Summary
In this episode of the Ecommerce Finance Podcast, Stephen Brown and Chris Hondl from Finale Inventory discuss insights gained from a decade of building ecommerce software, focusing on inventory management, the evolution of ecommerce, and the challenges faced by businesses today. They explore the importance of establishing standard operating procedures, the differences between ERP systems and federated systems, and the benefits of bootstrapping a tech company versus seeking venture capital.
The conversation also touches on the future of ecommerce, the impact of AI, and the necessity for businesses to adapt and evolve in a competitive landscape.
Takeaways
- The ecommerce landscape has become increasingly competitive and complex over the years.
- Inventory management has shifted from basic operations to a more rigorous and strategic approach.
- Establishing standard operating procedures is crucial for effective inventory management.
- Businesses must evolve to maintain profitability in a changing market.
- Bootstrapping a company can lead to better financial outcomes compared to taking venture capital.
- AI is transforming consumer behavior and marketing strategies in ecommerce.
- The future of ecommerce is promising, with continued growth expected.
- Companies need to focus on creating unique value propositions to stand out.
- Effective inventory management requires discipline and consistency in processes.
- Understanding financial metrics like EBITDA is essential for business success.
What We Cover:
- 00:00 The Journey of Finale Inventory
- 01:48 Evolving Inventory Management Practices
- 05:27 Top Tips for Effective Inventory Management
- 09:59 Common Pitfalls in Inventory Management
- 13:43 ERPs vs. Federated Systems
- 18:41 Bootstrapping Finale Inventory
- 19:37 Bootstrapping Success: The Journey of Finale Inventory
- 26:21 Understanding Financial Outcomes: Venture Capital vs. Bootstrapping
- 30:20 The Future of Ecommerce: Trends and Predictions
- 36:35 AI in Ecommerce: Opportunities and Challenges
Guest Information
Chris Hondl leads the engineering team at Finale. With over 30 years of industry experience, Chris was previously the VP of Engineering for Core Mobility where he had responsibility for systems serving hundreds of thousands of mobile phone customers. Chris earned his BS in Mathematics and MS in Computer Science from Stanford University.
Work with LedgerGurus
If you need help with your ecommerce accounting, reach out to us at LedgerGurus. We are an ecommerce-specialized accounting firm, and we can handle all your numbers so you can focus on growing your business.
Stephen Brown (00:00)
Welcome to the Ecommerce Finance Podcast. I’m Stephen Brown, COO with LedgerGurus. With me, have Chris Hondl from Finale Inventory, now part of Descartes. And we are going to talk about insights from a decade of building ecommerce software. Why don’t we start with your title? Did I say the new company name right?
Chris (00:22)
Yeah, it’s Descartes. It is a Canadian firm. And so you’ve got that French pronunciation. It’s been around for a long time and they’re a public company headquartered in Toronto.
Stephen Brown (00:35)
So let’s kind of fill in some gaps. You were a co-founder and the CTO of Finale Inventory. And then recently, Finale was bought by Descartes. Tell us a little bit about the journey. So first of all, what does Finale Inventory do?
Chris (00:45)
Yes.
So Finale Inventory is a inventory management system for ecommerce companies primarily. And so what that means is it’s the core of the processing of physical goods through a business. Everything from purchasing, bring goods into your company, core stock keeping operations, and then selling, whether you’re selling ecommerce, but also if you have some retail operations or some B2B operations. So it’s kind of that whole flow of goods through your
organization, both from an operational and a financial scene.
Stephen Brown (01:24)
And if I read LinkedIn right, you guys got started in 2014. Is that correct?
Chris (01:30)
Yeah, yeah, we spun out of a prior project that one of my co-founders and I had been doing and we had a few customers, but we really launched it as a ecommerce focused business in 2014.
Stephen Brown (01:41)
2014 acquisition in 2025, you’re continuing on with Descartes and the team. That’s a lot of learnings. mean, ecommerce 2014 versus 2025, talk about two different worlds. Maybe, let’s talk about what are some of the things that you’ve learned from a decade of working with ecommerce businesses? Like, what do you feel like, any like…
Chris (01:48)
100%.
- my. Yeah.
Stephen Brown (02:07)
key insights for sellers a decade on.
Chris (02:12)
I think that the biggest change, I mean, it’s just continuous, is just how much more pressure there is to kind of keep optimizing every part of the business. When I talk to sellers who’ve gotten very large, in some cases, nine-figure sellers, where they just talk about the process of just every single aspect of their business having to become more efficient.
not just marketing and sales, of course that’s important, but sourcing, how they import, how they package things, what are them, exactly how they’re doing shipping, exactly how they’re doing fulfillment. So every stage along the way, just every year, they just need to be more and more efficient than they were a year before.
