So, did it work?

We couldn’t pay our debt at Unbloat, the DTC supplement brand I launched two years ago out of my venture studio, Gateway X. (I explained how we got here in my previous two newsletters, which you can read on our site).

The last issue of this newsletter outlined the decisive action we took the last week of April to try and turn the business around.

So, Jesse, DID IT WORK?  I’m sure that’s the question you’re asking.

It’s early July as I write this… and the answer is: so far, so good.

Of course, it’s too early to say for sure (I WILL update this newsletter in the future on the status), but we are cautiously optimistic.

Let’s start with the PnL.

I’ve been a part of a lot of hail marys and turnarounds, but this one was INCREDIBLE.  In April, we lost >$100K, but in May, we made nearly $50K in profit!  When we close the books on June’s numbers, we expect to show almost $60K in profit!  While this was well beyond my expectations, it came from some of our decisive moves. Specifically:

1. We reduced operating expenses by >80%

Something really important happened here that is worth calling out — and it won’t show up on the PnL.  Both the CEO and Growth Lead agreed to continue working on Unbloat for 5-10 hours per week to give us a fighting chance.

Why did they stay on the job?

Both are talented professionals who are continuously approached with endless opportunities and recruiters calling them 24/7.  Both quickly realized that this scenario meant their upside/equity was likely zero.

If you asked them, I think both would say they stayed on board because of how they were treated and included in decision-making.

Everything was transparent from the start.  They helped set goals, shape our timeline and then, ultimately, were part of the decision to pivot in late April.

But as it became clear that the business could no longer pay them, I did something that I think is counterintuitive to most entrepreneurs:  

I prioritized their well-being ABOVE the business.

One of my favorite frameworks for difficult organization-related decisions, like layoffs, is called YOU/WE/IT. The idea is to think in this order: 

What does it mean for YOU?  How will WE(colleagues/friends) be impacted? And then, what does it mean for IT, the company?

Many founders think in the opposite order:  

“The COMPANY is going through a difficult time…WE are all going to have to make changes to…Now that I explained all that, here’s what it means for YOU…”

This is why layoffs, shutdowns, and reorgs often lead to such a negative fallout.

As soon as decisions were made, I assured both Carolyn and Sam that they would have AT LEAST one month’s worth of coverage financially.

Then, I immediately shared multiple opportunities across the Gateway X portfolio and connected them with the other CEOs. I also made some calls to whatever companies they were interested in.

Once they felt that their needs were genuinely being met, they were more open and willing to forge ahead part-time with Unbloat.

It was important to me that I also gave them the space to say no.  I told them they were not under any obligation to stay. This is obvious, in theory, but I think a lot of founders guilt people, which only leaves a bad taste — a mistake I’ll admit I’ve also made before.  

Thankfully, both found opportunities to work in other Gateway X companies and agreed to help out (paid, of course) to keep Unbloat going.

I also want to give a special shout-out to Nak and Adam, the COO and CTO of Gateway X, which owns part of Unbloat.  Both stepped in for “free” to help take over many aspects of Unbloat’s operation.

2. We cut back media spend by 66%

This was, by far, the biggest unknown — and a place where we weren’t immediately sure what to make of the results.

We believed we could cut back to the best-performing ads and improve the ROAS (return on advertising spend) to over >2.  

Our AOV (average order volume) is $75ish, so that would be a CPA (cost per acquisition) of <$37.5. 

Hitting a ROAS of >2 would bring us to the “holy grail” of e-commerce: first-order profitability.

But would it actually work?

Here’s a graph from our report:

It did initially.  ROAS was better than 2, in fact!  And we were excited.  Sorta.  

For the first several weeks of May, we just kept wondering, “Was this halo from April where we spent $220K on media?” and it was propping up our results.

What would happen as that halo wore off?  Would our ROAS tank?  We waited and watched.

