Roman Khan - He Went From -$3M In Debt To $13M In Cash Using This Playbook

21:17Roman Khan:Let's just sell the gold because I'm dividend first. I'm not revenue profit first, right? So that is a gangster move. Yeah, but that's literally. You're layering in like a level of gambling here where you buy into the materials. Yeah, but you can flip. Wow, that is crazy. Yeah, because it's just like that. That's the conclusion from this year. I got completely buttfucked by this like gold price thing. I was just like, holy shit. I can't believe we're growing. Guys, to read between the lines there. If he buys the gold for 5K, it goes into 10K. He can just go double his money and then just go, let's just say Labron.

21:52Yeah. And you just go downstream for Labron. Yeah. And like the delta that you'd make on the 2X, wow.

21:57Roman Khan:It's way more than selling a product. So if you think about it, like, you know, in all transparency, right? Like Linear does maybe 15 % EBITDA margins right now. Yeah. We're working towards 20%. It's going to take some time. I spend more on cost goods sold than I do in bottom line, right? So if I think about it, gold actually - That's the case for everyone, isn't it? Everyone, it is for everyone. But COGS is, I think, believe it is at least 15 % of my revenue. Like actual solid gold before it's transposed into this ring that we're looking at on the screen. Yeah. Like 15 % of my P &L, because I have a bum approach, it's not just like cost of goods sold.

22:41Roman Khan:It's like, I literally like, I can do a little plus sign on my Excel and see how much every component is. Yeah, so because of that, again, you know, you were asking, why would you do a bomb at like$1 million of cogs per year? It opens your brain to these opportunities. It opens your level of creativity. So when I look at linear, I'm like, okay, we're talking about like 15 % going to, you know, 30 % if prices of gold double again, unless I increase prices, which I would be forced to do, obviously. I should be intellectually honest, see if I can still move products at the higher price. And if I can't move products at the higher price at the same EBITDA percentage, then I should just fucking sell the gold and go on the beach and just retire, right?

23:27Roman Khan:Like, it's just like, it's fucking dumb chasing numbers for the sake of chasing numbers. And again, going to our first point as we were opening, the business is here to serve me, to make me rich, to make me money. And if gold prices go to 30 ,000, I'm out of business. I hate to say it, but I am, right? Like it's just, that's the truth. You just can't, I'll move some units, but nowhere near how much I'm doing right now, right? So what happens if the factory doesn't budge on the price breaks? What do you recommend? You find another factory. That simple. That simple. So if the factory does not budge, it is your job to create redundancy.

24:06Roman Khan:Now, the question I have when I talk to people, my mentees and everyone who's in this situation where they don't have a factory budgeting because they entered the relationship at the incorrect vantage point, right? Like they went in, they gave the factory too much power. Let's put it that way. The factory is reluctant to say, hey, I'm making a 50 % margin on your stuff. To give you a little bit of a point of view, just from industry standards, when you talk to the head of procurement at Nike, when you talk to the head of procurement at Pandora, I would like go on LinkedIn, be like, you were the former head of procurement at Pandora.

24:45Roman Khan:I'll pay you$2 ,000 to speak to me for an hour. I need to pick your brain. How do you do it? So when you look at the industry standard for like, take for example, jewelry, the factories operate with anywhere between five to 9 % EBITDA margins. Wow. Right? Right. So often, you know, shitty business. It's a shitty business, but you know, you do huge revenue numbers, right? Like my biggest factory does three, 400 million a year and he lives a good life, you know? And like, he actually made a lot of money off gold going up in price because he did, he inspired me to be like, Hey, I want to do procurement of components because I want to be in a position where I can just dump gold if it doesn't work in my favor.

25:26Roman Khan:To double click on that really quick. Let's just say it's five to 9%. And obviously, go reach out to someone in the space to understand, is it six? Is it eight? Is it 12 in your space? You're then doing this bum, you're reverse engineering it. And then it's just like, again, let's just say it's six to nine in your space. Be a nice guy while time's good, give them nine. And you know what I'm saying? So it's really just you're playing that game within the range. Exactly. Wow. Great. So you want to, to first get the lay of the land and like you want to pump emails to all these head of procurements at these different companies and just get into detail there.

26:03Roman Khan:If you're unable to do that because you have a product that's not really been sold before by an incumbent and I have mentees who are in that position, you want to really talk to at least five or six other factories and you start the conversation like the way I coached you now in the beginning, right? Like, hey, Mark, I have this great business. You know, I think it's going to grow by 5x next year as you sell the sky and the moon, right? Like you're just like, I'm going to go balls to the walls with this. My current factory does not meet my quality standards. I'm looking for another factory and have a transparent bum relationship with them.

26:47Roman Khan:I need a bum from you. They'll then say, can you send me their bombs like no i want you to come up with one yourself and source your own components and come up with the sub vendors and then you just send them this template that you're downloading from the link below amazing just send them this and just be like hey i want it to this standard as far as these price breaks go um just last question on this is there's a trade war or tariffs yeah i would imagine that you understand and know what's going on is are you being proactive and talking to your suppliers are they coming to you and what does that conversation look like yeah Great question.

27:18Roman Khan:So for the jewelry business, we were not able to get our supplier to share the burden with us because gold prices, everything was just going against us. So I think a good example would be the business I bought in June, 2024. Everything was produced in India. Trump like really went after India. It was just like singling out India after China. I don't know why, but he did. I thought him and Modi would be best buddies because Modi like went to the lawn before he got elected. So like, I was just like, oh, this guy's like really sucking up to Trump, but it didn't work out in that favor. So at one point, you know, India had 50 % of tariffs, right?

27:55Roman Khan:Like it's brutal. So we actually paused growth in the business last year because we were just like, you know what? We bought a lemon. Let's just like slow down. Let's keep it flat for a year and then let's grow this year. Now tariffs are gone. Such an important part in your relationship with your partner to do that. So important. And it's just okay to be like, hey, we need to take a pass. We're not going to go balls to the walls now. We need to slow down because this is getting out of hand. So you have visibility on duties, tariffs, and the impact on the P &L of the supplier if you have a bill of material approach.

28:34Roman Khan:This supplier in particular gave us a concession actually because he had huge margins because we just bought the business. And he understood that we understood that he had inflated margins. You know, I think it was operating at like 25 to 35 % margins, which is abnormal for textiles. It should be much lower. So we got a small concession there. And then as soon as the duties went away, we started paying a little bit more for cost of goods sold. I've interviewed over 38, 9 and 10 figure operators. And the one thing they're religious about is average order value. Every dollar on the order they just got is a dollar they don't need to spend on acquisition.

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29:47Payment terms. Why don't you give me the big picture here? I have a lot, a lot of thoughts on this. I've seen here a crazy person. I saw on the internet net 180. We're going to get deeper down that rabbit hole. I mean, I've had people come to me with net seven. We're now at net 90. And it really helps you cross the chasm to kind of unlock other things. But let's hear like, how do you look at payment terms? And how do you look at it in relation to your relationship with the manufacturer?

30:13Roman Khan:Great question. Let's take like two steps back and understand why payment terms are so important, right? So if you're running an e-commerce business, you have revenue coming in, then you have cost of goods sold, then you have marketing, and then you have your overhead. Overhead, you have a very strong grip on and it's very predictable. And you know, it's recurring unless people quit or you have to hire someone. because you're bursting at the seams, but overhead is somewhat predictable. Marketing, if you're a couple of years in, it's also somewhat predictable, right? Like it's like, it's going to range up and down by 20 % month on month at the worst case, like up or down, but you have some level of confidence in it.

30:52Roman Khan:And you know, if you dial back the levers, you're going to be able to control your advertising as a cost of sales to some extent. Be more efficient if you pull back to it. Be more efficient, exactly. The most important thing with marketing is that it's a variable daily cost. You're in full control of the free cashflow impact of your marketing. I can turn off marketing today if I want to with a click of a button. I can't cancel a PO with a click of a button. So the important thing with payment terms is to ensure that you widen your margin of error. That's the most important thing when you're looking at payment terms.

31:32Roman Khan:In relation to what? to increase your float and to have as much free cash flow as humanly possible in case you get things wrong. The metaphor I like to use is like, if you drive a Ferrari at 300 miles an hour, you're going to crash and burn at one point. You can't do that forever. You're not Lewis Hamilton, right? Like none of us are. Even Lewis Hamilton will crash. You know what I mean? Like every Formula One driver will at one point, unfortunately hit another car or go into the wall. And the only thing you can really do is like, you can dial back to speed and drive at a slower pace. But if you want to drive, if you want to be a Lewis Hamilton and drive at 300 miles an hour, you need to make sure that the tank is fueled, right?

32:11Roman Khan:Like you have to have the gasoline in the tank. And by tank is fueled, you just mean wider net terms. Exactly. Wider net terms, because your payment terms minus your production lead times is literally the float you have. So let's say it takes you 30 days to make something and get it into your warehouse in the US or your warehouse in China to drop ship it to your customers. And you have 90 day payment terms. You have a 60 day float, right? Like it's 90 minus 30. That's 60. And most people probably have longer than 30 days to kind of get it in their 3PL. Correct. You're saying probably people are working on like a negative on the net terms.

32:47Like it takes them 45 to 90 days to get the product. And they're probably at net 30, net 45. Yeah.

32:52Roman Khan:Because the little detail that people miss is that you get shit wrong in your procurement. Like take linear, for example, you look at this specific ring we kept talking about, the solitaire ring, it comes in a bunch of fucking sizes, right? It comes in a bunch of fucking sizes. You have this size complexity and maybe the team will buy too many sevens instead of nines or whatever. And you'll get that wrong. So your actual float is much lower when you think about carrying that inventory risk on your balance sheet. This is super important to understand because this is gonna move the needle massively for your business.

33:28Roman Khan:massively. So on payment terms, I just want to give that context of what influence it has on your business from that standpoint of view, that point of view. The second thing is like, there are two ways to buy inventory. The first way that 99 out of a hundred founders do. Guys, he's calling us out again, calling us out again. Actually, it's a hundred out of a hundred. I copied this of Quince, actually Sid, like I'm an advisor to Quinn's, the DTC company. But the number one way people buy inventory is outright. So they'll go out, they'll go to the supplier and be like, hey, I'm buying, you know, 100 solitaire rings, give me net 90 terms.

34:08Roman Khan:They'll take the PO, issue me an invoice. I'll pay the invoice net 90 days later. Inventory gets delivered. It sits on my balance sheet. So it's recorded on my balance sheet as like, you know, whatever the COGS is. Consignment, on the other hand, is literally the factory gives me the product. It ends up in my warehouse and I only pay for it when I sell it. Basically like a dropship. Basically like a dropshipper. Yeah. So you're taking the beauty of a dropshipping business model, but you're taking it on your custom product and you're making that the default. So consignment is the true holy grail of payment terms.

34:46Roman Khan:And we have it at linear. We don't have it for the other businesses. On Raycon, we actually... Because you're eliminating that delta now in the float. Correct. Which allows you to take more distributions. Correct. And linear is fairly easy because the supplier knows that the re-melting value is great because it's gold. So obviously it was a fairly straightforward conversation. Number two is like, we fulfill all our orders in the US from the US, but all the other countries we fulfill from Hong Kong. So it was fairly easy for them to do a recourse and claim their inventory back. So it's a very unique situation.

35:25Roman Khan:At Raycon, we do something very similar to consignment terms. So just because the factory needs an invoice that says net 90, the invoice actually says net 90, but the actual terms we have at our suppliers are consignment. We pay them every week on Fridays. We drip them cash all the time. we're never, if we make an inventory mistake where we buy too much inventory, we're never really on the hook. Wow. Yeah. And this all goes back to the bomb because you understand to know how they're financed on their side to see where the flexibility is. Yeah. And you could just go to them and be like, this is an absolute no brainer.

36:00Like you can do it's, it's black and white. Like you can, or you can't do this if you have insight into all of their finances on their side.

36:06Roman Khan:That's right. So that's like where we bring ourselves to the last line item in the bomb, So we have inbound logistics, insurance, and compliance. I really simplified it. So in our bombs, we might have 20 lines. But what we will have is a separate line for insurance, credit insurance. And we'll have a separate line for financing cost. So basically, the way that it works for the factory is take our jewelry factory. They supply more than 100 brands. They do 300 million a year. Probably like the top 10. It's like probably an 80-20 for them. I don't remember off the top of my head, but they actually share the breakdown of revenue by a customer.

36:43Roman Khan:What they'll do is they'll go to a firm like Sinosure. Sinosure is a state-owned enterprise in China, quasi-state-owned. Or they'll go to Allianz or one of these credit insurance firms, and they'll pay a lump sum, like a one-off lump sum, like 100 ,000 US a year, 200 ,000 US a year, 1 million US a year as credit insurance. So that means that if, let's say, more than 20 % of revenue defaults because of some systematic risk, the insurance company will bail out the factory so that they don't go bankrupt. So if they don't hit the numbers, even though it is on them, it almost isn't on them. So there's kind of this arbitrage percentage that gives them a little bit more peace of mind.

37:28So it's like consignment, but there's a second layer of insurance behind it.

37:31Roman Khan:Yeah, that is actually, to be honest, why China has grown so quickly in the last 10 to 20, 30 years is because the government has really backed small businesses and incentivized them to export the shit out of the country. Right. Like so. What type of percent is this insurance? The insurance is an absolute fee. They'll then take that insurance and be like, hey, look at this piece of paper. They'll then grade their clients from A, B and C. So this insurance company will send you a, some of the audience will actually have experienced this when they get payment terms. You'll get a letter from this credit diligence firm.

38:06Roman Khan:Like some, there's so many of them, I can't remember the names. They'll send you a letter and be like, hey, Mark, share all the numbers of Linear. Like I want the management accounts, I want the P &L, I want everything on you. They'll also check whether or not you've had any bankruptcies in the past. If Linear has left some bills unpaid, if you've gone to court, they'll do all this diligence. Full-on audit. Full-on audit. Very simplified audit. It doesn't take you much time. And then we'll anonymize this and not share it with the factory, but we'll act as this independent audit firm that will do this audit for the credit insurance company.

38:42Roman Khan:The credit insurance company will then grade linear A, B, or C. Like A grade, like this is like the Nike, Pandora. Like Moody's. Super safe. Yeah, it's like Moody's. Yeah, exactly. Yeah, this is great. And then B and C. I was graded C for linear because I had a supplier dispute like nine years ago or something or eight years ago with this supplier who tried to fuck me. I was like not very sophisticated back then. It's a story for another time. But to give an idea, I had to see and I had to clean up my books. I had to work with this audit firm to prove that I actually pay my bills on time, blah, blah, blah.

39:12Roman Khan:So you get rated. The factory will then take your purchase order, this audit from the credit insurance firm, and then go to any bank, any bank. Like in China, the popular options are Bank of China, Agriculture Bank of China, HSBC, whoever it is. And these credit insurance companies, you have to be doing business in Hong Kong to get it? Yes. Not really. You can be in the U.S., but, you know, it's very favorable if you're subscale to be in Hong Kong. But you can be in the U.S. It's not a big issue. They'll go to the banks and be like, hey, I got linear hair, rated C. You know, we got rejected the first time around until we cleared up a record.

39:51Roman Khan:So for simplicity, let's say we were rated A. They'll go to the bank and be like, this is rated A. They're spending$12 million a year with me. What would you buy my invoices for? So the purchase order automatically turns into an invoice. They'll take that invoice, go to HSBC and be like, hey, HSBC will be like, hey, we'll pay you 99 cents on the dollar for this invoice. You'll get 99 cents right away and we'll float the 90 days or 120 days or 180 days, whatever it is. And then you'll calculate the APR based on that 1%, like one cent that they take. Usually the factory, like for Lidenier in particular, the China, now we produce everything in Thailand because of the trade war, we moved everything to Thailand.

40:35Roman Khan:But I recall, I don't recall the Thailand factoring costs. It's higher than China. But in China, they were paying 6 % roughly for that financing cost per year. So on 12 million, let's keep it around like 5%, like 600K in financing cost. Let's say I was buying 100 ,000 units a year. Just to keep it simple, that's$6 a unit, you know? And then that would appear in the bill of material. Like Roman, we're paying$6 now. If you procure a 20 million, this will come down to five or four. So that makes it really easy to have a conversation because it's just like, let's share the burden. What if I pay half and you pay half, right?

41:16You have a - You're getting what you want because you're floating bigger net terms, which allow you to take more distributions. Exactly. So we have this conversation. It's like, you know, listen,

41:24Roman Khan:so when I went to my factory, because jewelry is a new business for us, right? Like, so it's going back gangbusters now. But we were just like, we're really constrained by cashflow. We want to grow this thing. I need your help. I'm going to take my EBITDA from 15%. Last year, we did that to like 5 % just to get more volumes because we all win. Look at this bill of material. We're going to all crush it until gold prices went up. But like, that was the mentality. And we were able to just have a transparent conversation. And I paid for 80 % of the financing costs. They paid for 20%. We built a relationship.

41:57Roman Khan:Now we're doing really well. They're happy to go over to consignment. So in short, the supplier becomes the bank. Yeah. Is what we're doing. Yeah. And then there's a negotiation on if or how much, depending on how much leverage you have, what that split is. You're saying it's 80-20. It could be 50-50. And it really depends on the industry. It really depends on the margin. And does it fucking matter? to be honest, let's be real. Like I see all these like crack addicts in DTC that are taking Wayflyer loans and like fucking, and they can't calculate the interest. They can't calculate the interest because they don't understand.

