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Back to the newsletter. 🤩

This weeks topic, How Brands Die.

Over the course of nearly 8 years, Tenzo has almost died about 100 times. The two most serious were the times we 1.) nearly ran out of cash and 2.) bought way to much inventory. 

That said, #2 is so intertwined with #1, and (almost) every potentially fatal mistake boils down to running out of cash. 

Buy too much inventory that you can't sell, really just translates to “I have too much cash in inventory and not enough to pay my bills.”

It’s a similar story when brands die forcibly from creditors - they don’t have the cash to pay them. 

If your brand doesn't acquire customers profitably through ads, you may be able to grow (fake) revenue, but eventually, you will…yepp, you guessed it… run out of cash~!

These are the key pitfalls. But let’s look at a very practical story happening right now. 

What happens when the Fed raises rates? 

Simply, the cost of borrowing increases. This affects brands in many ways. Brands typically borrow constantly—they borrow against inventory, they borrow for advertising, they borrow for working capital, they borrow against receivables, etc., etc…

All of this gets more expensive when the fed raises rates, and even more deadly is when this increase is combined with another issue, say…you have too much inventory. Not only are you bloated with inventory, you’re also paying a lot for it! This is causing your free cash flow to drop, your margins to compress, and more. All of which leads to a cash crunch. 

This is probably the largest cause of brand death in the last couple of years. Sad! But all these are important lessons for founders to learn. The key… is to learn them non-fatally and then keep building, but stronger!

Here are the best things I read, watched, or listened to last week.

Build this and make millions of dollars.

The Shein Business Model - Fast fashion sucks, but here’s how they make money.

The Most Inspiring Video I’ve Ever Watched - Humanity Rocks!

Becoming Great - Roger Federrer’s commencement speech at Colombia. Highly recommend listening to this one. 🎓

Everything you need to know about the Euros - football is life. And the fans are crazy ⬇️⚽

Peace out 👋

Steve

Founder Tenzo & Commerce Chronicles

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