How Entrepreneurs are Scaling Disruptive Consumer Businesses with Steve Berg

0:01Boom! Shake the room, Fire Nation. JLD here and welcome to Entrepreneurs on Fire. Brought to you by the HubSpot. Podcast Network, the audio destination for business professionals with great shows like The Gold Digger Podcast. Today, we'll be breaking down how entrepreneurs are scaling disruptive consumer businesses. To drop these value bombs, I brought Steve Berg in the EO Fire Studios. Steve is a partner at Stride Consumer, investing alongside dynamic founders of passion brands like Jenny's Ice Cream, Urban Decay, Skin Fix, and Patrick Tabuti over his 20-year career. And today, Fire Nation, we're going to talk about the phrase following your passion, what it actually means.

0:39We'll talk about insurgent brands and how to grow your market share faster, and what a company like Stride looks for in its investment, and so much more. And a big thank you for sponsoring today's episode goes to Steve and our sponsors. Online Marketing Made Easy podcast, hosted by Amy Porterfield, is brought to you by the HubSpot Podcast Network, the audio destination for business professionals with a focus on online business, including digital courses, list building content, and more. Online Marketing Made Easy breaks down big ideas and strategies into actionable step-by-step processes. A recent episode that will help you get more results with a whole lot less stress is on four ways to avoid burnout.

1:16Listen to Online Marketing Made Easy wherever you get your podcasts. Ever thought about giving a TEDx talk? It's one of the most powerful ways to share your message with the world. And four-time TEDx speaker, Taylor Conroy from Thought Leader can help you get there. Visit thought-leader.com slash fire to join Taylor's free trading, where he teaches you how to land a TEDx talk and spread your message to millions. Steve, say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with. Excellent. Well, what's up, Fire Nation? And if I had to do it in a word, I'd say relax.

1:54You know, a lot of people talk about business success, about being about energy and nonstop and the lifestyle of the entrepreneur. And, you know, I find at times I do best when I take a step back, take a breath and, you know, go faster at lower RPMs. and I think that's for me that's been helpful both when I'm thinking about a tough situation or when I get too caught up in what everyone else is doing it being a competitor or FOMO or you know some other success someone else is doing having and letting it influence me when I relax and just stay true to myself and true to what we're doing what our plan is I tend to get a lot further a lot faster.

2:39I love the phrase, run your own race. And Fire Nation, don't let FOMO, fear of missing out, dictate your life. Don't let your doom scrolling on Instagram or TikTok or X, as the kids are calling it these days, don't let that dictate your life. Oh, so-and-so is doing something cool. I should change everything and do that. No, run your own race. And we're going to talk today about a lot of entrepreneurs who are running their own race and doing so in a successful way because they're scaling disruptive consumer businesses. And I want to start with the origin story of Stride Consumer and specifically your role at that firm.

3:19We launched Stride four years ago. We're a spin out from a firm called Castanea Partners, where we are doing the exact same thing, partnering with founders of passion consumer brands. and the actual founders of Castanea were retiring and they were very supportive as eight of us from Castanea all decided to launch Stride together. The team is now 16 so we've added a bunch of really talented colleagues and we actually we like a lot of founders have our own pandemic story so we started out raising money just as the world just shut down and absolutely no one wanted to meet with us face to face, especially if you'd just gotten off an airplane.

4:02So three of us, my partners, Tim and one, Marcus and I rented a huge sprinter van and we drove around the Midwest and then we drove down the East coast and we met investors in public parks and lifestyle centers and somebody's backyard and really kicked off the whole entrepreneurial journey of stride in a very sort of gritty, literally wheels on the ground sort of way. We wrapped up that fundraising successfully, and we've been off and running since. I think this is a really exciting conversation we're about to have, Fire Nation, because we're going to really be talking about some things that individuals like Steve and companies like Strive Consumer are looking for when people like you, our listeners, Fire Nation, are looking to grow, are looking to get investment, are looking for the right partners, whether that be strategic, financial, both.

4:58But I want to first start off by talking about the phrase, follow your passion. Because Steve, we hear this phrase all the time, but what does it really mean? What does the term passion brands mean to you and why is it important? Absolutely. I mean, it's the center of everything that we're looking for and trying to create. and people use different terms. Some people call them obsession brands or cult brands. For us, it's a brand and a product that does more than just meet a need. It stirs very strong emotions. People get fired up and love to talk about it. For example, every time I mentioned Jenny's Ice Cream, where we're an investor, whoever I'm talking to cannot wait to tell me what their favorite flavor is.

