this year, uh, next year. Tish, uh, the, the performing arts school, right? **Erik:** Yeah. **Richie:** You know how much it costs without scholarship or any financial aid **Erik:** Probably 45 grand, 50 grand at this point, maybe even more **Richie:** a hundred grand **Erik:** a year. **Richie:** a year, **Erik:** That's with room and board and everything. **Richie:** everything. **Erik:** Holy smokes. **Richie:** And so they got financial or like some package and you know how, know how much it got reduced? It got reduced by 30 grand. Dude, I, if you could, if you took two, what is [00:38:00] that, $280,000 $400,000 and put that as a down payment on a piece of rental property or your first property, I don't know if that might be a better investment going to, you know, isn't that crazy? **Erik:** That's nuts. Holy smokes. **Richie:** people don't understand. Like when you're eight, like when you're 18, you have no idea how any of this crap works. I, I know how any of this stuff worked, but like that's a lot of money to spend. **Erik:** Yeah, **Richie:** a long time to pay that debt off. You didn't even make a lot of money outta college. If you want to pay it off in a recent amount of time, decent amount of. **Erik:** I will. I will say one other thing though, like, you know, when you, when you talk about different people and their paths in life and school is a factor, I. You, you have to have the right combination of personality and skills and entrepreneurship and, and self propelling drive, so to speak. Um, I think having those [00:39:00] qualities will work whether you go to school or not, to some extent. Right. But I think there is a difference between folks who, you know, they, they need a little push, they need a little bit more structure to figure themselves out. Um, but then the cost. It, it really comes down to when that is like the need that you have and you need that structure, et cetera, and you're kind of like following the crowd and going to a school, especially when that's very expensive. It, it just ends up being very costly. And so you have to have the right expectations for return on investment of what you're spending. Not just the money, but also your time, right? Your time, um, in this, in wherever it is that you're, um. Uh, taking yourself, whether it's school or elsewhere. So yeah. Richie, it was great talking to you. Thank you so much for joining joining the show. **Richie:** Eric, thank you so much. 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