Fintech Tailwinds and Cash Conversion Cycles with Ramp’s Karim Atiyeh
In August 2021, Ramp closed a $300M Series C at a $3.9B valuation led by Founders Fund with notable participation from Stripe, Thrive, Redpoint, Coatue, Spark, and Lux Capital, among others.
We sat down with Karim to dig into his deep fintech expertise, ranging from how to improve cash conversion cycles to what founders get wrong about bottom-up customer research.
“Ramp was built around a thesis of financial transparency. The clients who resonate with that tend to be smart companies who’ve seen through pricey points programs and want to stick with us for a long time. It’s a win-win.”
Fintech Evolution & Ramp’s Wedge
Prior to Ramp, Karim led his first fintech venture Paribus, an online price tracker and refund platform for consumers, through Y Combinator and a successful acquisition by Capital One.
After the sale, Karim saw how much effort was going into optimizing points programs, and as a result, how points were being devalued for customers. In his words, credit card companies have thoroughly gamified spending by rewarding users with points when they make purchases.
But the truth is in the fine print: the value of points continues to drop over time.
One point is never worth one dollar, and credit card companies bank on the fact that consumers neither understand the shifting value of their points nor end up using all of them.
After leaving Capital One, Karim and his founding team at Ramp spoke to over 150 founders and finance teams embedded in rapidly growing startups to dig deeper on this prevalent issue.
Their findings? Founders simply wanted a unified platform that would help them spend less, not provide half-hearted rewards for spending more.
“The marketing gimmick behind the supposed value of points can turn a quick buck. But it’s unsustainable, and customers will catch on and churn.”
Distilling Customer Pain Points
As a founder, you often conduct bottom-up research through customer conversations to understand the core problem you’re tackling. Karim uses an analogy about Henry Ford to explain how you should structure these conversations.
At the turn of the century, the inventor asked folks what transportation they wanted. Most responded, “A faster horse.” Instead, Ford went ahead and built a car, which stretched beyond any of his customers’ imaginations while satisfying their needs far more than the fastest horse.
Karim’s analogy illustrates that when you ask customers what the solution is to their problems, they can only imagine within the realm of solutions they’re aware of. To this point, Karim insists that founders shouldn’t listen to customers for solutions, but rather listen for their problems.
Karim drives home the point that it’s the founder’s responsibility to analyze all the problems and product data at hand, and respond to consumers with the solution that will best satisfy their needs — even if they initially couldn’t have imagined it for themselves.
“If you're constantly looking to your users for answers, it’ll lead to a limited or disastrous product. Instead, you should listen to your customers’ needs and problems — not just their proposed solutions.”
Ramping Up Cash Conversion Cycles (CCC)
According to Karim, cash conversion cycles, or how long it takes for companies to convert investments into free cash flow, is critical to understanding a company’s core risk profile.
A shortened, predictable CCC, which signals less susceptibility to macro risk, can enable your company to borrow at better rates from better partners. In turn, companies are able to avoid working with lower quality banks on sluggish timelines.
To better maintain and gain insights into your CCC, Karim highly recommends holistic analytics products like Tydo or real-time spend reporting software like Ramp to make it easy for your team to quickly pull and track cash flow metrics, thus keeping your books clean and accurate.
Further, to improve your CCC, brands should make it easy for customers to pay you instantly via credit card rather than checks or ACH. The latter may yield lower fees or the potential for saving a small percentage, but the former helps you land cash immediately and shorten your cycle.
Finally, for companies operating in industries where there’s less control over certain variable factors like complex supply chains, which inherently lengthen your CCC, Karim advises teams to negotiate longer payment terms with vendors across the board.
Navigating CPG Cash Flows
When asked how merchants should optimize cash flows and navigate alternative financing options, Karim recommends three routes: credit cards, equity, and debt. With cards, he notes that you’re essentially getting a free loan. Thus, you should maximize your usage of cards.
With equity, you're giving away a portion of the company. But if you're able to get access to great partners and stakeholders, equity can be a great opportunity to align incentives by sharing on the potential upside. Not only are you getting a great investor, you're getting someone who can help you recruit and market the brand.
Debt and working capital loans are comparably cheaper than equity over a long-term time horizon, assuming the value of your company rises. Karim recommends taking the time to optimize for clean terms with working capital providers.
For example, you might as well pay 6% instead of 4% if the terms are cleaner because it's very hard to predict where your business is going to go and what it's going to need in the future. If you signed up for onerous terms, it can actually cost you more in terms of time and potential downside for your business than the extra percentage points you're paying to your lender.
When it comes to spend optimization, Karim notes that things can surprise merchants quickly if they don't have clean books and spending isn’t in order. Just look at the impact of COVID. Lots of businesses that weren't careful with their cash flows got hit with shipment delays, and as a result they went under. They couldn't pay back or banks pulled loans from under them and they didn't see it coming because they tripped a covenant and they didn't have their books in order.
Finally, as it relates to alternative financing, Karim points out that e-commerce merchants will always need a lot more capital for paid advertising. In his words, it’s critical to start with a very clear equation between the money spent on ads and revenue. Then, dive into the proliferation of funding options for DTC brands: Clear, Shopify Capital, and Stripe Capital, to name a few.
But, he adds that merchants should be wary. Often, you’re paying a percentage of revenue to work with them, which could lead to you paying a high APR if you end up growing really quickly.