42:32Roman Khan:Like the Wayflyer, they all went out, right? No, I think Wayflyer is still around, but like they're like - Those are shark loans. Yeah, they're shark loans, right? Like people don't understand that if you grow faster, your cost of capital goes up. So you might sign a piece of paper that says 10 % on today's nominal growth terms. But if you grow too quickly, it turns into 30, 40%, right? Like, so it's very, you're paying crazy, crazy costs. So as a percentage of total revenue, my interest costs to the factory is nothing. It's a rounding error. Like even if it's 6 % on COGS, if COGS is 20 % revenue, you know, it's like low single digits that you're paying an interest cost to get a dividend first business.

43:17So how are you looking at kind of, now that the supplier is your bank, how are you kind of looking at like the vectors of cashflow? It's payment terms. And then you're just looking at how can I get the most amount of money in? It's basically just how can I squeeze the most amount of cash out of the business, correct?

43:33Roman Khan:Yeah, correct. So I think like what I obsess about now more than ever is, let's keep the numbers really simple. Let's say I produce$1 million in profits per month, like profits. So 70 out of 100 founders that I talked to in the M &A pipeline don't even have management accounts, right? Like they don't have their accountant. At the 15th of the subsequent month, you have to close off the books for the previous month. It's religion for us. It's an unbreakable ritual. Like on the 15th of the month, I want to see the previous month's books closed. Like I want to know how much in revenue I had, how much in COGS, both by cash and accrual, how much OPEX, how much profits I had.

44:16Roman Khan:According to the management accounts, let's say last month I had$1 million in profits. What I care about is how much of that 1 million can I actually dividend out on the 15th? There are two components that goes into that. One is how much of that is actually free cashflow in the management accounts? Like how much cash is actually generating because EBITDA is not cash. You can have EBITDA, but it doesn't actually transpose into cash in the bank. So we'll talk about that in a little bit. Because that's the float. The EBITDA could be the float versus actual money in the bank. Exactly. Two is, you know, what do I need the next month, the month after, the month after that in working capital to fund more growth?

45:02Roman Khan:And once you have a very strong understanding of these two things, you're going to be able to take out dividends every single month from your business. the most important thing that comes out of component number two, which is basically how much working capital do I need to, let's say for linear, we're going to grow like 80 % next year. Like how much working capital do I actually need to keep in the bank account at the end of this year to fund that 80 % growth? Which through the whole exercise we did, you have the most favorable terms and the largest float. Yeah, so I need zero. You're paying them, yeah, you need like basically zero.

45:37I need zero. I literally need zero. So what percent of, let's just say you had a million dollars in cash flow from a percentage perspective, obviously we're white labeling the$1 million. How much are you taking off the table?

45:47Roman Khan:The evolution has been really interesting. Range me. What's the range looking at? Right now we're projecting 65 to 75 % for this year. Oh my God. So every single month, 65 to 75 % of free cash flow. Yes. You are taking out. Yes. For guys out there listening to, he's an extra gangster. No capital gains in Hong Kong. What is it called? What's the tax that you pay? 16.5%. So you should just move to Hong Kong. That's lever number two. So I think optimizing for that is going to allow you to live a very rich life. So one of my mantras is you open with it. So when I was 32, I was negative$3 million in net worth.

46:28Roman Khan:I was an idiot. I'd taken on too much inventory risk. I was like growth, growth, growth, growth, growth at all costs because I just left this like enormously successful company as an executive. I was working at Rocket Internet. We raised$700 million, ended up selling that business to Alibaba for$2.1 billion two years after I left. I didn't have any meaningful equity in it, but I came from a culture where growth would come at any cost. So I applied that to Linear. It was the classic founder mistake, right? Like single leg table, 10 creators that were pumping in Meta, only Meta as a working channel.

47:03Roman Khan:And I was like, let's go gangbusters with no payment terms and buy a bunch of inventory. It became a titanic situation, right? So I went from like negative$3 million of net worth because I had to take on personal loans to just like float us because there was no Wayflyer back then. And there was no like Shopify Capital. There was not, it was like, you know, I'm a dinosaur, but there was no like big e-com lenders back then. So I was taking on these personal loans to get me out of it to basically in my 30s, the remaining eight years, I just turned 40 last year, I was just doing the math. I think I took out$13 million in distributions from my companies in total, right?

47:41Roman Khan:Like not astronomical numbers, but incredible numbers. I parlayed that into investing in the public markets and turned into much more. We'll talk about that later. But like being in a position from going from negative 3 million to positive 13 million in free distributions, while at the same time using my own balance sheet to buy another three companies, is like the biggest turnaround story of a lifetime because of this bill of material approach. It's all rooted in this. This is the reason I was able to do it. This is so wild, man. I mean, they always just, you know, I lived in the beginning. It was like leaders eat last.

48:16And like, I would randomly take kind of big chunks out because I was like, hey, we have X million on the bank account. Let me just take out a chunk of money. It's the complete wrong way of thinking. What percent of founders do you think have this distribution first mentality?

48:29Roman Khan:It's interesting. I probably talked to 1 ,500 to 2 ,000 founders over the course of the last five years. Like talking meaning actually got to see their P &Ls for their DTC business. I'd say maybe 10 % of them. It's higher than I thought actually. Yeah, it is. It's really interesting when you go through the bell curve because of those 1 ,500 companies, I'd say a thousand of them run with sub real 7%, 10 % EBITDA margins, sub, sub, sub, sub, 10 % EBITDA margins, right? EBITDA too. We're not talking about cash. They're not doing all the other things. And they're stressed and they live a horrible life and they would be better.

49:17Roman Khan:What I've tweeted about before is like, you're just a glorified category manager for Meta unless you're doing like Raycon level numbers. Like linear. And now with Meta, with the invoicing, I lost all my Amex points. Yeah, exactly. I lost all my Amex points. Exactly, exactly. That really fucking hurt. Yeah. They put a gun to the head. I kept getting that email. I'm like, damn. Damn. It's crazy. So I think like, you know, you think about, okay, Raycon is not that business because it's like an enormous business. Linear right now, I tell the team all the time, we're just category managers for Meta.

49:52Roman Khan:That's what we are, guys. Let's be real. Let's be real. Like we have a really cool job. We work for Zuckerberg and we're running that little store in the world of Meta flea market. And our little store is doing really well, but we work for the man. We work for the man. Let's be fucking intellectually honest about this. We work for Zuck until we have a hundred retail stores, until we have like some level of an organic engine working for this brand. We are working for Meta. And let's be completely intellectually honest about that, right? Like, so. He is dead serious looking me in the eyes. Yeah, it's like, that's the business we're in.

50:32Roman Khan:So once you understand that and you really incorporate that into your thinking, you're like, okay, I need to start taking out dividends. So the thousand are running at sub 10%, maybe two, 300 are running at like 10 to 15%. And then you have a couple of 100, 150 people who are running at like 20%, 25%. Like, we don't really have that shitty of a business right now. You're actually, through this whole entire process, I'm going through this whole entire bombing. That's awesome. It's actually better than I thought. Yeah, that's good. Those are tough numbers. Sub 7%. Yes, exactly. It's crazy. It's crazy.

51:03Roman Khan:They're growing, but at what end, right? Like it takes, again, the Ferrari car metaphor. You're Lewis Hamilton. It takes one Trump tweet to put you out of the business. It takes one algo change on meta to put you out of the business. It takes one fucking freight fuck up to take you out, right? Like you're one... we'll puncture away from dying. You know? It's tough here, guys. Guys, we're going to get into the whole entire D to C mix, marketing mix with Roman a little bit later. I want to tie a bow in this. Yeah. Absolute masterclass on this whole entire supply chain optimization. For people out there listening that are doing$5,$10,$50,$100 million, what would be that first step for them to take to kind of do this?

51:44Is it just the bomb? Is that that's really what it is, right?

51:46Roman Khan:I really think it is. Just all things lead to that because that kind of opens up. It's the foundational layer in the pyramid. If you have the bomb at the bottom to get to this like dividend euphoria, you know, touching the skies, touching the clouds of dividends and cash. You have to see the passion in his eyes. It starts with a bill of material. It's the most foundational thing you have if you're selling physical goods by far. So much free game there. Unbelievable. This episode is brought to you by Momentus. Most Americans today are walking around deficient in omega-3, vitamin D, and magnesium.

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52:55Go to livemomentous.com, use code OPENRESIDENCY for up to 35 % off your first order. Quick break. A world-class bill of materials strategy took Roman from negative 3 million to eight figures in distributions. This is part of a supply chain playbook, and he gave us the actual template. It's free in the top of the description box below, along with everything else he mentions in the episode today. Go grab it. Enjoy the episode. I had never even heard of a dividend recap. You're really putting me on game. Let's talk about that. What is a dividend recap? More free game, guys. What is it? Good.

53:29Roman Khan:So I think for dividend, like, let's take, again, I like taking a couple of steps back, talking about how you actually make money from your business. So think about it as a quadrant. You have free cash flow and then you have enterprise value. Okay. So the classic, like, dropshipping business from AliExpress has no enterprise value. We can agree on that, right? Like they're just literally printing money. One time it will die. Just a free cashflow game, right? My thesis is not many people have enterprise value, period. Agreed. Yeah. 100%. 100 % online. Guys, you're probably not a brand. I'm just going to throw that out there.

54:04Yeah, exactly. We talked about that in the past.

54:05Roman Khan:Exactly. So bottom right is enterprise value. You're like a rich, like Sean, or you're I'm eight, right? Like you're like some big off the bat. You're crushing it. You're doing multi nine figures. You're the real deal. and there's a buyer for you, like Grunz or whatever. Now, in that quadrant, you have many ways of making money. So we talked about free cash flow, which is basically honing in your bill of material, honing in your management accounts, honing in your free cash flow, and take that out every single month. The other lever you have is a dividend recap. So dividend recap is basically taking a loan as a business.

54:43Roman Khan:So let's say linear is a C-corp. You take a loan as linear. maybe three times EBITDA. Let's say EBITDA is, you have to have at least$2 million of EBITDA for a dividend recap to be a realistic lever to pull, let's say. Let's say you have$2 million of EBITDA. You can go to a bank and be like, hey, I've had$2 million of EBITDA consistently for the past five years. Here are my audited financials. What's that minimum threshold? You said$2 million in EBITDA, how long? Three years? Three years. Okay. Three years, last year has to be audited. Then you go to a bank and you borrow, let's say three times EBITDA, so$6 million, that debt now goes on the books.

55:22Roman Khan:So it's a liability that sits on linear, not on mark, but on linear, no personal guarantee. And the purpose of this cash is to dividend it out to you as an owner. Radical transparency with the bank and what you're doing there? Yeah. It's an instrument called the dividend recap. It's a really well-known instrument that DTC founders don't know, but usually private equities will pull this all the time. What's attractive about the business is like, take for example, the business that bought in June, 2024, it had no debt on the books. So I could literally go in, I wired the founder low eight figures.

56:01Roman Khan:Wow. I'm already thinking in my head what you did. Yeah. I could immediately go in and take out a loan and get paid back and like literally put done zero on the business. You know what I mean? You can lever it to the tits and like take on his P &L. On his P &L. Yeah. You could do that. We didn't do that because we just, he rolled over some equity. We don't really need the cash, frankly speaking. But if I wanted to, I could have just taken out all the cash as a loan against that business and the liability would have sat on that business. And this is what private equity guys do. They get the business almost for free by using leverage.

56:35And you're basically saying, so on that loan, let's just say, correct me if I'm wrong, like 6 % to 10%, 6 % to 11%, probably like 8 % to 11%, whatever it is. And then you're like, how much money can I make if I had that$6 million? A little bit of a gambling game. How much can I make on that? And then have, let's just say it's 10 % on the interest, knowing that your free cash flow or EBITDA is more than 10 % that you could just pay off principles.

56:56Roman Khan:So let me talk about tangible examples. So it's like real for the audience. In the current market state where interest rates are today and where e-commerce is today, you would be able to do a dividend recap at 12 to 14 % interest. Effectively, effective. Interest rates in the term sheet might say 10%, but then there's a breakout fee. There's like admin costs. There's all this bullshit that comes with it. I'm also going to add the cost of doing a quality of earnings, all the maintenance costs that goes into maintaining this loan. Let's say effectively you're paying anywhere between 12 to 14%. If you're doing$10 million of EBITDA, which some of my businesses do, you can probably get that down to like 9 % to 11%.

57:39Roman Khan:No warrants, no equity, just a pure loan on the business. Now, there are a couple of things you have to think about when you go through this intellectual exercise. Number one, it is extremely fucking tax efficient because EBITDA is before interest in taxes, right? So that interest you pay lowers your profits, which lowers your taxes. So let's say it's 10 % that you pay. You probably effectively are lowering your taxes by at least like your loan. At least 20 or 30%. Yeah. So the interest rate you're actually paying is closer to six, seven, 8%. If you account for the taxes. So farmers get really emotionally attached to it.

58:19Roman Khan:But if you think about it, it's fucking cheap. It is so fucking cheap. And not a personal guarantee. Not a personal guarantee. Now often the caveat is, the caveat is they'll only do it when a new equity partner comes in. So it's hard to do. like I'm able to do it for linear. Like I own 100 % of linear. I will be able to do it. Like next year we'll do probably 10 million plus. We'll probably do anywhere between 10 to$15 million of EBITDA. And I will be able to do a venture backed, like, you know, a dividend recap on that business because it has 10 years of history. But usually and often in many cases, they want to see new equity getting injected because it all comes down to incentives.

59:03Roman Khan:Like it's like, is Mark just going to shut down the business and run away with the money? Blah, blah, blah. So I'm giving you the best case scenario. There might be a recourse and personal guarantee on parts of the money, but you anyways have it as the fucking owner. So just take the fucking money and invest it somewhere else. Buy your wife a house, take some chips off the table. Don't be a degenerate because it's a great, great lever to pull in this quadrant of free cashflow enterprise value, right? How does a recap blow up? So recap blows up when you have something called, there's covenants in the agreement.

59:38So you have something called an interest expense ratio.

59:43Roman Khan:So let's say, let's keep the numbers simple. Let me try to normalize them. You're taking on a$10 million loan. You pay 10 % interest. That's$1 million a year. And your business generates... 3.33 million in earnings per year. You levered up three times, you've taken out that loan. What the bank wants to see is that you at least cover your interest expense two times over. So let's say you can't dip below$2 million in profits. If you dip below$2 million in profits, you're in breach. You're in breach and they can claw your business. And that's a negotiation on that multiple. Correct. You're saying ballpark is usually two?

1:00:26Roman Khan:like let's say two, like for the simplicity of it, it can go all the way down to 1.5. Some of these like huge guys are doing 1.5, like super low numbers. It's crazy. But yeah, but they have a basket of companies and they borrow billions of dollars. So don't use that as a benchmark. All right. So here's the real question. Optimizing the supply chain, profits and distribution first. Where does the money go to have the bank account that you have that he told me off the record and it is looking good. So where is the cash? Where is the cash going? Yeah, I think you should do as I say, not do as I do.

1:01:04Roman Khan:Like people - It's not financial advice. Yeah, exactly. It's not financial advice. And I'm a completely degenerate. The biggest caveat I would say is like - I think the biggest thing, just to interrupt you really quick, is you more so, I would say we've done, I think this is, we've done, 34 episodes are out, we've done 42. You are of probably three or four people that you made me think the most. and like the bomb was one thing and this, what we're about to get into right now. At the very least, guys, don't take the advice, but just think about it. So continue. The biggest disclaimer I want to make is that the distributions I make for my companies per month now cover my annual burn, right?

1:01:44Roman Khan:So every year I make more in distributions than I spend as a family over the next decade. So that allows me to think about my distributions in a very high risk manner. So my investment strategy is very like YOLO-like if you read about it from afar. There's a lot of thought going into it, believe it or not. So one big caveat is... You're covering your nut. So you can take some home runs with it. I can take some home runs with it, right? So that's the reason I can do it. There are two books I really want to recommend to the audience that changed my life that I bought when I was going bankrupt at 32.

1:02:24Roman Khan:Like eight years ago or nine years ago, whenever it was, I bought these two books. Actually, one I bought, the other one I discovered at a book swapping corner in my neighborhood. It was like, God sent it to me. Book number one is Profit First. I don't think it's very well written, but it's a book about how your business is a cash eating monster and how to turn around and make it a dividend making monster. So it's like profit equates to sales minus cost instead of just thinking, grow, grow, grow, grow, grow. It's about profit first. So read that book. I think it's going to really help you understand if you're in that 1 ,000 companies out of 1 ,500, if you're in that bucket and you're not really - Making any money.

1:03:07Roman Khan:Yeah. If you're not making six figures in distributions per month, I don't think you should be an e-com operator. You should just go get a fucking job at Meta. I mean, they're firing everyone, but at some company, maybe open AI or Anthropic, but you should just go get a fucking job because it's just not worth the stress. Life is about enjoyment. It's not about suffering. I think what founders think about too much is suffering. They think that's the default because they look up to Elon and they're like, I need to suffer for greatness. You don't. You can achieve greatness without suffering. I wish someone could go back in a time machine and tell me that at like 25, life would have been so much better.

