When A Business Has Long-Term Potential

There are things that are somewhat easy to fix.

When I see a business that needs 300,000 new/reactivated customers and is only acquiring 200,000, I usually see a marketing problem that can be fixed. The client may not see the problem that way, but it's a tactical issue that can be resolved.

Businesses that have long-term potential have a signature other businesses don't have. Long-term potential businesses acquire customers that generate plentiful downstream profit. I can also tell if the business has smart marketing/analytics employees ... if the business acquires customers who generate plentiful downstream profit, smart employees compensate by acquiring customers at a loss (or as a proxy their customer acquisition efforts have an unnaturally low ROAS).

Business Without Long-Term Potential.

• Customer Acquisition ROAS = 4.00.
• Profit on Acquisition Transaction = $2.00 per customer.
• Year 1 Downstream Profit per Customer = $4.00.
• Year 2 Downstream Profit per Customer = $2.00.
• Year 3 Downstream Profit per Customer = $1.00.

Business Without Long-Term Potential, Managed for Short-Term Profit by Smart Marketers/Analytics Professionals.

• Customer Acquisition ROAS = 8.00.
• Profit on Acquisition Transaction = $12.00 per customer.
• Year 1 Downstream Profit per Customer = $4.00.
• Year 2 Downstream Profit per Customer = $2.00.
• Year 3 Downstream Profit per Customer = $1.00.

Business With Long-Term Potential, Well Managed by Marketing/Analytics.

• Customer Acquisition ROAS = 2.00.
• Profit on Acquisition Transaction = ($10.00) per customer.
• Year 1 Downstream Profit per Customer = $15.00.
• Year 2 Downstream Profit per Customer = $11.00.
• Year 3 Downstream Profit per Customer = $8.00.

The first business is one you don't want to acquire. Management doesn't know what they are doing. Marketing/Analytics don't understand the importance of profit.

The second business is worth considering only because smart people work there. It's the same business! However, the marketing/analytics folks generate enough profit acquiring a customer ... they understand that the customer doesn't have long-term potential ... so they optimize the business to make it profitable today. The buyer is purchasing "smart people" in this instance.

The third business is one that Private Equity or smart professionals want to purchase. ROAS isn't low because it's low ... it's low because marketing/analytics over-invest in new customers, losing money on the acquisition transaction to net out handsomely over three years. The owner of the first business would gladly lose $10.00 to profit $34.00 over three years ... but she can't do that because she sells merchandise that customers don't want often enough to generate future profit.

All of these dynamics are determined by "what" the brand sells. If you sell something that can be purchased year-round and the customer wants to buy it 2-3 times per year, you have the third business. If you sell something the customer only needs once every-three-years, you are managing the first business or the second business.

The first/second business cannot be fixed by the marketing/analytics folks ... it can only be optimized. The first/second business has a merchandising problem - the business is selling merchandise that customers don't want often enough to generate sufficient profit.

If you are wondering ... yes ... consultants see the first/second business every single day. Try telling the Chief Merchandising Officer that he isn't selling merchandise that customers want often enough to generate sufficient profit.

Alarms Go Off In My Head

Here's a must read if you think AI isn't a bubble that is going to explode and wreak havoc (click here).

This is the quote that caused alarm bells to go off in my head:  "This kind of mythology only grows in an environment deliberately deprived of good information."

There it is!

Ecommerce is misled by the mythology of conversion reporting, failing to understand customer relationships because Shopify shows conversion on an item among loyal buyers is 9.4%.

Catalog marketing is misled by the mythology of the matchback report (and for some bizarre reason an obsession among paper / printing folks on neuroscience).

Email marketers are misled by the mythology of open rates (a tactical metric but not a revenue-generating metric).

Social media marketers are misled by the mythology of engagement (a tactical metric but not a revenue-generating metric).

Search marketers are misled by the tyranny of ROAS (a revenue limiting metric).

Every one of us (myself included) deliberately deprive ourselves of good information in an effort to believe in the shared mythology that motivates us in our daily work but causes us to fail, to perform in a sub-optimal manner. We believe in a false marketing idol of some sort.

