From World-Class Poker Player to DTC Powerhouse ft. Brian Tate

0:00With poker, you're not really building equity in anything. you're kind of trading time for dollars. I kind of got to top of that. I was the biggest game that ran regularly in the world. There was not a bigger game. Brian Tate made millions as a professional high stakes poker player. Then he walked away from the table and built Otober Night. Today, the company is one of the fastest growing food brands. He applies the same discipline, patience and risk control that made him money in poker to building one of the fastest growing consumer brands in America. I started out as a side project, just a distraction from poker.

0:25Yeah, so learn a lot, right? I have no experience in food, e-com, manufacturing. as we scale and we're constantly breaking down systems, rebuilding those systems in real time. We intentionally have no brand guidelines. We do a lot of things that look a little crazy. Of course, we're big fans of testing and learning when you can unwind.

0:45Brian, thank you so much for coming on the show. How are you? I'm doing a lot. Thanks, Mike. Happy to be here. Really, really appreciate you taking the time. So how did you become a professional poker player? So my journey started with a game called Magic the Gathering, if you're familiar with that competitive card game. In my teens, I played Magic the Gathering on the Pro Tour. And, you know, huge nerd, as you can imagine. Not a lot of money in Magic. You're playing for promotional booster packs and things like this. And so when the poker boom happened in 2003, Chris Moneymaker, this account, won the World Series of Poker.

1:21And it seemed like overnight, you know, ESPN was showing live poker everywhere. And, you know, the online poker site started advertising the U.S. market and really just exploded this whole industry. I was in the right place at the right time to jump from magic to poker. Of course, with buy-ins came bigger prizes and online poker was really born. And so I started in, I was just under 18 at the time, but right around that age when I got started. Right around that age. We'll say over 18, right? um um we'll say over 18 right um uh publicly publicly i'd imagine um although i don't know what the the i i i guess the gambling age it is an 18 is it or i think it's 18 yeah it is 18 okay cool so publicly yeah so 18 18 all right um how well how did you find that you were actually getting like good enough um good enough that it made sense to actually turn pro or what does that even kind of mean turning pro or when when was that kind of moment that that you figure okay this can actually be like my my full-time career yeah so i think i think for you know pro can mean a lot of things um there's pro players that make you know 50 60 000 a year grinding small stakes poker that's a tough way to make a living by the way lots of variance behind that number not a fun way to make 50k but there's also pros that make you know high hundreds of thousands maybe millions a year.

2:44So I think early on, I didn't know what this meant, didn't know the risk management side of this was really just playing a game and trying to get good at it. So I think around the time we started making, my friends and I started making money enough to pay some bills and felt good about building a bit of a bankroll, it started to get a little more serious. Although I'd still say in the first few years, it was more gambling than professional poker um you know had a lot to learn about bankroll management risk management of course all very important lessons on that journey so but by the time you kind of hung it up you made nearly 10 million dollars that right as a professional poker player yeah um and so why why did you decide to call it quits and kind of go in and go all in on on oats overnight and i guess What was the story behind starting Oats Overnight from the beginning?

3:38Yeah, so poker is very... The steps are very clear. As you grow through the poker industry, the stakes are really the limits that you play, how much money you can earn. So a$20,$40 game is half as big as a$40,$80 game. You can make more money at$40,$80 limit, but the game's tougher. And so as you grow through your professional career, you might go from$40,$80 to$100, to two, 400. Um, it's very clear what table you're playing at. It kind of indicates the level of play that you're, you're competing at, which, which is pretty obvious. Um, the thing is, is the money filters up. You take a shot at the higher stakes game.

4:15You usually lose because you don't know what you don't know. You have to go back, earn your money at the lower stakes game, kind of figure out what you need to learn and, and kind of reverse engineer those strategies at that higher stakes level. Eventually, of course you start catching on. You start, you start making a little more money. You know, some of the concepts may click a little more and you might stay there and actually start earning at that level. And so that 12 year period where I was, I was building in poker, just, just leveling up from, you know, the smallest stakes, the biggest game that ran regularly in the world for the game type that I played living in Vegas.

4:46At the top of that, I was playing the biggest game that ran and there really weren't, there was not a bigger game that would run regularly. So I kind of got to the top of that mountain, which was an awesome experience, by the way. Didn't want to sit sedentary at a poker table 12 hours a day. And so I was kind of looking for the next thing. I think when there was no next clear step in the poker journey, it started making me lose a little passion for that journey. And I was in my late 20s and wanted to build something with poker. You're not really building equity in anything. You're kind of trading time for dollars.