1:03:46Roman Khan:So all I do now, that's actually why I like mentor all these degenerates because I'm just like, you don't need to suffer. You just don't need to suffer. It's like me trying to make up for my suffering twenties. So read Profit First because I think it's going to get you in the right frame of mind. The second book that, you know, was sent to me from above in this book swapping corner, it's a really cool neighborhood I lived in. We had like these bookshelves with these swapping corner. So someone left the book by Tony Robbins and my wife was in it. Like we were co-founders. We were equally anxious waking up every day, like thinking about this, like fucking Titanic of inventory, the personal guarantee we had on$3 million loan we had taken out.

1:04:29God bless this with your wife. It's crazy. It was crazy work out here with the wife. It was heavy. It was heavy.

1:04:34Roman Khan:And we postponed starting a family because we're so in it. Like now I have three kids, you know, I'm so blessed. We want more, but you know, we pause life because of this. So this book is called Unshakeable by Tony Robbins. He co-wrote it with Ray Dalio, I believe. And it's about being unshakable, you know, and it talks about an investment framework and how you should invest your money and dollar cost average. The punchline, if you don't want to read the book, because I feel like half the audience won't. Guys, read the book. It's just time and market. Don't try to time the market. Just be in the market for as long as humanly possible.

1:05:12Roman Khan:And that book will prescribe a really boring investment strategy that actually works. You will see that, you know, what was it again? If you dollar cost average, I was doing this thought experiment for someone I was mentoring. If you take out$50 ,000 every single month over the next 10 years, you will have taken out 600 times 10. Six mil. Six mil. If your dollar cost average it over 10 years and you simulate it the last 10 years and you do it according to the unshakable portfolio, S &P 500, or the golden portfolio, which was the best one according to AI, you need to fact check this. That 6 million turns into 12 or something like that along those lines.

1:05:58Roman Khan:But more importantly, like you're setting aside chips at table. So if you're in your early twenties, thirties, forties, fifties, it doesn't really matter. Over 10 years, you can completely transform your life with$50 ,000 of dividends per month. It's pretty remarkable. It's so crazy. It is really crazy. It's crazy just because like, again, I do obviously pre-production and I research the guests that come on. It's just like, yeah, you have such an interesting, like I look at everyone and like when I look at you now, like I look at everyone, I was like, what's their superpowers? And it's so funny, supply chain, and then like, the market, which is just interesting, because I look at you as like an operator by trade.

1:06:36So that's very interesting. So it's in the market. So you're just saying you're getting the cash. Obviously, you're in a very tax efficient place in Hong Kong. God bless you. Yeah. And then your dollar cost averaging, you're putting it in the market. And are you doing predominantly S &P? Or are you going degenerate style and taking some home ones?

1:06:53Roman Khan:Yeah, yeah, I'm doing degenerate style now just because I want to live on the edge. So obviously what I'm doing is if I transpose, I do this exercise, which is called a vivid vision. So the COO of 1-800-Junkyards was at this summit I was on and he taught me this. So basically a vivid vision is manifestation for lack of better words. So I think of myself when I'm 45 and I write a letter to myself at the age of 45. So I turned 45, 2030, 4th of August. So I wrote a letter to myself dated 4th of August, 2030. And I talk about like what I have achieved as a family, as a husband, as a son, as a brother, as an operator.

1:07:38Roman Khan:And for me, my vision is by the time I'm 45, I want to be so meaningful in the world of e-commerce and public markets that when I take a stake in the company, people get as excited about it as Warren Buffett, you know, like within my segment of my focus. So that's where I want to go. And this is the reason I'm taking such concentrated bets in the public markets, because that's the end state for me. I want to move from just being a pure operator slash roll up your sleeves kind of investor to a much more highly leveraged type of operator investor. And I think I'm going to achieve that through the public markets.

1:08:17Roman Khan:So anyone who follows me have seen that, you know, I was the first advertiser on Axon. So when Applovin opened up, the first person they reached out to was actually me. I got introduced by a hedge fund called Faralong Capital. So a friend of mine works there and he messaged me. It was like, Applovin is trading at less than 10 times earnings. They do mobile gaming apps right now. I want you to take a look at it and like actually tell me whether or not. Ballpark year. What year was this? Man, 2024, I think. Early. Like literally Linear and Raycom were the first brands on Applovin. They were the first brands on Applovin.

1:08:56Roman Khan:There was no platform. I was interacting with the team. We had to send them the files by emailing Google Drive. Their go-to market, which obviously you were a part of that. Absolutely brilliant. I'm like... Next level. Like you have to take that approach to get... There's 15 people in the e-com space like you. And you have to find a way to incentivize people like you, hell or high water to have you talk about it and obviously champion the product. And obviously it has to be a good product and work. But if you do that, e-commerce is one of the, it's like a very incestuous space, especially on Twitter, where like, if you get a bunch of people to talk about it, you can literally drive stock price.

1:09:33Roman Khan:It's a real thing. It's pretty interesting. Like, right. So it's like, I saw that journey. I didn't talk about it publicly at all, right. Like at all during that time because I didn't want to be seen as like a shiller yeah exactly but I referred Sean from Ridge right I referred all these other guys who were kind of coming in the pipe and the rest is story but I saw the stock go from 60 to 750 over a very short period of time it was very volatile and that opened my eyes to like okay I have it at all these hedge funds were calling me asking me about the product right like because I'm a former finance guy they felt comfortable talking to me and I just understood like, oh my God, my alpha is real.

1:10:12Roman Khan:Like I actually know things months in advance of, you know, like I can see the pattern of something taking off. Under the notion that you were using it at your companies and it was starting to gain share. I didn't know anything about the internal earnings or revenue of the company, but I had a strong understanding that this was going to change the game and be at least 10 % of my spend, you know? And it's going to change the game for a lot of my colleagues and friends in the space, right? Like everyone spends on Apple up and now that's a sophisticated marketer. So that was one. Two was like, you know, the founder of Prenetics, well known for iMate, their core brand.

1:10:48Roman Khan:Great episode. We'll pop it up. Yeah, exactly. Danny's an amazing guy. He's actually based out of Hong Kong. Smart guy. Everyone should be moving to Hong Kong. That's like going to be the DTC mecca by the time I'm done with the place. But so he's based out of Hong Kong. He scrolled into my office. I had met him once before on an occasion. and he came into me and it was like, I'm launching IMA. Like I just launched it. It was like two months into the journey or something. They're spending$5 ,000 a day or something on Meta. And I was like, he was explaining the CAC to LTV to me. And I just told him like, these numbers are fucking phenomenal.

1:11:24Roman Khan:Your reorder rates after first order, incredible, incredible. And go behold, like I've been involved in that company. I'm an advisor to the company, I'm an investor. And I've also seen that stock go from like$4 to$20, right? Like, so I think for me, my unique investment strategy is just getting involved in this like publicly listed e-commerce derivative companies, whether it's, you know, something like Apple Oven and Meta, where I just feel like I'm very comfortable underwriting. Like when Meta a couple of months ago were labeled as a tobacco company, the new tobacco, the stock price went from$750 to$508.

1:12:08Roman Khan:So I just went all in at$525, right? Like, so for me, underwriting something like that, I had hedge funds calling me being like, do you think this tobacco narrative is real? I was like, are you fucking kidding me? Like, does not affect the business. Even if they banned all users below the age of 18, it would have no impact on the ad engine, you know? So I think our ability as operators, understanding fundamental businesses is so unparalleled and it gives us an edge in the public markets. I'm new to this journey, but that's where I'm deploying my money right now. If I was not in this position, the way I would do it is just straight up follow like golden butterfly portfolio or whatever it's called, or the Ray Dalio book or - S &P, QQQ, stuff like that.

1:12:50Roman Khan:Yeah, exactly. Super simple. Keep it simple. Keep it brainless. Be unemotional about it. Do it in routine. Again, time in market, like mid month, end of the month, just buy the same shit over again and over again and just dollar cost average so that the volatility doesn't get to you. Dave Bortna here. Something big is coming. September 2nd, DraftKings Game Day. We're talking massive deals, exclusive offers, and an all-day celebration built for sports fans. Whatever you're betting, DraftKings Game Day has deals dropping all day long. One app, every sport. So mark the date. September 2nd, new season, new era.

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1:13:59Bonus bets expire seven days after issuance. For additional terms and responsible gaming resources, see sportsbook.draftkings.com slash promos. Limited time offer. The Danny play is very, very interesting on Prenetics. I did a lot of due diligence, obviously, before that episode. I am not a public markets guy, but I was looking at it from like a D2C perspective. And then there was all these kind of other assets that I knew that they could liquidate. It was an interesting situation. That's consumer. I feel like your big bet, though, is like the picks and troubles. Like you're doing like the platform base.

1:14:25So meta, app, app loving. Is there any other kind of big ones? Yeah. There's not many other big ones that are like driving spend from a platform perspective. Yeah.

1:14:35Roman Khan:On, there's not that many other ones, right? Like, yeah. There are like maybe 65 names out there that are really big and chunky that you can sink your teeth into and you're not moving the stock price, right? Like if you buy a lot of Prenetics today, like mid seven figures, you'll move the price because the volume is so low because it's a micro cap. So there may be 65 big names, like anywhere from like Meta to Global E to, you know, Google, like Pinterest, Snapchat, all those names, right? Like there's a lot of them actually. What are some of those other like categories you would look into when you say picks and shovels?

1:15:07Roman Khan:Yeah, picks and shovels would be more like these big, big names. Picks and shovels would be like the Global E's of the world or Klarna or one of these things. PIM and processing, stuff like that. Yeah, PIM processing, all those things. So I would say like 65 to 70 % of my portfolio at any point in time is in these big names. and what I want to do more of is these smaller names like Prenetics. So like I think a large part of my career moving forward is going to be an activist shareholder in these names. Maybe I can give you some examples that people can look up. I'm not, I have no shares in them at the point of this time of recording, full financial disclaimer.

1:15:39Roman Khan:And I don't actually plan on buying any shares in these companies. I'm very comfortable talking about them. But, you know, take for example, this incredible founder, Eric and Beth, like they run a company called Brilliant Earth. Have you heard of the company? Is that a jewelry company? They sell like engagement rings. $420 to$440 million in revenue per year, somewhere there in ballpark. Maybe like$20 million of EBITDA, right? Like, so$20 million of EBITDA can be higher, in my opinion. That's low. That's low. 4 or 5%. Yeah. Loss of optimization to be done there. Market cap is at$120 million. This is what I'm saying, is the D to C versus the public markets.

1:16:20How is it not crazy?

1:16:22Roman Khan:Yeah. So, but more importantly, then you have to dwell even deeper. You look at their balance sheet, they have$60 million of cash on the balance sheet and no debt. So effectively, if you remove the cash, it's trading at$60 million, which is three times EBITDA with$400 million plus of revenue with not a very lean OPEX. So that's one example. So they should shave OPEX, get creative on the debt, scale the thing up and everything. It's just like, it's a great business. And I think like, honestly, intellectually, I think like, yeah, I just don't, you know, again, mispriced in my opinion, like a little bit like Prenetics when I looked at it, right?

1:17:00Roman Khan:The second thing would be pets. So 1-800-PETS. Have you seen that? I've not seen that one, no. So I think they do$200 million in revenue. Market cap is maybe 30 million US for a pet company. 80 plus percent of the revenue subscription, 80 plus. Which is phenomenal. That's the best. I don't think they have any debt. They probably don't make any money. But again, super bloated organization. Like they even have a fucking chief accounting officer. Like it's just so random. So like, it's just a lot of bloats. They have their own 3PL fulfillment and all that stuff. Like they have their own facility that they spend$20 million on.

1:17:39Roman Khan:So there are just so many opportunities like these two in the public markets that I can kind of sink my teeth into and kind of try to influence and make better. Like I've had an impact on Prenetics. I think I can have a much bigger impact on all these other businesses. Love that. Yeah, definitely. Obviously take advantage of understanding and knowing exactly what's going on in the space. Let's dive into DTC. We haven't even kind of talked about that. Yeah. Your businesses. I guess let's just first start with like channel mix. You're spending, I don't know, 50, 60, 70, 80, a hundred million dollars a year across all your brands.

1:18:11What's your thesis on like the mix right now? If you look holistically, where are you spending your dollars?

1:18:16Roman Khan:Yeah. I was trying to reconsolid before this recording, but I think we'll spend 85 to$90 million this year. Yeah, like roughly. I'd say... Let's make it 100 just for even numbers. Yeah, let's make it 100. Like I think 40 to 45 % is going to go to Meta. 20 % is going to go to Google. 5 to 10 % is going to go to Applovin. And then I would say the rest is Influencer. Wow. What do you know on Google that we don't? That's a very high number. Is YouTube obviously a role that under there? It's the nature of our categories, frankly speaking. I mean, I should add in Amazon ads. So I take in Amazon ads, maybe Google goes down a little bit, but you know, it's the nature of our category.

1:18:59Roman Khan:So like linear Google shopping is huge. Raycon Google shopping is big. Google shopping is still a big thing, you know? So I'd say we also are huge on YouTube. You can't open up YouTube without seeing Raycon, right? Like so with an influencer. So we all spend quite a bit on YouTube ads. I'm in both the funnels right now. I was not in the funnels, but a lot of earbuds and female jewelry is now in my world right now. Good, good, good, good. Algos are working. Yeah. What do you think is the most kind of underrated channel right now? Obviously, I think let's just put Meta and Google aside. 40 % is actually fairly low.

1:19:32I'm starting to see now via TikTok and influencer, a lot of people that are scaling are pushing hard there. And you could be spending 1 % on it. Where do you see a lot of meat on the bone from a channel perspective?

1:19:41Roman Khan:I think like obviously we're all sleeping on TikTok if you're not in it. like the OGs like you and me, we're not TikTok first. I've actually been thinking too much about TikTok lately about like why that's like, I obviously learn a lot and take advice from these and bring them back to my business. We have a really high AOV. So I've kind of shied away from it. But I think we're at a point now where like, what the fuck am I doing, dude? Yeah. Yeah. So TikTok is like the big one. We barely spend on TikTok. And that's not something I say with pride. Yeah. Like even within our influencer mix, we spend zero on TikTok.

1:20:17Roman Khan:Like that's not true. Maybe like three, 4 % of our influencer spend is on TikTok influencers and the TikTok platform. So that's the biggest thing that we're sleeping on. I feel like a lot of people are sleeping on, but I feel like that's an obvious one. If you're spending time on X and on YouTube watching this podcast, you will know that you're sleeping on TikTok. The biggest thing that I feel like people are sleeping on and the biggest reason we're growing on Meta this year and having better performance on Meta this year is because of partnership ads. You see it in the iMade funnel. You see it in the linear funnel.

1:20:49Roman Khan:You will see it in the Raycon funnel. 40 to 50 % of our ads are whitelisted. So partnership ads is a new future by Meta where they're cloning or copying Spark ads. So they made it super easy for influencers to give a brand access to the ad and the rights of the page for that ad. So they'll send you a Guys, we are still early. We are still early on this. We're still early. We're still fucking early. A lot of people have come on and they're like, like Ketone IQ is another one. They're a partner. They go so hard at it. We're printing with partnership ads. So when I had this event, right? Like the average revenue of people who came to my summit in Hong Kong was 72 million US.

1:21:30Roman Khan:Everyone is printing money with TikTok and meta and all that stuff. And I kind of surveyed the room on how many of them are running partnership ads. It was like very few people. We're talking like five or four operators out of 65. So people are still really sleeping on partnership ads. The reason partnership ads work, in particular for high AOV products like Linear, is because you bridge the trust gap, right? Like it's really simple. You see something from someone with like 100K followers because there's just so much fucking AI slop in the ad accounts, like in the feed. You see a real person with a real profile that's 10 years old.

1:22:08Roman Khan:you're going to trust that person and you're going to buy the product off that person. You'll get asymmetric benefit from that. But ironically, if you just run through any ancillary channel, I see for a lot of people that is just performing better than the core channel because it's just one more touch point as opposed to getting a linear ad. You're getting it through random 5, 10, 15, 20. You need diversity in your account and diversity means multiple sources of trust to get people to convert. So that's the biggest thing people are sleeping on, in my opinion. Yeah, I agree on that. And yeah, it's so funny.

1:22:43My wife is dealing with it right now. She's doing a lot of negotiation on the whitelisting side. There's a lot of money to be made on the other side for creators. Yes, 100%. Flat fees. If you're going to go all platform, you can get a premium for that. How are you compensating creators on this side? You don't have percent of spend? Yeah, we do fixed fees. Fixed fees. Yeah. And you own the assets.

1:23:03Roman Khan:Fixed fees? We own the assets. Fixed fees, yeah. And then we, the fixed fee is usually a daily rate. So let's say like it's running ads under your handle mark would be$10 ,000 a month. We'll break that down to a daily rate with a breakout clause after 14 days. Ooh, I like that. So that's how we run it because we're very dividend first and we want to predict our costs and like we have a budget and we're really boring in that way. But, you know, it's pretty crazy. I had this kid come to my event. Second year of business, he did$180 million in revenue. Supplements, crazy. and he pays variable. And for some of his creators, he was paying like 60, 70 grand a month, you know?

