💰 ANNA WHITEMAN // PARTNER @ COEFFICIENT CAPITAL

0:00I'm Sam Rose, and this is Commerce is Chaos, the podcast for consumer brand founders who know that building a business is messier than the highlight reel shows. Your supplier just missed their deadline, your top product is out of stock, and your competitors somehow just launched the same thing at half the price. Sound familiar? Every week, we dive into the real problems that keep founders up at night, from inventory disasters to supply chain nightmares, because surviving the chaos is what separates brands that fail from brands that scale. Thank you for joining me, Anna. You are a partner at Coefficient Capital and you lead so many cool and so very well-known growth investments in digitally powered consumer brands.

0:38And I love that angle. Just to name a couple, Magic Spoon, Oatly, I could probably go on. You will go on. You'll tell us more. But really, I think that the through line here is these transformational consumer shifts. And the world of commerce has changed so substantially in the past 15 years. And we now have brands that we're calling, we're calling them digitally native because the internet's like a thing. And I can't wait to hear more about you and your strategy and how you're kind of finding these incredible diamonds in the rough in what is such a noisy space right now.

1:15Anna Whiteman:Yeah. Well, thank you so much for having me. Very excited to be here and big fan of your work as well. So, yeah, as you mentioned, coefficient capital investing in transformational consumer shifts across the growth spectrum. So we can invest anywhere kind of from Series A through pre-exit, pre-IPO. Our brands typically, you know, our barbell for Series A is five to ten million dollar checks. Our kind of late stage fund can flex anywhere from there. And as you said, we're looking for kind of like one of one brand. So where there's really some distinctive kind of technology or IP inherent to the brand, or there's some sort of kind of media outlier, organic customer acquisition flywheel that we can leverage.

1:56Anna Whiteman:And oftentimes that those two things just are part and parcel of just great brands that have duration and longevity because they have something that is structurally so unique and one of one that that strategics in theory who are going to acquire them down the line cannot reverse engineer those two components. So I'm very happy to be here and happy to talk about all of the chaos that is the growth stage consumer markets in commerce today. Really, it's not chilling out, is it? No. It's just getting better. and you know i think one of the things that you just mentioned reminds me of a thesis that one of our investors at ellis commerce has which is around how fundamentally marketing can create or or basically extinguish a product advantage that a business has and of course she was applying it to sass and you're applying it to digitally native consumer brands and probably some commerce enablement SaaS too.

2:54But marketing is a big part of the product. And in some cases, it is the product.

2:58Anna Whiteman:Yeah, I think they go hand in hand, as you said. So like you can't have great marketing and great message if your product doesn't work and everybody will try it once and not come back to it if the product doesn't actually stick. So there's only so much like top of funnel customer acquisition that a brand can do. But the product really has to speak for itself. But yeah, I think one kind of KPI that we measure for is organic customer acquisition, outpacing paid customer acquisition. That's been true, like as long as I've been a consumer investor and it's just kind of taken on different tropes where sometimes that exists digitally.

3:34Anna Whiteman:Sometimes you can quantify it in the real world and at retail. But I think just word of mouth and basically it's like very, to take it down to the most base fundamental layer is like, do you want to tell everybody you know about this thing that you discovered because the product works, because it's so cool and you want to be associated with it. For whatever reason, like, are you spreading the words that the brand doesn't have to do it itself? And the brand's then kind of big responsibility is just to get product into your hand and provide the great service that you've been talking about. But there's other kind of hacks around.

4:08And I think you've seen like a big uptick in talent-led

4:11Anna Whiteman:consumer brands because there is that cack hack to having a celebrity or a talent use their leverage their audience to tell everybody and tell the world about it but at the end of the day again product has to be great people have to want to talk about it i love just the the kind of tribal nature of when you found you know your face wash or your pet food and you have to just tell it there's there's brands that have done this really well from like even just a micro marketing level where I'm thinking of this brand called Babyganics way back when that made diapers and, you know, everybody was selling on Instagram ads or wherever and they were doing shower show up.

4:49Anna Whiteman:So they were actually gifting moms at baby showers product. And then that created this like network effect of, you know, the 10 moms at the shower now we're introduced to this product. They had something to talk about and they have this positive association with the brand. So the more that you can kind of create creative marketing tactics to make the organic piece take off more so than the paid piece. We definitely look for that in our brands. And like, so to linger on that example for a second, how do they, how do they find the showers? Like how are they market making for? Great question. This is where the creativity comes in.

5:21Anna Whiteman:They just would embed in Facebook mom groups. Like this was way, way back for many of these. I mean, those communities still largely exist, but they were just getting into these Facebook mom groups, which were such powerful information networks and like trusted authority. So the brand itself, today we put so much of like a reliance on the brand itself being the trusted authority. But can you also just put yourself into some of these communities where people are going to take that message and really spread it for you? They were getting into these Facebook communities, figuring out where these showers were happening, lining up logistics one by one with each of the moms that were going to these showers.