5:46I literally have a story right now, but I'm going to wait. Go ahead. Keep going. Okay. And so Jenny's is a great example. Another one is we're investors in a skincare brand called Skin Fix. And if I mention that to someone who knows the brand, suddenly they're going on about giving me a tutorial on skin barrier health because they listened to Amy talk about the importance of skin barrier and fell in love with her and her story. And the product also just delivered fantastic results for them. So it's really, it's hard to put your finger on it in a definition, but it's one of those things you know when you see it.

6:23And the reason it matters is because the world is absolutely awash in different products. You know, consumers have nearly infinite choices. And the key to lasting success for any company is loyalty. You know, you need consumers who keep coming back despite all the other choices, despite all the noise, because they absolutely love your product and feel very passionately about your brand. And another example, World certainly didn't need another makeup brand when Patrick Ta, the makeup artist, launched. But he created a product that so had quality, the brand so authentic, and he, Patrick, is so engaging that they tapped into something emotional with the consumer.

7:12They've built incredible loyalty, and then they surged ahead from the pack. And so we just think in an overly crowded market with a never-ending source of new products coming out there and infinite consumer choice, you have to stir passion if you're ever going to have lasting loyalty and really lasting success. Okay, I've waited very patiently for this, but I have a really impactful Jenny's Ice Cream story. I mean, I've been doing Entrepreneurs on Fire for 10 and a half years, and I've interviewed over 4 ,000 entrepreneurs. And a decent number of them, no pressure, Steve, but a decent number of them have sent me like a thank you gift afterwards just to like, you know, thank you for having me on the show and letting me speak to your audience and blah, blah, blah.

7:56And, you know, honestly, I've forgotten what most of those gifts are over the years. It's been over a decade. 2014 so we're talking over nine years ago i got from selena sue i remember who it was she sent me i was still living in san diego at the time i now live in puerto rico she sent me a three pack of jenny's ice cream and i remember the buttercream birthday mix because i i had never seen anything like it because i was always a big ben and jerry's fan so i did like kind of specialty ice creams. And my actual favorite up to that point was Haagen-Dazs Dolce de Leche. Like I just loved that flavor.

8:34And I got that and it was just such a cool experience. I remember like showing Kate, she's like, Oh my God. And there's actually two other ones as well. So we put them all in the freezer. Like over the next like week or two weeks, you know, we would each kind of make like a show of like scooping out a couple of big scoops into our bowls and, and then just like having this amazing, like delectable experience on the couch while we're like watching our favorite show, whatever it might be. And I remember that nine years later, like it was yesterday, like I received that. And so just saying, Finition, when you're thinking about sending somebody something, you know, they don't probably need swag or something.

9:09I mean, they probably need something that's going to be an amazing experience. And that was my Jenny story. And you just nailed it. I mean, that is passion brand personified right there when it generates that sort of reaction from you. And nine years later, you remember the gift and you remember who gave it to you because it was more than just, I mean, all ice cream is good. It was, but this is the best ice cream, but there's so much more to that story as well. And so, yes, that's the definition of a passion brand right there. So cool. Fire Nation, we have a lot more cool things to talk about when we get back from thanking our sponsors.

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13:03Absolutely. And I probably should define what we mean by insurgent brand. It's those upstarts that have a different point of view and are taking on the old, tired brands that have been around forever. And those older incumbent brands, as we call them, just aren't as protected as they used to be. It's easier for that entrepreneur with a brilliant idea who's on a mission to find a contract manufacturer to get them product at low quantities, to via direct-to-consumer bypass the big retailers and not have to beg for shelf space, and with social media and digital marketing also be able to get off the ground and get attention.

13:45And so a lot of those barriers have come down, which is fantastic, but it only takes you so far. You can get to a certain size and scale on having that great idea, having that differentiated product, and having all that passion and energy behind it. Our whole strategy at Stride is to be that partner that really helps with that next stage of growth. Making sure that we can be the most knowledgeable, resourceful, collaborative, supportive partner through the stage where you go from chasing the market leaders to catching and surpassing them. And for us, we think there's a couple of ingredients to that.

14:26And it really starts with our team. We have a much bigger team you typically find for a firm like ours, because we want three different types of expertise. We want industry expertise so that we not only know what the key factors are, what drives success, but also can make those invaluable introductions and can connect you to the right people, resources, gatekeepers, whoever it is. You also, we believe, benefit tremendously from functional expertise. So particularly in marketing and all those growth functions, someone who can bring in all the lessons learned, not only from your competitors or your sector, but from other sectors.

