How to Help Ecommerce Brands Scale through Sustainable Inventory Management and Financing with Settle's Alek Koenig
In the DTC ecosystem, cash flow is king. After spending four years as the head of Credit at Affirm, Alek Koenig founded Settle in 2019 to help brands streamline their inventory purchasing and bill pay in one, easy-to-use platform. From financing tips to cash vs. equity, Alek shared his learnings, insights, and best practices with the Tydo team.
How to Help Ecommerce Brands Scale through Sustainable Inventory Management and Financing with Settle CEO Alek Koenig
In the DTC ecosystem, cash flow is king.
With ecommerce funding, brands can grow, scale, and pay salaries, invoices, and taxes on time. It’s easier said than done, especially when DTC brands operate on tight timelines.
After spending four years as the head of Credit at Affirm, Alek Koenig founded Settle in November 2019 to help brands streamline their inventory purchasing and bill pay in one, easy-to-use platform.
Fast forward two years, Settle has morphed into a rocket ship. The cashflow management startup recently raised $60 million in a Series B round, led by Ribbit Capital and existing investors Kleiner Perkins, Caffeinated Capital, among others.
From financing tips to cash vs. equity, Alek shared his learnings, insights, and best practices with the Tydo team.
From Affirm to Settle
At Affirm, Alek learned everything there is to know about credit. While he was there, he noticed that some merchants were using Affirm for working capital. To improve their cash flows, they found it helpful to get paid immediately and then ship their goods in two weeks.
Most brands don’t know what APR they’re paying on merchant cash advances (MCA). And, MCA providers don’t really know either. By the time brands take capital and pay it back, it’s too late. They realize they paid too high of an APR.
Alek saw an opportunity to tackle cash flow issues and help brands scale in a massive way. When Alek realized he could combine working capital with an accounts payable tool, he knew Settle could change a business’s trajectory, instead of saving them a couple hours a week.
Some DTC brands don’t know when their revenue is coming in, so Settle pays their inventory and vendors, and then brands pay them back with the revenue they get from their inventories.
Transparency, honesty, and flexibility are embedded in the product. “There are no unknowns, no gotchas, or no surprises. You know exactly what APR you’re paying,” says Alek.
Alek walked the Tydo team through the platform, and we can validate that the user experience is truly seamless, intuitive, and simple.
“Let’s be as upfront, as transparent, as honest as we can be, and that’s going to win in the long run.”
Building a Game-changing Platform
90% of Settle customers come from Bill.com. They’re the 800-pound gorilla in the space.
Some brands make payments, especially international ones, directly through their bank. And, some brands are even more old school and use Excel. With both methods, brands are creating more work for themselves.
Settle’s onboarding experience is seamless. To use their platform, brands connect their bank account and accounting software. That’s all there is to it.
Settle ingests invoices on behalf of a brand and automatically parcels out the information to enable one-click pay and scheduling. Also, Settle creates a unique email address for all its customers, so they can forward invoices to one spot.
Their unique edge is working capital. With their product called extended payment terms, Settle effectively pays vendors on the date of the brand’s choosing. Then, brands can select their repayment time—whether that’s 60, 90, or 120 days—and Settle explicitly states all the fees associated with that. Best of all: All transaction costs are free.
Before underwriting an ecommerce business, Settle looks at:
- Gross margins
- Return on ad spend (ROAS)
- Burn rate
Those four metrics ensure their team is lending to the right customers. If a brand matches their criteria, Settle will underwrite them the same day. Then, they can start using the platform the following day.
The last piece of the puzzle is their marketing card. Settle generates a virtual card for brands to plug into their Facebook and Google Ads accounts and manage spend.
Settle’s card has higher limits than the average credit card. That’s because their team actually knows how to underwrite an ecommerce company. They understand the ins and outs of an ecommerce brand’s cash flow.
“With Settle, vendors get paid sooner, which makes them happier. Plus, working capital is easier to access for the brand.”
Cash vs. Equity
Right now there’s a lot of uncertainty in the market.
When brands come to Settle and ask, “How much capital should I have?” Alek boils his answer down to two key pieces of advice.
- Make sure you have access to debt.
- Have extra cash in the bank.
He also emphasizes the importance of understanding the difference between credit and equity.
With debt, brands effectively pay a lower interest rate than the cost of capital for venture. Alek says, “If a brand equates venture capital to APR, it’s probably in the 30-40% range.”
Brands should use debt for something that’s repeatable or a short-term investment that pays dividends. For example, that could be an inventory purchase where a product has a 50-70% gross margin.
“Any money you invest in inventory is going to come back higher. Leverage debt to increase that. You’ll have a greater return on your capital,” explains Alek.
The same goes for marketing. For brands with a return on ad spend (ROAS) around 2-5x, that money returns positive dividends as well.
For R&D and hiring, debt isn’t a good solution. That’s a better use case for venture. Alek notes, “Venture money won’t kill your business. You’re giving away ownership. Remember that.”
At Settle, they’re trying to educate customers on all these options. And beyond that, they’re showing customers that they have options in the first place.
“It’s nice to have a little bit more buffer than you think you need. You never know what the next three months will hold in such a fast moving environment.”
- 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.
OrderlyEmails is our go-to tool for transactional emails. It helps us level up our brands’ email aesthetics with customizable, quick-to-implement Shopify templates.
Lately, I’ve been really interested in Smile.io’s loyalty platform. Their UX is fantastic for teams with low bandwidth!
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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Report Cards is a customized glimpse into your business, delivered to your inbox for free.
Report Cards consolidates all your key metrics across platforms for an at-a-glance pulse of your business.
Discover metrics for every team member so they can stay updated with the right data on a daily, weekly and monthly basis.
It's free because we believe everyone should have access to the basics.
Portfolio is a hub for analytics across multiple Shopify stores. The perfect tool for agencies.
See an aggregate view of all your data for all your stores in one place.
Make real time assessments on marketing initiatives across every storefront you manage.
Analyze the performance of one store versus another in seconds.
More about the project
Here at Tydo, we try to highlight DTC founders who run their business in various ways. And, that's because there's no "right" way to run a DTC brand.
This project illustrates exactly that. Whether it's how a founder supports their team or how they talk about mental health in the workplace, every founder has a different approach. How do they discover these different approaches? One way: reading. Discover the greatest books that have changed the way 15+ founders think about or operate their business.
You can also listen to these book picks on Spotify or Anchor.fm.