Ep. 3: Jarrod Souza | Increasing Profitability as Founder CEO

October 13, 2022 | 24 Min Read

A Little Bit About The Host

Richard Shaull is a husband, father, and visionary. Growing up in a family of entrepreneurs, he got bit by the "entrepreneurial bug" at a young age and has been involved in starting and running multiple businesses since.

After two of his businesses nearly killed him, Richard made it his mission to ensure other entrepreneurs didn’t go through the same struggles alone. To do this, he co-founded Unleashed, which helps match Founder CEOs with a 2nd-In-Command who can execute their vision, fast, risk-free, and with a clear ROI.

Richard is passionate about helping other business owners go from playing "Chief Everything Officer" to an Unleashed CEO and lead a tribe of 10,000 CEOs and 2nd-In-Commands who build a wealthier future and the world’s best workplaces.

Don't Have Time to Listen? Read The Full Transcription.

Editor's note: This transcript has been edited for readability. 

[Theme music plays]

Richard: Hello, and welcome back to the Becoming Unleashed show. We are so excited that you are here, and even more excited to share today's content with you. Here at the Becoming Unleashed show, we believe that entrepreneurs and founder CEOs build a better future and the world's best workplaces when they are empowered to get free from the day-to-day so they can focus on growth. 

In today's episode, I interview my friend and co-founder, Jarrod, of CFO Expertise, where he talks about the unique tactics and strategies he's found as a fractional CFO and advisor to entrepreneurs when it comes to maximizing profitability. If you're an entrepreneur who wants to scale with more bottom line profits, tune in because today's episode is definitely going to help.

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Welcome back to the Becoming Unleashed show. I'm here today with my friend and fellow founder, Jarrod Souza. What's up, Jarrod?

Jarrod Souza: Hey man. How are you doing?

Richard: I am super stoked to have you on the show. Just to introduce our audience to you a little bit, I know you're a seasoned CFO. You've worked for some of the biggest brands out there in our market, in our world. You're the self-proclaimed “Financial Sherpa” for eCommerce brands. I don't even know what that means, but that's really fun.

Jarrod Souza: That's the point of it, like, let's get into conversation. Let's talk about what that means, right?

Richard: Yeah, man. So you've got a wealth of knowledge working with all sorts of brands, but especially brands in the e-commerce space. And one of the things I really love about you, Jarrod, is that you think like an entrepreneur, which is not necessarily how some financial professionals think, right? Actually, you consider what it takes to scale a company entrepreneurially, as well as what factors increase a company's profitability. And so I'm really excited to talk about that and dig into that with you today. By the way, I don't even know if I've asked this question, but did you fall into finance? How did you become the "Financial Sherpa"? What's the origin story here?

Jarrod Souza: Oh, man. I love that. It puts a smile on my face. I would say kudos to Clay Hebert. I don't know if you know him, but he did a TED Talk on the perfect intro. And so that's where I kind of pulled some of that out of, so yeah, the financial Sherpa for e-commerce brands, man. That's my intro.

So, I went to school, got a business degree, worked for a few companies, did finance more on the lending side and in the transportation industry. And then I went back to school, got my MBA, and now I have a different perspective on that kind of education. But that's the progress of my life.

I worked for a family company that was in the energy industry; I did financial work there. And then from there, that's when I went into a direct-to-consumer e-commerce brand. I knew all of the financial background, but really grew in my experience not only in the financial aspect, but the data analytics. So this is the non-financial data that you need in e-commerce to actually grow your brand.

With that company, we scaled from four to 40 million dollars in about four years. I mean, it was like ... we ran hard. It was fun, but we ran hard. And then from there, I became the CFO at Michael Hyatt and Company, eventually. That's what got me out to Nashville. And I had the epiphany that I wanted to start my own firm. I just felt like I could help out more entrepreneurs and serve them in a capacity that could really open their eyes and get a clearer vision of the strategy that it's going to take to accomplish their goals, right?

Richard: Mmhm.

Jarrod Souza: So in a nutshell, that's kind of the journey that got me here, man.

Richard: I love that. ‘Financial Sherpa’! All right! The origin story is complete. I guess, Jarrod, one of the things we were talking about before this episode started that I'm so excited to take our listeners into is understanding the difference between financial management and what it actually takes to scale a business. And I see a lot of entrepreneurs who don't understand the financial expertise, as you said, or the data analytics required to actually get the insight they need to scale their company. What would you say are some of the biggest kinds of misnomers or mistakes that you see being made from your perspective that prevent companies, especially entrepreneurial companies, from scaling?