5:15Very cool experience again competing there, but I wanted to build something. And so I was making a homemade version of Overnight Oats, similar to how Oats Overnight is today more milk, more protein. So it's really convenient and fit my macro needs, my nutrient needs. I was trying to work out as much as possible. I was sitting at a table for so long every day. And yeah, and it was great. It was kind of right in front of me. I invested in a few friends' companies, did a few, dabbled a little bit in some investments, but didn't find anything I liked and ultimately started Dots Overnight. And we launched in 2016.

5:44So I started out as a side project, just a distraction from poker that I could invest some time in, which you know quickly picked up in the early days was there a moment that when you were when you were making and having notes um was there a moment that you actually thought okay um maybe this could become obviously it's turned into a incredible brand but were there moments that maybe gave you confidence that this could actually become a real business or doing, for example, little tests to build that? Yeah, absolutely. So first off, love the product myself. My friends and I were making different versions of this product.

6:30I think you kind of assume that everything's been made. As a consumer, I didn't have the idea right away to start this as a company. What was different? What was different to how you were making the oats? Yes. So overnight oatmeal is gaining a little popularity on the coast. It was still cold. Oatmeal is still very weird at this time mainstream, but, but we were making it with more milk, more protein in a shaker cup. So a spoon free, like our version is today, where the traditional recipes were more mason jar and spoon kind of crafty, you know, didn't travel well, right. Carrying around this mason jar.

7:03And so, so we opted for the shaker cup, more milk, more protein, and it really kind of a protein shake oatmeal hybrid. And, you know, when looking for a prepackaged version and kind of being sick of measuring and prepping it, we were just shocked to find it didn't exist. And so right away, it was sort of a light bulb moment to bring this to the world. Got it. That makes sense. Well, what were what were like those early days like after you decided that you wanted to go to all in or or to start to start Oats overnight? And no pun intended, obviously. But what were kind of like the first steps that you had to do?

7:44Yeah, so learn a lot, right? No experience in food, e-com, manufacturing, you know, crazy enough to kind of start the facility as well. Ourselves, we couldn't work with commands. I was emailing people and calling people and couldn't speak the language of manufacturing. Yeah, I was about to say, why did you vertically integrate from the get-go? Was it because no commands? would kind of take you on or what was what was the reason that was basically it i mean you know we making this tabletop we could do a scoop of you know scoop of flax scoop chia some protein some of that so we really constructing it by hand what we'd later learn is that it was just hard to do that at scale um with like the powder component relative to some of the inclusions um commands weren't really set up for this and so we would have had to invest in a lot of like new machinery and the barrier was pretty high to get started um that said i knew how to do it at a tabletop settings.

8:36We just recreated that in a small 2000 square foot facility, hired an advisor to help us with regulatory, like registering with the FDA and all the traceability and lock control required for the, for those early things, some of the quality programs at the early stages. And yeah, just kind of dove right in again, learned the hard way pretty much everything learned the hard way, made so many mistakes. But, you know, Googling everything at the time, I wish chat GPT was around, would have been, would have been a little faster, but you know, this was, you know, we were talking to all the wrong vendors, all the wrong manufacturers, you know, we ended up just doing it all ourselves.

9:08And I'm glad we did. I mean, now, you know, we've controlled our own destiny through this last decade of operating and it's served us really well. Now, of course, there's a lot of benefits owning manufacturing and, and we've continued to kind of push those, push those edges for our benefit. Yeah. And talk to you a little bit about what that was like, you know, you were renting equipment, I think you put like 500k, right into uh into the initial um into brand equipment obviously taking my tiny batches batches i think you had your mom doing fulfillment um and then you also had like your uh some of your poker friends as well um that were a part of it and i think are still part of it um what do you remember from those kind of scrappy months yeah i mean we we just continued to get things wrong so you know we we ordered our boxes our corget boxes were just over a pound and um you know so so our shipping costs were like$2 higher with USPS than they needed to be for the sub one pound cost.

10:01So we were exacto knifing the corners off the boxes, every single one to try to get it just under a pound. I mean, just so many situations like this where, again, we knew this was not optimal, but just had to make it work. And of course, lots of long hours. I mean, I was making the oats myself during the day, like packaging everything, blending it up in this little 100 unit ribbon blender. And then, you know, doing Facebook ads and email flows at night, talking to customers on Facebook through ad comments, answering emails for customer service. Like you mentioned, hired a few friends that played poker professionally that wanted to try something new, hired my mom to help run fulfillment, fun early days.