- What to pledge
- How to improve
- Which tools will set you up for success
I think the most important thing brands can do in 2023 is to better manage their customer data—both ethically and effectively. There’s an opportunity for brands to know their customers better than ever before—a clear benefit for both the customer and the brand. When you manage your data correctly, you’ll create stronger and more personalized ads, creative, site experiences, and so much more.
This is a classic: Let the data guide you. Go where the buyers for your products are and communicate with them on a personal level (i.e. by persona and funnel position) and nurture those relationships (past, present, and future customers). It’s possible—all through data.
We recommend that Shopify brands analyze and update their websites using data-driven decisions. Using analytics tools such as heatmaps and scrollmaps can help brands better understand how customers are interacting with their store.
Store owners tend to make assumptions about the way customers interact with their website. Most never go back and analyze their design choices to find pain points or areas of opportunity. By using heatmaps and scrollmaps, they can see where real customers are clicking and concentrating their attention. Leveraging this data, brands can start to iterate on design and make their online store experience streamlined and intuitive.
Hotjar provides a simple way to implement heatmaps, scrollmaps, and recorded user sessions on your site, helping you acquire incredibly informative user data. Additionally, it gives you the ability to create on-site surveys, which allows you to obtain direct and often critical feedback from users about their experience.
Test various attribution models and analyze the impact on your business. At Fifty Six, we are always here to help our clients identify and optimize their approach—a critical step in any successful marketing strategy.
If I’ve said it once, I’ve said it a million times–Customer Lifetime Value. And even more importantly, Future Lifetime Value (FLTV). With the ever-growing importance of first-party data, it is crucial that brands take a good look at their CRM and FLTV metrics.
Stop allocating budgets to low-hanging fruit that doesn’t move the needle on conversion. Think about what’s really going to improve your CX and the return of undertaking different initiatives—not just on what’s top on your list of bugbears on the site!
One of the best ways to understand your customer behavior is by using HotJar. Their heat-mapping and screen recording tools shine a light on where customers are navigating to and from on your site, where they're rage clicking and experiencing frustration, and where conversion is dropping off within real life customer journeys and flows!
Understanding your customers’ pain points via data and analytics , will allow you to work with your CRO/CX Agency to solve customer frustrations and improve conversion.
Rewind backs up all product, customer, and order data for Shopify sites—essential since Shopify itself doesn’t provide this solution. It's saved so many of our clients time and money from administrative accidents.
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33% of customer service inquiries are pre-sale questions. What does this mean? If you’re not investing in customer service, you’re missing out on revenue-generating opportunities.
The benefits of elevating your customer experience:
- 10% to 25% increase in AOV for customers who engage with live chat pre-purchase
- 21x higher conversion rate for customers who reach out via Live Chat or SMS compared to other site visitors
- 87% of customers who have a great customer experience will make another purchase
- 72% of customers share positive experiences with 6 or more individuals
Gorgias is our favorite Helpdesk platform. They can reduce costs by 35%, primarily by decreasing the average ticket handle time. Their machine learning algorithms are trained on millions of ecommerce-related interactions across Gorgias’ customer base and provide accurate, automated replies for the most common ecommerce inquiries. This helps our agents resolve tickets faster, which provides the customer a seamless experience.
Trust your agency! Agencies do the same things across multiple brands and niches, so we see the trends and have the practice and experience!
Don't be afraid of data and insights. If customers aren't clicking on your emails, try a new CTA. If your ads are driving good metrics at a small spend, start scaling. If your customers are complaining about a product, look into QA! If the data tells you something isn't working, let it go and try something else!
I'm supposed to say Tydo, right? 😉
Double down on differentiation. There will be a lot of headwinds this year and standing out from the crowd will set you apart.
A picture is worth 1,000 words. A video? Probably millions. In ecommerce that value translates into engagement, acquisition, and retention—everything you need to impact your bottom line.
At soona, we've seen the we've seen the impact of creative and the continuous split testing of it yield results. Our resolution is to challenge ourselves and double down on innovation and creative optionality so that each brand we work with can distinguish themselves in a crowded sea of D2C ecomm. We'd love to see our brands share this resolution and keep pushing the creative limits.
Klaviyo. We're using it to power our email and newsletter at soona too!
Optimize your returns strategy! This can lead to valuable customer insights, enhanced user experiences, and increased revenue and customer loyalty.
Brands need to dive deeper into understanding their customers to set themselves up for success. Conduct research to gain insights into customer needs, preferences, and behaviors. By doing so, you can develop targeted strategies that will enhance customer experience and boost overall retention.
Right now I would say Gorgias. Having a good customer service tool is crucial to building strong customer relationships.
Start paying heavy attention to data, specifically around retention. We see a lot of effort put towards acquisition with the assumption that once someone buys, they are your customer forever. Instead, get to know your customer, understand their needs, and analyze their behaviors once they are on-site and judge their sentiment after they have visited. Work with a retention focused and data-driven agency to implement tools that contribute to repeat business and customer delight. It will pay dividends.
When surveyed, about 80% of ecommerce merchants think that they are delivering a great experience to their customers. However, when the same customers are surveyed, only 8% of those customers think that they are getting a great experience from the merchant. Now, more than ever, retaining loyal customers is an essential part of any online business and you should spend time with your customers to judge their experience with your website and products and offer improvements based on that feedback.
Tydo's report cards are an essential tool, along with Klaviyo for email and SMS, Recharge for subscriptions and memberships, Okendo for reviews and surveys, Rebuy for AI driven collections and upsells, Loop for self service returns... each tool is great on their own, but their strength as the ultimate tool comes from when they are used together!
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