1:23:43Roman Khan:So I don't, I'm not sure. I'm second guessing whether or not our system is the best because I think paying variable, it all comes down to incentives, right? Like, so we're going to test out variable too with some of our creators. Yeah, I would say obviously like Hudson from Comfort, they go crazy. They give a fat upside rate. I would say what we tried is I was like negotiating all different deals with all different people it gets so fucking messy then. And then like, what are the terms? How often are they going to be paid? I think just locking in kind of when you're split testing this, just locking in kind of one offer or else it gets so fucking messy.

1:24:16It does, it does.

1:24:17Roman Khan:That's why we kept it simple. It scaled really well for us. We don't need to break something that's working, but it did get a little bit of FOMO when I saw kids come to my event doing monster numbers with a different model. So to stay intellectually honest and to really try it out, I think we're going to try some variable this year. that's a really really good thing for people to listen to i've never heard a per day with a 14 day out i love that fiscally conservative that makes sense easy to process for the person on the other side i love that because the conversation is just like hey mark i don't know if you're going to convert we really appreciate what you're doing we need to manage our risk can we pay for 14 days to start and see if it works and then like you know often we'll pay a higher day rate for the first 14 days of trials.

1:25:01Roman Khan:It's like, hey, we'll pay a double just to try it out. But we just don't want to, not double, but like we'll pay a little bit of a kicker just to try it out. Actually, the trial period right now, I think is 10 days. But yeah, don't quote me on this, but it's somewhere about there. For the upfront work to actually create the content. Probably. Let's double click into meta. Let's just say someone is in the five,$10 million range. Meta is probably their driver. What do you think is broken in meta for the people that can't scale up? What's that thing that's preventing them from getting scale? I spend 80 % of my time when I acquire an asset thinking through the offer.

1:25:39Roman Khan:So when I bought this business in 2024,$24 million revenue, 60 % of that revenue come through.com, the rest came through Amazon and wholesale. So let's say like 12, 14 million came through Shopify. my question was like, how do we take Shopify from 12 to$14 million to let's say$60,$70 million in the next years, right? Like how do we actually 5X this channel? All of it really boils down to the offer. Like that's what it really comes down to. So we're selling like baby accessories. It's like buy two, get three, try that, BOGO 50, freebies on the add to cart tray, offer, offer, offer, offer. And that is literally what's lifted the performance of the meta account by more than 50%.

1:26:27Roman Khan:It's just the offer. Same creatives, just different offer. So I'd say for most of the people I get on a call with when I'm auditing their accounts, when they're sub, most people who like book me obviously are doing like 25 to 50 mil and they're kind of stuck. 90 % of the time, it's because the offer is stale and not aggressive enough or compelling enough. So that's, that's the 80-20. Then let's say if you have the right offer and you're going stale, it's because of the hooks and angles you have for that product. The USP is the value price. So you take like iMade, right? Like they're, that ad account is fucking crazy.

1:27:09Roman Khan:Danny's like a, Danny's like so good at that. There's a thousand, there's a thousand celebrities in there. He was not in DTC two years ago, this guy, right? Like, and now he has like a thousand hooks, right? Like a thousand hooks, like fucking IMA. Like, you know, they promote like boosting of testosterone. You're not like, it's just like all these angles that you can't think of. It's like, it's an incredible product. I drink it every single day. I love the product. Like I fucking love IMA. But like, they have so many angles, right? Like, so what I usually see in an ad account is that founders are stuck at three or four and they're not trying enough new angles.

1:27:47Roman Khan:Take linear, for example, fucking hard. You're selling jewelry. Same with made with art. So hard. Motivation on a wall. So hard. It's a tough sell. So hard. But then I saw this creative yesterday from a small independent brand that had like this incredible hook. There was this woman who said, I'm personal assistant. And she's like, I'm buying this for my boss. She's being super unreasonable. and it kind of leads to the end is like a jewelry shop. And I actually watched the whole fucking ad because it was like, this is fucking good. So I think like, yeah, it's different, right? Like, so you have to be creative, which is easier said than done.

1:28:21Roman Khan:But you know, there's always a new angle. I sent the ad to my team. I was like, we're not being good enough at this. So that's like, I think level number two is like, just think of new angles. Level number three, where I see brands being like steady state, printing money. So they have the offer. They have a winning offer that's been battle tested with more than$10 million to spend in meta, right? Backed by landing pages too, spot testing landing pages. Yeah, landing pages are their offers like fucking ripping and they have some hooks, but they're still stuck. It's because the ad does not line up with the landing page.

1:28:59Roman Khan:So take linear, for example, anyone who's here can go to our ad library, click through the partnership ads. It's the best, most simple way of explaining it, actually. You can do the same with Raycon, but it's a little bit more complex. Take Linear, for example, an influencer will promote like 10 different jewelry products because it's jewelry, right? Like five different rings, necklaces, bracelets, earrings, yada, yada, yada. When you click through that ad, there's a specific collection page with that influencer, with the face of the influencer, with the discount code of the influencer, with the products that she just displayed in the chronological order of the video.

1:29:36Roman Khan:She showed her this ring first. She then showed the necklace, yada, yada, yada. It's merchandised exactly the same way. Guys, dopamine casino, cheat code. This is a cheat code right here. One-to-one exactly with customized landing pages. Maybe throw a quote on. It doesn't make sense from a USB perspective for linear, but like if you're doing something that has things that you can sell, quote, picture, lifestyle of the person. Like in terms of like an influencer or? Like for an example, like I'm partners with Ketone IQ. They're building out a specific landing page. We'll pop it up right now. It's getting built right now.

1:30:09And it's lifestyle pictures of me when I use. Oh, that's amazing. When I use Ketone IQ, a quote on what I love most about Ketone IQ. Actually, I should actually make sure that the creative, the product and the creative lines up with the product on the landing page.

1:30:24Roman Khan:I'll make one for Mark. I'll make one for Mark for Raycon. We do that for all businesses. So just to recap on Meta, number one offer. That's just so, so, so, so essential. Like your business, how many offers do you have running right now? Two, not enough. Where are they? We do buy three, get two. We do collect the email 20 % off and then stuff in the cart. We probably have more than two going on right now. I wrote down right here though, I always on the front page of my notes, I wrote down the things that immediately I'm going to bring back to my team. and the first one is offer. Because we're not aggressive enough.

1:30:57Like we could do buy two, get four and win,

1:31:00Roman Khan:but we're not doing that. And then it just comes down to RPV, revenue per visitor, profit per visitor. Yeah. And it just comes down to math. Yeah. So what I would say, like when I'm hearing this, right? So one thing is like this, one test I'm running, like for example, with Linear is people, this is going to save you 5%. People don't care if it's 10%, 15 % off on the first order has no delta. 10 % to 20 % has a big difference, but 10 % to 15 % makes no difference. So for many years, we ran 15 % off on your first order. We lowered it to 10%, zero impact. Zero. Just more margin. Now we're running 10 % versus win a free gift card.

1:31:46Roman Khan:Zero impact. It's pretty crazy. So like what you also see people do is like they go too aggressive with their offers to some extent. The second thing they don't think about is like the implications of the offer. So you have more revenue, but you don't necessarily have more profits. So let's take your example, for example, buy two, get four. Now, obviously maybe your prints are really cheap to make, but the variable costs in your case is going to be shipping. Like packing six of them instead of two or three or four is going to add a lot of dimension to it. So thinking through the variable cost per offer is something I find founders not to do really thoughtfully.

1:32:25And you're talking about like economies of scale of potentially you could put three pieces of jewelry in one box in arbitrage shipping. Exactly, exactly. Yeah, exactly.

1:32:32Roman Khan:It really moves the needle. It really moves the needle. So that's the caveat I would put on offer. So I would say like offer, second thing is like, you know, the partnership ads. What was the second thing again I said? Creative, the unique hooks and angles. Exactly. New cooks and angles. I made as a great example. I don't think we do a good job of it on my brands, to be honest. The third one is an ad that actually lines up with the landing page. And I think that's not talked about at all. Actually, to give you an idea, that was a 30 % lift, 30 % conversion rate lift for us. If you take linear, since we talked about it so much, if the products in the ad appear on the collection page first, you get a 30 % lift immediately.

1:33:16Roman Khan:It's crazy. It's crazy. So it's going to be the same for you because you sell all these pictures. If you make sure that the, if you send people to a collection page, you're going to get like a huge lift if it appears first. Yeah, I mean, we thought at one time, you know, kind of these mashup B-rolls showing 25 pieces to show range of catalog would do better. It's ironic. The intuition that we tested that now it's so funny, man, because I'm partnering with companies and I'm learning a lot from Ketone. We partner with Momentus too on the supplement side and it's like, I'm learning so much from them.

1:33:48They're like, when you do your ad reads, you're going to talk about one product and one product only. Obviously, it's going to be one of their best sellers and I would imagine that landing page is going to go right to that. We've had way more success with Iconic not doing the mashups of just going very direct response. One single SKU and then the landing page that it drives to, that is the first piece.

1:34:08Roman Khan:Yeah, it makes a big difference and that's where thing breaks. But yeah, those are the three levers I would say in the Meta accounts. What are you looking inside Meta? What is that one key metric that you're looking at? Because I know people are using Northbeam, maybe they're blending their MER. What are you looking at in Meta? What's that one KPI that you're looking at? Yeah, yeah, I'm like, it's interesting that you bring up Northbeam. Like I'm an advisor, investor, early customer of Northbeam. So the one thing I look at is one day return on ad spend, one day click return on ad spend. And I look at that as my source of truth because...

1:34:44Roman Khan:And this is in-platform agnostic from what you're seeing in Northbeam. I'm looking at it in Northbeam, not in Meta. Yeah, because they just have so many channels going on at the same time. But the Northstar for me is one-day click return on ad spend. And the reason for that is it's the only thing that you can compare over periods of time as an apples to apples. And the beauty with Northbeam, I think for me, is like you have both accrual and cash. So in steady state days, I'll just use accrual. But like on days like Black Friday, Cyber Monday, I can switch over to cash and just see, is my intra-hour spend actually incrementally driving profits or not?

1:35:24Roman Khan:So I use one day click in Nordbeam to guide the ship per channel because it creates a baseline that's independent of each platform. Predictability. Yeah, and predictability. Like when Meta launched their engagement, attribution. It just like kind of... Just muddies the water. Muddies the water. So I use NorthBeam. I have no experience with Triple Whale, frankly speaking. Like we switched IMAID from Triple Whale to NorthBeam because we just want like true sense of like... One-to-one across. Share the learnings across both. Exactly. So are you looking in platform like at all in any of these channels?

1:36:01No, I'm not.

1:36:01Roman Khan:My team is. My team is, but I'm not. So everything just basically NorthBeam is the North Star. It's the North Star. So look at one day click. And this is the most important thing. It's like when I screen share, like I did like a Twitter video where I think I showed their one, my ad accounts, just like, fuck it. People are like, why are you running linear? How do you make profits running at 0.5 one day click? So the math I run for that is I take my post-purchase surveys and in my post-purchase surveys, I ask a question like, when did you hear of us? Was it today, in the last week, two weeks ago, three weeks ago, four weeks ago, six months ago, a year ago.

1:36:39Roman Khan:So for linear, for example, let's keep it simple. It's like 20 % came in the first day of learning about the brand, right? That's roughly actually the truth. 20 to 25 % depending on the seasonality. I take the one day click. I assume that one day click, none of my conversions come from view, okay? Zero. I assume I go like completely pessimistic and say like only one day click is drive, clicks are driving revenue. It's a super conservative way of looking at it, right? If I take 20 % and I have a 0.5 one day click return on ad spend, that extrapolates over a lifetime, lifetime return on ad spend of greater than 2.0.

1:37:23Roman Khan:So I need like 1.7 to go break even. So if I'm hitting 0.5, I know I'm going to print 15 to 20 % profits on the backend. So that's how I use one day click. I extrapolated using the post-purchase survey to guide the ship because I know if I have a 0.5 one day click over time, that's going to translate into 2.0. So Nordbeam is able to do LTV calculations on your one day click, but I do the LTV calculations myself because I just don't trust any platform to guide me through multi months of conversions. Like linear is a very considered purchase. because NorthBeam will tell me that people go to the site seven times before a purchase.

1:38:06Roman Khan:But I'll use the one they click as a source of truth. What are those other questions in that post-purchase survey? There's a lot of them. Let's drop a link in the description below, because I think everyone should copy my post-purchase survey. I use like a cheap tool called Zigpool or something on Shopify. I'll send the link to all the questions. But it's basically, where did you hear of us? What platform did you come true? who, when did you hear of us, age, gender, a couple of other things. Like what other brands did you think of buying from? The coolest question we have in there is what influencers should we book?

1:38:39It's interesting.

1:38:40Roman Khan:Who do you think would be a good linear spokesperson, Raycon spokesperson? And we actually use that field to find influencers to book. Another interesting part to kind of bring this full circle from the bomb perspective, is there stuff that you can hear from the customer via the post-purchase and or whatever that can inform what part of the experience or maybe they don't like a piece of the actual product. So that can inform where problems are as well too. On the influencer side, I know you had a pretty big chunk of your spend being spent on that. We talked a bit about partnership and whitelisting.

1:39:14What else on the influencer side are kind of your core frameworks or theses in relation to that? Because you're spending a lot of money on influencers.

1:39:21Roman Khan:Yeah, we're spending a lot of money on influencers. the way influencers came about like you know i haven't talked about it publicly because it's too much sauce as the young kids say i learned sauce like three months ago drop it drop it but i've spent maybe 70 million u.s on youtube influencers year one i spent like 7 million i mean i think second year was 20 million then another 20 million so we've dropped our spend since then i was like fucking went balls to the walls like early years. And then now we maybe spend like steady state four or five million a year on YouTube influencers. What's the thesis?

1:39:58Maybe seven, actually, maybe seven. Is it evergreen and trust? Like what's your thesis on why you think YouTube is the one?

1:40:04Roman Khan:YouTube is so hard to attribute against and you have to have a lot of comfort with numbers and this one day click accrual thing because the payback windows on YouTube for us is more than 30 days. Payback meaning I go break even after 30 days of spending a dollar. So it's super hard for people to stomach. You have to have like a high risk tolerance to make YouTube work at scale. Two, it's a little bit of the venture game. You're booking like 100 influencers, 20 will fucking print and pay for all 80 losers. So number one and number two are really hard to crack. I think I'm the largest physical goods.

1:40:44Roman Khan:I have been the largest physical goods like Raycon in particular early years, like over COVID years. We're definitely up there like as one of the top YouTube influencer sponsors. And what does it look like? Are these ad reads or these native integrations? Ad reads. Actual ad reads. What's an example of like a persona that has done well for you? Is it for... There's so many. There's just so many. Like we... Raycon is such a utilitarian product. Everyone needs earbuds. buds, we've literally had women and men of all ages print for us in any category. We're so dialed in because we spend so much that we know whether or not how much CPM we can pay a gamer versus a car hobbyist.

1:41:26Roman Khan:Like we know that down to the detail. We have a scorecard by persona that we're, so we do our negotiation accordingly. Like, okay, Mark is worth this much to us. Roman is worth this much. So we break it down by category. So the reason I focused on YouTube was because it was really uncharted and like there was literally no competition, I'd say. I still don't think that there's much competition. Yeah, there's not. Because you really need to go, you have to have somewhat deep pockets to do it, you know? But the KPI that you're leading with is a CPM per cohort as the baseline understanding and then you're backing into?

1:42:07Roman Khan:Return on ad spend. and return on that spend backs out to the Holy Grail profits and profits back out to dividends. So if I spend 10 grand a mark, can I generate$1 ,000 of dividends after all costs of sin-sell? That's the true North Star. Everything is under that lens. So it's a CPM buy category. And it gets really interesting, especially you now with this content game, right? Like in CPMs, the YouTube landscape of CPMs is very... very non-transparent and opaque. And I feel like I sit on the most data than anyone else in the world on how you price YouTube placements, like podcast reads, because I sponsor a lot of podcasts too.

1:42:52Roman Khan:It's really interesting. I had like Ali Abdaal and Izzy, who you probably know, these big YouTube influencers. I know Ali. Who's Izzy? Izzy is his wife. Oh. Yeah. So she's big. She has like a million subscribers, I think, or 800 ,000. And they were at my event. Like they were talking at the summit and we were debating me as a sponsor, them as the creator, and we're talking about economics. And you'll be really surprised when you talk to Ali and Izzy and all their friends are huge YouTubers. They don't think about it from a price bracket standpoint. So there's a lot of arb there. There's a lot of arb between the creator and the brand.

1:43:28Roman Khan:And I encourage everyone to explore that territory for their brands. Yeah, we're in a spot now. I'm not sure if we talked about it in an earlier podcast, but like, I feel like CPNs is usually the baseline, but there's something to be said also about just brand and you can charge a premium on the CPMs if you have the right brand association, kind of right mix there. What's like a unique untapped cohort that you've had success in? Because I'm sure you've been in anything and everything. It could be Midwest, Midwest moms. It could be gamers. Like what's a random one that's won across either, either in any of your brands.