One interesting sidebar: Sam Bell (a savant in growth marketing) had an idea to launch TikTok traffic campaigns.  It was low-spend, $100 per day, but it literally DOUBLED our traffic.

The theory was we could get tons of people to the site and then retarget them on Meta.  Did this actually work?  I don’t know! Since things are going well, I don’t really want to “pause” it to test it.  Sometimes, testing isn’t as important as results.

Our ROAS did decline, you can see the fluctuations above, but it has held steady at ~2 (through June!).

3. Our lenders

These conversations went WAY better than we expected.

In my last newsletter, I showed the level of rigor we brought to the conversations with our lenders. We showed results, brought organized presentations, had a sound payment plan, and (as our CEO, Carolyn, put it) we came OVERprepared for our discussions.

That was important because, without debt relief, the business would have surely gone bankrupt.  We owed our lender nearly $1M within 90 days, and Meta close to $500K.  If either or both said, “Sorry. Pay today,” the company would be gone.

But both are working with us.

Why?  

I think there are a couple of reasons for this:

1. Most importantly: I think, despite our struggles, we communicated and shared openly with all parties.  This wasn’t always easy, but it built trust that we weren’t going to leave them high and dry.  Besides communicating openly, we brought solutions and a plan to the table.

2. Equally important: The above two moves (cutting our operating expenses and our media spend) “worked.” When we shared data with the lenders, we had a clear path to having a profitable business.

As I continue to say in this newsletter and elsewhere, all business conversations are “people” conversations.  There are humans on the other end, and they, ultimately, have to determine a few things: 

• Do I trust what this person is telling me?

• Are the reasons for their problems believable and reasonable?

• Do they have a plan to pay me back?  Do I believe it? Is it a sound plan?

• Is the business healthy enough to pay me back?

All lenders have recourse (e.g., Meta could have stopped letting us spend on their platforms).  But we had to make a strong case for why it was in their best interest to allow us to keep spending even though we owed them a ton of money.

Lucky for us, everyone has been collaborative (of course, there wasn't a blank check, but there’s a proviso and a payment plan) and we are on our way.

So, is this a happy ending?

It remains to be seen.  We are not out of the woods yet.  I will keep everyone updated as we go.  The way I think about things going forward is there are four possible scenarios for where we’ll be come January…

Scenario 1: HELL YEA

We continue to grow revenues slowly. Our target is $100K+ in profit per month. Our biggest lever is our launch of two new SKUs: Unstress and Unwind, for anxiety and sleep, respectively.

We believe this is the best way to improve AOV and ROAS. In this case, we’d have a growing, debt-free business by early next year! A man can dream!

What would we do in this scenario → I’d likely hire a CEO to keep it growing and consider buying other e-commerce companies that are in trouble, given we’d have a “turnaround case study” in Unbloat.

Scenario 2: Up Case

Profits are steady and we pay off the debt, but the business doesn’t grow and takes up a lot of our time and energy.

What would we do in this scenario → Probably shut down the business or try to sell it for something modest.

Scenario 3: Base Case

Profits slowly decline, enough that we can pay off the debt, but not enough to keep the business worth growing.

What would we do in this scenario → Try to keep it running as long as we could to pay off the debt. Then close the business.

Scenario 4: Down Case

Profits rapidly decline, leaving us with the debt.

What would we do in this scenario → I’m sure we’d try one more new attempt to revive the business, but eventually we’d throw in the towel. Gateway X would likely pay off its liability on the debt and Unbloat would not be able to make good on the remaining debt. This is a scenario, both financially and personally, I do not want to see, for obvious reasons.

Of course you should be thinking: nothing is ever certain in business, and we won’t know for at least six months whether or not this has a happy ending.  Regardless, this isn’t where I wanted the business to be, “failure” or not.

This has been a tough process.

Part of my goal for writing this to you is to help me process, so I can learn from the experience.

Part of your goal for reading my newsletter is to learn from MY experience.

What did you take away from this experience? What’s your take on what happened?

- jesse