Settle x DTC Experts: Beyond Conventional Funding - Alternative Paths for DTC Brands

LearnMarch 13, 20245 min read
Caroline Lu, Product Marketing Manager

Alek Koenig, Founder and CEO of cash flow management platform Settle, recently sat down with Suze Dowling, Co-Founder and Chief Business Officer of consumer brand portfolio Pattern Brands, and Jason Goode, Founder of hair care brand Flakes. They discussed strategies for scaling e-commerce brands profitably, overcoming inventory obstacles, and financial planning.

Funding DTC brand growth with alternative financing

When looking to scale quickly, many brands run into tight cash positions due to the necessity of purchasing inventory upfront and therefore turn to alternative financing solutions that offer more flexibility than traditional loans. Flakes experienced capital constraints when it came to acquiring inventory, exacerbated by higher minimum order quantities (MOQs) imposed by sellers. Jason cautions that these high MOQs set by sellers can negatively impact margins. To meet their capital needs, Flakes initially explored Merchant Cash Advances or revenue-based financing to meet their capital needs, however encountered high APRs.

When looking for financing for their inventory purchases, Pattern Brands first explored traditional financing means including venture capital and private debt lending. However, Suze later realized their traditional line of credit had stringent requirements including requiring to pay vendors directly that ultimately restricted access to capital.

For both Pattern and Flakes, Settle provided the capital they needed to increase inventory orders and reduce costs. As Jason explained, "Settle allows you to get the capital you need to buy inventory in a structured, responsible way. Without Settle, we would not be able to scale the way we have in our first year." By financing larger inventory purchases, they improved margins by 60% in just 5 months.

Alternative financing through Settle also helped them access funding faster than traditional lenders. As Suze put it, “Settle really was the godsend that it's also helped us to scale really flexibly and nimbly." The relationship with Settle gave them confidence they had a partner invested in their success.

"We actually went from complex to more simple by pursuing alternative financing routes." - Suze Dowling, Co-Founder and Chief Business Officer of Pattern Brands

Inventory Management Challenges

For e-commerce and DTC companies, managing inventory and cash flow can be a major challenge especially with multiple SKUs and channels. Suze recalls how entering wholesale relationships has significantly increased their cash conversion cycle and complexity. Suze also recommends building trust and communicate often with both suppliers and financing partners and they are both more likely to work with brands when potential problems arise.

Jason also agrees inventory continues posing a challenge as well as negotiating terms with suppliers. When it comes to financing, he also cautions against the potential inflexibility of credit cards especially when it comes to credit limits.

Financial Planning Tips for Brands

Jason recalls not focusing on financial planning early enough until bringing on a fractional CFO to the team help with financial planning on a bi-weekly basis. He now continues to work with fractional finance employees and keeps his team's financial toolbox simple with only a few working capital tools including a credit card and Settle Working Capital. Jason also mentioned the importance of tracking contribution margin per order and keeping a lean team.

Suze emphasizes both short (weekly) and long range planning for both inventory and cash flow. As Suze explained, "You need to be as detailed as you can, because this is something where your revenue is impacting the cash that's coming in." Suze recommends bringing on a finance hire to the team as early on as possible especially if a founder does not personally have a finance background.

"If you don't personally come from a finance background, make sure whether it's full time or fractional, that Finance is a critical resource that you have sitting at the table with you. Make that FP&A process a part of your routine and your rituals" - Suze Dowling, Co-Founder and Chief Business Officer of Pattern Brands

Looking forward to the new year

Despite economic uncertainty, Suze and Jason are bullish on the opportunity for ecommerce brands focused on profitability and capital efficiency. They offered tips for founders looking to scale successfully in 2024:

  • Focus on profitable growth rather than growth at all costs
  • Build high-margin products that customers love
  • Don't forget about gross margins: keep operations lean and be scrappy
  • Negotiate supplier terms to improve cash flow
  • Develop relationships with both financing and supply partners

For Pattern, the focus is expanding their brand portfolio into new categories while boosting omnichannel distribution. Flakes is prioritizing inventory planning and availability. Both aim to scale sustainably on the path to profitability.

Conclusion

Key takeaways from the discussion include the importance of inventory and cash flow management, planning for profitability, and leveraging flexible financing options like Settle to access working capital. For founders looking to scale their e-commerce and DTC brands, Settle can help manage and optimize their cash flow with modern, intuitive AP automation and PO tools and transparent, non-dilutive financing. With the right financing partners like Settle and a focus on profitable growth, there has never been a better time to build brands that customers love. Explore more how Settle can help scale your brand at Settle.com.

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