5:57Anna Whiteman:And like that, I mean, it's a lot of legwork and it's more difficult than it is to just serve up an Instagram ad and hope that you can target a kind of optimized ROI on ad spend, that they were doing the legwork and it worked over time. It kind of built this just really sturdy foundational brand. You know, I think one of the other things that makes tactics like that, and maybe you can almost label it like a guerrilla tactic, is that there's not an industry around enabling that, say. I mean, there's big agencies that'll do it for really, really big businesses. like Pepsi's got a gorilla marketing team, but for like a small ish startup, that's like trying to hit their inflection point.

6:39Like they've, they've just got to do it from my perspective. It's like, they've got to have the idea and they have to be able to execute it. They can't just call an Instagram ad agency and be like, you know, well, this is what I want my ROAS to be.

6:50Anna Whiteman:Right. And that's kind of where creativity has this more kind of spread out outcome. But I always think about like expanding the surface area of your serendipity, which is to say, try a million different kind of low cost, but high touch things, see which one has the biggest leverageable effect and, and then keep putting energy towards that one thing. And the more you kind of spread out your surface area of, of opportunity, the more likely it is that you're going to narrow in on a creative message that A helps you understand your product market fit and teaches you something about the emotional resonance that you're having with your audience, but B, it just creates calibration around why you exist, why people love you and what they're going to talk about going forward.

7:33Anna Whiteman:And the more that you can kind of be scrappy around that, I think that it's way more powerful than it is to just have a certain ad spend budget and hit your KPIs every month. Well, and there's asymmetry in it because everyone else has an ad budget too. You really quantify great creative and great ideas. And when you can have that kind of systemically exist inside your marketing stack in your company, the outcomes are enormous. Are you seeing an inflection point now and how that's existing inside marketing stacks? And I'm going to just invoke AI as like the biggest creative lever, you know, I've ever touched as an entrepreneur.

8:14Did I lose you? Sorry, I lost you there for one second. I'm back. Are you there? Okay. I think you asked. You're back. I'm back. I was just, I was yelled, I'll just do, we're rebooting. Okay. Are you, are you seeing like an inflection in how those marketing advantages are like existing inside the portfolio, either your portfolio companies or companies that are sort of like pitching to you?

8:37Anna Whiteman:Again, I think it's kind of, there are tools that are optimizing how you utilize your marketing spend, meaning great creative now can be done, you know, way more effectively and way more cost effectively through AI tools or through chat GPT. That said, again, none of it really back solves for a great idea, a great message or true product market fit. There's no way that you can talk over or oversell something that doesn't have real product market fit and is solving an acute pain point. So there are really interesting tools. For example, I'm thinking of one right now where it scanned the entire, it used AI to scan the entire universe of content.

9:18Anna Whiteman:And you can put in your brand and you can say, show me where Energy Drink X shows up on the beach and a girl in a blue bathing suit is drinking it. And she's with 10 of her friends. And you don't need to have tagged the brand. You can just call of those really organic moments. And then you can look at them on a dashboard and say, we want this one. This one feels most aligned with our brand and our values and aesthetic. And then you can kind of make contact with that person, ask for permission to retarget, ask for permission to recycle the content. So there are tools to help you really focus your creative and use it more cost effectively and also get organic feedback.

9:55Anna Whiteman:But I think at the same time, it all, again, comes back to the product and the emotional resonance. If none of that is there, then you're not going to have great organic content to recycle or great materials to work with. So the tools are great and they're always going to continue to be greater, but nothing's going to really solve for product and purpose. And someone having just sort of like a, like a emphatic position on how to deploy those new tools, like in service of the story and their customer. Right. And you can all get that right. And there's a million things that can still go wrong. Still go wrong.

10:29Anna Whiteman:Still don't do it. I think of everything as a line item on a P &L and like we're just on marketing and like there's a trillion other things that have to go right for all of it to work together. But yeah, yeah, there really are. Are there using that framework of a P &L? Are there line items that you look at as an investor where you're like either you get really like strong, strong signal from them aside from marketing either in the yes or no direction? Yeah. In the P &L, yes. And then extrapolating from like further just KPIs, I think one thing that we really look at is retention on a digital basis.

11:00Anna Whiteman:But then as you apply it to kind of same store sales growth, for example, at retail or just growth on a velocity basis rather than a distribution basis. So that's showing me that there's like depth and there's loyalty associated with the use of the product, meaning it's a great product. It solved a problem and people want to keep using it for that purpose over and over. So that's like a core metric, I would say, retention and organic customer acquisition are two that are kind of specific and unique that we hone in on. Growth, obviously, is a function of a lot of things, but real growth kind of normalized for all of the externalities that there's something that you've solved.

