Ep. 38 – Pressure-Testing Your Growht

JAN. 15, 2020

Are you really growing healthily? Is your 75% YoY growth admirable or a giant house of distribution cards? 

When I work with clients, I immediately curb your enthusiasm and go through a super boring diagnostic process. Honestly, it’s offensive. I mean, if someone is growing 75% YoY or faster, they’re exceptional. Why question it? Who the hell am I to question this performance? 

Because…I’m a nitpicking jerk? Noooo. Because I want to make sure it’s based on the right underlying KPIs. A sexy topline curve is fun to look at, yes. But as I mentioned in my book Ramping Your Brand, the Skate Ramp can be faked…your older brother can give you a push up the ramp, so to speak. It doesn’t mean you’re riding it properly… 

In this episode, I wanted to share one or two tips I use to begin the process. 

The first tip is to obtain the right data. I advise you to obtain nationwide all outlet data on your core category. Yes, this is syndicated scanner data. It’s collected in a way to show you your competitors right next to you using the same metrics, measured the same way.  

Distributor data is OK at the beginning of your journey, but not to understand how you’re doing competitively. 

You need quad week data, in part, because it aligns with the retailer’s 13 promotional periods P1-P13.  But mostly because it gives you the minimum granularity necessary to understand hidden dynamics in your topline. You can even use it to forecast consumer demand out 6-9 months…maybe a year… 

The problem with this tip is that almost no one obtains quad week data as an early-stage company because the syndicated providers and 3P processors don’t offer it as a default.  

And you can’t use 52 weeks, 24 weeks, 12 weeks, 4 weeks YoY splits to find the stories that quad week data reveals….nope, naughtaa, never. Sorry.  

The 2nd tip – Smooth Your data 

Early-stage businesses with unstable memorability, spotty distribution in local markets, and suboptimal design, formulation inevitably suffer unstable sales from week to week and from month to month. 

2-3 years of quad week data allows you to smooth your key metrics properly over time, factor out seasonality ($, units, velocity), and surface any problems buried in the wild month to month swings typical of early-stage businesses. 

What is smoothing? Well, it’s really just some 5th-grade math…You can annualize or do a rolling average. Annualizing means you sum up the past year of data as a formula for the last month in the first year of data and pull that formula through the remaining months of your POS data set.  

Annualizing allows you to see your actual topline from a past 52 week trailing view, which is an important metric to keep in view, not your aspirational run rate.  

Take out the noise and see the truth. 

“Luke, use the force. Let go of your conscious self.” 

Once you’ve executed this much, you should do the same for your sell-through velocities. This is more important for medium to low-velocity categories where the lag between sell-in and sell-through is significant, such that your retailer re-order rate doesn’t provide enough granularity to see what’s going on in two years of data. If your distributor is just prone to overselling inventory or your retailer over-buys routinely, then you really need POS data to see what the hell is really going on. You need more data points is my real ahem point here. 

The pressure-testing has many levels for me professionally, but the first is to see if your velocities are growing a) on an annual basis and b) steadily month-over-month at the same stores. Using a distribution-adjusted velocity number is the most professional way to do this accurately. $/%ACV or $/TDP are two examples.  

If your velocities are stalling or declining as revenue surges, you have a problem to get a handle on. That problem’s solution will determine whether or not you can stay on the ramp long term.  

As always, be safe out there!