Reformers [Episode 7]: Michael Martocci, SwagUp

The founder & CEO at SwagUp shares his thoughts on optimizing your Cash Conversion Cycle, tracking efficiency metrics, and the need for founders to adapt their roles and responsibilities over time.

For our seventh episode of Reformers: The gritty details behind the world’s greatest bootstrap successes, we are excited to share our interview with Michael Martocci, the Founder & CEO at SwagUp, which is the leading provider of swag packs to startups, corporations, investment firms, and universities. For as long as Michael can remember he’s been infatuated with entrepreneurship, having started numerous businesses (including one with former NFL punter Steve Weatherford) before ultimately launching SwagUp in 2017. In just four years since its founding, SwagUp has grown into an organization consisting of over 150 employees and eight-figures in revenue, all without raising any outside equity capital. In this interview, Michael shares his key insights and lessons learned that can be implemented in your own business. You can listen to the full interview here:

Cash Conversion Cycle (CCC) is king

Most founders are in awe to learn that companies like RXBAR and Spanx were able to grow so large without ever raising outside capital. In Michael’s point of view, the key ingredient that enables such scale while bootstrapping is optimizing your Cash Conversion Cycle (CCC): the better your CCC, the more likely you’ll be able to grow capital efficiently.

When managing your CCC, there are three key questions you must know the answers to at all times:

(1) How long does it take you to pay your suppliers?

(2) How long does it take you to get paid by customers?

(3) How long do you hold inventory for?

As a founder, you should strive to minimize the length of time in (2) and (3), while simultaneously maximizing the length of time in (1). Put into formula, your CCC = (2)+(3)-(1). The closer you can get to a zero (or even negative) CCC, the more free cash you’ll have to reinvest in the business before it comes time to pay your suppliers (which will enable capital efficient, non-dilutive growth).

“The great thing about having a negative CCC: as you get bigger, you get even more cash. A negative CCC at a $10M run rate will yield 10x more cash than at a $1M run rate.”

Michael points out that founders should not expect to get great payment terms with suppliers early on. It will take a few rounds of (increasing) orders and completed payments to build credibility with your suppliers, which will result in them providing you with better payment terms over time.

Additionally, depending on your end customer, it may be difficult or even impossible to have a negative CCC. For instance, if you’re selling to SMBs or consumers, you usually get paid quickly or even immediately. However, if you’re selling to large clients (e.g. Walmart), they tend to pay more slowly because they have more power to do so. You can see below for Michael’s full Tweetstorm on the topic.

Michael Martocci’s Tweetstorm on Cash Conversion Cycle (CCC)

Efficiency metrics as north stars

In addition to Cash Conversion Cycle, SwagUp tracks several other key efficiency metrics internally. Among those are (an accurate) Cost of Sales, First-Order Contribution Margin, and Revenue Per Employee.

On Cost of Sales, Michael is scrupulous in accounting for far more than just SwagUp’s product COGS. Michael believes that:

“You never want to chase top-line growth without understanding what is the cost that goes into both acquiring that growth *and* satisfying that growth. In addition to our COGS, we look at not only the actual marketing cost of acquiring that customer, but also all the people and software involved in servicing and touching that customer, whether it’s BDRs, or AEs, or Project Managers, or technology that is involved in the sale.”

As a derivative of Cost of Sales, SwagUp also rigorously tracks their First-Order Contribution Margin (which is calculated by taking Average Order Value and subtracting the Cost of Sale and Customer Acquisition Cost associated with that sale). Whereas many venture-backed businesses are willing to lose money on a customer’s first order and rely on future customer purchases to drive profits, Michael is adamant about maintaining a positive Contribution Margin on each customer’s initial order.

“We don’t take bets on the future hope that things might work out. We need to make money on the initial order, and then everything beyond that — retention and expansion revenue — becomes upside. In general, I think it’s a dangerous path to just hope that the economics will work out one day in the future.”

Lastly, Michael believes that Revenue Per Employee is a metric too often overlooked by startups and that too many companies celebrate employee growth as a milestone rather than a means to a milestone. More specifically, founders should make sure that their business is scaling at a greater rate than their overhead. If you grow revenue 2x but headcount grows 4x during the same time period, then that headcount growth is not necessarily a milestone to celebrate as it likely illustrates an inefficient business model.

UI/UX are paramount, even in B2B businesses

From day one at SwagUp, Michael emphasized the importance of quality product design, usability, and customer experience.

“When it comes to design, building a business-to-business product is no different than building business-to-consumer. The buyers of the product are themselves consumers and are therefore accustomed to a certain quality level of UI/UX in their day-to-day lives. Having great UI/UX gave us a lot of credibility early on and helped us sell into larger clients.“

Although it’s easy to view a business customer as a stodgy organization, it’s more accurate (and useful) to think about the decision-maker within the customer as an individual who, like you, is used to modern commerce experiences (e.g. Warby Parker, Sweetgreen) that have best-in-class UI/UX. Just because your product is b2b, doesn’t mean there should be a lower bar for design and usability.

“It shouldn’t be a chore for a customer to use your product; rather, it should be as delightful an experience as they’d get with a best-in-class consumer product. “

Growth necessitates a shift in founder responsibility

When a company is in its infancy, a founder has no choice but to be in the weeds on everything from sales to marketing to finance. However, as the business grows in terms of revenue and people, it is no longer sufficient for the founder to spend time in the weeds; they must learn how to get leverage through effectively hiring and delegating, which will create time for other, higher-level responsibilities.

As Michael reflected on his own experience:

“I realized how important it was for me to scale my time. As we grew, I began to really think: what are you really good at? What does the business really need you for?”

Michael realized that being a founder was not just about working hard 24/7 and taking on every task he could handle no matter how big or small. As the business scaled and day-to-day operations were delegated to employees, Michael shifted his time and attention to thinking about the business’ vision, direction, and strategy (as well as how to maintain alignment between the three). With these new responsibilities, Michael feels he is driving more long-term impact for the business while also gaining more satisfaction from his role as SwagUp’s leader.

A framework for leadership at all levels

Interestingly, Michael did not find his transition from in-the-weeds tasks to higher-level thinking to be personally difficult. However, what he found to be extremely difficult was getting buy-in from other leaders within SwagUp to think in the same way.

Michael believes that optimal leadership within an organization should behave as follows:

  • Managers should be thinking about the next week or month.
  • Directors should be thinking about the next quarter.
  • VPs should be thinking about the next year.
  • C-Level executives should be thinking about the next 2–3 years.

“Being an effective leader has nothing to do with ability to get the job done. It has all to do with building infrastructure and teams around you, establishing the right strategy, and empowering other people to carry out and improve upon their function.“

For Michael, instilling this framework in other leaders at SwagUp continues to be difficult. However, progress has certainly been made and foundations have been set to continue SwagUp’s incredible growth trajectory.



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Andrew Oved

Andrew Oved


Founder & Managing Partner @ReformationVC. Previously @FirstMarkCap. @StanfordGSB. 🏀