11:35Anna Whiteman:There's product market fit and it's taking off. That obviously goes pretty far. I think we look for structurally gross margin advantaged businesses where you don't typically see. I think a lot of consumer brands anticipate that as they scale with volume, your gross margins are going to improve materially. I think you need to kind of underwrite a pretty baseline structural gross margin at like the Series A that's going to be more or less what you're looking at three or five years down the line. So we look for structurally gross margin advantaged businesses. lean kind of operating model, you know, as as capital efficient as possible.

12:09Anna Whiteman:We love to find bootstrapped businesses that have gotten basically have had the ability to almost leapfrog their seed or early capital rounds just because that shows like a lean operating model and ability to do a lot on a little and with little headcount. And then, you know, on top of that, there's a million intangibles that that will kind of assess for. But we also like to just play in like big TAM market. So where not only is the company firing on every cylinder, the potential to blow it up to a billion dollar business could be great. This is going to be a surprising question, but like what's a business that you think would like would never work?

12:44And then what's a business that you're like, please, someone bring me a business like this because I know it's going to work, but no one's done it yet.

12:50Anna Whiteman:Yeah, I think what we saw and everyone kind of learned their lesson in the last three or four years, plant-based businesses, in theory, great idea. Commodity pricing parity was not there, meaning you'd have to really be virtue-driven to go, or for whatever reason, you had to justify a 3x expense at the grocery store to buy a plant-based version of something that you could get on a commodity basis. That kind of structural business model dynamic wasn't there for that industry. I think you saw just this inability, like a rush to get product to market justifiably from these companies, but like where taste wasn't at parity either, like you were sacrificing something in order to have this.

13:33Anna Whiteman:And so I think I won't name any like specific company, but I think everybody got a little bit over their skis on that market. And for good reason, it should exist. I think there's health benefits associated with eating a plant based diet. There's, you know, a million reasons why it's more sustainable and we just need to get the market there. But that was an area where a lot of investor capital and a lot of kind of artificial demand existed, if you will, and the consumer just wasn't there. So I think making sure that you're playing in a market where the consumer appetite and demand is real and exists, and you can underwrite that, is huge.

14:06Anna Whiteman:And then the second question was what needs to exist that doesn't? Yeah, but wait, let's save that for a second because you just said so many great things. So let's stick here for a minute because you're pointing out something that I think, and I've heard you talk about this before in, you know, like in your consumer trends report, where like trends are contradicting each other, right? Like there's this trend towards sustainability or like plant-based preferences. And then there's like an anti-trend to that. And it's hard to figure out, there's like so much noise from both of the trends that it's hard to figure out like which one's going to be have be the more powerful wave say and like tiktok shop versus sustainability yeah within the context of gen z purchasing behavior is like a great example that you pulled out of that yeah they're critical i think at the end of the day people talk with their wallets they say that they anticipate doing a lot of things i think sustainability has been a huge one where we'd love to underwrite that sustainability is somebody's number one purchasing driver but Oftentimes at the slightest macroeconomic softening, people don't care about sustainability anymore.

15:16Anna Whiteman:They care about efficacy and value. I think there's kind of just this, the trend report does really tease out a lot of very interesting micro shifts. And then we ultimately pair all of those insights and all of that data with the P &L data, the hard and fast spend data. So we look at a lot of consumer edge and a lot of just proprietary data that we've pulled together to help triangulate what people are saying and what they're doing. And when we can really bring together what they're saying is what they're doing, then we know that we've got like a macro tail end. Plus, we've got, you know, a lot of good micro data points to underwrite that this is it's a real shift.

15:53Anna Whiteman:An example of that that I'm thinking about is in the pandemic, there was this massive movement towards buying groceries online for good reason. People couldn't go to grocery stores. And then we just longitudinally kept following that data point to say the second that the world opens back up, are people just going to go straight back to grocery stores and forget that buying online was even a thing? And we saw that a large portion of people moved back to a hybrid model or, you know, didn't did abandon that behavior. But more people than not who had adopted that behavior over the pandemic kept that behavior or have been like kind of mixing it into their daily habits.

16:29Anna Whiteman:So that is a big macro shift in the way that people buy things. What does it mean for the economics of these businesses? What does it mean for how people are going to start demanding product in different places? And there's a whole lot that like falls out of that data point. But I think when we compare behavior and indication with reality and those two things align, then we're good. I bet this approach makes you a really good macro investor, too. Like coefficients applying this like growth stage, right, or early growth stage. But I have to imagine that there's some quant out there that wants these insights.