Jarrod Souza: Yeah, I would say a cadence in knowing your numbers, right? So whether that's weekly or monthly, I mean, at a minimum, monthly, right? What I mean by that is not just your financial numbers, but what's your customer lifetime value, what's your customer acquisition cost, how much is your email list performing, right? So all of these things feed together, and that then leads to what ends up on your P&L, right? So these are the non-financial metrics that affect your financial metrics. And you need a way to connect those. But I see a lot of companies that don't.

Richard: Dig into that for a second, because there's gold there, right? You said there's the non-financial metrics and then there's the financial metrics, but connecting those, getting those connected, what do you mean by that?

Jarrod Souza: So, for example, a financial metric would be your gross margin, right? cost of goods. And I don't want to use all these accounting terms. I'm probably one of the few CFOs that doesn't actually like accounting. It's very black and white. So I'm like an FP&A data analyst on that side of it. But you have to have accounting in there, right? It's a necessary evil. But you've got your gross margin. You've got your G & A, you've got your lean overhead, but then you have your selling expenses. So one of the two most important things is, one, knowing your gross margin. Knowing that if your gross margin is 90%, every dollar you make, 10 cents is already gone, right? You're only making 90 when you're forecasting.

But then also digging into customer acquisition costs, because that's going to affect that next level on your P&L, and that's how we structure P&Ls; cost of goods sold, selling expenditures, and G&A, which is your fixed overhead. So within that selling expenditure, that's where e-commerce brands can make or break, right? If your customer acquisition cost is going over what your customer lifetime value is, then you're just flushing money down the drain, right? So the most important metric to understand is your customer lifetime value because it establishes the parameters, or bumpers, for how much you can spend to acquire customers. 

Richard: Yeah, And I think one of the things that you just said that a lot of people don't catch and understand is that knowing your numbers gives you leverage because it allows you, as you said, when you've connected what you want, which might be more profit, more gross margin, to something that you can actually control, like customer acquisition cost, or even getting really granular, right, opt-in rate, abandoned cart, there's all of these other much more targeted data analytics that you have so much more control over, that when you know where the bottlenecks are, when you know where the things aren't hitting benchmarks, you can immediately prioritize, lean in, and exert massive leverage over your lagging results via the right leading indicators.

Jarrod Souza: Yeah, that's exactly right! And at the end of the day, somebody once told me that numbers are friendly, right? But if you don't know your numbers, how can you pivot, right? Anyone who scales understands that you are not scaling in a straight line, right? It's like the flight to the moon; you have to pivot almost every week, right, and make corrections. But if you don't have those numbers in front of you, then you're just kind of going by your gut. And most entrepreneurs have a good gut feeling, but it can only last so long, right?

Richard: Mm-hmm.

Jarrod Souza: You combine that with data and you become like Superman or Superwoman.

Richard: In the words of Lil Wayne, "People lie, numbers don't," right?

Jarrod Souza: Did you just pull out Lil Wayne? Yes.

Richard: There's so much truth in that statement though, because we even lie to ourselves as entrepreneurs, right?

Jarrod Souza: Yeah.

Richard: We tell ourselves stories. It's one of our superpowers, right? We can tell stories, convince the market, convince customers about what could be or what should be. The danger in that is when we start telling ourselves stories, or we start telling our team stories, and we don't dig into the data and the facts as well. And I'm guilty of this as an entrepreneur.

Jarrod Souza: Yeah, let me give you an example that's non-financial, right? So when I was serving as the CFO for the company, our customer service manager would come in, and he'd just be like, "The wheels are falling off. We're having this number of complaints about this issue with our product. " And then we'd dig into the data, and we're like, "Well, this is only like 0.5%.” It's not even 1% of our customers that are complaining about this, right? But in his mind, because that's all he's hearing. And then you take a step back and you look at the data. You're like, "Oh. No, we can overcome this, right? It's not as big of an issue.” But if you didn't know the data, then everybody else would've just been flying around the room trying to fix the issue, right?

I think the other piece too, is that a lot of people avoid that financial aspect because of almost not knowing the right answer and just kind of fear of not knowing. If you don't know what's really happening, you don't really have to address it. But then comes a perpetual problem, right?

Richard: Yeah.

Jarrod Souza: Anyways, I like talking about finance anytime, and I try and open up that bridge, a sense of trust, with people like, "Man, let's just talk about it." Tear the Band-Aid off. Every business owner has issues within their company, right? We're all the same. So we just dig in and fix it.

Richard: That's so key man, too. I love one of my mentors who says nothing can change until the unspoken is said.