Stephen Brown (02:56)
Do you feel like the people that you’re talking to today in 2025, piggybacking off what you just said, are you seeing a higher level of engagement around inventory management today versus what you saw in 2014 when you guys got started?
Chris (03:11)
Yeah. And I think it’s a higher level around what I would say is the actual like process of inventory management. You know, when we got started, it was just, can I get these boxes out the door at all? Can I do some virtual canning? Can I kind of try to start to reduce my error rates? Whereas now it’s much more just really getting dialed in about, you know, how can I make sure I have exactly the right product in stock? And I’m ordering stuff exactly what I need to. And I’ve got less.
excess inventory on hand. And so that just requires a lot more rigor in terms of when you’re purchasing, how you’re accounting for returns, how you’re accounting for any errors or giveaways. Yeah, so that just is probably the biggest change.
Stephen Brown (03:55)
Yeah, if I look at that timeframe, feel like it’s I don’t know when you’d say the gold rush began, but there was kind of the push into ecommerce around 2014 where it was just starting to really explode thanks to all the tools, Shopify, social media advertising was still fairly easy and efficient. And now to your point, 2025, it’s hard. Everything’s hard. Nothing’s easy anymore.
Chris (04:17)
Yeah, everything’s
gotten harder. It was easy for a while and it got a little harder coming to COVID. And then of course, COVID made, it was like a second gold rush, a second great boom. And then really the last years, it just kind of gets harder. It just gets a little bit harder.
Stephen Brown (04:33)
So you’ve spent a lot of time talking to customers with a decade of experience to the point where you had somebody that wanted to buy your software. What are some of the, if you had a list of top things you would recommend, if somebody would come today and say, I’ve got, and I’m a million dollar, I’m a $5 million business, my inventory management is a nightmare. What are like some of the top tips that you would share with somebody?
based on this decade plus of building this software and working with other customers.
Chris (05:02)
You know, it’s really just, it’s really a process, right? Cause people are at every, every different place. You know, we see customers, companies that are even fairly large and you have a challenging time getting their head wrapped around, getting effective skew or product labeling, product aliasing and making sure that the same product is, you know, being tracked appropriately as they go across channels.
You know, issuing real purchase orders and then tracking that you’re receiving as a purchase orders. You know, that’s another area where when you’re starting out, it might be as simple as a WhatsApp or WeChat message to order some more product. But as the business gets more complicated, you really want some more control over that. And you really want to be able to have some more sense of like, okay, this is what I’ve ordered. Okay. I can actually have software support both. I’ve placed these orders. haven’t placed these orders. So this is what I need to order in the future.
And also to support like, Hey, this is when I can expect these orders to come in. and so just keeping track, you know, it’s one thing when you’re bringing in or ordering. You know, one, two, three, four times a year, but when you start bringing in multiple containers, you know, at a regular cadence, if you’re importing or replacing multiple bulk orders or contract manufacturing orders, it just gets a lot harder to keep track of. And that’s, you know, that’s kind of a big, a big tip. Like you just need to get into.
kind of out of the spreadsheets and out of the email and out of the WhatsApp or WeChat and into something that’s, you know, a little bit more rigorous that you can fall through. And I say the last thing is kind of integrating all the channels, right? I’d say just sorry to cut you off there. The last thing is, you know, when you’re jumping between just, you know, your Shopify, your Amazon, your Walmart, your TikTok, your, you know, your Shein or whatever other channels you are, you’re trying to go to too many different places.
Stephen Brown (06:31)
Yeah, I’m. Yeah.
Chris (06:46)
You know, few people aren’t all of them, but a lot of people start to go to two and three and even then it gets to be real challenging.
Stephen Brown (06:52)
Yeah, I was going to, I was going to note piggyback off what you said. We have a small brand that we bought a couple of years ago. I’ve talked about it on the podcast. I’ve had my, operating partner on here and we are feeling the pain of less disciplined inventory management. In fact, we, we’ve been using finale, and, or in some cases not using it enough.
And then we get chided by the alleged gurus team, like who helps us the inventory accounting saying like, guys, where’s your, where’s your orders or what happened here? It’s like, yeah, yeah, yeah, yeah. You know, and it’s, and we have one supplier today. We’re moving to an additional supplier next year. And just, just the one and a couple orders a year. It’s hard. It’s hard to keep track of that, even with spreadsheets and whatnot. just, it breaks down very quickly. So I second your, your thoughts there that.
Inventory management is really problematic. In fact, we discovered an issue. Just we were finishing up our 2024 taxes. We love to extend. And we had this big adjustment. like, what the freaking happened? So we asked our accountant who was working on the project with us, we were like, can you tell us what happened? And some of it we knew. had
Right after we bought the business, the 3PL, like a couple of months after we bought said, we found some, we found some old inventory in the corner of the warehouse. It’s all out of it’s it’s all expired. And we’re like, dang it. And then we’ve had some damages, but what we, what we started finding is like, Hey, we haven’t been watching shrinkage very closely. And we had to take some of it. were aware of like that big, discovery of spoiled inventory, but some of it we discovered like.
