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DTC POD
#248 - Ben Tregoe, Bainbridge - The Cash & Funding Crashcourse For DTC
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1️⃣ One Sentence Summary
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"Ben Tregoe discusses smart funding strategies for direct-to-consumer businesses."
🎞️ Clipfinder: Quotes, Hooks, & Timestamps
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Ben Tregoe
00:05:23
00:05:34
"Startup Fundamentals: You got to think about capital as just another tool for your business and you also have to be planning ahead for, how am I going to get that capital?"
Ben Tregoe
00:07:08
00:07:20
"Keys to Business Profitability: And then you want to think through, how profitable can this business be, because that's going to directly determine my ability to generate my own cash. If I have a repeat purchase business, like a supplements business, I should have good repeat business out of that. And then the last thing to really think through is like, how can I shorten my cash conversion cycle as much as possible? The cash conversion cycle is literally you buy inventory from your suppliers, you put money out, and then there's this period of time when it comes into you, and then you sell it. And oftentimes people don't think through that well enough."
Ben Tregoe
00:14:03
00:14:14
"Fundraising Strategies for Startups: They're often buying into you, your vision. They're not going to hold you to a standard of a VC. I think crowdfunding is also really interesting because it oftentimes doesn't translate into equity and it gives you some really good signal on the viability of your product."
Ben Tregoe
00:19:20
00:19:24
"Business Financing Insights: Hands down the best source of cash is the cash you generate yourself."
Ben Tregoe
00:22:25
00:22:34
"Challenges of Building a Successful Brand: It took a long time. So the idea that you're like, oh, I'm going to stand up a brand and get to a billion dollars in like four years, that just doesn't happen."
Ben Tregoe
00:23:54
00:24:13
"Exit Strategies in Business: They're so big they don't have time to deal with it. They don't want to fund losses. So what they're doing is they're looking for evidence of dominance in a category that they're interested in and evidence that it'll work in their distribution network and then the fact that the thing can make money."
Ben Tregoe
00:34:45
00:34:50
"Effective Business Strategies: The key is matching. That's the thing that's often overlooked."
Ben Tregoe
00:35:06
00:35:11
"Understanding Loan Repayment Terms: The term in which you have to repay it matches your ability to use it."
Ben Tregoe
00:45:57
00:46:16
"Understanding Factoring in Business: So Factoring can be a terrific way as you build your omnichannel business to find that growth because everybody faces that problem, right? Like, I got an order from Target, we're going to kill it. And it's like, holy shit, I got to come up with like $2 million of inventory. Now what do I do? Right?"
Ben Tregoe
00:59:45
00:59:54
"Effective Business Growth Strategies: We're so confident that we're going to teach you something about your business that's going to make a difference and help you prioritize that. If we don't, we'll just give you the 5000 back."
🔑 7 Key Themes
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1. Different types of business funding paths.
2. Importance of generating cash for businesses.
3. Consideration of exit strategies for businesses.
4. Insight into the private equity business model.
5. Effective financial planning and debt management.
6. Overview of various types of debt.
7. The role of Bainbridge in capital optimization.
💬 Keywords
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Funding paths, Cash conversion cycles, Bootstrapping, Shark Tank funding, VC funding, Growth PE capital funding, Family offices, Debt financing, Equity financing, Business growth pace, Luxury goods, Business exit strategies, Strategic buyers, PE buyers, IPO, Supplier negotiation, Financial planning, Debt management, Asset-based lending, Venture debt, E-commerce analytics, Subscription management, Capital raising, Customer acquisition, Cash conversion, Inventory management, Product sourcing, Increase AOV, Factoring, Amazon's cash cycle.
Interview Breakdown
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On today's episode, we dive deep into the cash and funding crashcourse for DTC brands with our special guest, Ben Tregoe from Bainbridge. We explore the crucial role of generating cash, the challenges and opportunities of the funding paths, while leveraging your understanding of finance as a strategic tool in eCommerce.