15:09Beauty industry for a long time was ahead of food and beverage in social media and digital marketing. Well, those lessons learned from our investments in beauty have been really helpful to the food and beverage companies. And then the last piece of it is just pairing up with somebody who's seen the journey from start to finish, who's the classic, who's seen the movie, and can help that company get prepared for what's next as they go from upstart to breakout to the sustained market leader. And so that's really the three different areas that we tend to engage in. And every company is different. And I'd be happy to go into different examples of specifics, but it tends to be some combination of that industry expertise, that functional expertise, and then that river guide on the journey that helps these companies go through that next stage of growth.

16:02Well, I think the next question that I want to dive into that would kind of lead into what you were just suggesting with a couple examples would be specifically what you're looking for when it comes to investing in these companies. For us, it starts with those, you know, the raw materials or the ingredients that make a passion brand. So founder on a mission, you know, a founder who really has a compelling story as to why they are trying to change the world and why it's personal to them. You know, why are they going to work around the clock? Why are they going to, you know, refuse to accept failure, as opposed to somebody who looked at the beauty industry and said, wow, they have really high gross margins, maybe I'll, you know, go play over there.

16:48So it really starts with what's the origin story and how authentic is it. And then from there, we're looking for a maniacal focus on the consumer and on product quality. And there's a great example where investors in a meat snack business called Chomps and the two founders there, Pete and Rashid, are absolutely maniacal about quality. But as a result, they've solved a bunch of the problems that have faced the meat snack industry around product inconsistency and have therefore gained a tremendous amount of loyalty. So that maniacal focus on consumer and product quality is huge. And then we go to work in a bunch of analytics to try to figure out, have you proven consumer loyalty?

17:36Because revenue alone is a really bad indicator. You know, you can go from zero to 40 million in revenue without ever having a single repeat customer. And that doesn't work for very long, because if the bucket is that leaky, no matter how much water you put in the top of the bucket, you're not going to have much at the end. And so we spend a tremendous amount of time looking at consumer repeat purchase, doing consumer surveys, really trying to make sure, yeah, that first purchase, that customer acquisition is important. But what I really care about is did you retain them? Did they buy a second time and a third time?

18:11Because that just unlocks everything. And then after that, it's the classic stuff, right? It's the, did the economics work? Are the gross margins good enough or now, or can they get there? But that's sort of the stuff that I think everybody focuses on. But it's the initial stuff I mentioned, the authenticity, the reason for being, the maniacal focus on the consumer and product quality. And then what have you done to really demonstrate that customers are loyal? Okay. I have a chomps story as well. And this one's actually very recent. Of course. I was just, I was just on this epic five day Montana wilderness mastermind.

18:49There was 15 dudes we packed up, went eight miles up into the mountains. It's called the tobacco root trails completely in the middle of nowhere. I mean, we're so far from cell phone service. It's a joke. Total digital detox. And over the time, you know, we were doing a bunch of cool things, but one of the cool things that we were doing was gathering on the campfire at night. And the guy that created the trip at one point pulled out this pack, I think it was day two, um, of chomps and he was passing them around. And you know, we were just like, Oh, no, we were eating different kinds of food the whole time.

19:22And then we were chomping on these chomps and everybody just kind of stopped at one point. They were just like, man, this is really, really good. Like I had like a jalapeno flavored one that was just like fantastic. And somebody else had a different flavor that I like wanted a bite of. And they were just like, no, like, I'm not going to give you a bite of this. It's like, like, cause you know, we were all pretty protein starred from hitting it hard. So everybody was like a little possessive of their own chomps. And I remember that every night after that, we all looked at the guy and we're like, Hey, do you have any more chomps to pass around?

19:52He's like, no, I only brought like, you know, one for each person just for one of our treats for the night. And we were all pissed. So we all were just like, I'm going to buy some chomps when I get home. So that's my chomp story. It just happened. That's awesome. That's awesome. Yeah. And those guys, they were patient in how they grew the business and made darn sure they had the product exactly right. And they turned down a bunch of distribution because they weren't sure they could fulfill with their supply chain and turned down that distribution until they were totally ready and did a lot of those things where they could have gone faster, but instead took the route that really established the strongest foundation and set them up for the longer term success.

20:33And it's just amazing to watch what's happened since because they've just accelerated dramatically off that base. It only takes one time, or in this case, one chomp to make a bad expression. Like if I'd ever bitten into one of those things and had a bad experience, I would have probably never gone back. And I would have talked bad about the product too. That probably would have stopped other people from even trying it, but they did the right thing, the patient thing. And now they just have evangelists out there doing their marketing for them. And of course, what you referenced earlier, they have repeat customers across the board, people that are going back buying again and again and again.

