DTC #103: When business runs out of cash
This week we shut down a skincare brand. Four months in and there was no money in the bank. We were dependent on Facebook advertising and paid media, and spread thin across two markets.
👋 Hola! Welcome to Out of Singapore. I am Shantanu, I prefer to be called Shan (easier and sounds cute). This newsletter shares behind the scenes view of running business in Singapore. Most stories are my own, and my efforts at building a business. I feature other Singapore businesses sometimes.
This week has been a sad one. Remember I said that I was building the second brand (of the 5 brands I want build by 2030). We shut down all investments on the brand. Cancelled all agency and freelancer contracts. Cancelled all hiring plans. We ran out of money to fund the operations and marketing. 🥹
Before we jump in further, here is meme on Coldplay concerts currently underway in Singapore. Coldplay and cold feet afterwards ⛈️☂️🌈
Let’s jump to the story. Today’s we will cover
Why did you run out of cash?
What were the main cash burn?
What bets did not play out?
Now what?
#1 Why did we run out of cash?
Our cash flow was negative - Cash flow is cash in - cash out. Cash in the revenue and earnings deposited in the bank. Recognised revenue doesn’t count here. The money has to flow inside the bank account. Cash out comprises of all expenses - inventory, salary, marketing and service fees. We were paying out more than we earning.
Go to market plan failed - GTM plan was celebrity collaboration. We launched an exclusive perfume for popular Malaysia pop group. It was a dud. I will now forever doubt celebrity collaborations (or maybe I had completely wrong idea of collaborations). Also, a better collaboration would be a skincare product that would fit well with the brand. Can a perfume make a skincare brand sell better? I doubt.
Higher non-productive expense - Non-productive expenses are costs that don’t drive sales. Rents, salary, PR and agency partner fees are non-productive expense. Of course there is no clear definition around this. Business development executive salary (someone really generating sales) would be a productive expense. Commission sale agents and partners will be a productive expense. Generally, fixed fee partners are non-productive expenses. I would talk more on this another write up. For us, our non-productive operating expense was too high.
Trying to win two markets together - We were splitting resources (people, money and efforts) across two markets - Singapore and Malaysia. A big dud. Advertising budget became too small to win even one market. Operational budget became too small to hire a proper team.
I could go on listing more things, however, these would be the main.
#2 What were the main cash burn?
A business starts with some form of seed investment. It is expected to start making money in 6 to 12 months to sustain itself. During this period, there should be signs of improvement at regular intervals (signs of growth).
Where did we burn our cash without returns?
Salaries - A new team was set up in Malaysia with the assumption that cost will be less.
Paid advertising - Specifically Facebook advertising.
Tiktok advertising is surprisingly cheaper and has better ROI.Agency partners - There wasn’t a proper team set up for the brand. So it was a few in house staff supported by several agency partners.
These are base expenses for a brand to survive. However, the return was so low that instead of “operational expense”, these became burn centres.
#3 Which bets did not play out?
Let’s go through them one by one.
Low price equals higher conversion - We aimed to target the mass market, with the assumption that low price itself will drive higher conversion. For example, website conversion will be 3%+ instead of 1.5% industry average. The conversion remained low, under 1% for most of the time.
Celebrity endorsement and exclusive product will drive sales - It was a generic assumption. More effort should have been put into past collaborations of the artist and performance. Questions like how much revenue have they driven on their livestream should have been asked. Celebrity endorsement has to be followed up by heavy PR and advertising spends to make it work.
Two market approach - We, including me, assumed it would be okay to invest into two markets together. Run lean, get agency partners, bring on a celebrity and launch in two markets did not work.
What works in SG will work in Malaysia - A business in Singapore scales fast due to high density of affluent population. Information flows fast, referrals work well and consumers have the spending power. Malaysia is too large for brands to catch up so fast. The investment needs to be few times higher.
Facebook advertisement - Should we gone gung ho on creating TikTok and advertising on Tiktok only? I am not sure. I will see.
#4 Way forward - grow organically?
All spending on Singapore has been brought to a stop. So, what now?
The good thing is that the products are good, however, we haven’t found the right set of target consumers. So how do we move forward with no money in the bank?
Brand will become dormant in SG
Sell on livestreams - Livestreams are by nature are ROI positive (2+). You don’t need to do branding, just the value proposition and pricing is key.
Explore organic growth - This is not a simple and I don’t have clear answers. One of the levers will be social media content. However, social media is far from being free of cost.
Essentially, I will have to work out a profitable customer acquisition flow. Tough but necessary.
That’s it for this week. If you would like me to add more details, please drop an email. I will try to cover those aspects in upcoming posts.
Thanks for reading again 😸
This is the second in a year that I have run out of money.
Dec 2022 - Personal savings dried up, funding for startup didn’t come through and team quit. This was for Zaloom. Jan to April 2023 was a tough survival period.
Jan 2024 - One brand ran out of money, no cash flow to sustain the brand. “Investor” refused to give any more money (essentially funding dried up).
This whole week was a Deja vu of sorts. Of course, I will find out a way to survive. It still hurts.
Jisoo says don’t stop, keep going on. Sure 🫡
Have a good week ahead. Cheers!