In this episode, we'll cover:
- The fundamentals of launching a business and the varied funding paths, including cash conversion cycles, friends and family bootstrapping, and engaging investors.
- The insight on how to balance debt financing, equity financing, and generating cash to ensure the right capital strategy for your company.
- The importance of understanding your business' pace of growth, the complexity of exit strategies, and what makes a business attractive to potential buyers.
- A comprehensive overview of the PE business model, its advantages, risks, and the intense due diligence process.
- The role of the supplier terms and banking relationships on financing options, along with the significance of matching the use of borrowed capital to your business needs.
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📚 Timestamped overview
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05:06 Think of capital as a tool for your business, plan ahead to get it.
07:35 Business inputs, capital cost, product investment, cash conversion.
17:21 Different funding paths for business growth.
22:25 Building a brand takes time; plan your exit to attract investors.
23:37 Strategics buy profitable companies with dominance.
33:48 Maximize business by negotiating credit and matching.
34:50 Matching capital to repayment and usage.
41:49 Innovative product, asset-based lending grows in retail.
46:17 Brands going multi-channel, retail benefits. Cost-effective cash generation, interest rates affect businesses.
50:44 Higher interest rates impact cost of growth.
59:13 Engagement model offering business insights with guarantee.
01:00:42 D2C stack involves tools; Shopify lacks insight for business. Thank you for teaching about financing.
💼 LinkedIN - 6 Reasons Post
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❇️ Key topics and bullets
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1. Introduction
- Description of the Podcast and Hosts: Blaine Bolus and Ramon Berrios
- Guest Introduction: Ben Tregoe
2. Raising Capital
- Importance of Generating Cash for Businesses
- Different Methods of Raising Capital: Friends and Family, Investors
- The Linkage between Fundraising and Profitability
- Role of Customer Acquisition and Repeat Business in Cash Generation
- Cash Conversion Cycle and Inventory Management
3. Importance of Brand Building and Use of Capital
- Building Brands Slowly vs Rushing with External Funding
- Concept of Capital as a Tool for Business
- Prior Planning for Obtaining Capital
4. Bainbridge and their Services
- Overview of Bainbridge and its Offering
- Identifying Key Business Levers and Cash Generation
- Engagement Model of Bainbridge
5. Case Studies and Real World Example
- Increases in First Purchase AOV and its Impact
- How Amazon Achieved a Negative Cash Conversion Cycle
6. Different Financing Options
- Loans from Individuals, Revolvers, Revenue-based Loans
- Asset-based Lending (ABLS) and Factoring
- Link between Interest Rates, Valuations, and Cost of Capital
7. Understanding the Cost of Capital and Its Impact
- Interest Rate Influences on Small Businesses
- The Expense of Growth with High Capital Costs
8. Amazon's Cash Conversion Cycle
- How a Negative Cash Conversion Cycle provides more Control and Flexibility
9. Advantages and Disadvantages of Various Financing Options
- Friends and Family and Crowdfunding
- Dangers of Personal Debt and Running to Institutional Investors
- The Need for Scalability with VC Funding
10. Closing Remarks
- Encouragement to Focus on Product Testing and Natural Expansion
- Guidance on Funding Options based on Individual Business and its Goals
- Contact information for Bainbridge
🎬 Reel script
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"Hey all, Blaine Bolus here from DTC POD. We just wrapped an enlightening episode with Ben Tregoe from Bainbridge, who shared golden insights about cash and funding for DTC businesses. We discussed how to attain the right balance of debt and equity financing, the value of cash generation, and how to attract the right type of investors. Ben shared Bainbridge's mission of linking data and finance to help e-commerce leaders optimize their outcomes. If you want to learn more about the shift in the funding landscape and how to manage your cashflow effectively, catch this episode today!"
✏️ Custom Newsletter
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Subject: New DTC POD Episode – Money & More: The Cash & Funding Crash Course with Ben Tregoe
Hey there, DTC POD listeners!