1:44:03Roman Khan:There was one guy, not going to mention his name, but he delivered$2 CAG at six figure scale. I'm going to need that one. I'm going to need that one off the record guys. We're going to, we're going to cut that part. I spent a hundred grand on them and it drove me 50 ,000 customers on the first video. What? Now we were the first to sponsor him ever. and he has such a captivated audience and his ad read was just like fucking incredible, just fucking incredible. But yeah, it was like a video of him being shirtless in the backyard, dinging another guy with a Star Wars sword and they were having a Star Wars fight or something like that.

1:44:48Roman Khan:I'll find the video and send it to you because it's hilarious. We may or may not keep that. To tie a bow on the YouTube, what would you, if you had to give one piece of advice to anyone that is going to go on YouTube and spend dollars, what would you boil it down to? That one piece of advice. Be patient. Wise man. Let's dive a bit into AI. I would be remiss if I didn't ask you that. Yeah. How are you using AI? Whether it be in creative, whether it be in ops, what's the latest there? We're big believers in second mover advantage. I think I've been wide coding a lot and I have very little to show for it in terms of how it increases my dividends.

1:45:24Roman Khan:I love that thesis. It goes right to how is it increasing? Yeah. It's always a recurrent theme, right? Like on spending, I'm burning tokens, but I have nothing, no more cash to show for it. Right. Like I was spending 10 grand on tokens. I want like at least$10 ,001 back. Right. Like, so we have, I think all teams have this, right? Like, so we are 70, seven zero people in the front offices. Let's say 110 if I include my rockstar supply chain team, which is like kind of more front office operation. In Shenzhen, Hong Kong, Singapore, London, New York, and Salt Lake City across the board. We have 110-ish people, maybe 200 people in the back end, like 100 plus virtual assistants in the Philippines and, you know, these low-cost countries.

1:46:12Roman Khan:And then 100 people like in fulfillment. We have a business-like factor, but in Asia called Nutrition Kitchen. So we have a big kitchen operation in Hong Kong and Singapore. Among these 110 people, let's say we have eight AI superstars, eight kids who are really cracked on AI and are delivering real value with AI. So tangible examples would be, I can show you my dashboard later. We can take a screenshot and like kind of anonymize the numbers. I think it'd be helpful for the audience to see how does Roman operate this many businesses? Because I have a dashboard that loads instantaneously and I can see the profits and revenues of any of my businesses at any point in time by each line item in real time, predictive.

1:47:03Roman Khan:And someone coded that up for me. So I had that very useful tool. Number two is for linear. We've automated all of our procurement with AI. So we build custom software for ourselves so that we can go from placing purchase orders weekly to daily, which is really complex when you have thousands of SKUs. Like it's really, really hard. And we've been able to do that at scale with like really good logic. Three, we're doing some AI ads, but that many. Like statics, all our statics now are AI. We're not doing UGC creators with AI. I don't think it's there yet. I think it's just not there to legality.

1:47:44Roman Khan:It's just not worth it at my scale. Three, I just think humans will crush. Partnership ads are fucking crushing for us. Let's just go down that rabbit hole and spend. TikTok influencers, I think will crush. Let's just go down that rabbit hole and spend. AI influencers, I just don't believe in AI slop. And I think a good ad and spending money on a good ad is so ROI positive because you won't waste dollars in a meta ad account. But, you know, we're doing a lot of back-end stuff with AI right now. So more like operations and like predictive analysis based on like grabbing numbers from certain places and then on statics only on the creative side.

1:48:21Roman Khan:Yeah. The most, I wrote a thread about it on Twitter and on LinkedIn about what are the five AI initiatives that we have at the company. And the only thing I look at personally that I actually care about that I know is going to move the needle, that's going to add nine figures of revenue the next like 12 to 18 months is automating my AI influencer operations. Sorry, automating my influencer operations. So today, you know, we source, screen source influencers by searching, using tools, yada, yada, yada. We screen them against the brand card. We then reach out to them, get the media kit. We then do a rebuttal to the media kit because we're just like, hey, Mark, we can't afford 10 ,000.

1:49:06Roman Khan:This is my baseline. This is my CPM for this cohort. I just can't afford it. Can you meet me in the middle with this? And if it does really well, I'll pay you a kicker. All of those steps that I just outlined for you are getting automated by AI. Up until two months ago, when it was non-AI, we were having 500 real conversations with 500 real creators every single week. Real creators meaning people with a real audience, more than 100 ,000 plus. Now it's come to 200 or 300 a day, right? Like, so we're - Forexing. Yeah, forexing because we're tinkering with it. I think we're going to get to 500 a day.

1:49:47Roman Khan:You know, what we were doing in a week, we were going to get to a day with AI. And that's really moving the needle for me. That's huge. Because if I can double my influencer spend, you know, we're going to touch like billions of dollars in revenue. If we can get to like double or triple in influencer spend, I'm on the path of doing billions instead of hundreds of millions. And that's not increasing your OPEX at all. It's a one-time lift to create the system and then optimize it over time. It's not even an OPEX issue. I'd be happy to spend more on OPEX. It's just finding people who can really filter for the brand.

1:50:21Roman Khan:Like my head of influence for Linear would not do a good job at Raycon and vice versa. You know, there's no, it takes the, you have to be the customer to be good at the influencer. You really need to understand the audience, be the customer yourself to really be able to move the needle. And it's a really hard function to hire for. So I think like an AI first approach is going to really move the needle for us. Ever think about flipping that out and productizing it? Something like that? Some of these internal systems? Maybe, maybe. We're too early in it to do it. It's generating too much value for ourselves.

1:50:52Roman Khan:So I think we're not going to do it anytime soon. On the actual creative side, where do you think the AI creative is going? I know we kind of talked about slop. Like my thesis is like, I think AI creative on the videos. I mean, I think it's going to be like 30, 40, 50 % by like end of next year. What's your thoughts on that? It's really hard for me to predict because like there's no, AI is never going to get worse than it is today. When you think about it. That's a bar right there. Yeah. It's getting better every single day. So is there a world where we can prompt this whole video, right? Like with like a prompt, probably.

1:51:30Roman Khan:But people want to connect with real humans. In a world that is getting completely commoditized by Amazon and eaten up by AI, you have to stay human. So my overarching thesis is that Meta, Applovin, Snapchat, Pinterest will reward real people in the feed over AI slop. That's the foundational bet that I'm making. And that's why I'm saying influencer is so big for me. Because I think people want to buy from real humans. How do you think that feeds their agenda? You just think that holistically it's what you said and it'll just be more efficient, thus spending more dollars on their platform? Yes.

1:52:11And you will spend more on partnership ads and real people. So I think that's like... Partnership ads is an important thing to work because the reality is, is like push comes to shove if traditional ads that are AI perform better for them.

1:52:24Roman Khan:Yeah. I don't really think that they're going to be that emotional. I feel like they would push those AI ads. I think that's the caveat I would say is like, there's going to be some regulatory stuff coming in. We saw like a couple of days ago, New York now has banned AI UGC ads. You'll get fined. I think that's going to be a opposing force to some extent. It's just very hard for me to predict, but I have no shadow of doubt that like AI ads are going to be on par with human UGC. Like we all know that that's going to happen. That's just going to, it's a question of when, not if. Whether or not it's going to be rewarded in the ad platform, I'm not sure.

1:52:57Roman Khan:Like, I'm not 100 % sure what the take is going to be there. Yeah, that begs to ask the question of like, if AI influencers are actually a thing and it kind of gets standardized. Yeah. Gary Vee is very, very big on that. As an industry, it's going to be huge, but we'll see how it shakes out. We'll see. As an operator, I am always asking myself, what are the low-lift ways to save or make money? Charge flow is an absolute no-brainer. Here's the problem. A customer buys from you, they get their product, they call the bank, and they get their money back. That's a chargeback. Most brands just eat it because it's actually built to exhaust you.

1:53:34In my first few years of Iconic, we lost well over six figures before we put this in place. Chargeflow is fully automated. It handles the evidence and the follow-through. You don't even have to touch it. Fanatics, Huel, and HexClad, some of the biggest names in e-commerce, use it today. And the best part is they only get paid when you recover money. It's a 4X ROI guaranteed, or you pay nothing. 60 days fully managed for free. Chargeflow.io with code openresidency to tap in. Stop giving back revenue you already earned. I want to quickly dive into localization. I watched one of the pods you were on.

1:54:08You talked about it being like one of the single biggest efficiency unlocks left in your business.

1:54:14Roman Khan:Yes. What's like your thesis on localization? Yeah, we suck, number one, at localization. I just want to make that really clear. Go to K-Sify, right? Like at my summit, we went to K-Sify's website. phone case company that does all these collabs. They kill it. They crush it. Like fucking behemoth, like hex clad behemoth, right? Like huge company. This means hundreds of millions of dollars. Hundreds and hundreds. Hundreds and hundreds. Hundreds and hundreds. Probably on track to a billion plus, right? So incredible company, well run by Wes. I'm going to try to get Wes to come on your pod because he's like such a legend.

1:54:47Roman Khan:A good friend of mine and was so gracious to host us at his office. His office is fucking insane. It's like the guy has OCD. I tell him to his face. Like it's just like meticulous. Let him know that I run Raw Dog. I don't use cases. I never use cases. So tell him, get him on here and we can make the move. Awesome. I got it. So, you know, he's the master of localization. So go to his website. Everything is in local languages, localized pricing. Even merchandising is localized, right? Like you see the phone cases that sell well in the UK versus China versus Korea versus, you know, you get the, you get the gamut.

1:55:22Roman Khan:Arsenal phone cases. Exactly. He just like really gets it and nails it down to it. So that for me is where I want to go. I'm not there yet. Like that's a whole other business in itself that I feel like not a lot of people know about. Yeah. Like how to run it efficiently. Correct. So if you think about my revenue, 60 % comes from the US, US and Canada. Same thing. 40 % comes from non-North America. So we're very diversified. Like linear is maybe 35 % US, 65 % non-US. Wow. Yeah. So it's huge outside the US and Canada. And level one optimization is the bomb of your variable cost. So you want to look at shipping.

1:56:06Roman Khan:You want to look at all these like moving needles of how do I get this product in the hands of the customer in the UK, in Europe, in, you know, different countries in Asia and really optimize the shit out of that. So if you have a small product like Linear or Raycon, it's really simple actually. You just house your inventory in a Hong Kong 3PL and just ship it out up there. Like it's super simple, not very hard. And you're off the races right off the bat, right? Like it's like really easy if you have a light product and you just start spinning up ads in all these countries in English. Like that's it.

1:56:42Roman Khan:It's super simple. And you'll actually just start printing money. And the level number one is like, you start one ad campaign with one ad set. You load it with all your best performing creators from North America, and you just let it rip with all the best performers. And you put all the countries in that ad set that you can physically ship to at a reasonable price. In that one new 3P out that you're doing. Yeah. As long as they can ship it efficiently. It should run like an ad campaign, a meta with all of those best performing creators from North America consolidated under one ad set in a new campaign, a global campaign.

1:57:16Roman Khan:What's the future for you there? When are you going there? With AI now, localizing the website, copy, imagery, everything is going to be done really to a high level. So take Linear, for example, we're big in Asia. I believe that our website should have Asian women as models displaying the jewelry. We should have the website in Chinese. We should have it in, you know, Thai. We should have it in, you know, Vietnamese, whatever, you know, all the countries we ship to. and everything should be truly, truly localized. It's so crazy how many of these, again, picks and troubles we go back to these little mini new businesses that AI can do.

1:57:54Like having someone come in and just reformat you for a different country. Yeah, it's huge. Insane. Where are you going next, do you think? So for me now, like under the lens, like I'm going to be in e-commerce until I die.

1:58:08Roman Khan:I think I'm good at it now, but I want to be excellent at it. I think it's going to take another 15, 20 years to get excellent at it. So we talked about a little bit, like I want to financially diversify into public markets instead of just doing private equity. So instead of buying these private companies, I want to focus more on the public markets. But now I started doing the picks and shovels of e-commerce. So I spun up like Petra Sparks. It's like a packaging supplier that I started launching because with Linear, we upgraded our packaging like crazy and we got 15 % higher LTV. And I saw a lot of my mentees were struggling with like good packaging.

1:58:44Roman Khan:So I just launched a packaging company. I think we're going to hit$10 million of revenue run rate first year of business just because I spun up Petra Sparks. It's crazy. Like the demand is insatiable. And I know like for three of my mentees, I was able to cut the cost by more than 50 % because they don't have a bill of material. This was like - It literally all goes back to this. Yeah, it all goes back to bill of material. Like spending so much on packaging. I was like, yo guys, like this is a dummy number. I do not spend$12 on packaging for linear. I do for the luxe actually. I do for the luxe.

1:59:17Roman Khan:I spend like probably like eight or nine, but you know, because it's so fucking luxurious. But you know, we were, so I'm going more and more picks and shovels and thinking about how can I make money serving my friends and mentees in a way that actually saves them money, where it's a win-win, the same way as I approach suppliers. How can I actually be the supplier? And how can I build an agentic layer on top of supply chain right now? Like, you know, working with your supplier is a fucking pain in the ass. It's all done by email. You can't have an AI agent talk to your supplier. I'm thinking like, okay, packaging is the first leg to this business.

1:59:55Roman Khan:Eventually, I'll open up a sourcing office so that I can cut costs for all my mentees under this umbrella, right? So eventually, I will help everyone do a bill of material approach. I'm just starting with packaging because it's fucking easy, right? Like it's an easy, low risk, high return way of delivering value. But like, I would love for this company to eventually be so good that you can use your AI agent to talk to our supplier. and we have two agents speaking to each other and you're placing order automatically pending your sell-through volume because my agent has visibility into your sell-through.

2:00:32I mean, that's going to happen.

2:00:34Roman Khan:Yeah, it's going to happen. It's just how long it's going to happen. It's just like my competition in the packaging space doesn't think like that, right? So that's number one. Number two is I want to, yeah, I want to take more strategic advisory roles in a lot of different companies. So Prenetics was one of them. Northbeam is another one. I did Skio, which you probably saw. Ken and Sol that recently. I was an advisor and investor. I did the hustle like really early on with Sam Parr. I was hanging out with him last night. He was saying like, I'm going on Mark's pod talking about how you make$10 million of distributions from your business.

2:01:09Roman Khan:Like, well, it's easy for you. You live in Hong Kong, you know? Come to New York, it's a lot harder. But you know, so I think I'm going to take more strategic advisory roles, right? I passed on being on the board of Passport because it was too busy. Passport just sold to Global E for 400 million. It's crazy. I passed on that, right? Like it was a mid seven figure check if I'd taken that seat. And Alex is an incredible founder. And I just didn't have time at the time when he approached me. So I'm gonna do a lot more of that. Like the most recent thing I've done is like, I've taken on an advisory role for Quince.

2:01:41Roman Khan:So everyone here might know Quince. Quince is this behemoth, multi-billion dollar DTC company that knocks off all these other DTC brands, including Linear, jokingly. Like they go after other DTC brands and basically shave off the cost and sell things at a fraction of the price. So they're the largest cashmere sweater brand in the US. Are we talking Timo here? Is this Timo? It's like Timo, but high quality quince, right? Nice. So, you know, last year they did more than a billion. This year they will do multi-billion dollars. They're a San Francisco-based company. Incredible. But they built all this infrastructure to drop ship products from China, India, Asia to the end customer in the US in less than five days.

2:02:26Roman Khan:So they've now taken that capability and externalize it to all other providers. As a logistics 3PL company. So Linear now will use Quinn's Logistics. Raycon will be able to use Quinn's Logistics at the speed of FedEx, but at a fifth of the price. It's actually cheaper for me. I mean, I fulfill all US orders from Dallas for linear, but it's actually cheaper for me to ship from Hong Kong using Quincy Logistics than doing the end-to-end fulfillment within the US. And it takes on average 4.5 days to get something delivered to a US customer from Hong Kong with Quincy Logistics. It's crazy. So I started working with them.

2:03:08Roman Khan:I'm basically shilling the service on my ex. And from my ex, I have 16 ,000 followers. we built a pipeline of more than$150 million of ARR in just like people wanting to use our service. Not revenue that these companies do, but$150 million they would spend in shipping with us, analyzed if they were to move 100 % of their business to us. It's crazy. So I think for me, the next thing is to take more strategic advisory roles, generate a lot of alpha by being able to look at these businesses under the hood, get more data and then use those insights to invest in, whether it's public markets, private companies, or spinning off picks and shovel businesses.

2:03:50Roman Khan:From the bomb, from the distributions. Exactly, from a bomb approach. And taking this bomb approach to the rest of the P &L of a DTC company. Yeah, I also think to make this like radically transparent to people on here, I'm not a big Twitter guy, more of like Instagram and YouTube. Like the third bucket with you is like, it's a very, very valuable 16 ,000 followers on Twitter. You're also, for all intents and purposes, you're a content creator. I know Twitter is words. It's not dynamically producing videos and photos and stuff. But that has been a huge part of you driving deal flow is Twitter, correct?

2:04:23Roman Khan:100%. That's the only reason I did it. So up until 2022, I was just in stealth. I was just like, okay, I'd already bought four companies with my own balance sheet. No LPs, nothing. And all of a sudden, so the way Peak 21 was actually formed, my founding investor is Jeffrey Yam. Jeffrey Yam's father owns Forbes Media. So they're a Hong Kong family that actually owns Forbes. And Jeffrey is on the board of Forbes. So my wife was on Forbes 30 under 30. There was a summit in Hong Kong. We went there. And Jeffrey recognized my wife. It's like, oh, you guys run linear. Incredible story. and he was just like, and then he met me.