Chris (08:23)
Yep.
Stephen Brown (08:37)
The 3PL every month has these, these little adjustments and we’re like, we’re not sure what those And so it’s all inventory management and it’s, wasn’t a ton, but it’s enough to where it’s That’s something we need to keep our eye on because it it’s bleeding profits and we need to either have some insurance or, you know, rework our contract to say, you know,
damages, somebody’s responsible, but it’s enough to where it probably would make sense to financially ensure it and just see how much are we losing through shrinkage.
Chris (09:08)
Right. And not discovering it at the end of the year, but discovering it continuously every month. So can keep on top of that. You know, we had a, you know, I was talking with a firm and their issue was they had a customer service team that was basically kind of issuing, issuing new merchandise when things were damaged without there being any good tracking around it. And so they were just, they kind of later on discovered that the amount of merchandise that they were basically
Stephen Brown (09:12)
As we go. Yeah.
Mm-hmm.
Chris (09:37)
kind of issuing as a, you know, kind of customer satisfaction thing ended up being good material, but because it was kind of this side door, it wasn’t kind of in the purchase order. wasn’t in the sales order. They didn’t really know that all they, how much that policy was costing them. So, you know, that’s the kind of things that you can discover again, by having a single source of truth that cuts across the entire business.
Stephen Brown (09:59)
So we’ve been working on inventory for a few years with Ledgergurus You’ve been doing it lot longer than us. What are some of the things that you see when customers fail around inventory management? What are some of the things that they do wrong or they don’t do that you’d be like, know, these are, here’s some keys to success. Here’s some keys to avoid failure.
Chris (10:21)
Probably, whether using a piece of software or using a spreadsheet is establishing some SOPs or standard operating procedures and sticking with it. There’s no magic wand yet in inventory. You actually need to have a little bit of discipline. And that can be a discipline around a spreadsheet, that can be discipline about a piece of software. But if you’re not
consistent about how you do purchasing. A lot of the sales side you can get in a fairly automated fashion from the marketplaces. But if you’re not consistent around how you’re doing purchasing, not consistent about how you’re handling returns, not consistent about handling back orders, if your business does back orders, that’s what I think that more than anything is kind of establishing this SOP and then sticking with it. And again, this is the kind of stuff that when you’re small, you’re doing a quarter million a year, $500,000 a year in revenue, probably it’s not that big a deal. You can keep it in your head.
But as it gets bigger and you start to add another person or two into the company, just, more than anything, that’s probably the thing to start to think about to begin with.
Stephen Brown (11:25)
Yeah. And to your point, I feel like there’s many processes of inventory. When I talk about this from an accounting and finance perspective, there’s many things that you need to do. And if you don’t do any one of those things, your data gets off. You got purchasing, you got receiving, you’ve got, like I said, shrinkage, something that we had hadn’t been tracking.
Chris (11:38)
100%.
Yeah. Well, even
with purchasing, like, you know, there’s like more to it, right? Because you’ve got you’ve got, you know, place in the order, but you also have a process around when am I going to order? Like, am I just going to order when I feel it? I mean, that again, when you and when your skewed count goes up and the amount of dollars goes up, you know, again, you actually want to have some kind of process that is a little bit more regular. But well, here is how I place orders. Here is how I recognize and forecast my future demand.
Stephen Brown (11:54)
Yeah.
Chris (12:09)
Most of the time customers have some type of prepayment. so understanding a procedure for how I’m going to record these prepayments and this $50,000 that went out the door now, there’s going to be another payment when it’s received. so understanding a procedure for forecasting that understanding that. And then as you said, the receiving and then if there’s a discrepancy, right? So you ordered X and you received a different quantity or different amount. So.
Stephen Brown (12:30)
Mm-hmm.
Chris (12:35)
Just even purchasing, like you start to drill in and you’re like, you kind of want some policies for each one.
Stephen Brown (12:36)
Yeah.
Everyone. then you get, you get like obviously fulfillment’s a big deal. if you’re doing your own warehousing, that opens up a whole nother can of worms of processes. I think of the other thing pitfalls I’ve seen. Oh, um, marketing you pull your whole product for marketing and you don’t just like met samples disappear, you know, and you’re like, happened to my account? yeah, there’s just, there’s a lot of little things owner owner like
Chris (12:55)
Yep, samples.
Yeah, you hear a lot about that.
