Hello, everybody. And welcome to the session. We're gonna be talking about avoiding subscription pitfalls, scaling our operations and financial profitable growth.
I'm Steve Springseal. I'm the chief financial officer here at Recurley.
Been here for four plus years. Prior to this, I've been CEO, CFO, COO for public and private companies.
I've taken two companies public. I've acquired twenty some companies, been acquired a few times myself.
And we're fortunate enough to have, Josh Josh, Marebi in. I probably botched up the pronunciation on that, Josh. I'm sorry. Josh is the current CFO of FabFitFun, director consumer shopping club, best known for subscription boxes of curated products in beauty, fashion, fitness, and wellness. Josh has recently been named private company CFO of the year in the large company category during the Los edge Los Angeles Business Journal twenty twenty four CFO Awards. Prior to joining FabFit Fund, Josh held financial leadership positions at institutions such as Flow Technologies, the wonderful company, and Credit Suisse.
So what we're gonna do is let's start off with, we have questions at a number of different categories. So let's start off with the first category of the reality of scaling a subscription business.
And so, Josh, subscription business often experience rapid growth, but also operational growing pains. What are some of the biggest financial or operational challenges you face while scaling, and how did you navigate them?
Sure, Steven. Thanks for, having me.
I think, you know, starting on the operational side, because that's what generally leads, the equation, and you have to sort of build everything around that. But, as you're looking to scale, I think the usual suspects are, do you have the right people?
Do you have the right infrastructure or what you have to build, to get there?
You have the right systems in place, to be there or support, the next phase or two of growth, and how you're gonna build to that.
And so, I think those are are are some of the, topics that come up the most often, and are the most relevant. And, you know, planning ahead and and doing some scenario planning on, what, it means to scale, and going from point a to b and from b to c, what that might look like, and, what sorts of teams, infrastructure, systems, etcetera that you need in place, to be able to support, what those goals are. That's what you're trying to do.
The the the challenges you're gonna face, if you're in a scaling environment is oftentimes those things won't necessarily keep up, with the scale that, you're you're achieving. And that's, you know, I'd say that's, that's par for the course.
And so, how do you do, how do you do enough, to, keep up with the expanding operations, but not falling too far behind, that it's gonna be detrimental in the long term? That's the big trick. So that that's on the operational side as we're thinking about the financial side.
They sort of go hand in hand. Right? How do you build a financial strategy that's gonna help support what we just talked about?
And, and how are you going to have make sure you have the working capital to help support that skill.
For us, we're, you know, a a physical product, subscription, and ecommerce platform.
And so like you could imagine, inventory investment is, very top of mind for us. So in a scaling environment, we have to make sure that, we are prepared with the right financing, for working capital, to make sure we're hitting those goals, and we're being, prudent on that side.
And and generally speaking, being sort of capital efficient, right, in today's environment where, it's harder to come by capital, making sure that, you're matching the scale with an efficient capital strategy, I think is is more important than it was a few years ago.
Great. Thank you, Jesse. Well and if anybody could talk about scaling it and having to scale, FabFitFun and Recurly have been together for a long time. I mean, you guys have grown tremendously. I mean, it's just phenomenal what you guys have been able to accomplish and and have done very, very well for yourself. So congratulations on that.
You know, you have to have the right systems, and, Recurly is obviously the right system for us. So there you go.
There you go. There you go. I I I love that.
So let's change up topic a little bit. Let's talk about cross border operations in in scaling without losing control. And what are some of the hidden pitfalls that companies don't always anticipate when expanding into new markets?
I mean, I'm sure you've seen a lot of that. What's working? What hasn't worked? I'd love to get some thoughts on that.
Yeah. Look. I think, whenever a company is in scale mode, there's a lot of excitement around, a, what's the new, avenue for growth?
And, you brought up international being one area, which, often is, a a a a very strong sort of greenfield opportunity, to, to scale into.
The pitfalls are, you know, I pointed out a few. One is on the operational side. You know, you have your regulatory and your compliance, both from a a product standpoint. We deal with that a lot, on our, international, transactions.
And, and so, you know, staying ahead of the curve there, I think is important.
And then on the financial side, you know, you're you're used to scaling a US business. Right? And now you're looking to expand into an industrial market.
You know, same products, same price point. So, you know, you think that, the revenue and COGS are similar. Your margin profile is the same.
But, you have to think through the entire cost structure and really understand, what else is gonna go in there, when you're dealing with international market. Again, we talked about a compliance and regulatory.
That's, in certain markets, gonna be much more costly.
Obviously, shipping product and moving it, overseas could be a challenge.
And, for example, we ship our products from a fulfillment center here in the US, and, send them cross border. So, more freight.