21:07Now, let's say, Steve, that our listeners have these type of emerging dynamic brands that you're talking about, and they're looking for an investment partner. What specifically should we be on the lookout for? A few things. So the good news is it's easier than it used to be because it used to be pretty impossible. There was a time not long ago where there just wasn't much capital available until you got really pretty darn far along. And now There are folks who will invest$1 to$3 million when you're at a venture stage or$3 to$7 million when you're just past that. And the challenge then is all those folks can start to look the same and sound great.

21:50And I think it's really important that entrepreneurs think about a couple things when they're trying to differentiate between those folks. And the first one starts with alignment. You know, are their objectives the same as mine? Am I comfortable with the same pace of growth and the execution risk that they are? You know, because sometimes, for example, a great valuation comes your way, but with great valuation comes great expectations. And perhaps the need to swing for the fences to justify that. And maybe that's comfortable for the investment firm who's making 20, 25 different investments. but it's not comfortable for that founder who has everything riding on their company.

22:33And so I think alignment is incredibly important. And it's important to ask tough questions about that on the way in when you're first talking to investors. I think the next thing is something I referred to a little bit earlier, which is capabilities. How helpful can they be? Because you can get money from a lot of different places. But the nice thing is there are folks out there that it can actually help you with the journey after that. And I mentioned, we think a great partner is one that brings industry expertise, functional expertise, and a real experience with how to build the actual company itself.

23:09And you can get a real sense of their capabilities by just asking them for all the different ways they've engaged with different companies they've invested in. And then the last piece is partnership. Will they be great life partners if you will, on the journey. Because when you're bringing in an investor partner, it's like getting married. And so you really want to be comfortable that they're going to be collaborative. They're willing to dig in and solve problems together. They're not going to sit in the ivory tower asking you when you'll have it all done. And you're going to want them to be supportive.

23:44You want someone who's going to challenge you, but constructively. And you want that partner who's patient in understanding when inevitably stuff happens. When you're totally stressed out because your supplier screwed up and you can't fulfill orders because you have a quality issue now, you want a partner who shares your sense of urgency, but doesn't add to your stress. You've got enough to worry about. You don't have to have another layer of stress coming from an investor who is all questions and no answers. And then the last thing is a culture fit. You and your team are building a culture that's important to your success as a company.

24:23And you're going to spend a bunch of time with your investor partners. If their culture doesn't match yours, or frankly, if you just don't look forward to the board dinner, if you don't enjoy their company, it's going to be painful. And I think the partnership one is probably the hardest one to judge in a meeting, in a conference room or on Zoom or whatever. And so we always tell entrepreneurs that we're talking to, get a list, a reference list, and make sure it has somebody from every single company they've invested in, the ones that went well and the ones that went poorly, and do your homework.

25:00Call all those references. Because anybody, I can find three people to say nice things about me. What you want to do is figure out which ones didn't go so well and find out what were they really like when the going got tough. And so that's really, I think if I'm, it's sometimes founders come to me and it's not the right fit for stride for whatever reason, but they ask, okay, I've got all these other suitors, how do I choose? And that's the stuff I talk about. And don't discount the partnership part that I mentioned at the end, because that can be the least tangible, but pretty darn important. Steve, you have dropped countless value bombs throughout our conversation today.

25:43If you had to leave Fire Nation with one thing you really want to make sure that we get from our chat today, share that now. It's what you started with. It's be yourself, run your race, stay true to what you're trying to accomplish, why you're doing it. Look outside a little bit for things you can emulate or, you know, good ideas you can borrow and adopt. But otherwise, you know, don't get distracted by the noise around you. Stay true and run your race. If Fire Nation wanted to connect with you, learn more about your business, what are the best ways to do that? Website, strideconsumer.com. And then email is the best way to find me, Steve at Stride Consumer.

26:30We keep it pretty simple. So yeah, I mean, I'd be, the best part of my job is meeting founders who are super fired up about what they're doing and hear about their story and, you know, hear about their vision. And so I love talking to folks, you know, whether or not it's the perfect fit for us, it's just fun to meet people who are out there making it happen. Fire Nation, you're the average of the five people you spend the most time with. You've been hanging out with SB and JLD today, so keep up that heat. And for links to everything we talked about, visit eofire.com. Type Steve in the search bar.