2:05:08Roman Khan:It was like Raycon. And they got to know us and they heard that we had done nine figures in revenue by the time we had met them. They were like, who the fuck are these people? So as you get nominated for Forbes, they had access to our books. Like Jeffrey wanted to learn more. I think Jeffrey wanted to put Jen on the front page of Forbes or something, right? Like he was like really interested in the story. They were looking for our books. It was like, how the hell are you doing this? Like, how are you doing nine figures without having raised any money. Or how was your OPEX, like 5 %? It was like nothing.

2:05:38Your cogs keep going down.

2:05:40Roman Khan:It came to my office. It was like, I spent no money on my office, right? Like it was like a shithole. He was so impressed. So him and his father pulled us aside and he was like, you have to take our money and start buying huge companies and take way bigger swings than what you're doing right now. And I said, no, I was like, we're enjoying our life. I'd just gotten out of the bankruptcy. I was just like, you know, Like I just turned a corner. I was like, you know what? I want to chill out. Guess what TC does? Jeffrey's father. He sends Jeffrey to my office every single fucking day for 15 days. He's at my office every day for 15 days.

2:06:15Roman Khan:And then I was like, fuck it. Let's like form a company together. So Peak21 is a little bit misleading because the first four companies were under my name, like Linear, Raycon, et cetera, Nutrition Kitchen. Peak21 is a separate entity where Jeffrey and a bunch of other investors invested in us. I own like majority of this entity, but we use those funds now to buy companies. So the whole impetus of building a personal brand was because I felt a moral obligation to generate return for external shareholders. It's like, I need to generate deal flow. This is really hard. Let me go on X and start writing about my journey.

2:06:50Roman Khan:And that's how it came about. So it's just a CAC arbitrage, a deal flow. It was just like deal flow. And now it's turned into so much more. Now I have a community. I host two really big events in Hong Kong every year. You know, even though I'm not buying companies actively now, I'm still doing it because it's so much fun. And I'm having a huge impact on Petra Sparks and Quinn's logistics by just talking about helping founders actually save costs and getting a better offer out there. And this is all under the notion that your wife, who's the face slash content creator, was seen by this guy. Yeah, that's right.

2:07:22It worked. It worked. Double X short, it worked. It worked really well, yeah. Guys, this episode is sponsored by Ketone IQ. I often sit down in this chair for over three hours and stay super dialed with ketones. It's a completely different category of fuel for your brain. Clean, sustained, and no crash. I take a shot before recording, before deep work, and any session that I need to be sharp. Head to ketone.com slash openresidency for 30 % off your first subscription and a free gift with your second shipment. That's K-E-T-O-N-E dot com slash open residency. Guys, this is something that I use every single day, non-negotiable.

2:08:02Give it a try. Guys, buckle up for this last segment because it's very, very aggressive. We're going to talk about a little how you look at management. Yes. It's very aggressive. Why don't you just give us your like management thesis and framework? How do you manage your companies?

2:08:17Roman Khan:It's very anti-Gen Z, right? So I think I really believe you have a moral obligation as a senior, me being 40, right? Like the average age among my employees is definitely not 40. It's sub 30. You have a moral obligation to put young people up for success in the post-COVID world. It is very easy for me to just throw in the towel and retire and hang out at the beach and not work anymore and do nothing else. But I feel like I've accumulated so much experience. It is my obligation to train the next generation of DTC founders. I just had one girl. She used to work for me for two, three years. I trained her personally.

2:08:56Roman Khan:She would travel to me to New York, to the Raycon office. She was one of the centralized resources. She begrudgingly left me 18 months ago. I love her. But, you know, and she's now doing nine figures. She started her own DTC company doing nine figures a year. That gives me a lot of pride. I hope 10 years from now, if you fast forward, my legacy is that I've trained at least 100 people like her, like Momo, that go on to do really incredible things. Like I have a lot of people who've worked for me that I've trained personally, who've gone on to have incredible careers after working for me. So I want to put that really big disclaimer in there.

2:09:30Roman Khan:The way I was able to train these people when they come in is by micromanaging the fuck out of them. Like crazy. And it's blasphemy saying micromanaging, saying micromanaging is a bad word. Yeah, it's a bad word, but it's a great word if you think about it as a gift. And the gift you're giving is recurring constant feedback to your most junior employees on a consistent daily manner in a predictable frequency. What people don't like about micromanagement on the receiving end is that it's unprompted, it's random, and it's not consistent and it's not structured. None of those things happen under my umbrella, right?

2:10:13Roman Khan:So we'll splash it up on the screen. I'll send you a screenshot of it. But every day I get an update in Slack now by AI. Previously it was done by virtual assistants where I get my revenue, profits, spend, all the excruciating detail that you can think of on the P &L by day. So it will be like, oh, today Raycon should have done$200 ,000 in revenue. We did$199 ,000. We'll have a red circle next to it. Yesterday, we were supposed to spend$100 ,000 on ads. We spent$90 ,000 because influencer came in short because an influencer didn't deliver red light. Return on ad spend was higher than our budget green light.

2:10:58Roman Khan:Our repeat customer rate was 20 % and higher than target, blue light. So we have this like red, green, and blue light in our reporting, and it's automated in Slack and everyone gets it. Everyone gets it. It's a town hall. It's a town hall. So we have like a marketing analytics channel and you can see all the numbers there, right there and there. Let's say Amazon is off target three days in a row. Let's say Amazon is off target today. In that thread on Slack, you as the Amazon manager have to reply and say, why are you red? Not green, not blue. Oh, you know, we didn't get the best deal, prime spot.

2:11:38Roman Khan:It got canceled last minute. It was out of our control. We're going to make up for it by doing X, Y, Z. So an SOP for every red light and green light and blue light. If you have many blue lights three days in a row, you also have to explain why your budget and forecast was so off to start with. So that's radical transparency that starts in a town hall that lives on Slack. And this is just, I mean, this is a million things, but it's pattern recognition. It's accountability over time. You can basically see how the, like every single day. Yeah, because if you make a compounded improvement of 0.1 % every single day, it's going to compound to multi nine figures a year.

2:12:17Roman Khan:So like if you look at it daily and improve every single day and measure your performance every single day in this manner, and you have an intellectually honest debate in that town hall every day, you're going to set up the team for success. So that's the number one thing I do to show juniors that I still care. Even though I'm traveling like fucking crazy right now, I'm still on this thing. And anyone can access Slack, right? Like, or, you know, you can open that up and have a conversation, even if you're on the road. We'll do that and transpose it. So our department leaders will reply in that thread.

2:12:51Roman Khan:Our juniors will see it. Usually our juniors will prepare the answer for the marketing leads. but then more importantly, I have of the 110 people that are in the front office, actually not the supply chain team, I take that back. Like 70 people have a daily task channel with me. So your channel will be, let's say you run PPC for linear, be daily-tasks-mark. And every day when you clock in at 9 a.m., you're going to say, Mark is going to say, these are the three things I want to accomplish today. These are the other things that are on my to-do list. And then when you clock out at 6 p.m., You're going to tell me, I got these three things done with a check mark.

2:13:29Roman Khan:And then you're going to break down how you spent your day, like on time allocation. I spent 30 minutes on emails, one hour in the Facebook ad manager, 30 minutes in the Google ad manager. And this helps me understand over time how you are allocating your time mark. Do I need to hire support for Mark? Is Mark overloaded? Is Mark spending time on things that don't move the needle? So I actually get these daily reports and that's the actual micromanagement technique that I use to manage my org. And there's a correlation between that PPC channel and then the macro channel if, you know, underneath digital marketing, PPC is red, red, red, red, red, red.

2:14:08Exactly. You hit the nail on the head. Yeah, yeah, yeah.

2:14:09Roman Khan:And I could be like, oh, fuck, Mark is not spending enough time on creative production. So I have visibility to all 70 channels. Obviously, the department lead is grilling you and not me, but I have visibility on it. So when we have a very difficult conversation, let's say we have a six month review, right? Like we have reviews with all our juniors every six months or anyone in the company. And we have a feedback session that can give really detailed feedback and have a chronological diary and journal of how Mark spent his time. With AI now, this is absolutely crazy because you're getting daily logs.

2:14:44Roman Khan:Exactly. Backing into the macro. Exactly. Red, green, blue. Yes. We haven't applied AI to it yet. We have not. It's something I'm thinking deeply about how to do with it being human and respecting the individuals in my organization. But this is the foundational layer of my success is micromanaging. I am in the weeds still today, but I've created this system that doesn't bog me down. Because it's simplified to three colors, circles, and different layers of C-level. Yeah. And the right hires that come in, like Momo who came in and left. Who's Momo? Let's give Momo a shout out. Momo is amazing. Japanese girl who came, who lives in Hong Kong, came to my office to deliver something or pick up something for her boyfriend, who's her co-founder, Rahul.

2:15:31Roman Khan:Amazing guy. And they run this crazy company called Nancy. You should all check it out. They sell sex toys. She's like a model example of someone who comes in and just like embrace it, just wants feedback. And you have a lot of other people in my org who just come in and there's like, Sex toys have good LTV? Sex toys have good LTV? I don't know. You have to ask Momo. You should have her on the pod with Rahul. But, you know, I think extrapolating, like that attitude is what's going to get you to the next level. You know, like that's what's really going to unlock something. I had that attitude as a junior when I worked in private equity, when I worked in finance, when I worked at Rocket Internet.

2:16:07Roman Khan:I had that attitude. I just want to do better. Give me feedback. Feedback is a gift. So if you're allergic to feedback, you're going to be very unsuccessful in your career. If you have too much of an inflated ego and you're not self-deprecating and you can't, you take yourself too seriously, you're not going to have big success in your career. I think that's what we filter out for when we hire. So these are the two, these two core systems is this macro Slack channel, three color circles, and then on a per person basis, the micro Slack channels. How long have you been doing this for? Six years.

2:16:43Jesus.

2:16:43Roman Khan:Yeah, yeah, yeah. I've been doing it for six years. I honestly think like that was one of the biggest unlocks for my business by far. Here's the real question. Have you ever let go? Like, have you ever tried kind of pumping the brakes a bit? No. I will never do that. This will not work. I won't even delegate it to AI fully. I will get like a digest to help me be my chief of staff at AI. I've been thinking about it, but I don't want to stop my habit of looking at the numbers manually myself. This is something I learned from Oliver Samir at Rocket Internet. He's the founder of Rocket Internet. I was a managing director at the firm.

2:17:22Roman Khan:We cloned everything in the US and brought it to the rest of the world. So we cloned Zappos. We cloned Amazon. They went on to become billionaires on the back of this. Like, incredible story that you should dive into. But he said something that resonated with me. We had like this weekly Monday call where he would rally up all the managing directors and ask us, grill us about our numbers. It was crazy. Like it's like, so it was like a big bully. Like it would just grill us in numbers and like, why don't you know this, Roman? Why, why, why? And he said something, we're bakers. He said something like that.

2:17:52Roman Khan:Like it was a metaphor. So like in the morning, we buy our flour, we bake all day, we sell some buns, we count the buns we didn't sell and we check how much cash was left in the cashier. And we have to do that every single fucking day. And that's something I really took with me from Rocket Internet when I started my own businesses. was like, I need to check my numbers every single day. I think I lost track of that when I was going almost bankrupt. And then I went like completely maniacal on the other end. I was like, I'm gonna check everything every single day. I want to know what's going on. And I've been able to find systems that's allowed me to take a little bit of a step back.

2:18:27What about weekends? What are we doing here on weekends?

2:18:29Roman Khan:Oh, I don't check numbers on weekends. Like I'll scroll through analytics and stuff, but like I'm not that needed in the businesses anymore, frankly speaking. My workday is really short. People are actually quite shocked by it. Like my deep work, I'll work two, three hours a day, like very deep, like very concentrated. So maybe one hour on triaging emails, difficult conversations with suppliers or employees or whatever. Like, you know, let's say two hours of like just communications. And I would say like two to three hours of like real deep work when I'm trying to solve a meaningful deep problem.

2:19:07Roman Khan:But I'm not really needed in the day to day. I only work on our moonshots. I was just going to say, outside of wife, family, kids, it's how do we find a way to put this cash to work to get the asymmetric out? It's finding those opportunities. That's the three hours. Like me diving deep on pets or me diving deep on the next Prenetics or, you know, whatever it is. That's where I'm spending my time. Having conversations with you, having conversations with Sam Parr last night at his house, right? Like I'm hanging out with him and his wife. They're super close friends of mine. but Sam has so much alpha.

2:19:39Roman Khan:Like for me, that's not only hanging out but it's almost a little bit of work because he gave me a couple of tidbits that were just so huge that I kind of want to run with, you know? Like, so it's like, yeah, stuff like that. I have a problem. I feel like all the conversations are like a little bit of work. I just had this whole conversation with my wife about this. Yeah. And it was like when we were, I thought we were talking about something that wasn't work, but she's like, you're looking at it under the POV of business. Yeah. So I want to talk about how you hire this book, The Who. I don't know.

2:20:11Do you know Kent from NeuroGum? No. Fucking killer. I'm an interesting, great guy. He was the fastest growing brand on TikTok in 2024. Okay. Absolutely smashing it. He loves this book as well too. We did not double click on it. I want to double click on it. So why don't you tell us about the book and then let's just kind of go over kind of each big part and what you've learned through the years because the reality is, I think we set the table here properly where like it takes a very specific type of human that is going to not only say, I'm going to accept this job in this kind of slack situation, but stay over the long haul.

2:20:46So what's the name of the book?

2:20:48Roman Khan:And let's just kind of touch on each of the kind of big steps that it takes. Yeah. The book, The A Method, is an incredible book that changed my life. For context, before reading this book and implementing this process, our attrition rate was really high. People would stay like 20 % or 30 % of our employees would leave within 12 months of being hired. What was first? Was that you had these systems in place without this method? No, we didn't have systems, which was a big drawback. So it probably was micromanaging, but not predictable. I was a bad manager. I was just a bad manager. I was a bad leader.

2:21:26Roman Khan:And we didn't filter people out. So we hired the wrong people. So this book has literally changed my life. And I honestly think going from 50 million to 200 million, that step, that step like over COVID, pre-COVID 50 million, being able to meet that demand, we were only able to do because of this process, number one. And number two, because I almost went bankrupt in 2018. So I knew not what to do with the bump. These two things, the bill of material and the A method is the secret sauce of why I'm so big today. So the A method is basically a process, a five-step process on how to communicate what your firm is about externally through your job description and having a very clearly defined scorecard.

2:22:17Roman Khan:So that's step number one, like a scorecard that communicates, that transposes into a job description that communicates what you want out of this person joining the firm. And so that person also understands what he or she will get out of joining the firm. So this is role clarity. Role clarity. Super clear role clarity for everyone on the organization to align. Everyone. The hiring manager, the CEO, the person that's actually going to report into this person. Everyone is just aligned through the scorecard. And is this like what your daily operating rhythm is going to be? Like what are you going to do?

2:22:52And then what are the KPIs that you're held to type thing?

2:22:54Roman Khan:The most important thing is the attributes of the person we're trying to hire. Attributes. Okay. Is this person charismatic? Is it a salesperson? Does he or she have to be very extroverted? Is it a head of finance? Does extroversion even matter? How do we remove bias in this process? We are drawn to each other because we're both extroverts. That would make me prefer you over an introvert for any role in my company. How do we remove bias and focus on the right attributes in the candidate? So that's a scorecard. The second step is the screening. The screening is the first step of McDonaldizing your hiring process.

2:23:35Roman Khan:So you want to, you know, when you're at McDonald's, you're flipping a burger every 30 seconds and you're putting the lettuce on in a certain order of the tomato and then the mustard and then the bun, right? You want to McDonaldize your process and completely standardize every single interview you so that you can compare candidates as apples to apples instead of apples to oranges. And is this uniform across all roles or is it uniform across like, like would the head of finance be different than the head of marketing? All standardized for screening. That's the beauty of this method. You can use the same questions so you can whip it out at any point in time.

2:24:11Roman Khan:Let's say you're having a coffee with someone and you're like, fuck, I want to hire this person. You can immediately apply the screening questions just to screen the person, regardless of the role, regardless of the role. It's incredible. It's incredible. Step three is top grading. Top grading is going deeper. Now this person has past screening. We'll talk about screening in a little bit. You want to go really deep into this person's track record. So the first screening process takes 15 to 20 minutes, max. Macro questions. What do you want to do with your life, et cetera? Kind of like, so we'll get into details.

2:24:44Roman Khan:Top grading is like 30 to 60 minutes. You're going deeper. You're being like, okay, let's say you're interviewing me. Roman, you know, what did you do at Rocket Internet exactly? You know, and then you go deeper and deeper and then you go into what did you do at Linear? What did you do at Raycon? What did you do at Nutrition Kitchen? What are you doing at Peak 21? You find that hole in 2017, 2018. What were you doing in between these two jobs? Exactly. What went wrong, et cetera, et cetera. So you get to know the candidate really well. Step four is competency and culture. Or what we do is the competency is usually a case study.