17:05Anna Whiteman:But I mean, on some level, you can really get excited about an early growth business because there's a million new consumer businesses that start every day. And the barrier to entry for consumer tends to be a little bit lower. And I think the more noise and the more data you have on all of these businesses and like new entrants into the market, the more you have to pair it with, OK, what is the reality of where the world is going, which is why we kind of say transformational shifts. We like to really invest in things that we know are going to continue behavior and patterns that we're really sure are going to continue into the future.

17:40Anna Whiteman:So, for example, Better For You eating is people are always going to want to optimize their health. And the more technology, the more innovation and intuition that goes into creating the businesses that will allow us to have access to Better For You, then we can keep underwriting that shift. But we really try to be patient and understand what behaviors are sticking versus what aren't. And that you do have to take a very micro and macro lens. Do you think that the bar for physical and for consumer is going to stay as low as you perceive it to be relative to like entering other? Yeah, so I should caveat bar being low is there's just everybody is a consumer, right?

18:19Anna Whiteman:To some degree, everybody. Everyone's an expert. Everyone is an expert. And then people have phenomenal ideas and a lot of them want to bring these ideas into existence. And then we have to kind of just triangulate between, A, what is an obvious great idea? B, what do strategics ultimately want to buy? Because that's where you become great on the investing side is how you get liquidity from these investments. How you get out. Exactly. And then you kind of really need to figure out what is so one-of-one about this business, whether it's the IP or it's the media or the organic customer acquisition, all the things that I talked about earlier.

18:55Anna Whiteman:Eight million things have to be true for a business to be the special one-of-one consumer brand that is going to realize you like a great exit or great outcomes. Yeah, I think the bar is low in the sense that everybody who has some relationship or an emotional connection with a thing could be an entrepreneur and could figure out what the next great idea is. Can you pair that with all of the right core KPIs and reason for existing that makes it a great investment is another question. I feel like the answer to that is changing so quickly now with just how easy it is to, like, if your thesis is aligning the physical world with the digital universe and the digital universe just got like a massive unlock for people who are less technical, let's say, not necessarily non-technical, to build on behalf of their physical goods, initiatives or world or ambitions or whatever it is.

19:47Are you seeing a shift in like how that pairing happens now?

19:52Anna Whiteman:love if you're just like talking about AI innovation in general I think it's I think it's wonderful and I think it's like going to massively benefit consumer businesses not only on kind of the marketing level that we came up with but just helping to optimize where distribution should be or helping to optimize like shipping and logistics like it could really just bring down costs but it's it's democratic right like everybody's got access to the same set of tools so in theory it's more a selection bias on are you working with the right ones or pairing your data with the right models to interpret and derive intelligence from them.

20:25Anna Whiteman:There's juries out on which of these tools are the best for these consumer businesses today. But in general, I think it's just going to be incredible for founders to experiment with. And I think the first wave of it was just creating new content, creating brand imagery that you can serve on social media that didn't cost you an arm and a leg and take a day to film and necessitate a head count of 100 people. All of that has helped these businesses become leaner, become a little bit more efficient and faster on testing creative. And you're going to see it play out across. I'm particularly excited about like shipping and logistics.

21:00Anna Whiteman:My sister works in logistics and talk dirty to me. Like very unsexy underbelly of consumer, but it is a mess like these warehouses, 3PLs, all of it are. And it's really annoyingly taxing to the consumer brands who all they want to do is have in stock and get their product out in front of people. And that can be a big headache and the ability to kind of resolve those issues and just change the entire production, distribution and go to market dynamics for consumer brands will be game changing because at the end of the day, they're like physical products. They need to move from A to B to C. And that's that's I think we take it as an assumption, like founders, when they start a business, they're like, well, I can make the product and I can get it on shelf.

21:41Anna Whiteman:And you're Like, whoa, there's a million ways that that's going to go wrong. And more visibility and the more kind of technical tools that you have at your disposal to make sure that that process is seamless, the less headache that you're going to have as you scale. So I'm excited for all of the tools that it's going to bring to bear. But I think that at the end of the day, at least today, they're more or less democratic until we figure out a monetization model and everyone gets charged for their AI utilization. Right. One day. Yeah. Or we'll just, we'll, we'll heat up something. We'll heat up the moon.

22:16Come up with one new deals in the world's planet. This is, this is the part of consumer that I'm obsessively interested in, which is like all of those enablement rails, because they're, they have been historically fairly black boxed. Like some of that, the knowledge around just how a thing gets made. I mean, when I, when I started my brand in 2012, it was like Alibaba wasn't really a thing. I couldn't really figure out how to talk to suppliers. And then you fast forward 15 years and you're like, like, it's so, it's so much easier. The unboxing of these things, the unblack boxing. Yeah. Flexport did exactly this.