Jarrod Souza: Yeah.

Richard: And I think for a lot of entrepreneurs, it starts with admitting certain things to yourself, but then it also has to carry over into being willing to be honest with someone. And I think, especially in the realm of finance more than anywhere else, entrepreneurs struggle to be vulnerable. And I'm not telling you as an entrepreneur you should air your woes to the world, social media, or even certain departments or areas of your team. What I am saying is that you need some people you can trust when it comes to this area.

If you actually want to increase profitability as a founder, you have to start by being honest about the issues with yourself and with the right key advisors. And I think that's where having someone like a CFO or a board of advisors who are financially-minded, or a second in command who is financially-minded, gives you that sounding board of somebody you can actually go dig into the numbers with, get really real, get really honest about. And as a result, take really informed action to solve the issues and move towards your goals.

Jarrod Souza: Yeah, for sure. And even kind of piggybacking on that, Richard, in what you guys provide in second and command is somebody that can strategically advise you, right, because some CEOs don't really know the decisions they should make. Then it's my job to come in and say, "Well, this is why you should go down this route," and back it up with data. Do you know what I mean? And that brings us to kind of the beginning part of our conversation, how to scale. It's a multi-pronged approach, right? There are the three pillars, like foundational pillars, sales and marketing, operations, and finance, right across businesses. Most people focus on sales and marketing, right? They kind of put the other two on the back burner. And then it's like, "Well, we need to know how we're doing financially, so they'll invest in that."

But then they're soaring. But if you can't supply this service or product to your end-users operationally, right? They all have to work in synergy with each other if you want to properly scale. I mean, I've seen it a lot where people want to scale, they're scaling folks on sales and marketing, and then we'll come in financially and have to clean things up. But then, operationally, there's not enough in customer service, and they don't have a supply chain, right? And then all of a sudden, they can't serve their customers, and you really start to see the customer lifetime value be affected there because it affects their brand, right?

Richard: Let's just get real, right? There are a lot of flash in the pan companies and founders and gurus who, I see their ads right now, or I see their success stories on Instagram.

Jarrod Souza: Are you going to call anybody out? I'm waiting.

Richard: I'm not going to call anybody out by name.

Jarrod Souza: I know.

Richard: I will say this: most of the time, those founder-led companies that grow so fast and scale so fast, I've been behind the scenes, and you have two of those businesses. Their operations are a dumpster fire, and they are not nearly as profitable as you would think. I have been behind the scenes of eight-figure companies that massively grew, 400X in a year and then 300X the next year, and their net income is pitiful, right?

Jarrod Souza: Yeah.

Richard: You just start to ask questions like, "Man, this is almost just ego and vanity growth?" Right? Where you're telling yourself a story, "We're growing. We're scaling." Well, no, you're not actually. I think there's a critical distinction to be made between top-line growth and actual scale. And scale means that you are able to achieve exponential growth in revenue without a corresponding increase in cost, which results in a similar or better margin or net income, whatever metric you want to use. That's actually what scaling is. And most people, when they think of scaling, they just think of the top line, especially entrepreneurs. But at the end of the day, you're not scaling unless you've addressed all three of those things you just talked about.

Jarrod Souza: That's right. If you want to know what one of the biggest lies is... and eCommerce brands, online brands don't really care about this too much, but brick and mortar used to write the Inc. 5000 list. It's a vanity metric. It's based on top-line revenue. I know people on that list that were in the Top 100 that were on the verge of bankruptcy because they were not profitable, but they're holding the trophy up in the air, right? That stuff drives me crazy when it gets touted, because like you just said, it's a vanity metric. They're not in a healthy position, right? So when you talk about scaling, it has to be in a healthy way if you want it to continue for years down the line. Some entrepreneurs don't want to scale, right? They want the lifestyle brand. And so whenever we approach that, it's like you have to align the strategy with the goals of the entrepreneur, right? You have to listen to and see what they actually want out of their business.

Richard: So good. On that note, Jarrod, if you were consulting a listener, right? Let's say there's somebody who's part of our community, and they're like, okay, "I hear you guys. I want to scale, but I want to do it the healthy way. "

Jarrod Souza: Yeah.

Richard: What are a couple of the most important things for them to be thinking about or pressing into when it comes to this conversation, increasing profitability? What would you highly recommend the questions they should be asking or the actions they should be taking to start to move towards health?

Jarrod Souza: What are a couple of the most important things for them to be thinking about or pressing into when it comes to this conversation, increasing profitability? What would you highly recommend the questions they should be asking or the actions they should be taking to start to move towards health?