We don't have to do that.

Selling Your Business

When I talked about Private Equity last week (click here), I didn't expect to get the feedback I received ... from some of you about buying/selling businesses.

So, yes, if you are thinking of selling your business or buying a business, I still perform evaluations of ecommerce brands. I'll point out everything positive I see, I will perform an analytical biopsy on that odd looking patch of skin, I'll forecast out where the business is likely to head over the next few years.

If it is a catalog-centric business, there's nobody on Planet Earth who is better positioned to discuss what the future holds for that business than me.

Contact me now (kevinh@minethatdata.com) if you are thinking of buying/selling an ecommerce business.

Yes, You Need To Experiment With Merchandise

Here's what I frequently see. A client launches new items in 2019 ... a class of items. I then measure the sales of these items by year thereafter.

• 2019:  $25,000,000.
• 2020:  $40,000,000.
• 2021:  $31,000,000.
• 2022:  $23,000,000.
• 2023:  $16,000,000.
• 2024:  $10,000,000.
• 2025:  $7,000,000.

Not only is this what I frequently see, this is just the way things work for the vast majority of clients. It's just how business works.

This is why you have to constantly replenish your assortment with newness ... why you must constantly experiment with new product lines or extensions within your existing product categories. You have no choice.

Put on your lab coat, grab a beaker, and start experimenting.

Two things.

1 - It's ok to have no idea what you're doing. You're experimenting. Try things. Something is going to work. In no way am I saying you should be reckless. Don't discontinue stuff that works great to fund your experiments. Nope. I see it all the time in my work. Be smart about keeping the stuff that works and squeezing every last penny of profit from it.

2 - For the marketers in the audience, it's your job to amplify the experiments performed by your merchants. Support your co-workers. Give their new items exposure in email, on the socials, on your home page.

It's time to start experimenting.

Now What?

Years ago, an ecommerce client stopped growing.

Of course, I could see it coming. For years I told them that they were growing because they could acquire customers at a reasonable cost. For years I told them that growth would end in a few years.

I'm not sure this client believed my words, my analyses, my forecasts. They were growing.

Months before the forecasts suggested the end of growth was near, their merchandise productivity dipped marginally ... just 5% (+/-). That was it. Growth stopped.

The Executive asked me a question.

• "Now what?"

Yeah, now what?

The time to perform your lab experiments is when your business is thriving. That's when you introduce a new product line. That's when you create a new brand out of thin air. That's when you attempt to sell in a marketplace to see what happens. That's when you personalize your email marketing campaigns. That's when you explore AI and Influencers and TikTok, you name it. You experiment. You try things knowing that the majority of what you try will fail ... it's an experiment, it's ok to fail.

But you do that when you have a multi-year cushion before growth stops.

The second best time to begin your lab experiments is tomorrow. Maybe business is awful. So what? If you don't start your experiments tomorrow, how are you ever going to dig out of a challenging situation.

The second half of 2026 requires experimentation. If you want to thrive in 2027-2028, you have to identify tactics that work today so you can capitalize on them tomorrow.

Also - it's ok to fail. You'll need to fail a lot to identify a handful of successes. Don't listen to those who paralyze you with ROAS metrics and dashboards with little red stop signs next to your experiments.

Reminded Of This Grumpy Gem From 2015 And The Forced Transition To Loyal Buyers

I looked at the data.

1. Prospecting Response Down Significantly Post-COVID.
2. Ad-Costs Up 25% In The Past Three Years.
3. Huge Circulation Cuts Among Lapsed Buyers and Prospects.
4. Dire New/Reactivated Buyer Counts After The Circulation Cuts.

The response to this problem is obvious (digital marketing). It was obvious in 2005. It was obvious back in 2015. It's obvious today. Doesn't matter. I'll hop on a video conference and it is clear that to the people on the other end of the computer the answer is not obvious.

During a particularly moody time as a Consultant (2015) I wrote this grumpy treatise (click here). As Millennials might say, it was "hella-popular" back in the day. 