It’s the purchasing and the sales are the obvious one, but it’s those samples, it’s those damaged goods, it’s those expirations, it’s returns. ⁓ Those are the ones where things start to really kind of go, go straight. And for a lot of sellers that doing FBA, what we see is a pretty significant issue between tracking what they have in their own warehouse or their prep center, if they have it outsourced. And then what’s at FBA and what’s in transit.
And, know, I’ll talk to very, very big, very mature sellers and it’s just a big black box. Like they just don’t have good record keeping at all for what is in transit between their prep center and Amazon.
Stephen Brown (13:43)
Now I’ve seen a lot of businesses over the years think that they need to go to an ERP because their inventory management is a mess and they feel like an ERP is the answer. I’m leading this, I’m giving you a little bit of a softball, but because I know you and I feel differently, but like, what are your thoughts on ERPs versus a federated system or, you know, basically federated is the idea of I’ve got my general ledger, QuickWorks are zero.
We’ve got my inventory management. Maybe I have some other components that are tied together. I’ve seen a lot of, I need to go to ERP and then it fails. And it was really expensive. Is the process the problem? Because some people think the software is going to save the day and then they go to an ERP and they’re like, this was a disaster. What are your thoughts there?
Chris (14:29)
Yeah, yeah.
It’s complicated. Like it’s certainly the case that there’s businesses for which an ERP totally makes sense, right? You’re not going to run a multi-billion dollar public company ⁓ on small business software. But the challenge is just figuring out where that line is. Because in the same way, you’re not going to run that giant company on small business software. And if you try to run a small business on an ERP, the complexity and the expenses, really got to control. It’s not just the software expense. It’s the…
The people expense, know, lot of software assumes that the people operating the software have internal in-house knowledge and expertise on each of the disciplines. so you have people who have specialized in supply chain, people who have specialized in purchasing, people who are specialized in finance and with accounts payable and accounts receivable and so on. And so when you’re a smaller business, you don’t have that level of in-house expertise and skill in all these disciplines. And you’re not in position to hire folks in all these disciplines.
I think it gets be very hard. And that’s, think, where the line is where you start to think about these products that work with a smaller general ledger, whether it’s QuickBooks or Xero, most commonly the United States. And then as the company grows, layering on software such as Finale, but some of the other IMSs, and then in other areas, other kinds of software. And you get a level of flexibility and ease of deployment. You don’t have to deploy all of it at once. You can address this problem this year
this other problem next year or six months from now. And in doing so, it ends up being something that kind of can grow with you versus a, I’ve got to like tear apart my business for six months, for nine months, for 12 months, and then put it all back together again. And during that time, ecommerce can change, but your business can change. And that’s, think, where you get in these failed deployments. So again, it’s that level of complexity and then that level of
You know, I have a business that’s big enough that I can hire specialists that have expertise in all these areas. Cause it’s kind of assumed when you’re in these ERP, when you’re in these ERP systems.
Stephen Brown (16:36)
Yeah, and mutual friend of ours, Scott Sharf and I did an episode earlier this year where we were talking about selecting an inventory management system and we didn’t get into specifics, but we were kind of talking about some of the dynamics. My thesis is you can be quite large when we say small business. The hard thing about small business is some people define it differently.
⁓ is it a million? Is it 10 million? Is it a hundred million? Is it based on a number of employees? But
Chris (17:03)
I, early in my career, I did work with SAP as a partnership manager as I working for Adobe systems at the time. And at the time, SAP defined a small business as anything under a billion dollars in revenue. And that was a small business.
Stephen Brown (17:06)
Mm-hmm.
And
I know like the small business administration, I think defines it as anything under 500 employees, which in ecommerce land, gosh, you could probably, you could easily be a billion. ⁓ That’s easily a billion dollar company, you know, to be a consumer products, product business, the way you can leverage software and partners.
Chris (17:24)
Right, right.
That’s a big company. That might be billion dollar company.
Yeah, 100%.
Stephen Brown (17:41)
My thesis is you could easily be tens of millions of dollars in ecommerce before you need to be considering an ERP.
Chris (17:48)
Yeah, for customers that adopt Finale, we do see customers leave to ERPs, but often when they’re in the many tens of millions of dollars, sometimes into the nine figures. And the usual drivers for that end up being the ⁓ multi-entity or multi-currency. So people start to have, they actually don’t just sell into Canada or sell into the UK, but they actually have a subsidiary there. They have employees.
Stephen Brown (18:05)
Mm-hmm.
Chris (18:14)
That tends to be a pretty big driver for us. They get a level of operational complexity around manufacturing, around contracting. You know, sometimes financial complexity can drive it. But again, it’s not 5 million or 10 million. It’s 50 million or 100 million is where we see people really start to say, you hey, it’s time to leave and then have a successful transition. We do see people leave at smaller and then it tends to be a lot more, it’s a little bit less clear how well that works out when they’re smaller.