10:39But some of the team that we brought on from my past life left and it wasn't a fit. Some are still here. So pretty cool to see all that evolve. That's awesome. Um, what, um, what was the approach for the online market? Because I know that you started DTC, I know that's still a massive channel, uh, for you all. What was the approach there in terms of getting your name out, distribution, marketing, and this also new kind of idea in terms of how, how it's going to be consumed? Um, you know, not, not using a spoon, how it's a bit more of a shake. How did you express that in your marketing? Yeah. So we always wanted to be, you got to grab attention in marketing.

11:23And so it was easy for this format to grab attention, like playing on drinkable oatmeal and just how differentiated that is. A lot of ways to market it. We started out with just really small budgets on Facebook. So 20 bucks a day or something. And we'd see pretty good conversions. Of course, this was probably the tail end of the glory days of Facebook advertising, like 2016, 2017. So we're still seeing, you know, fraction of the cost for CPMs and, you know,$10,$15 CACs. So right away, the economics made sense to continue scaling. So we scaled pretty quickly through that first year. I know we did up$1.5 billion in revenue our first year, just piecing away at it and learning a lot.

12:00Again, iterative is one of our core values and happy to chat more on that. But we test and learn everything, you know, iterative with every single element of the business. And ads always shined as one of the areas that we needed to get right. I think one of the things that we've done well is really creative. You know, from the beginning, we've taken a really hands on approach to creative, specifically on direct response, digital marketing and always have diversified creative in pretty meaningful ways. And, you know, always try to push the boundaries on on what grabs attention for food. But I get a lot of levers built into Oats Overnight to do so own manufacturing.

12:35We can really showcase that like we do now. And also speaking to the R &D as well as the team. Can you expand on iterative as a core value? Absolutely. By the way, core values, I used to think were such kind of bullshit. People put integrity on the wall or whatever. It's like we should all have integrity, of course, by default. But I've come to learn core values is something beyond your function that you do. You got to be good at your job, right? Your functional area. But beyond that, what are some of the attributes that will make you succeed here and also grow? So iterative is one of the big ones.

13:10I think any growing company needs to bake that into the culture because, you know, processes work until they don't. You double in size, that old tool, that old system breaks down. You have to rethink it, reimagine it. And so setting that expectation at scale with your team, your employees is so important. So they embody that. I think people are generally resistant to change. So being over the top with embracing change and just the need to iterate, I think, sets everybody up for success where they otherwise may have not been. So we're iterative with all things. I mean, our creative, you know, we're producing 10 plus net new pieces of creative a week.

13:45Internally, we use some outsourced resources as well. We're iterative with product. We're tweaking products in market and measuring those changes in response. And, you know, iterative with process at scale as well. by the way are we having connection issues by chance um a little bit yeah i'm sorry one second um i don't know why i did that um these bows headphones i think it's my fault can you hear me okay i can you perfect yeah you haven't skipped at all for me in terms of your talking i just i just saw your video skip a couple times i wasn't sure if that was yeah i uh it might be because gosh this is so annoying um these headphones are connected to both my phone and um and computer and sometimes what happens well actually i did turn it off prior to this but um like like with my phone but what has happened before is someone will call me on my phone and then it switches to my phone and it then won't switch back and i did take blue booth off but it still decided that it wanted to try to like accept the call and and like be part of it so i apologize sorry about that um uh no that makes um uh that makes a lot of sense in terms of um in terms of like i i'd imagine with with iteration too because what's really also interesting about how you've built this company is because you're vertically integrated is that you are probably innovative on on every every part up and down the supply chain also on the marketing side you know because you because you control um you control the majority of the product right and i think that's that's the piece right is i think we think about this from like a systems perspective um you want to continuously improve all things and the more you own the more you can continuously improve right and also the more synergies you can find um to build something that's not new for the consumer.

15:45And so owning manufacturing, if you can tweak an element of your manufacturing that can differentiate the product that makes you harder to follow by the field, that's all working with the same contract manufacturers, same format, like that's a huge win that you can't find elsewhere. You know, we've built, you know, the fact that we own our own fulfillment, manufacturing, procurement, R &D, lets us tweak products in market, lets us see those early signals, lets us be very iterative of product format i mean we're my version 15 of blueberry cobbler uh we'd be the worst you know partner for a contract manufacturer they just wouldn't be able to get it right um and so so we can do all these things and continuously improve their product with efficiency at scale um all because we own all the inputs and i think that's been something that we've leveraged for success why has ode server night worked so well on um on the online on the on the ddc channel because Because usually in CPG, the thinking is, hey, your basket sizes are not going to be big, big enough where online makes sense.

