The Growth Paradox: How Profitable Brands Run Out of Cash

In 2020, Outdoor Voices founder Ty Haney stepped down as CEO. The activewear brand had raised $64 million from top-tier investors, built a cult following that rivaled Lululemon, and expanded to 11 retail stores. By every visible measure, they were winning.

But internally, the company was burning through cash and struggling to find profitability. Within a year, the brand nearly collapsed. It's exactly the kind of story I wrote Margin of Growth to help founders avoid.

Outdoor Voices isn't an outlier. It's a pattern. Casper, Brandless, Blue Apron—the e-commerce graveyard is filled with companies that had great products, strong brands, and growing revenue. This is the growth paradox: the very activities that make a business successful—acquiring customers, buying inventory, scaling operations—consume cash before they generate it. Revenue can climb 20% month over month while the bank account races toward zero.

The Timing Problem

Most founders understand profitability as a simple equation: if you make more than you spend, you're profitable. But this ignores the most dangerous variable in e-commerce: time.

When you spend money on ads, you pay today. Meta charges your card this week. But the customer you acquired might not become profitable for 60, 90, or 120 days—especially if your margins require a second or third purchase to recoup the acquisition cost.

This creates a cash gap. And the faster you grow, the wider that gap becomes.

Imagine spending $50,000 on ads this month. Those ads bring in customers, but after accounting for product costs, shipping, and fulfillment, you only keep $30,000 in contribution margin. You're "profitable" in the sense that customers will eventually pay you back. But today, you're out $20,000.

Next month you spend $60,000 because the campaigns are working. You keep $36,000. You're out another $24,000.

By month three, your revenue looks incredible. But you've burned $60,000 in cash waiting for the math to catch up.

The Metrics That Hide the Problem

The danger is that nothing in your dashboard tells you this is happening.

Your ad platform shows strong performance. Your revenue is up. Even your P&L might show a profit—because accounting recognizes revenue when the sale happens, not when the cash actually returns to your account.

The only place the truth shows up is your bank balance. And by the time most founders notice, their options are limited.

Payback Windows: The Metric That Matters

The question isn't just whether your customers are profitable. It's when.

A payback window measures how long it takes for a customer's cumulative contribution margin to exceed the cost of acquiring them. If you spend $60 to acquire a customer and they generate $20 in margin per purchase, you need three purchases to break even. If those purchases are spread over six months, your payback window is six months.

That means every customer you acquire today is underwater for half a year. Scale that across hundreds or thousands of customers, and you're funding a massive float—paying for tomorrow's profit with today's cash.

The Path Forward

None of this means you shouldn't grow. It means you need to understand the cash implications of growth before you scale.

Know your payback window. Calculate how long your cash is tied up before it returns. Match your growth rate to your cash reserves—or secure funding to bridge the gap intentionally rather than accidentally.

The brands that survive aren't the ones that grow fastest. They're the ones that understand the relationship between the money they spend on marketing and the cash that actually comes back.

I wrote a book about this. It's called Margin of Growth, and it covers the financial math that determines whether an e-commerce business thrives or quietly bleeds out while the dashboard says everything is fine.