There are obviously, duties and tariffs involved, even more so today, as we all know. So, making sure that we're thinking through all these components and not just thinking them through because most people are going to, but, you know, what's the final answer if, it's going to be margin dilutive to the overall business? Is that gonna pose issues, and are you comfortable with that? So those are some questions that I'd ask, as you're thinking through, inter international market expansion, that most people are thinking through the the the, operational components of it, but, not through, some of the ramifications that can happen on the line.
Yeah. No. It's it's so true. And, you know, when you go off store, it's so easy to think that, okay.
Well, whatever we do in in the US is just we could just replicate that around the world, and that's not the case at all. I mean, there's a lot of I find that there's a lot of little gotchas, albeit maybe a tax related issue. It could be the way the customers wanna be treated. It could be, you know, features that our customers are are looking for, you know, as they interact with you.
And so there's it's it's not just take what you have in the US and then just, you know, cut and paste and and pick a country to put it into. So yeah. No. You're absolutely right, Josh.
It's, it's it's a whole different ballgame.
Just talking simply about billing, revenue recognition, avoiding complexity creep in revenue recognition for subscription business representing unique challenges as as we know. You have product bundles, you have promotions, upgrades, deferred revenue. How do you ensure how do you ensure compliance while keeping all the financial reporting streamlined?
This this is a this is a a busy topic for a for a number of companies. How do how do you guys do? What's your thoughts on that, Josh?
Yeah. Yeah. It's it's something that's top of mind for everyone no matter what, what point in the life cycle, they are as a business, because it goes back to, the first question we talked about, and building the right infrastructure and systems to support the the business over time.
And, and so, again, for us, you know, we try to keep it simple enough, and over time, build the right systems to facilitate what our sort of objectives have. But, even if you follow that playbook, which is logical, right, there are gonna be gaps, in your data architecture, and how information is moving, from one system to the next, and then ultimately, being used, to, to inform your your financial close, and your accounting.
And so, they're more often than not because of some of these gaps, there will be a need for some manual data manipulation, and, and things to get to that endpoint, especially if you're, in a business that has sort of a a fairly complex revenue model, like we do.
But as long as as sort of you manage, that appropriately, and manage those gaps to where they could be managed, in a somewhat efficient way.
And you have the right team, and not just team, but teams because, now we're talking about engineering. We're talking about data engineering and data analytics, and, obviously, the controllership and finance teams, them, working together, in a way to be able to, to to to facilitate you if you do have some of those gaps, is ultra important.
Yeah. I mean, you'd be surprised. I was surprised how many companies that we talked to and that we've, you know, entered into partnerships with us to use our product that do revenue recognition on Excel spreadsheets.
I mean, it's it's it's kinda scary that there are some large companies, public company that's that that do that.
But, yeah, it's it's interesting how that plays out. But billing in the subscription model is really a uniquely complex type of environment. You have tiered pricing, promotions, involuntary churn, global payment, all add layers of difficulty. And so what strategies have helped that could fund simplify billing operations while maintaining that accuracy. And, really, what's even more important is maintaining a great customer experience that your customers have been able to, enjoy over the years.
Yeah. Look. It's, again, connected to to to what we talked about, around, around having the right, infrastructure and systems. But for us, you know, we we intentionally, from the beginning, try to keep things fairly simple, and we just had a subscription box.
And that box, everyone got the same box, essentially.
And, and it was it was very much of a discovery type platform.
Today, it looks much different, but we're still a discovery platform. People come to us to discover new products.
But as we've grown, our users and our subscribers and our most loyal ones have grown with us. They've been around, and with us for a long time, and they've grown with us. And so we've listened to to what they want.
And over time, we've built those things in, but balanced it by keeping things simple enough, but delivering the value, proposition to those folks.
An example.
Again, following what we were talking about with our subscription box, it used to be everyone gets the same products.
Over time, people said, hey. You know, these products are great, but it would be nice if we had, some form of choice, to, help construct our box and customize for ourselves a bit. And so over time, we rolled out the ability for folks to customize their box.
Today, in one box that has six generally has six products in it, in each of those six slots, a user can come in and choose amongst five or ten products and fully customize their box.
And so, very different than what it looked like, on day one, and, and and, much more complexity from the user's point of view.
But, a lot of these folks, again, have been here for a while and have have have seen sort of the evolution, and, have grown with us.
And it's also, much more complex from a back end, an operational and financial standpoint.
And so, you know, we're getting from point a to point b, was, a lot of steps in between and a lot of time, to make sure that, both the customer facing and, the back end are working together and making sure that, they're sort of synergistic and working in the right way at the end of the day, and so that's worked for us.
Yep. Great.
And so this next question, from evaluating tax laws and data privacy regulations, subscription companies must stay out of compliance with us as as we all know. But but given, you know, you guys have done a lot, you know, what's been the biggest compliance challenge that you've encountered, and what lessons, you know, can others on this take away from from it?