16:49And there's a lot of challenges that can go with DDC as well. And most people shop grocery, obviously, in stores. Why has online worked so well for you all? Yeah. Online, you need a lot of things. You need to have a product that can drive creative, that's curious enough to grab attention. You need a product that's sticky enough to, you know, that could potentially have a subscription model, most likely have a subscription model to drive repeat. And you need the frequency last to get the consumption to be high enough where you can bundle, you know, a month's supply with a reasonable AOV that justifies your investment acquisition cost.

17:26And so we definitely have all of those things. You know, again, we talk about how weird it is to drink your oatmeal. That usually stops the scroll and grabs attention. Lots of flavors. We bake some of these things into the marketing well. And then the product is just very good. And it keeps getting better, given that we own the R &D and keep iterating on that product formula. So all the product formulas. And so frequency, like 72 % of our customers eat three to six times a week, which really helps with frequency. So we're able to force people, I say force, we're able to encourage a subscription offer up front.

17:59Something like 89 % of our customers subscribe on first purchase. Of course, we're really generous with refunds and cancellations if customers want that. So just risk reducing up front, getting people to subscribe on first purchase really helps with that retention rate, helps with the cohort paybacks. Makes a lot of sense. Why did it make sense to raise venture funding for this? So we're running a really heavy operation. Everything that we're investing in from the team, the equipment, the facilities, it's really heavy. So we've got, you know, we've raised quite a lot of money, like near$100 million.

18:38Not quite there, but, you know, our balance sheet is close to that. So we've used it pretty efficiently. Definitely minimal cash burn. We're not profitable. But, you know, a lot of investment into making this machine run. And so, again, I think, you know, what we're excited about moving forward is building new products, building more of a platform around the data that we collect. We probably have one of the more interesting zero-party data sets of any CPG brand, tying formula attributes through version control and tying that to cravability and ultimately retention. And so we know between sweeteners, sugars, sodium ratios, which are optimal for driving high repeat by flavor, also tracking a lot of really unique data around consumer preferences and who likes what.

19:26So we're getting really good with segmentation around our flavors and good with iteration to maximize LTV. How do you think about testing SKUs? What's the process there? Yes. So we track as many signals, early signals to retention as possible. So we track both feedback and behavior. Feedback, we built the stars and notes tool in our portal. It's custom. So customers can basically star rate flavors they like. They can leave notes on flavors so it tracks through their shopping experience. We timestamp those. And so we can track those pre and post formula changes and scrape sentiment to understand, you know, the context of, you know, if people like the cookie flavor more on cookies and cream after we made the change, how that star rating changed, like basically the feedback they're telling us.

20:10We're also tracking behavior in terms of, you know, what they do more than what they say. And, you know, beyond for that, it's swaps activity. So we have 60 different flavors. Customers are really active with their subscription at Oats Overnight. I think every month they're in there, they're getting 12 flavors on average per box. They're customizing their box every shipment. And so we're tracking after changes within that 30-day period what they're swapping out of more than relative to the rest. And so we've built what we call the Flavor Command Center that basically stack ranks all of the flavors by these churn indicators.

20:44And so we can basically say, hey, we reformulated maple pancakes. It used to be the 18th highest retaining flavor. It's now the 12th. So we know that reformulation was favorable for attention on a 30-day window. And so these really early signals are helpful to basically make changes, see the impact, and continue to apply those more broadly. Also, it helps with reformulating SKUs, bottom quartile. We'll either rationalize those SKUs, scrap them, or reformulate them. That makes sense. I'd imagine once you get into retail, I know you all are all in retail, even though you started off DTC. but once you get into retail obviously um i'd imagine it changes and maybe a lot of testing goes on d2c and then maybe hero products go into retail is that is that roughly kind of correct that's exactly right yeah so we use you know d2c is much more much more rich data than retail of course but these learnings flow through the retail product we also know when we're building out the shelf of flavors we know which flavors may be more incremental based on how the baskets are being created on our customer orders on D2C.

21:49So we have a lot of rich data that we still can apply to kind of figure out what's the most incremental set of flavors to have on shelves at different partners. Of course, also, you know, the extent we can get some of those retailers data, we can, we can, we can really curate selections for them. Got it. That makes, it makes sense. Well, when, when did you all head into retail? Yeah. So my first buyer meeting ever was with Walmart in Bentonville in 2019. And it's very intimidating. I was terrified, frankly. So classic, like take a number, get in line, tiny little conference room. We had the pouch and shaker cup at the time.