Because again, I think the challenge is they find that they’re having challenges with finale or, you know, to be fair, the other people in our space, I mean, there’s other, there’s other products in the IMS space ⁓ that form from similar role. If they’re having trouble because those products are feeling difficult or complicated, or they can’t work with them well, going to the ERP doesn’t really solve that problem. Again, you kind of you, you need to build that discipline. You need to build those standard procedures, build in-house expertise in a variety of areas. was talking about earlier.
Stephen Brown (18:54)
They’re having trouble because those products are feeling difficult or complicated to work with them well. Going to the Arpita for a solve. Again, you to build that discipline. need to build those hand procedures. Build in-house expertise in a variety of areas, as I said earlier.
Chris (19:11)
that you’ll need to succeed at that 50 million level
Stephen Brown (19:11)
That you’ll need to succeed at that discipline.
Chris (19:14)
or 100 million level, whether you’re on a New York or not.
Stephen Brown (19:17)
Let’s take a little dive into a different topic. You posted some stuff on LinkedIn that went kind of viral. You were talking about Finale and how you guys bootstrapped the company to exit. So you guys didn’t take any investment money with Finale. It was all bootstrapped.
Chris (19:21)
Okay.
That’s right.
Stephen Brown (19:38)
⁓ Which I think there’s probably some lessons there we could tease out because a lot of ecommerce I think the days of getting investment in ecommerce For the most part are over. You don’t see venture capital putting money in you might get some money from friends and family How did you guys I mean Let’s talk a little bit about this the different economics like you instead of having to buy inventory you’re having to hire people How did you guys?
Did you guys focus on profit from day one or how did you guys make that work?
Chris (20:04)
I mean, it was certainly challenging, right? So in the early days, we had to develop kind of a lot of discipline. We had to build up the software with just the skills that the three of us that were starting the business had on hand, and then evolved whether it was selling and marketing or supporting it. And then that part was okay, but then it was kind of that discipline to not hire, right? We got to a point where…
If we were going to raise money, you’d say, oh, we can hire a team. can expand faster. And we had to accept a longer road, you know, arguably probably a little bit slow growth, a little bit less ability to invest. but in return, we’re able to bootstrap, kind of bootstrap forward through kind of through the, through the 2010s and all the way to the exit. And so we ended up not actually hiring anyone, the engineering team until 2018. So four years on.
Stephen Brown (20:59)
Mmm.
Chris (20:59)
We’d have one person on the sale side. We had somewhat limited in terms of our ability to go to market. But the result was good, right? Because we always had control. We always felt like we were in control of our own destiny, which was a pretty powerful feeling.
Stephen Brown (21:13)
Now you’re based in Silicon Valley, so I imagine there was a lot of pressure to raise money, right? That’s what they say. You got to raise money. You’re not serious about your business. Like, did you guys have investors that were wanting to invest in the business?
Chris (21:18)
Yeah.
Yeah, we certainly had people, I mean, we certainly have been well, you know, well connected around here in the Valley. and we had, all three of us have been involved in venture backed companies before, and we wanted to choose a different path. And the crux of it was what I was alluding to earlier was this idea that we had control of our own destiny. We felt that if we could grow the business consistently, you know, be able to not always be at the mercy of having to raise another round of capital.
we would have a high chance of getting to a good exit. When you raise financing, you’re going to be by definition operating at a deficit, right? You’re going be losing money to spend down this cash that’s in your balance sheet. And then you’re basically making a bet that you will, and before you spend all that money, you’ll find a way back to profitability or you’ll raise another round. Both of which are not guaranteed. You’re guaranteed you’re going to get back to profitability because you get used to operating at a loss or you’re
Basically betting and raising another round, which, there’s a lot of external factors that can control that. so on the investor side, you know, they’re making dozens of bets. They only need two or three to return the fund. But on the founder’s side, you get to make one bet at a time. You know, my whole career, you know, this one was really long. I mean, I was involved in this one for over a decade, but I’ve been involved in, think four or five venture backed startups at this point. I think it’s four total.
So you don’t get a lot of bets. so the incentive to kind of end up on a, one where like you can control our destiny ended up being pretty compelling for us in this last go-round over last 10 years.
Stephen Brown (23:02)
Now, of the things that I don’t think I’ve been in one venture backed company and then three public companies, one private equity and then one bootstrap tech company. And I’ve, so I’ve kind of seen the different experiences. And one of the things you don’t realize when you’re young, you’re like, Hey, I got to go venture backed. Or maybe there’s a pressure if you’re a founder to get venture backed, but a lot of people don’t understand math of investment and how
Chris (23:23)
Mm-hmm.