We've got an enlightening episode (#248) lined up for you all about the money side of business. Our dear hosts Blaine Bolus and Ramon Berrios will be getting the nitty-gritty about funding and cash generation in a truly insightful chat with Ben Tregoe from Bainbridge. Trust us, you wouldn't want to miss this one!
Here are the five key takeaways you will learn from this episode:
1) How to balance various sources of funding – from debt financing and equity to active cash generation – for optimal business capital;
2) The specific allure of different types of buyers (strategics, PEs, or IPOs) and aligning your business model for a suitable exit strategy;
3) The intricate details of the PE business model and its preference for companies that show growth potential and generate free cash;
4) Understanding venture debt and how it gives access to budding businesses with venture capital funding;
5) The effective ways to shorten your cash conversion cycle and strategically manage your inventory.
Fun Fact from the Episode: Did you know that Amazon once had a negative cash conversion cycle? They got paid before they even bought their inventory! Ben Tregoe dives deep to speculate how Amazon might have pulled off this mind-boggling feat.
As always, we wrap it up with Blaine and Ramon introducing some incredible e-commerce tools: Peel Insights and Recharge. These resources will give you the statistical insight and the means to nail down a lucrative subscription system for your business!
Before we sign off, one cliche (because it holds true!). Money isn’t everything, but understanding how it works in the world of business sure isn't something. Whether you’re gearing up to launch your business or looking to learn something new, this Cash and Funding Crash Course with our pro guest, Ben, is a solid gold listen.
Ready to master the cash game? Check out Episode 248 on our podcast today! Remember to subscribe to DTC POD, drop a review if you like what we're doing, and share your top takeaways with the community.
Until the next one,
[Your Name]
P.S. Don’t forget to engage with our community online via Instagram, Twitter, and Facebook. Catch all the latest updates on upcoming episodes, learning resources, and exclusive content! Let's keep the conversation going!
🐦 Business Lesson Tweet Thread
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1/ Ever wondered how early-stage companies get their hands on cash to fuel business growth? Let's have a chat about raising capital, shall we?
2/ Consider cash as another vital tool. Operating without it is like attempting to build a house with your bare hands.
3/ When you're just starting, often it's friends & family pitching in, or maybe even brave enough to enter the Shark Tank. It sure test your pitch skills.
4/ Legend has it, every start-up's dream is to generate its own cash. It's like having a golden goose - so if you can, always spin that wheel.
5/ But striking that perfect goldilocks zone where debt, equity, and cash meet, that’s when you've struck a balance truly beneficial for your company's growth.
6/ And remember, one size doesn't fit all when it comes to growth pace. Different businesses have different speedometers - some require decades, others just a few years.
7/ Considering an exit? Better put on that irresistible charm for potential buyers, be it strategics, PEs, or the tantalizing IPOs.
8/ Strategics are all about profitibility and dominance, while PEs focus on potential for growth. Public markets? Well they're a sort of rollercoaster ride.
9/ Ever hear the PE business model? They raise funds, borrow the rest, buy companies, and look for high returns. Think of it as a high-stakes game of Monopoly.
10/ Through all this, building a strong banking relationship is your safety net, it can enhance your reputation and better your financing options.
11/ Adopting smart financing strategies, such as revolvers a.k.a. credit cards, can be a useful tool in the game of capital borrowing and repayment.
12/ Imagine having a pot of gold and never using it. It's the same with capital. Sitting idle, it churns no profits but keeps charging interest. Use it, don't lose it.
13/ Sometimes, borrowing capital is like a puzzle - you gotta match use to repayment period and capacity. Get this right & you're on your way to being a financial whizz.
14/ And remember when we talked about striking the perfect goldilocks zone? Overbearing debt could suffocate growth & trap businesses in vicious cycles. So tread carefully, my friends.
15/ Then there are options like asset-based lending & venture debt. Each has its own nuances & requirements. It’s like choosing a dessert - depends on your preference & capacity.
16/ All in all, the dance of money, business and growth is delicate & complex. But with a bit of skill, a dash of knowledge, and a pinch of experience, it's a waltz anyone can master.