22:25And the concern with going into retail was this pouch, the shaker cup that we have here and the pouch, we couldn't merchandise the shaker, of course, in Walmart's hot cereal set. And so the concern was, will customers know that with this pouch, they need to add milk, they can't use water, They need a shaker cup. They can't use a bowl. All these things that made it so clunky for a customer to understand, you know, without the video and all the education we can share online. And we knew plenty of customers were having trouble with that, even online with the video. So we reformulated into a single serve bottle with a powdered oat milk mixed in so you could add water to a fill line.

23:01Basically an all in one solution that scrapped the need for the shaker cup, scrapped the need for the milk. So it's pretty foolproof. The problem was we had never sold one of these bottles in history. So the one small problem. So we went to the Walmart meeting and I have our pouch and all of our data. We had a deck. And then I have this taped up prototype bottle. I'm like, yeah, this is doing great online, but you really should carry this for these reasons. And the buyer actually, Quincy was her first buyer meeting ever as well. She had just joined the desk. And so that was a pretty funny one.

23:35But she basically said, hey, we're not interested in the bottle. We want the pouch. and it was, I'm like, oh no, what do we do? So it was a really tough one. I tried to explain, you know, why the pouch wouldn't work as well and all the things, but we ended up, you know, at a bit of a standstill. Again, I was, I had no idea how to proceed because we didn't think the pouch would be best. We wanted to hold out for the bottle. And so we had some conversations, you know, with our broker partners and then COVID happened. And so, you know, kind of good timing in this exact moment because it kind of pushed these conversations down the road.

24:10We had time to better commercialize the bottle, get a real label on there, and also ended up launching first with Wegmans. So we got a couple of proof points before going back to Walmart shortly after. But Walmart was a really early partner with us. They've been a great partner. They leaned in super early with that retail grocery bottle format. And so we launched nationwide with Walmart pretty early in the journey, which is, again, unique for CPG. what was that what was that like sticking to your gut in terms of this format we think is going to work in retail even though this is our you know it's maybe not this is just kind of the concept this kind of duct tape version of the content uh concept that you presented but what was what was that like you know a buyer telling you no we want obviously the product that that that is doing so online and everything.

25:01What was that like for you just pushing back? And then, you know, even though you have, you know, Walmart kind of, um, wanting your product to come in, but not the product you actually want to be in the store. It's tough, right? I mean, I think it's easier when you have more data to support it. It's harder when you don't, and it's all hunch. Um, I think for this moment, it was somewhere in between. Um, you know, the, the fortunate thing is I'd been answering Facebook comments personally for, you know, the, the three or four years leading up to this conversation. So I had seen hundreds of points of confusion with the prep, even with all the video and all the instructions.

25:34So I just knew for a fact that sitting that pouch on shelf with no supplementary instruction or information, it would have been really tough. So again, the context being so close to the business helped me build that confidence for sure. There's certainly elements of the business that I'd have less confidence in proximity, but this one was a clear one, I think, from the beginning. got it no that's that's helpful i mean and obviously you know not that um anyone is wishing that covid ever happened but at the same time the fact that it did happen at that particular time moment it was very beneficial not to take the uh walmart deal i'd imagine in uh in 2019 and instead launch of course after covid in uh wegmans what what um what has been your philosophy or approach when it comes to retail expansion?

26:25I'd like, for example, you just got on a web end, you're going through web ends. When does it make sense to expand stores, store accounts, if you're able to, or even bring on another retail buyer? Yeah. So we, we wanted to grow fast. I think one of the, since we were DTC first, we've already built this awareness with all the, all the Facebook, the Instagram, TikTok ads. Of course, we're, we're still unknown to many, but at this time we had, we had a lot of impression share through, through this. And I think this is, this is something that has changed a bit in the last maybe four or five years, the thoughts around it.

26:56I think historically, you know, it used to be go regional, crush it regionally with your food product, and then really expand out outward from there. But being nationwide with broad audiences on, you know, direct response media really paves the way to have awareness when you go on shelf nationwide. So we wanted to move fast. We didn't, we kind of took most opportunities. Of course, some, if slotting didn't make sense, we'd hold off. It's not like we were looking to burn money in a big way. But our philosophy has just been to get everywhere. We think that makes our ads more effective. Not everybody buys food online.

27:31Of course, a lot of people see our ads and just won't buy food, let alone drinkable oatmeal online for$45. But when they see it on shelf for $3, they're certainly willing to try it and sample it. So we found a lot of synergies between our online offline channels that have kind of further pushed up AOVs on the D2C side, I'd pushed up pack sizes to complement that a little more. Since you have all this online awareness that you've done, and it's so interesting because I've had so many companies and also investors come on and say, oh, you got to go one break at a time, one store at a time, and kind of making sure your velocities and sell-through is all kind of working before you expand, where I really, really appreciate your perspective of, hey, we want to go wide.