Stephen Brown (23:30)
your stake get diluted. other thing they don’t understand is the preferential treatment of investors that usually they get the initial returns and then anybody else gets the scraps. Do you feel like the financial outcome for you as founders was better because you guys didn’t take venture capital or do feel like it might have been different or the same had you taken venture capital?
Chris (23:54)
I think the financial outcome and certainly the expected value of the offense, sorry, the expected value of financial outcome was certainly better. ⁓ And the reason I believe that is it’s a little bit complicated, but effectively to your point with liquidation preferences, you end up basically going double or nothing. You think about it like each time you take a round, you get more capital to invest for the future.
But you also, at the same time, you get closed off a bunch of doors where if you were to exit at those lower valuations, there’s no money that’s going to flow to the founders or the employees of the team. And by avoiding that, we were able to kind of get on a path where we actually had a really strong financial outcome for an exit that had we raised money, I think a lot of the funds would have actually flown to the investors versus the owners of the team.
So think that’s the biggest thing. And the other thing is a little bit more subtle, which is that within a few years, we started to figure out that the size of market that was likely available in ecommerce software, certainly outside of Shopify, setting aside Shopify where there have been some truly large exits in the Shopify marketplace, but in the kind of the space that we were in, there really haven’t been the kind of truly epic outcomes where venture capital makes sense.
where people get to billion dollar valuations and hundreds of millions in revenue. so, I think that for that situation when the size of market is not going to produce those type of epic outcomes, you really want to avoid venture. Because otherwise you end up in situation where maybe you can raise a seed round or a series A, but then as you go into those farther rounds, those follow rounds aren’t going to be there. And now you’ve got investment on the cap table.
you’ve got an inability to raise more money because people are trying to recognize the fact this isn’t going to turn into a return the fund kind of investment. And then you’re trying to find your way to some type of an exit that actually results in a good outcome for everybody. It’s just very challenging. And so I think that was maybe not planned, but it worked out in our favor.
Stephen Brown (25:54)
I think that was maybe not planned, but it worked out.
So this, think there’s a lot of parallels with ecommerce in that ecommerce can’t raise money. We haven’t seen venture money in ecommerce for a few years and I don’t see any sign of that changing. So many of them are like you and your founders were at Finale where they are bootstraffing. I think the math is somewhat similar.
maybe even though the market isn’t different in terms of what drives an acquisition when you’re bootstrapped. when you guys had interest in getting sold, was it that potential buyers were looking at?
Chris (26:34)
biggest thing was EBITDA, profitability, and the quality of that EBITDA. In our case, that really turns into metrics like gross retention and net dollar retention, which for those not familiar SaaS, gross retention is of your customer revenue that you have this year, how much of it will be back next year, excluding upgrades? And then net dollar retention is how much of it be back next year?
And you get to include the upgrades. So if you’re able to upsell people, your net dollar retention goes up. And those won’t not be the same metrics for a SaaS company. But I think, again, you’re going to be looking at how much profits there are and the quality of profits. And then, of course, growth. Growth was ⁓ a key aspect of the story as well, both growth through our business and then the plan that we were able to have in conjunction with possible buyers of how that we would then drive growth.
Stephen Brown (27:14)
Mm-hmm.
Chris (27:29)
in the context of that bigger business. And again, I’m not sure the exact analogs in ecommerce, but again, if you’re able to put yourself into a bigger company where there’s a clear picture over how you’re to drive some additional, either it’s EBITDA expansion or top line revenue expansion, that clearly is going to help you have a better outcome.
Stephen Brown (27:48)
Yeah. If I were to make a translation, think for ecommerce it’s, it’s lifetime customer lifetime value. It is obviously profit EBITDA, which is that fancy finance world that finance people like to use. It is, I think both industries have customer acquisition costs is a big, big thing people are looking at. It’s distribution, you know, how well distributed you are. If I get plugged into a bigger company.
Will that expand my sales if they have better distribution of in your case software or in case of ecommerce, you know, maybe somebody’s selling on Shopify and a little bit of Amazon and they plug into a bigger company that has good wholesale relationships and can expand it. At the end of the day, it’s business international relationships. Yeah. And I think, you know, when people are thinking about businesses and unfortunately I feel like software.
Chris (28:30)
or international relationships, know, another one like, yeah.
Stephen Brown (28:42)
And the software world has had a huge influence on the business world in general. Everybody’s like, grow, don’t worry about profits. And I think that’s a luxury that only a few, even in software, there’s only a few businesses that have that luxury. And even then their outcomes are not assured versus, hey, I’m gonna focus on creating value, creating profits, creating growth.
just business fundamentals and I don’t care what industry you’re in, if you’re doing those things, there’s people that are going to want to buy you. And if you’re not doing those things, it’s going to be hard to sell your business.