2:25:19Roman Khan:So we run someone through an exercise for their domain expertise. So like for a head of finance, it would be spotting mistakes in management accounts and reconciling the income statement against the balance sheet. You know, it would be like a case study, very specific. So at this At this point, does general interest probably sign a mutual non-disclosure agreement, access to real things? Yes. Or we have fake case studies with fake dummy data with like traps in them. So we can check for attention to detail, all these things. And then you do a cultural fit questionnaire where you kind of try to understand whether or not this person would be a good cultural fit.

2:25:53Roman Khan:I.e., are they okay with your Slack system? Yes, exactly. Are you okay with constant feedback? Are you okay with giving me constant feedback? Are you going to be afraid of giving me constant feedback? I want feedback too. I have a daily task channel that everyone has access to. I do the same, by the way. So I lead by example. Important. Yeah. And then the last thing is, so let's say they pass all these four stages. You'll do an offer conditional on reference calls. You'll be so surprised by how many founders who skip reference calls. It's fucking insane. It's like the dumbest thing you can do.

2:26:26Roman Khan:Like fucking dumbest thing you can do. But you do two reference calls for senior hire, ideally three. This is very interesting because I have in my brain, it's kind of like a pendulum that's kind of gone back and forth. What are you really interrogating and getting out of that reference in relation like, if I give you references, like they're going to talk well about me. Like some of my past employees, like I'm helping them get new jobs. Yeah, of course. I'm like, yo, I'm going to say what you want me to say. I love you, bro. And again, I'm not lying on their behalf. Is it more like, what are you actually trying to get out of those reference calls?

2:26:59Roman Khan:This process will destroy someone like you. Like it would like actually get to the root of what you actually think about the candidate because there's a standardized process in how to ask you questions so that you don't actually give me a fluff. I like Roman, so I'm just going to say something nice about Roman. I'm going to ask very specific questions about Roman that I caught in screening, top grading, and competency. And the reality is, is the reference interviews are malarkey for 99%. If you're using this, it makes sense. Exactly. Because what I'm saying, it doesn't make sense for me. You want a straight line through the stock.

2:27:36Roman Khan:There shouldn't be any zigs and zags. Everything has to reconcile. So let's go step by step, okay? Yeah. Scorecard. Let's go through that first. So for this case study, we're going to use the head of finance. Because most people come to me for two things. One is to hire a head of growth. Usually my answer to them is you are the head of growth, hire for everything else. And then the second thing is head of finance. because everyone has shitty books. And, you know, they want to do dividends. They don't even know their numbers. Usually we come down the road of like hiring a head of finance. The head of finance is really easy to extrapolate because it's a very like squared role, right?

2:28:13Roman Khan:Like it's very defined what this person does. So the outcomes I want from the head of finance is, you know, I want that person to build me financial models. I want that person to do me management accounts, reporting, audits, budgeting, monitoring risk, all that shit, right? Like we know what a head of finance is doing. The competencies, the real things I want in this person is I want extreme OCD. Attention to detail has to be 11 out of 10. Like I want this person to not make mistakes. How many of these, if we look across the five steps, how many of these are correlated and native to your specific company versus like, okay, if you want a head of finance, like...

2:28:58This is applicable to everyone. It's applicable. No, but I'm saying that head of finance, the competency, is that going to be the same competencies across every company? Or is it going to have wrinkles native to...

2:29:08Roman Khan:It depends. Yeah. It might be a little bit different per company, but for head of finance, I would say it's the same for every single... But for the most part, it's very close. Yeah, very close, very close. So I want like my head of finance to have incredible OCD and attention to detail. That's crazy. incredible analytical skills, decent problem solving, and then like get shit done attitude, right? Like get hands on. What I don't need this person to be is charismatic. I don't need them to be extroverted. I don't need them to arouse me in an interview process and get me excited. I want to fall asleep in the meeting.

2:29:43Roman Khan:That's completely fine as long as it ticks the fucking boxes. The mistake I made early in my career was like, oh, you're very likable. You're going to do a good job. And that has nothing to do with being a good head of finance. We don't need to be friends. We don't need to hang out on the weekends. You don't need to come to my daughter's birthday party. You need to fucking do a good job of accuracy and get me the financials on the 15th of the month and tell me, Roman, you're getting a million dollars dividend this month from this business. That's what I want from you. That's the outcome. And you're not going to miss the clock by any means.

2:30:18Roman Khan:You're always going to hit those numbers, right? Like you're always going to be able to close the books on time without me chasing you. because that's the scorecard. This is so important to sit down and actually be intellectually honest about. Now in the world of AI, I feel like you can prompt it really easily. Like for me before, we would actually have a long meeting about like, what do we want out of our head of finance? But like, what do we actually need for Raycon? What do we actually need for Linear? What do we actually need for these different businesses? And is this scorecard, this first step, is this binary?

2:30:47Is it like, yes or no? Like, yes, you make it to the next round or no? Or how does that go?

2:30:51Roman Khan:We'll get to that now. So now that I have the scorecard and I'm like, okay, I know what I want. Like Daniel, my CFO at Raycon, he's fucking amazing. I love that guy. He's amazing. He like fits this scorecard. I'm actually close to him. So we hang out. But you know, he just like ticks all the boxes, right? Like he's amazing. He actually used to work with my business partner's father for many years, right? Like, so lots of trust and all these things. So when you get Candace in, right, let's, let's go through screening into with you. You're the, you're Daniel now. Okay. You're the head of finance, right?

2:31:26Roman Khan:The first question is what are your career goals? Now, any recruiter can go through the screening into you and you as a founder don't need to do them. You should even give them to your headhunter and have your headhunter or recruiter give you, do these questions and take maniacal notes so that you can read them later. What are your career goals? If I'm hiring someone for head of finance, I want them to say, I want them to be a little bit entrepreneurial because our companies are very lean and like entrepreneurial by spirit. I want you to say that you eventually want to be a CFO of a big company.

2:32:01Roman Khan:Because for a head of finance, I'm probably interviewing someone who's a senior controller, who's like has a little bit of a chip on their shoulder, wants to step into a head of finance. Has to be aspirational in nature. Has to be aspirational by nature, exactly. I don't want to hire someone who's already a head of finance probably. I want to hire someone who's been a senior controller or a head of accounting at one of these firms because that's a stepping stone to head of finance. So I want that person to say like, I want to be a CFO or maybe eventually I want to start my own DTC brand. I want to get to CFO and maybe start my own business.

2:32:30Roman Khan:Because then you have a little bit of an entrepreneurial flair and you're fitting the scorecards of like, okay, I want to be a CFO. You definitely want to hear that, right? That person says like, oh, I just want to save up a million dollars and then like kind of go retire and like bumblefuck nowhere. And, you know, that's the end of my career. This is the last stop. It's probably not the right fit. If that person says like, hey, I just want to be the head of finance for a small company and not go public with the company, et cetera. You kind of get a sense of whether or not that person fits your scorecard.

2:33:01Roman Khan:You get what I'm getting at, right? And the thesis here is longevity. How do I hire this person and I stay forever? Exactly. Yeah, exactly. How can I actually make this an exciting place where the person can actually grow into the role? And does that career goal actually align with what I can deliver and offer? Often, you know, when I talk to my heads of growth, I'm just like, listen, there's a CMO here already. There might not be a role for you here because there's a glass ceiling with someone who's with the company, but I'll buy a company and make you the CMO or CEO. And that's how I retain people.

2:33:37Roman Khan:So it's important to understand that really early on in the process. Radical transparency for sure on this part. What are you really good at professionally, Mark? Right? Like, it's like, you know, what I want to hear here is like, I'm really good at building processes. I really enjoy doing the same thing over and over again. Yeah. Like, I really enjoy actually going through the books at the end of the month. If you say to me, like, I don't really enjoy repetitive work, that's the deal breaker for a head of finance. Because head of finance, it's like, you don't know this when that person is doing a good job.

2:34:06Roman Khan:You only know this when things go wrong. That person is invisible. in the organization because he or she is doing such a good job. So if you say like, hey, I'm really good at process and doing things. Great. What are you not good at professionally? And then you'll say like, I'm not good at doing repetitive tasks. For me, honestly, deal breaker if you want to be a head of finance. Because I want you to close the books. I don't want like some junior accountant to do it. I want you to do it because it really matters to me. And then I go into the tricky question here. And there's a lot of nuance here.

2:34:42Roman Khan:Who were your last five managers? Give me the exact names. And how would they rate you from one to 10? So you're working currently at IBM. Who do you report to at IBM? Oh, Roman. If I called Roman, this is how you have to ask the question. If I call Roman and I ask him to rate you from one to 10, 10 being the best, how would he rate you? And then you're like, hmm, eight. And be like, okay, why an eight and not nine? Oncology is a key focus for Pfizer. With 40 % of R &D devoted to the oncology space, Pfizer is committed to advancing cancer care for your patients. Learn more at cancer.pfizer.com.

2:35:24Why?

2:35:25Roman Khan:Give me, give me, give me, give me detail here. And then you're like, okay, you know, sometimes I get the books delivered late. Like he wants them on the 15th of the month. And sometimes - You want to put him under the gun to really tell the truth. Yeah, exactly. I'm just like, 15th of the month and sometimes he gets 17th and he gets really annoyed because he's obsessed about the 15th of the month. That's what you will hear from one of my head of finances, right? Like I drill a new hole in his asshole every month because I'm just like, it's the 15th. What the fuck is going on? I have an audit email going out.

2:35:55Roman Khan:Like to all my heads of finance, like where are my books? I have a counter in mind for myself. And then he'll be like, well, because I get bogged down, we have a lot of random initiatives at the company and I kind of deprioritize it. It's like, okay, so do you have a problem with prioritization? Like what's going on there? I won't ask that here, but I will take a note. And we will ask that in the next step in top grading. I'll be like, okay, Mark clearly has issues prioritizing. He like, we need to double click on this. Last question is, why do you want to work for Peak 21? Like, why do you want to work for us?

2:36:29Roman Khan:and if the person hasn't done research, which is surprising, a lot of them don't, I'm just like, you know what? Like if you're not, if you haven't even spent five minutes researching me, then, you know, what are we doing here, right? Like if you're not excited or if the candidate is amazing, we should do a good job of selling this person to get him or her into round two. This is basically just a million different booby traps. It is. Yeah. It is booby traps. It is. It is. It is. It is. it is. It is booby traps for both parties. It's for you to also step away, avoid booby traps for your company and not hire someone who's going to be deeply unhappy at your company.

2:37:08Roman Khan:It's almost like you are trying to not hire them. Like you're trying to ask too many things. Good, good. Yeah. That is right. So you have like 15 to 20 minutes doing this. Then you want to leave 10 minutes. So this is one thing I learned from my wife. She works in management consulting. And you always want to leave the candidate, even if you're rejecting the candidate, You want to leave them excited. So your last 10 minutes is just like, you know, Mark, this is an opportunity for you to ask me anything about the role, about our company, how we operate, anything you want. And I know I'm going to reject you.

2:37:39Roman Khan:I know that you're not the right fit, but I still leave the room open because you always have to be selling. And, you know, Mark, you'll go home to a party that same night, hang out with some friends and be like, fuck, I really like, I interviewed with Roman. He was an epic guy and picked one. Seems so epic. I hope I get the job. That's what I want you to leave with, even though I don't think you're a right fit. So that's the last 10 minutes. It's a really important 10 minutes. Is that nuance a part of the book or is that a wrinkle that you do? It's a part of the book, but not as much like this has come from like professional working experience myself.

2:38:12All right, so let's get into step three. Yeah. Top grading. We went through scorecard. We went through screening.

2:38:18Roman Khan:Yeah. What's this top grading? Yeah, top grading is like you now filter through candidates that align with your organizational goals. On top grading, you're just going very, very deep. What we talked about earlier, like you're actually going to go chronologically through the CV and go through every single role. So the way you apply these questions are, you take myself, for example, like when I worked at Rocket Internet, let's say that was my first job out of school. My title might say managing director, but was hired as an entrepreneur in residence. So what you were going to say, ask here is that, what were you actually hired to do, Roman?

2:38:53Roman Khan:It's like, I was hired as an entrepreneur in residence. Okay, what did it take you to progress to managing director when you left? What were you actually hired to do as an entrepreneur in residence? You can go into detail. Then you ask, what were you the most proud of during your time at Rocket Internet? That gives me an opportunity to talk about something positive. What were your low points during your time at Rocket Internet? And I'll say like, I didn't like the culture. You know, C level was like, culture was really toxic, blah, blah, blah. I'll describe the culture and why it was toxic. I can see that, you know, I would be a good fit for Peak 21.

2:39:27Roman Khan:Who did you work with or for, right? Like, so Roman, who did you report to during your time at Rocket Internet? I would say Pierre. And then even say like, okay, if I called Pierre, how would he rate you from one to 10? Trapping him again. Exactly. So because in the screening, you usually don't have time to ask about five managers. You'll ask about like the last, the current one or the last one, just to put people on the spot. But here you have an opportunity for people with a more extensive CV to go through each and every single role. So this is the minutia from the past. Yeah, exactly. All the small details.

2:39:58Roman Khan:Exactly. And then why did you leave? Why did you leave this firm? And I think that's the last question. So yeah, who you worked with, the manager, rating you from one to 10. That's a big one. Then you have step four, competency and culture, which I think is really, really big. So competency is like a case study, which we talked about earlier. and then there's the basic like cultural fit questions. And this is you hammering down in, this is our operating rhythm of how we do it. And this is where you almost scare them. You want to like tell them. Yeah, I don't think it's like scaring, but it's more like, I think people, the right candidates really appreciate how granular we go.

2:40:41Roman Khan:They really appreciate that we put so much thought into this and that we're reference checking this much? Because I think the right candidates really appreciate it because they can tell that we're thoughtful in how we run our companies. Give me some context. Let's just say you have 100 people that are on step one. How many people have the nuts to get through all five? When we apply before, if you have 100 applicants, right? Coming down to screening, we filter out like 70%. So like only 30 people actually make it to screening from scorecard. So we have the scorecard and people apply, right? On the website.

2:41:24Roman Khan:Screening people who are actually going to get a phone call for the step number two, you have a 70 % rejection rate, 80 % rejection rate. So let's say we have 20 Kansas left. from those 20, we'll probably extend maximum one offer. Wow. Maximum. You're backing into like 1%. Yeah, 1 % from applicants. And what's your thesis? Are you just always hiring and is it more for role or is it more, hey, this person is super talented. I have an ever-expanding organization, new companies. I need to get this guy or girl. How do you look at that? We don't hire ahead of the curve. We... Keep that op-ex low, baby.

2:42:00Roman Khan:Gotta keep that op-ex low, baby. No, we want like, high utilization and like without having the excess capacity in any form or manner. So your thesis is just to be a teeny bit understaffed and kind of push at the seams and then higher when... Correct. Love it. For everybody out there, this is multiple times. Kent, someone else too, also mentioned this book as well. At this point, I've been hit over the head two or three times with this book. I think that we actually have to use this book. So I'm excited. This is a cheat sheet that I think is like gets you 80 % of the value, to be honest. Love it.

2:42:31I guess next is why overseas instead of the U.S.? I know you're a big overseas guy. Yeah. And we don't have HR over here at Open Residency. Sorry, guys. It's a very, very small team of sub five. Maybe when we get to 10 plus, we can get there. But give us the God's honest truth right now. Why?

2:42:52Roman Khan:Salaries in the U.S. are quite out of control compared to the rest of the world. Inflation is a real thing here. Even though the consumer is here for the large scale brands, the cost just makes it really prohibitive to have large teams in the U.S. in D2C. Why don't you give us context as well? We're on Iconic, big in the Philippines. My business partner actually lives there for half of the year. I guess let's break it down from U.S., Philippines. And if you want to layer in any, I'm just going to call kind of low cost labor there. And then I actually know nothing. I've been to Tokyo. I've never been to Hong Kong.

2:43:30Give us, if it's$100 ,000 in the U.S., give me some context versus kind of the other places that you hire from.

2:43:37Roman Khan:Yeah. We have big hubs in Shenzhen. Shenzhen is really low cost. Like$100 ,000 person in New York would be, I mean, there's no 100 ,000 person in New York anymore, I feel like. But, you know, let's say 100 ,000 would be$20 ,000 a year in Shenzhen. $30 ,000 a year in Shenzhen. So is that lining up to almost Philippines costs or Philippines? It's Philippines plus two, times two, maybe. So Philippines is at 10. But the caliber of the person in China is so high. So high. Like our Shenzhen office is really, really, really, really good. Like I can name you three DTC companies that are Shenzhen native.

2:44:19Roman Khan:I can't mention them on the pod, but like that do more than nine figures a year. Like one company went from 10 to 100 to this year,$500 million in revenue. All Shenzhen based. So this is the OPEX arbitrage, among other things. And just like the work ethic, the sheer work ethic of the talent there. They're willing to work seven days a week. So say this slow then. We're talking about 20K, Shenzhen, 100, New York. Are you saying it's one-to-one as far as talent and output? If you have a specialized role, right? Like so... where they don't have to understand and have as much context across like multifunctional.

2:44:57Exactly. Exactly. So procurement, for example. And I mean, at that point, if you're going to hire a generalist in the U.S. to do five things, you might as well hire. Correct. Exactly.