17/ That's all for today folks! Remember, think of capital as your tool, find your Goldilocks zone, build strong relationships and be mindful when borrowing. Good luck & may the cash be with you!
FIN
🎓 Lessons Learned
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1. "Diverse Financing Paths"
Explore diverse financing paths including bootstrapping, friends, family, VC funding, and PE growth capital.
2. "Capital Generation Basics"
Driving your own capital generation is ideal, providing control and opportunity for growth.
3. "Strategic Exit Consideration"
Plan strategically for exits, considering company type, potential buyers, and market conditions.
4. "Borrowed Capital Management"
Matching borrowed capital use to repayment ability enables solid financial planning and avoids unnecessary expenses.
5. "Strategic Debt Usage"
Using debt strategically helps support growth without becoming trapped in debt servicing.
6. "Understanding Capital Costs"
The cost of capital should align with a company's potential to generate future cash.
7. "Exploiting Supplier Terms"
Negotiating supplier terms can provide additional financing, boosting credit terms, and enhancing business relationships.
8. "Venture Debt Insights"
Venture debt is a finance option for venture capital-funded businesses that underwrites the sponsoring venture capital.
9. "Importance of Cash Conversion"
Shortening the cash conversion cycle is key to effective inventory management and stable business growth.
10. "Growth Through Cash Generation"
Prioritize cash generation and profitability to ensure business growth and attract potential investors.
💎 Maxims
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1. Generate cash yourself - it is the best source of funding.
2. Balance is key - Consider a mix of debt financing, equity financing, and generating cash to determine the right amount of capital for your business.
3. Growth is not a race - The right pace of growth is tailored to the founder's vision and goals, not a predetermined timeline.
4. Define your attractiveness - Understanding the type of business you own and its appeal to potential buyers is essential when preparing for an exit.
5. Be careful with debt - Borrow only when required and remember that taking on too much debt can stifle business growth.
6. Relationship building is fundamental - Create strong bonds with suppliers for access to valuable capital sources and improve financing.
7. Match financing with business needs - Don’t hold capital unnecessarily, and align the use of borrowed capital with your repayment period.
8. Don’t fear the interest rate - Focus more on getting enough money to achieve your business goals; the interest rate is often of secondary importance.
9. Be savvy with capital - Make thoughtful choices about your borrowing tools, recognizing the potential value of revolvers.
10. Understand the value of your assets - Asset-based lending evaluates inventory value and provides loans based on this, making it a useful tool in certain circumstances.
11. Get to know your customer - Generate cash through repeat business and effective customer acquisition.
12. Embrace slow growth - A slow-building, cash-led approach is often better for brand-building than rushing with external funding.
13. Learn about your business - Comprehensive understanding of your enterprise, including cash conversion cycles and unit economics, is vital.
14. Make the most of your orders - Orders from big retailers can be used as collateral in factoring to generate cash.
15. The cost of capital must be considered - Understanding how interest rates, company valuations, and the cost of capital interact will strengthen your business acumen.
16. Aim for a negative cash conversion cycle - If possible, consider a business model where you get paid before buying inventory, just like Amazon.
17. Validate through crowdfunding - This financing option can provide not only funds but also market validation.
18. Be hesitant about venture capital - They require outsized returns and significant scalability, which may not be suitable for all businesses.
19. Bootstrap your way to the top - Gradual growth provides an opportunity for product testing and organic expansion. Use the funding options that suit your business and its unique needs.
🌟 3 Fun Facts
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1. The concept of the cash conversion cycle is interesting as it reveals that the ideal cycle is usually less than 90-60 days and a negative cash conversion cycle could be advantageous, as shown by Amazon.
2. Venture debt, a form of funding available specifically to businesses that have already received venture capital backing, underwrites not based on the company, but rather the sponsor and their access to venture capital.
3. Factoring is a financing method that uses orders from large retailers like Walmart and Target as collateral for loans, providing a creative way to generate cash as brands grow and form partnerships.