2015 was an interesting time ... the structural element of old-school cataloging (i.e. dying co-ops) altered the business model. Smart catalogers were well into their move into digital marketing at that time ... structural changes did not mean much to them. For others? Private Equity came calling.

2026 is so darn similar, but for different reasons. Now it is paper / printing / postage that represent the existential threat. Your own business partners are the ones that are converting the marketing channel to one that will only apply to loyal buyers in the future. This time Private Equity isn't nearly as interested in this business model. You can guess why.

Loyal Buyers

An acquaintance told me that his business was supporting the bankrupt/resurrected Saks empire with catalogs. Retail Dive boldly proclaimed that Nordstrom has their biggest Anniversary catalog ever. Amazon mails a catalog.

What are the common threads across that paragraph?

1. Huge Brands.
2. Big Budgets.
3. Loyal Buyers.

Catalog marketing certainly works among Baby Boomers, a well documented fact. If it works at all among younger customers (not documented at all for good reason), it works among the most loyal buyers.

If there is a future in catalog marketing, it is with Loyal Buyers. They will be the only segment of customers who produce enough revenue to overcome the prohibitive costs imposed upon you by the paper / printing / postage folks.

Perform a little thought experiment for me. Pretend your productivity improves by 5% over the next three years. Assume that your ad costs increase by another 25%. Run a p&l on each segment. Which segments "work"? Which segments need to be cut?

• Works = Loyal Buyers.
• Doesn't Work = Everybody Else.

In 2015 structural problems with response (i.e. co-ops) led to a catalog crisis that Private Equity capitalized on.

In 2026 structural problems with ad costs (paper / printing / postage) are leading to a crisis and Private Equity isn't as interested as in the past. This means catalog marketing will shift to a Loyal Buyer marketing channel to overcome high ad costs. Your job is to have a plan for how you will acquire new customers in this framework.

I realize many readers don't want to hear that message, especially readers in the vendor world. You're in paper, you've been contracting for a decade or more, you need to feed your family. You need to convince your current customer base to spend more for the exact same product they've always purchased. If your current customer base doesn't spend more? Bad for you. If your current customer base spends more? Bad for your current customer base.

This is a different structural problem than the one in 2015 (when co-ops were failing to produce responsive names and clients began to struggle to acquire new customers). The 2015 structural problem could easily be overcome with digital marketing for new customers and catalog marketing (as part of a portfolio - big for some, small for most) for existing customers.

The 2026 structural problem? Much worse. We're not going to beat it.

Dover Saddlery

There are plenty of articles and obituaries ... this is just one of them ... and here is a video from Reddit.

Do you remember? Dover Saddlery was a publicly traded brand in 2015 with annual sales at or around $100,000,000 (likely 40% or 50% larger today). From there, some believe it became more a financial vehicle and less an equestrian brand within the private equity world.

From 2013 through about 2019, I did A TON of work for Private Equity, evaluating catalog brands. I have not performed one single catalog project for Private Equity post-COVID. There's a reason for that. Following the COVID-bump (mid-2021), this asset class contracted and suffered. A scan of the internet suggests intense anger toward Private Equity. Warranted. There needs to be balance. "Traditional" brands with a catalog heritage simply have not changed fast enough, and when they do (cough cough Orvis) they're beaten to a pulp by an incandescent and struggling former industry. Seriously ... ask a long-term catalog professional to describe feelings toward Orvis ... be ready to receive some serious vibes.

A few weeks ago I reviewed a list of former clients from 2007 - 2025. At least a third are out of business! Gone. My God. I get it ... #capitalism ... but it doesn't have to be this way.

I have so many clients with catalog heritage that have come out the other end. They've taken risks, they've thrown away elements of the past, they've accepted the future. They persist. They realized they sell something customers want/need, and they focused on what they sell, not "how" they sell it.

They have a story to tell, and they do a fabulous job of telling the story.

Private Equity tells a financial story. Big difference from a merchandise/brand story. Load up a brand with debt, fail to tell a compelling enough merchandise/brand story to cover the cost of the debt, and adhere to tradition ... that's trouble. Ask Eddie Bauer.

I can only imagine the competitive advantage some are exploring because of this outcome.