Chris (29:20)
Yeah. And that gets back to this question of raising money and you know, people are raising money on the bet for the future and on in the future, this revenue growth would then translate into earnings, which in some segments and in some markets, it’s a hundred percent the path to success. Right. But in other segments and other areas, it’s not going to get you there. And that’s where, again, to your point, getting back to EBITDA, good quality earnings and
than some of those underlying metrics that stand behind them that kind of show the continuity in the future, make such a difference.
Stephen Brown (29:57)
So you’re at a crossroads with Finale Software. I feel like the ecommerce industry is at a huge crossroads with all of the changes we’ve seen over the last few years, the latest being the crazy tariffs and changing of international import dynamics. What are your thoughts around the future of ecommerce? I know you’re focused on a segment, but I would argue it’s a very important segment.
Let’s talk about a couple of hot topics, you being a technologist. How real do you feel like AI is? Everybody’s talking about AI. I’m seeing a lot of talk about AI from Shopify. What are your thoughts on AI and ecommerce?
Chris (30:33)
There’s a few areas where I think AI is incredibly real today, right? So ChatGPT specifically, not even broader AI, but ChatGPT specifically has created a consumer brand and a consumer pattern of behavior in a very short amount of time. I think it’s difficult to imagine it will be on set and you know, product discovery is already happening in ChatGPT. And you know, we’re still, people are still figuring out like how that works, but this is not unlike, you know, I’m old enough to remember when Google search came on the scene.
late nineties and new patterns of behavior emerged. And at first it was really hard to understand how it was going to work. And there was also huge efficiencies. You know, remember a mutual friend of ours telling us about telling me a story about how he was running ad campaigns and. You know, he was just paying crazy low amounts to acquire new customers because they were able to be on this new platform, this new distribution channel. So I think there’s been a lot of disruption there. And I think people who move quickly to understand, I don’t, I don’t pretend to understand.
who figure out how to then take advantage of that new consumer buying behavior are gonna do really well. Marketing tech, yeah, go ahead.
Stephen Brown (31:38)
I agree with you. I’ve been, I’ve been
watching the, kind of AI commerce this year. I, and I feel like it’s evolved initially. thought, Oh, you know, everybody’s thinking about AI as, you know, ways to, run your business more efficiently, but I actually think AI commerce is, is massive. and open AI has a partnership with Shopify. They’re already surfacing product recommendations.
Chris (31:58)
100%.
Stephen Brown (32:04)
Actually, I talked about an earlier episode. actually bought my first thing through ChatGPT literally had a, a bracket on my RV generator exhaust that had broken. And I like took a picture and I was like, Hey, what is this? And I was like, that’s your bracket, blah, blah, blah, blah. ⁓ and here are some places you can buy replacements. I was like, cool. Boom. Click transact. And so the last couple, and I really feel like it’s only been the last, not even since January. feel like it’s been about.
Chris (32:24)
Yep. Yep.
Stephen Brown (32:30)
four or five months that we’re starting to hear that. And I’m like, it’s only a matter of time before that becomes even more seamless. And I’m only, my question is when are they going to open up the floodgates in Lao advertising, right? That figuring out how to create an advertising marketplace within AI.
Chris (32:47)
And again, this is gonna be early adopters, early movers are gonna have an advantage, right? Because it’s not all companies are gonna be able to move quickly. It may not even be the obvious companies. And so again, when a new distribution channel opens up, initially, click-throughs are awesome. Yeah, I saw a few months ago, ⁓ I forget who posted it, it’s led with a picture of the first banner ad ever on the internet. And it’s something like a 30 % click-through rate, or maybe even higher than that.
Stephen Brown (33:12)
Mmm.
Whoa.
Chris (33:16)
Insane, it’s the first ever banner ad. Well, as you know, today, I mean, we click through rates, one in 10,000, I banner ads, like, no one clicks on banner ads. And it’s gonna be the same thing here. And it’s gonna get worse. And again, that’ll move. I think marketing technology is another big area. We’ve done a lot with that and continue to a lot with that. Coding’s a big area. I haven’t seen generative AI really hit in supply chain and logistics.
Stephen Brown (33:23)
Yeah.
Chris (33:40)
You know, yet I’ve seen other types of AI, you know, there’s a lot of use of machine learning or vision in interesting ways, but I haven’t really seen generative AI, LLMs, ChatGPT kind of in those core transaction processing workflows. we’re seeing some really glimmers with some MCPs, but nothing I’ve seen have good adoption.
Stephen Brown (33:55)
There’s a lot that-
Well, there’s a lot of data there. So there’s things that could be done, I envision, right? With the amount of data that’s going on in the supply chain or in inventory management. I think the thing that everybody wants is smarter, easier forecasting. Do you envision AI helping make that possible?
