Portal is the sleep hygiene company helping consumers make deep restorative sleep the new normal. We sat down with Portal co-founder, Dan Foussard, for a three-part series on the nitty-gritty of building, financing, and scaling a winning DTC brand.
In our third session, we deep dive into Portal’s experience with Highbeam, including topics like:
- Why legacy banks and high-interest financing aren’t the right fit for brands
- The ROI on modern banking tooling and financial visibility on Highbeam
- How Highbeam helps ecommerce brands avoid costly mistakes
Above all else, we were saved by Highbeam’s familiarity with the status of the business and where we were relative to just some random numbers on a screen.
Why Portal Decided to Bootstrap From Day One
Given his financial background, Dan had specific considerations for Portal’s finance and banking partner to promote growth. Existing options weren’t what he wanted, as they:
- Were disconnected from the current state of play for ecommerce brands
- Penalized young CPG brands based on revenue levels
- Relied on antiquated, lagging metrics
Dan didn't want to take outside money for one main reason: most early-stage companies, particularly those selling physical goods, are penalized before certain revenue levels.
If you raise, even if it's not pre-product or pre-revenue, you're not valued based on a TAM or multiples revenues because the economics are worse than software.
The costs associated with making something, moving it, and selling it meant there wasn't much appetite at Portal’s inception to approach the lofty metrics VCs require.
Knowing they would be penalized for raising money, Dan, Justin, Nick, and Jesse decided to bootstrap.
Antiquated Valuations Based on Lagging Metrics
Many metrics lag for early-stage CPG DTC brands since sales and revenue build over time.
Traditional lenders often require years of demonstrated revenue (or other metrics) to diagnose the business's health.
With the modern ability to track daily sales, the traditional banking or debt financing metrics that lenders rely on are relics of a pre-Shopify era. Dan sees early-stage brands caught between extractive financing options and penalization based on traditional valuation metrics.
This is especially tricky as most financial institutions won't lend to brands doing less than a million in revenue even though getting to that million is when brands need the most financing.
Outgrowing Legacy Banks: Critical Lack of Tooling
Dan was unimpressed with the disconnect between the traditional business banking infrastructure and the new tools available to brands doing $10K within weeks of launch.
To get Portal to scale ASAP, Dan knew he couldn’t wait for a legacy bank to give him options – they needed to make the most of traction while they had it.
Because of how tightly managed the working capital cycle is for many brands, most would probably go under before the six-month mark.
Brands that don’t use Portal’s profitability approach from day one are between a rock and a hard place because starting brands these days is easy but scaling is difficult.
For Dan, once you get beyond the “one guy in the garage” thing, you’re stuck walking around and saying, "Who wants to help me grow this business?"
Most brands get a lot of "Thanks, but no thanks" from banking partners due to the relative nascency of financing products for businesses, from solo entrepreneurs to enterprise-scale companies.
To build a modern brand, we didn’t want to get stuck with finance tools from 30 years ago – legacy banks, specialty credit providers, and Excel.
Enter Highbeam: Banking Reimagined for Ecommerce
Recognizing the flaws of legacy financing, Dan saw a massive opportunity with real-time insights into revenue, spend, and cash forecasting using Highbeam’s banking platform.
Highbeam gave him the tools to use Shopify data and spend data to manage cash better, with the ability to forecast cash flow in real-time instead of running a rolling 13-week Excel sheet.
Dan shares that Highbeam allowed him to disaggregate the buckets of spend.
He could now see three months of consistent ROAS at 2-3x, then decide to spend more money to acquire more customers, all with a clear foundation for that decision. Easily accessible numbers present a defined return on spending that Dan can then underwrite outside of the consolidated financials of a business he would get from a credit bureau.
Unlocking that visibility with Highbeam means that Dan has greater insight into what he should be spending on based on what will generate a positive return.
With something as self-contained as buying ads on Facebook or Instagram, Dan can take that data out and see what it does outside of the business's health.
Having a detailed spend function and atomizing everything on a screen lets you make decisions based on individual levers rather than the enterprise.
Integrating that data into the banking system gives Dan close to perfect information to assess Portal’s financial health – something impossible in a traditional banking relationship.
The Outsized Value of Deep Banking Relationships
Dan emphasizes that he’d be remiss if he didn't shout out how much he appreciates the hands-on partnership between Portal and Highbeam.
Linking together all these discrete tools and applications is not painless, so the white-glove onboarding truly set the tone for Dan.
As a distributed team, Dan and his Portal co-founders had signed up for things at various times, under multiple names, and at different places.
Dan shares that they had trouble getting all of the ducks in a row, with the Shopify account name, the HighBeam account name, and where they were doing business all separate. They ran into a situation where Shopify wasn’t letting them attach new bank accounts because of a mismatch in information, but the team at Highbeam was immediately there to help.
Highbeam gave Dan and Portal stopgap cash while they were still trying to integrate, dealing with Shopify chatbots for hours a day trying to get through this blocker.
Highbeam’s visibility into the overall situation meant that Portal survived those two weeks without anyone having to bang their head against the wall or put more cash in.
For Dan, the personal relationship of building the brand in conjunction with getting onboarded helped save Portal when they needed to pay bills, and the cash was locked in one account.
This example proved to Dan that there are pain points in the early stages of brand building that don't always appear on a pre-launch checklist.
Being able to go back and forth and talk with someone, a real human, and work things out was a hugely positive experience.
How Highbeam Helps Portal Avoid Costly Mistakes
Dan emphasizes that he chose Highbeam because it’s built to help founders scale and grow their brands – all with an intrinsic understanding of the specific ecommerce landscape.
Portal needed the tools and a financial infrastructure that operated at the speed of ecommerce.
1. There’s No Such Thing as Free Money
Dan found that many startup brands can get confused by the available capital options if they don't have a finance background.
He saw brands taking 35% APR loans because the fee structure looked low. He stresses the importance of being thoughtful about taking money and how it impacts the bottom line.
He did some advisory work with other brands before launching Portal that informed him on the costs of taking the wrong partner or investor – it's a hole you can't climb out of.
He saw one brand take a $200,000 loan and have to pay 10% compounding monthly interest. It didn't matter how well the brand was doing; they were on a debt treadmill. Unintentional bad decisions like this can hamstring brands and their ability to grow from that moment.
2. Understand Your Capital Constraints
Dan sees many ecommerce businesses with no tangible assets outside brand identity and inventory. They are stuck borrowing against an ability to keep buying inventory and selling.
If you don't plan it right, you can take cash on offer without understanding it. All the free cash flow then goes to servicing debt, and there’s nothing to put back into the business.
If a brand stretches working capital too far, they’re at liquidation value. There's nothing left to save you if you run out of cash and inventory; there’s nothing in the business itself.
3. Flexibility is Worth Its Weight in Gold
Dan preaches the value of maintaining flexibility. He never wants to be in a position where Portal has to do X, Y, or Z simply because they need cash.
A common mistake is taking money from outside investors who have a board seat and then have a say and sway in what the brand does.
All too frequently, Dan sees board members push brands in a direction they didn't want to go in or move too fast to benefit the immediate top line.
As much as possible, you never want to be forced to make decisions that don't necessarily benefit the business's long-term health just to satisfy investors.
Preserving independence and flexibility is the real benefit of being thoughtful about economics from day one.