📓 Blog Post
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Title: The Funding and Cash Flow Recipe for Successful Direct-to-Consumer Brands
Subheader: An enlightening conversation with Ben Tregoe from Bainbridge on funding strategies, cash flow management, and scalability for DTC businesses.
**Understanding Funding and Cash Flow in Business**
In the 248th episode of DTC POD, Hosts Blaine Bolus and Ramon Berrios have an enlightening conversation with guest Ben Tregoe of Bainbridge. The key takeaway is that generating cash yourself is the best source of funding. When considering sourcing capital, it's critical to think about the balance between debt financing, equity financing, and cash flow. Ben urges brands to consider capital as a strategic business tool, securing enough to achieve business goals even at high interest rates.
**Key Principles of Growth and Fundraising**
A crucial part of the discussion centered on understanding the growth pace that aligns with a founder's vision for the business. Raising capital is not a one-size-fits-all strategy and it largely depends on the individual business and its goals. Crowdfunding, bootstrapping, and obtaining funds from friends and family are some of the feasible ways that businesses can grow without running into the arms of venture capitalists too early.
Moreover, Ben emphasized the importance of generating cash and profitability to draw investors. Businesses need to prioritize repeat business and fruitful customer acquisition as these are vital for cash generation.
**Neglecting Cash Conversion Cycles: A Common Mistake**
Ben stressed the importance of shortening the cash conversion cycle and managing inventory effectively. He advised against relying heavily on popular DTC brand tools like Shopify without a broader understanding of the business. Ideally, the cash conversion cycle should be less than 60 to 90 days. Turning cash quickly can spur growth and diminish the need for fundraising.
**The Power of External Financing Options**
For DTC brands seeking alternative sources of funding, Ben explained various strategies such as revenue-based loans, revolvers, Asset-Based Lending (ABL), and factoring. The latter can be a cost-effective approach for brands that have established retail partnerships to generate quick cash flow. However, understanding the link between interest rates, company valuations, and the cost of capital is key.
**Conclusion: Future-Proof Your Business with Effective Cash Flow Management**
Further insights from Ben showed that understanding which levers to pull in each business is crucial and proper cash flow management can provide more control and flexibility especially in uncertain economic times. Ben's engagement with Bainbridge Growth ties this all together, where they provide a phase one analysis costing $5,000, teaching brands about their business and helping them prioritize actions. In a world where the cost of growth becomes exorbitant when capital costs are high, controlling your cash generation can truly be a game-changer.
To connect with Bainbridge for data and finance guidance and other value-added services, visit their website at bainbridgegrowth.com or find them on Twitter and LinkedIn.
🎤 Voiceover Script
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"In episode #248 of DTC POD, Ben Tregoe of Bainbridge gifts us a crashcourse in cash & funding. Unmasking the intricate balance between equity financing, debt financing, and generating cash, Ben stresses that the focus should be on generating cash ourselves being the superior funding path. The episode discusses tips to attract potential investors and buyers, the importance of matching financing with business needs, and a sound understanding of cash conversion cycles. Furthermore, it highlights the critical role supplier terms play as a source of capital, alongside the need for personalized strategic business growth."
🔘 Best Practices Guide
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In this DTC Podcast episode, Ben Tregoe offers insights on effective funding and cash management for businesses. Success requires balancing debt and equity financing and generating cash. Key strategies include bootstrapping, borrowing wisely, and maintaining relationships with suppliers and banks. Avoid holding unused capital and minimize the cash conversion cycle (ideally 90-60 days) by optimizing supply chains and inventory. Grow at a pace guided by your vision and validate your business through funding avenues like friends, family, and crowdfunding before moving to VC funding. Use lenders like ABLS or factoring when necessary. Lastly, emphasize cash generation and profitability to attract investors. Regardless of the method used, align your financing choices with your business goals for optimal growth.