Yeah. Look.
Again, for us, physical product, and so the legal aspect, especially as you scale, as is one that that, you know, it naturally comes to the forefront.
How you're marketing, your products and, what language you're using, how you're delivering that, privacy, as you're marketing to folks, and collecting data, things like that. So, you know, all of these are are sort of group under legal.
And, the reason, I'm pointing to that one is, you know, everyone deals with with sort of these legal issues, but as you scale, it it it becomes exponentially more important, because, you know, when you're at a certain scale, you just become, you become a target.
Right, and so, being much more diligent around how you're doing these things and getting in front of them, rather than dealing with the litigation on the back end, I think is, is is is very important to think about.
You asked for one, but I'm gonna throw in another one just because it's so timely, the tariffs. Right?
Dealing with tariffs, and, and, you know, how to navigate them.
Right, we, buy most of the products that go onto our platform, from third party brands.
A lot of them are manufactured in, in Asia or other jurisdictions that, have gotten hit with, with recent tariffs.
And so, how do we how do we deal with those? Right? We're gonna see some price increases naturally.
Do we pass some of that price on? Do we, try to find the savings elsewhere, and keep our prices flat?
Is the usually, it's a combination of both. And so, the tariffs are very top of mind these days. Yeah.
Yeah. No. There's not a simple answer for it. I mean, things are pretty dynamic as as you had mentioned. And, you know, probably the common thread through all of those challenges is you have to have a subscription management system that can address all of those.
But leveraging off of your your experience here, if you had to give one piece of advice to finance leaders looking to scale their subscription business profitably, what would it be?
That's, that's a good one.
I'd I'd say, you know, step back in making and make sure that, your capital and financial strategy, aligns with, the the the the overarching, strategy, the business of how it's gonna scale, given today's market.
And to unpack that a little bit, you know, for a business like ours and and most subscription businesses, customer acquisition, is one of the north stars. Right? How are you gonna, go out, and bring in new customers?
And, generally, you are you're gonna pay for it in some way.
And, generally speaking, it's, much more costly today than it was three, four, five years ago.
And so, and so making sure that, that you're staying abreast of the trends, and you're building that into your capital strategy, is, what I will point out because even though it seems obvious, I think, it's a pitfall, that, a lot of folks can can easily fall into, where, you know, they're, they're expecting things, to, either be like they were or go back, to where they were, at some point, which, hasn't been the case yet. Hopefully, it gets there, but it's, it's still not these days.
Yeah. And and, you know, the only thing that I'd add to that is customer retention. I mean, it's it's it's it's really a key. You know, if you keep your customers happy and you can deal with the the challenge, like, if they what if they change a new or credit card or, you know, their credit card expire? How do you do that? How do you retain those customers?
And so that's as as we all know, it's it's cheaper to keep a customer and increase the value of the customer than it is to go try to find a new one.
Last question for you. This is kinda your freestyle question. You can free form on this one. Looking ahead, what trends do you see shaping the future of subscription finance and operations?
Yeah.
The customer acquisition, you know, is one that I would point to because it continues to be a challenge, customer retention, like you very adeptly pointed out.
And, and in this context, it's, you know, being much more creative, to make those two things happen.
Because, you know, the subscription environment, especially the physical product subscription one, has evolved a lot. There was a day where subscriptions were were were the thing.
And, over the last few years, as, people knowingly or unknowingly started accumulating more and more subscriptions, that fatigue started to wear in. So it's that much harder to acquire and that much harder to retain.
And, the traditional ways of doing those two things aren't enough.
And so, thinking strategically and then, again, bringing in the financial lens, of how to marry be that strategy with your, Capital One, is, is is paramount.
And the other is, you know, given the challenges we're seeing in ecommerce, especially as it relates to subscription commerce, there will be change in the marketplace.
We're seeing, a lot of folks, you know, pivot, or exit.
There will continue to be consolidation.
And so, as we see, that the the market continue to evolve, everything we talked about today is going to evolve as well. So staying ahead of of the game there, seeing how things evolve, and being able to adapt, is gonna be, you know, the difference between the winners or losers coming up in the next, twelve, twenty four months.
Yep. Absolutely. And and, of course, you can't do it all manually. You have to have the systems and the infrastructure to support that change.
As you say, it's it's not gonna get simpler. As much as we'd like it to get simpler, it's not gonna get simpler, and consumer demands are gonna continue and become more complex. Well, Josh, I wanna thank you so much for your time today. It's been great to to hear your thoughts and and and guidance in some of these parts. And, thank you.
Absolutely. Thanks for having me, Steve. Great to, have this chat, and, hopefully, we'll be back soon.