Yeah, my number one aspect is a strong financial foundation. What I mean by that is, make sure you're on the right accounting method, right? If you have a physical product, you have inventory, you have to be on an accrual basis, all of that stuff, right? You have to know your gross margin, which is your bottom line. From there, you have to know the kind of individual product, like KPIs like I talked about, customer acquisition cost, customer lifetime value, so know these baseline metrics. And you can do that from a macro level, right?

I create dashboards for my clients on a macro level so we can spot the trend. And then from there, you start forecasting and plugging numbers in. And it's like, okay, well, if we scale to this point, how do we serve these clients? We're going to have to hire more people, right? So you get some labor efficiency ratios. And you start by just drawing out the whole picture to see if it's worth it, right? Is it worth it to go after this? How much is it going to cost us? What's the risk? What if it doesn't work, but we've spent this on marketing and hiring, right? And you can start playing with the numbers, and then you have a more informed decision, right, and strategy. And if you're not hitting what's on the roadmap, you can pivot, right?

So having that roadmap, being able to pivot, but going back, man, it's having that strong financial foundation and specific KPIs, like I said, customer lifetime value, customer acquisition cost, labor efficiency ratio. If you need a lot of employees to serve your clients, you have to make sure, like you said, you're not scaling but you're not increasing your bottom line. You're just scaling the top line. At the end of the day, nobody wants that, right? People talk about scaling, and that's what's in their mind is just scaling top line revenue, but then you get there and you're like, oh, this isn't what I signed up for, right?

Richard: So true. So true, Jarrod. Well, man, that's a really good insight. And I know for myself personally, I'm more committed to health than ever before, across all departments of our business. And I know today's conversation was super insightful for many people who were listening on that note. Jarrod, if somebody wanted to get in touch with you, they might want to tap into your expertise, especially if they're a D2C or e-commerce brand. How can they find you online?

Jarrod Souza: Yeah, you can just go to www.CFOexpertise.com. Right there on the front page, I've got a “Schedule A Call” button. So yeah, you can just book an appointment with me, and we can get on the phone and have a discussion. I always like talking to people. So, even if you only have questions, I can provide you with insight or value, so book it. We'll get on a call.

Richard: That's awesome. All right. And then the last thing we're going to do is end with what we call our "lightning round," which is just a couple of sometimes silly, sometimes insightful one-sentence-answer questions that you've got to answer in rapid fire. Are you ready?

Jarrod Souza: I don't know, man. I mean, I guess so. We'll go for it.

Richard: Here we go.

Jarrod Souza: But I am not prepared for this.

Richard: What are you most excited about in the years to come?

Jarrod Souza: In the years to come, I think what we just ... oh, it's one sentence?

Richard: One to two sentences.

Jarrod Souza: Oh, okay. I'm rebranding my company from CFO Expertise to The Scale Method.

Richard: There you go. That's a good one.

Jarrod Souza: I'm looking forward to that. Yeah, yeah, yeah.

Richard: Favorite movie. Best movie ever made.

Jarrod Souza: Usual Suspects.

Richard: Ooh. Okay. And pizza topping, what's your go-to?

Jarrod Souza: Pepperoni and mushroom.

Richard: Ooh. Okay. What's something you do as an entrepreneur that drives your team crazy?

Jarrod Souza: Oh man, when I'm thinking about how to analyze data, I'll create a new spreadsheet, and then I'll just file it away. Then I'll create a new spreadsheet. So now we're talking about processes. I mean, we're getting completely honest.

Richard: Oh man. I just did that with Google Docs. Just do that with Google Docs, not spreadsheets. But we're on the same page there. Well, Jarrod, thank you so much for our time together today. Thank you for your insight, expertise, and wisdom. And we really appreciate having you on the show.

Jarrod Souza: Brother, it was great. Anytime. I appreciate you having me on.

[Theme music plays]

Richard: Wow. What a fantastic conversation with Jarrod today! And I hope that you are able to take this and apply it to your business to maximize profitability. Now, listen, we do this free of charge as our gift to you to invest in you as a founder and CEO. What you can do in return for us, if this content has helped you, is to like it on whatever platform or subscribe to it on whatever platform you're on, and also share it on social media. If this content impacted you, be sure to share it with others who it could impact as well. And if you do share it, we'll often see it and repost it, maybe interact with you a little bit on social media.

Also, please be sure to leave a review on whatever platform you're on of the show, and that would help us get this message out further to more founder CEOs and entrepreneurs. It is such an honor to serve you. Go make a difference, entrepreneur and visionary. And we can't wait to help you again with the next episode.

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