Chris (34:19)
I think AI more broadly has some potential. Generative AI, the new thing with ChatGPT and whether it’s Anthropic or OpenAI, maybe a little bit less so because it’s not super well matched. And it’s been a mixed bag, traditional machine learning versus more traditional statistical approaches in terms of really which provide a better forecasting.
What I see for smaller businesses is, ⁓ and again, when I say smaller, mean, say under 50 million, under 50 million is forecasting software adoption is hard. I’ve looked for a long time for forecasting software that is well suited for that segment of the market. And again, they haven’t seen companies that really crack the nut. I know there’s some stuff out there in the last couple of years I think is starting to get there. ⁓
But it’s very often the case that requires a lot more expertise and specific forecasting knowledge than you’ll typically see available to a company that can’t hire a full-time ⁓ forecasting person with expertise in supply chain. So I think there’s some software out there that’s starting to get there, but it’s also hard. think sometimes customers or sometimes companies in the space find it easier to do maybe a little bit more helping supporting their ad hoc forecasting.
so I think it’s a, it’s unclear, but I actually don’t think that generative AI is going to make a big change in that, ⁓ big change immediately. I do think there’s some really interesting things that happen in terms of assessing data, but it hasn’t been put together yet. So generative AI techniques or LLMs are really good at coding. You know, they’re not really good at directly processing data, but there’s a, there’s a world where you can then interact with a, with a human, with a querier and actually generate code on the fly to answer questions or build models.
that you would not otherwise be able to do. I don’t think, I’m not aware of tools that are there yet, but I think that’s a really interesting area of kind of taking these initial things we’re seeing in coding, coding tools, which are there with AI, but then doing things that are more specific for specific applications to allow folks who are not coders to actually effectively create code without even necessarily thinking that they’re actually creating code. That’s kind of hand wavy, but I think that might be very.
Stephen Brown (36:35)
Outside of AI, any other thoughts around the future of ecommerce?
Chris (36:38)
It’s not going away. That’s for sure. Right. You have a world where more people in 2026 are going to buy online than bought online in 2025 and so on into the future. I think the question is where are the profits going to flow and are there going to a lot of profits in for businesses that are say between a million and 50 million in revenue. And what worked a couple of years ago, find some products or some products and kind of be a middleman is going to be hard.
Right? So you’re going to need to have it’s, it’s, you know, making money in business is never easy. And so you’re going to have to evolve. You’re going to have to have, whether it’s creating brand and narrative and storytelling is what is what makes your business distinctive, whether working with contract manufacturers in a really interesting way to create special big products. Um, we’ve seen a lot of companies have success with, uh, customizations, whether that is, you know, kind of whatever kind of mass customization where they’re basically modifying the product.
on ad before they ship it out. And some have a simple processing. So not remanufacturing, but just kind of something customization. I do think it’s going to be hard, though, to be a middleman, where you’re basically buying products, importing them, and then reselling them. Because that’s a game of scale and world of constantly reduced cost of communication. People that kind of sit in the middle are going to keep seeing their profits squeezed more.
Stephen Brown (38:01)
I agree with that assessment entirely. Wrapping up, know you graduated from Stanford in the 90s. Did you have any classmates that are famous?
Chris (38:10)
I
did I have any classmates that are famous? Classmates specifically.
Stephen Brown (38:14)
Anybody that went on to found big
companies? Like, did you know the Google guys while you were there?
Chris (38:19)
I did not know the Google guys when I was there. I was one step removed from the Google guys, one step removed from Jerry Yang, who was there, who started Yahoo. Um, Oh my gosh. One step removed. Actually I did meet, uh, Gosh, gave me the co-founder of WhatsApp. Um, man, I actually had, I think I was in a study group with him back in the day. You know, this is over 30 years ago now.
Stephen Brown (38:27)
Yahoo, yeah.
Yeah.
Chris (38:46)
He was class of 94 as well. I’m sure there are others. And the name, I could have prepped. I could have thought through, like, who were the people I know?
Stephen Brown (38:52)
Yeah, was just
curious if you knew. It’s like Stanford’s notorious for generating tech founders, obviously year one.
Chris (38:59)
It certainly is.
It certainly is. ⁓ And still to this day it is.
Stephen Brown (39:06)
All right, well, let’s wrap things up. So, Finale Inventory, now part of the cart. ⁓ If somebody wanted to connect with you or Finale, what is the best way to do? ⁓
Chris (39:16)
You know, the best way is obviously through the web, finaleinventory.com. You know, you can actually find out about Finale. ⁓ You know, I’m also pretty active on LinkedIn. So hit me up on LinkedIn if you are interested in reaching out to me directly.
Stephen Brown (39:29)
Awesome. Well, thanks for joining us today, Chris. And congratulations on a bootstrapped exit and a decade of creating value for the ecommerce community.
Chris (39:40)
100%. Hey, thanks for having me.