2:45:06Roman Khan:You hit the nail on the head. Damn, dude. So like my head of procurement is from mainland China. My for one of my brands, head of BI and analytics and PPC is like one mainland Chinese colleague. It's just much more affordable on an hourly wage basis because these people show up all the time and are consistent, loyal, and deliver. So it's really, in a global world, in a global, very flat world, right? Like very flat, very homogenous world in terms of talent, you owe it to yourself to hire outside the US because your cost base and the livelihood of your business really depends on it. So I'm not saying go draconian and spend nothing on people.

2:45:52Roman Khan:But you need to be in a position where you can spend on people, which means your margin of error has to go up through BOM, through better OPEX, through everything. Love that. What about in-house versus agency? How do you look at that? We kind of went over overseas versus local. It's so founder driven. Like if you're a sub$50 million business, you're either winning because you have a unique novel product with incredible USPs or you're a marketing savant or you're both, right? It really depends. Like if you're good at marketing, never outsource it, in my opinion. Just own that capability in-house.

2:46:26Roman Khan:It's very rare where I've seen a good marketer be able to delegate the marketing division pre nine figures in revenue and it turned out well. Pre nine figures in revenue, you really have to be dialed in, you know? What percent of your company would you say is in-house versus? All of them. Everything is in-house. Yeah. Yeah. Everything is in-house. Because of that micromanagement. Yes, exactly. And it's just like my biggest cost. I really want to harness and control it. And we're really good at paid, right? Like that's my bread and butter. We're really, really good at paid. Like I'm known as a marketer.

2:47:00Roman Khan:Like I'm the CMO at our companies. We have a professional CEO for each and every single company. But I still hone in on marketing and manage marketing myself. Love that. Taking a step back to kind of wrap up hiring, what do you think is like the biggest hiring mistake you've made? And you can say from Rocket, you can say from any of the past companies and or now? We were in one situation once at Rocket Internet. We had to let go of a lot of people at this Zappos clone, Zalora. It was like, it was Zappos for Southeast Asia. And it wasn't a mistake that I made, but like it was just a mistake the whole team made.

2:47:40Roman Khan:We had overhired and Mark Zemir, one of the three brothers, the German brothers, from Rocket Internet came in and said like, hey, Roman and all the MDs that were in the room, they grouped us together in this like room the size of this studio. I said, Roman, there's like, or all the MDs like, guys, there are A, B, and C players. And any organization has maximum 10 % A, so German, like maximum 60 % B, and then the rest is C. And we're going to fire all the C players today. The one mistake we made when we mass fired during that mass firing was that we did not talk to our A players before we fired the C players.

2:48:20Roman Khan:So it created a general panic and a lot of our A players left. I think when shit hits the fan and you have to fire a lot of people, the first thing you want to do is like take your A players out for a coffee and be like, hey guys, we are not doing well. We're going to do well, but we need to make some really difficult cuts, you're safe, but you're going to see a lot of your colleagues leave. If you stay behind, we're going to take care of you. And then you go out and you take care of the C players and you let them go. I think that was like a very like big learning for me. And it set the standards and bar really high because I said like, I never want to be in a position where I have to let go of someone.

2:48:59Roman Khan:I don't want to have these conversations. These are tough conversations. I don't want this negative energy in my life. So I think like, that's the most memorable HR lesson I have. Yeah, you said earlier, like always be selling. I think another thing that I've learned through the years is always be retaining. So you're selling and obviously selling is a form of retention too. So letting them know before that's coming. Last quick segment before QuickStrike, you're holding on buying businesses right now, but you've bought a bunch and I'm sure you'll pick back up shortly. When you buy businesses outside of, let's just say the supply chain, What are those like key levers that you always look to shave or cut?

2:49:36I only look at two things.

2:49:39Roman Khan:I look at marketing spend and then I look at bill of material. That's it. Can I, do I have an unfair advantage in one of those two domains? So for marketing, it would be really simple. Are they spending as much as I think they should be spending on meta? Are they spending anything at all on influencer? If the answer is no to both, like they're not spending enough on meta, they're not spending anything on the influencer. So the worse, the better, hypothetically, when you're buying a company. Great. Greenfield for me. Like the company I bought in 2024 spent$1 million a year in ad spend and did$24 million a year in revenue.

2:50:16Oh my God.

2:50:17Roman Khan:Because I find like - 3K a day? Yeah. Crazy. I find like needles in the haystack, right? Like I find needles in the haystack because I talk to so many people. And when you go in there, it's obviously you're first looking at the bomb, but then it's basically just like a cacto LTV exercise where like, can I push? Exactly. Push on meta. Exactly. Can I just spend 10 million instead of 1 million? That's it. Obviously, I couldn't because of the trade war, but now we're back at it, right? Now we're going to scale this thing. But that's the number one question I ask myself, and that's the biggest lever.

2:50:45Roman Khan:Second question I ask myself is on the bill of material. It's like, is this optimized? If I buy this, can I immediately add another million dollars in bottom line by just renegotiating terms? When is the last time this 10-year-old business saw a decline in cogs? zero, okay, I can go in and like get that down, you know? Usually I would say that for the majority, it's probably. Exactly. For majority. Probably never. Anything else? Like when you go in, how do you make sure that you're getting what you think you're getting? It's like you're going in and like you see what you see. Any type of like insurance plays that you do to kind of understand and know that it looks like it is what it looks like?

2:51:25Roman Khan:Yeah. Take Nutrition Kitchen, for example. When I bought into the business, I did it over time. First, I bought 12%. Now I probably own like 60 % of the business. The founder rolled over some equity. I actually started by just managing their marketing budget and designed a call option like, hey, if this works out and I'm able to scale your budgets, I have the right to buy more shares in your company. I think it's just by leading with value. If I were to do it today, I haven't done this practically in a long time. I would just go in and be like, Mark, let me take over the reins of your company for a month.

2:51:58Roman Khan:I'll spend a hundred grand of my own money, no strings attached. At the end of it, if it works out and I'm able to like drive revenue with a hundred K, I want the right to buy your business at X, yeah, exactly. Sounds like a win-win there. That's cheaper. And if it doesn't work out, you just let that founder keep the hundred K. He doesn't owe you anything. That's cheaper than spending 20,$30 million buying a company. That's basically just like test drive. Yeah. Let me, the Ferrari analogy, let me borrow your keys. Let me drive your car for a moment. Any red flags? I mean, a lot of these founders, I would imagine, I mean, you just mentioned one that he rolled over some equity to get a second bite.

2:52:36What are those kind of green flags and red flags that you see when you're talking to these founders? Because again, you've seen a lot.

2:52:42Roman Khan:Yeah. Green flags. You could just tell if someone is an asshole or not. You know, people like kind of understate that factor. But you just don't want to buy a company off an asshole, even if the terms are great. It never works out. I don't even want to deal with an asshole anymore. It just never works out. It never works out. It never works out. Like, so just avoid assholes altogether, even if the deal is incredible. The 90-10 value prop, I would say, of like deal making, just avoid assholes. That's a bigger gem than people out there. At the surface level, it kind of sounds obvious, but yeah. Can't make a good deal with a bad person.

2:53:22We've said it a million times.

2:53:23Roman Khan:Don't sell your company to a bad person either. You know, what we just did on the screening, do the inverse. When I bought this company in June, the founder was smart enough. I mean, I offered it. I offered it. I said, you should do reference calls. Why don't you talk to Ray, Josh, you know, all these people I've partnered with over the years and see how it is selling a company to me or working with me. So I think just avoid assholes. Green flags and red flags, those are the main ones, I'd say. Everything else is kind of noise. and situation specific. Force choice. Great brand, mediocre founder, mediocre brand, great founder.

2:54:01What's your thoughts? Great brand. Always wins over time. Yeah. All right. Last couple of questions. We're going to fire off some random questions. Amazing time. So many gems in this shit. I'm on roids right now. Negative 3 million to 32. How'd that happen? Ego. Five slide deck you showed your rich friends to help you get out of that hole. What was on each slide?

2:54:24Roman Khan:I was like, number one, I'm an idiot. Number two, this is what happened that led to this situation. Number three was like, this is how I'm going to get out of it. Number four was like a timeline and a payback window, I think. And number five was like the actual ask for money and like what I was willing to give. Simple, profound. Yeah. Man, you're subtle sell here on Hong Kong here, guys. Why Hong Kong over anywhere else? for an e-com founder? If you're an e-com, it's very likely that you make stuff in China or in Asia and geographical proximity to your supplier increases the frequency of interactions.

2:55:06Roman Khan:That's it. So the more time you spend with your supplier, the more you're going to grow. You're going to grow way more if you're closer to your supplier. So it's great for your business. Number two, you're going to get incredible terms over time as you build Guangxi, like when you build a relationship. with your Chinese suppliers, you're going to get incredible terms and incredible unfair advantage in a world that's turning into a red ocean in e-com. So those are two main things. Number three, healthcare is incredible and free. Rents are actually really low when you compare it to New York. Really low.

2:55:44Roman Khan:If you went to like Brooklyn and Hong Kong, two bedroom apartment, three bedroom apartment would be$5 ,000 US a month. What? I don't want to be out of touch and like talk about things like, but like that's really cheap for a world-class city. Nature is incredible. 80 % of Hong Kong is lush and green. Low taxes. Incredible e-com community. Just an incredible place to build. Future mayor of Hong Kong, Uncle Roman. You talk a lot about mentorship. Who is yours?

2:56:20Roman Khan:Really interesting. My ex-girlfriend's father. super successful entrepreneur. Me and my wife actually traveled around with him. He likes to be anonymous, but incredible guy by the name of Michael. And he's the most profound influence in my life by far. Was not expecting that. Yes. One of my favorite books. You're a fan as well too. Brad Jacobs, How to Make a Few Billion. Yes. What's one idea that sticks with you from him in general? Context, guys, he's bought like, I don't know, six, seven, eight, nine companies. Seven billion dollar companies. Seven billion dollar companies. Very lively, too, for his age.

2:56:59Roman Khan:I don't know if he's in his 70s. I want to meet him. I want to meet him. It's like he's on diehard on my list. The thing you talked about when people resign, are you jumping out of your chair panicking? Or are you just like, whatever, this person is leaving? That really stuck with me. There are two things. that's one thing that really stuck with me it's the ABC players and one of them was like a C player is like they leave and you're like I don't give a shit B's like eh B's like fuck yeah and like never be in a position where an A player is leaving without you like having a heads up kind of thing like be proactive the second thing was like it's better to have a seat empty than fill with the wrong person I think that was really powerful too it's an incredible book everyone should read it very very simple and easy read so good simple and easy read as well too incredible guy You were a USD millionaire at 19.

2:57:49What happened? What'd you learn?

2:57:52Roman Khan:Tell us a little bit. Oh man, I quit high school to start a business. It was a media agency, of all things. We were doing After Effects. We do motion graphics and then sell it to advertising agencies. Long story short, I had a dispute with my co-founders. We had nothing in writing, blah, blah, blah. I made maybe a couple of hundred thousand dollars out of that venture, but I parlayed it into stock investing. I actually invested in the first company to drill for oil in Iraq. It was a Norwegian company. I'm from Norway. Called DNO. My whole investment thesis was like, they're going to find oil in Iraq.

2:58:25Roman Khan:Go behold, they find oil in Iraq. Stock fucking balloons. And I become a USD millionaire. I pay capital gains. In Norway, they're really hard. And I started Googling low places of like low tax jurisdictions. China was in the news all the time. And that's how I actually ended up in Hong Kong. No joke. it's a great segue to the next question the degenerate gambler in you yeah does it help or does it hurt it hurts i think it's deeply rooted like so i have two therapists i've a b c d e tested i know that elon says that introspective being introspective is a negative thing mark and treason says i just saw that as well i think it's bullshit i call bullshit on that stuff i had a tough childhood but nothing near what my parents had right like i was born with an indonesian passport.

2:59:13Roman Khan:I think I had this perspective where I felt sorry for myself. And then my parents used to go back to Bangladesh in the summers and I was like, okay, I shouldn't feel sorry for myself. I have it incredible. And I think that's instilled a huge drive in me. I think it also creates a chip on your shoulder where you feel like you have to, like some level of survivor bias and feeling like you have to do a lot with what you've been given because I've been given a lot. Being born with a Norwegian passport is literally winning the lottery. So I think that drives the tendency of me gambling. Also, I want to be relevant.

2:59:47Roman Khan:I feel like modern day society has vilified men and women wanting to have a grand ambitious vision for their lives. Like for me, my legacy really matters. What I leave behind, how I think about it. Like I want lots of kids. I want my businesses to have a big impact. I want another hundred stories like Momo. And I think it's much easier to reach a broader amount of significance with a bigger balance sheet. For better or worse, money matters. That's a good take. By the way, too, guys, Norway, Dark Horse in the World Cup. I'm claiming it right now. Good, good, good, good. Very, very, very good. Dark Horse.

3:00:32Roman Khan:They have some good players. They do, Holland. If you launch one new brand tomorrow, what would the category be? I think anything that has to do with health and longevity has so much tailwinds that I feel confident telling a founder to go and work on something like that for a decade now. Because you're still at the beginning of the cycle. Completely agree. Last question before the final four. You talked to tons and tons of founders. What's the one trait that the winners share? Intensity and tenacity, I'd say. Final four questions. Favorite book or podcast and why? You've mentioned a couple books too, podcast.

3:01:10Any podcast you listen to?

3:01:11Roman Khan:Favorite book would be Chasing Daylight by Eugene O. Kelly. He was a CEO of KPMG USA. And he gets diagnosed with cancer. And he gives us this incredible book, which is Chasing Daylight. It actually changed my life. I end up writing a will. I end up writing a vivid vision of how I want to lead my life. it's an incredible book because it will resonate with you. Amazon will give it 4.1 stars because like people read the reviews are so, that people read the book are sometimes so offended because they're not achievement oriented. And he's very achievement oriented. So I found that book, I felt seen and I felt that I was, it was a big reset after reading that book.

3:01:56Roman Khan:So I highly, highly recommend reading that book. I don't read books like that. So that's a good one. It's really good, especially for a parent. I think it's life-changing. Not there yet, guys. Soon. Good. An entrepreneur or brand that you want to give flowers to and why? Brad Jacobs. Goat. Last question, man. How big can Peak 21 be? Good question. Something I ask myself too, especially on this trip. How many billionaires do you know in D2C? Through D2C or in general? D2C operators, founders. None. I've come to the same conclusion too. So I know billionaires because in DTC that gone and sold their business for nine figures and then parlayed it into billions.

3:02:39Roman Khan:I know one person who's done that, but I don't actually know any DTC founder billionaires. I've seen billion dollar outcomes, but I don't know founders that are billionaires. I don't count other people's money, but Rahal with RxBarr, assuming he was 50-50 post-tax, et cetera, with David, I'm sure on the second one, he was probably way more strategic in what his equity was. I think the liquidity through both of us, I'm a big believer in what David is doing in a big, big way. He could be one. But in such a big multi-trillion dollar industry. We're debating over one human, which is insane. So extrapolate.

3:03:20Roman Khan:Shopify will probably do$600 billion of GMB, like process revenue. in the next two years or so, right? Like 550 to 600. Amazon will do what? 800, 900? I don't know what the number is, but like some gigantic number, right? Like so 1.5 trillion between two behemoths and that's not even counting from Magento, all this other shit, right? Like so it's a multi-trillion dollar industry and I fundamentally believe, it's a long-winded answer to your question, but I fundamentally believe in the US, e-commerce is like 22 % or 21 % of all retail. I believe our children, by the time they're fully grown up in our age, it's going to be 60%, six zero.

3:04:05Roman Khan:I don't think that's a crazy take. I think a lot of stuff will be delivered with drones. Things will be made to order, 3D printers, whatever the fuck, right? Does that 21 % include Amazon? Yes. Yeah. It includes everything, I believe. Don't quote me on this, but like I've seen that stat everywhere, right? Like, so I think it's going to 3X from here. So it's a huge industry. My question is, the only people who become billionaires on the back of DTC are the picks and shovels. It's the app-lovens of the world. Pinterest, Snapchat, Quince. It's just the picks and shovels that are going to really rack in money.

3:04:47Roman Khan:And that's where I'm like, you know, probably if I kept going for another 30 years, I think Linear could be a billion dollar company. I think we could get to like 300 stores. I think we get to like a billion dollars plus in EBITDA. Pandora, to give an idea, does$4.5 billion of revenue, $1.1 billion of EBITDA, and they have 2 ,400 stores. To give an idea, like it's been done before. It's just like, do I want to spend the next 40 years, my golden years from 40 to 80, building my way into buying more brands under peak 21? Big question mark. I'm not sure. And that's okay. And that's okay. I'm excited to see the journey, man.

3:05:29Dude, I had an amazing time. Guys, if you made it all the way to the end, you definitely got smarter.

3:05:34Roman Khan:I appreciate you, man. Thank you, Mark. Thank you for having me. Thank you guys so much for watching. If you got value out of this episode, every single principle framework tactic is in one free playbook linked at the top of the description. Grab it, hit subscribe, and we'll see you in the next one. Dave Bortnau here. Something big is coming. September 2nd, DraftKings Game Day. We're talking massive deals, exclusive offers, and an all-day celebration built for sports fans. Whatever you're betting, DraftKings Game Day has deals dropping all day long. One app, every sport. So mark the date. September 2nd, new season, new era.

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