🎆 Social Carousel: Do's/Don'ts
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Cover Slide: "10 Golden Nuggets for Successful Business Financing"
1. Slide 1
Title: "Avoid Rushing"
Advice: Rather than seeking investment hastily, build your brand slowly using generated cash.
2. Slide 2
Title: "Don't Over-Borrow"
Advice: Match your financing with business needs to avoid stressing growth with unnecessary debt.
3. Slide 3
Title: "Don't Neglect Suppliers"
Advice: Instead, negotiate for better credit terms and increase business; it can serve as capital.
4. Slide 4
Title: "Avoid Idle Capital"
Advice: Deploy your capital effectively; unutilized capital can attract unnecessary interest charges.
5. Slide 5
Title: "Not Just Interest Rates"
Advice: More than interest rates, prioritize generating capital to reach your business goals.
6. Slide 6
Title: "Don't Overlook ABLS"
Advice: Asset-based lending can provide loans based on your inventory; it’s a potential capital source.
7. Slide 7
Title: "Beware Quick Exits"
Advice: Contemplate your business type before deciding an exit; strategics, PEs, IPOs all have different needs.
8. Slide 8
Title: "Avoid Undue Debt"
Advice: Focus on turning your cash quickly (ideally in 60-90 days max) to minimize fundraising.
9. Slide 9
Title: "Don’t Ignore Equity"
Advice: Bootstrap, then grow gradually, allowing for natural expansion and testing before hitting up investors.
10. Slide 10
Title: "Not Only VC Funding"
Advice: Crowdfunding and other alternative forms can provide funding while also serving as market validation.
🎠 Social Carousel
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Slide 1:
"10 Funding Insights Every Entrepreneur Needs to Know"
Slide 2:
"Self-Funding"
Generating cash yourself is the most reliable and effective source of startup funding.
Slide 3:
"Balancing Finances"
Debt financing, equity financing, and internal cash generation must be carefully balanced for success.
Slide 4:
"Growth Pace"
The speed of company expansion should be determined by the founder's vision and strategic goals.
Slide 5:
"Exit Plans"
Determine your exit strategy keeping in mind your business type and potential buyers - strategics, PEs, or IPOs.
Slide 6:
"Supplier Relations"
Negotiate better terms with suppliers, this can inadvertently serve as an additional source of capital.
Slide 7:
"Debt Dangers"
Excessive debt halts growth and restricts businesses with burdensome debt servicing obligations.
Slide 8:
"Venture Debt"
This lending pillar is only accessible for businesses that have secured venture capital funding.
Slide 9:
"Cash Conversion Cycle"
Shortening this cycle and managing inventory effectively improves cash flow and company liquidity.
Slide 10:
"Raising Capital"
Focus on generating revenue and profitability first before seeking external investment opportunities.
Slide 11:
"Next Step: Connect!"
Join Ben Tregoe from Bainbridge for more insights! Visit www.bainbridgegrowth.com
One Off Tweets
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1. Your company's growth pace should echo your vision as a founder. Fast isn't always better. Steady and thoughtful growth can last for decades.
2. Capital is an extension of your toolbox. Plan ahead on how to generate it and watch your business thrive.
3. Your best source of funding? You. Generating cash yourself shows investors you know how to be profitable.
4. Repeat business is your key to cash generation. Keep customers coming back and let them fuel your growth.
5. Too much debt can be a growth trap. Manage your finances wisely to avoid being buried in repayments.
6. When considering an exit, ponder upon what makes your business appealing. Is it your profitability, growth potential, or dominance in the market?
7. Supplier negotiation is a hidden source of capital. Don’t ignore it. Improved terms mean more money in your pocket.
8. Crunching growth numbers without understanding the business is like sailing without a compass. Don't get lost in the sea of e-commerce. Use data and financial insights to navigate.
9. Brands flourish at their own pace. Luxury goods space; for instance, has seen brands grow steadily over decades. Patience is a virtue.
10. Are you ready for the public market? It's not always the big win you imagine. Prepare for unpredictable weather on this wild ride.
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