E142: Hedge Your Ad Spend

27:20Or also maybe their P &L just doesn't look as good as ours. You know, and we don't know that. And so that's one of the hardest parts about decision making. On that, this comes down to like what's your framework for expanding channels? And like what are the questions you have to ask? Because like one of the questions that I've been asking my team is like, what's the purpose of a channel? It's like not all channels should. It's sort of like the same thing with advertising. So like if I go into a channel, I might be going into a channel like TikTok knowing that I'm not going to make any money on TikTok.

27:53And that that's not as perfect. I don't know that I've heard anybody say they're making money on TikTok. I think there are some people who say they are, but I just don't know if it's true. Even the brands that are really printing with social commerce. I talked to one recently, really insane numbers and insane growth. But it's like when you're giving Lambos away for, you know, the top affiliate, it's going to be tough to make that. So I think that everybody has kind of started to view TikTok as like if you're selling things via that channel, it's kind of subsidizing the ad cost. And at best, you're hoping to kind of break even on that.

28:27But I think that this is the whole channel diversification win. is I have, I mean, I've seen a couple companies where they crush TikTok from an awareness perspective and they make the money everywhere else. Yes. It's in retail, it's on Amazon, it's their D2C business. Like TikTok is just the noise maker. So I think like one of the things with channel expansion, I don't know if you guys agree with this is like not all channels are created equal, that every channel should have a purpose sort of like product. Not all products have the same purpose in your business. And I think that like those, the purpose of a channel usually comes with trade-offs and others.

29:02Yes. And that every time you expand channels, whether this is a new advertising channel, this is a new product that you're releasing, a new distribution channel, the complexity in your business grows. And it's very difficult to actually mentally track the costs with that complexity. So one of the reasons why there has to be a reason for it is that it is making your business more expensive to run and more difficult to run. And so it better be producing some kind of corresponding benefit. With Ridge, as you guys, you're sort of new to, I guess, expanding more aggressively in retail as a brand. Would that be accurate to say that at this point?

29:43Like it's still pretty early days for Ridge. you you guys were far more aggressive in advertising channel expansion and product expansion what's the thinking why are you guys looking at retail so much now like what's the thesis there yeah um well a lot of like every challenge has trade-offs you know just like mike's talking every businesses have trade-offs right every every channel has trade-offs um you often hear you don't make money on tiktok shop uh you could make the same argument for amazon nowadays. It's like, oh, you want to be on Amazon because you get the bestseller badge and it might work somewhere else.

30:20And it's like, I think the reality of a merchant is every single channel is just slowly becoming a place where you don't make any money. And you could say the same thing about wholesale. There's definitely parts of every channel, like Prime Day, for example, you're not going to make money for most brands. Wholesale, when they ask you to do a TPC or some kind of, you know, usually, or an end cap, a lot of times you don't make money is on the, so like, it's not for us, our experience is not that it's uniform, like, Hey, you don't make money in these channels. It's just like, there are definitely kind of periods where you're engaging in stuff that isn't making any money.

30:56Like Sean saying for some benefit later on in that channel or somewhere else or relationships or whatever. Right. You know, like a salad, like, and to explain if you're not in retail, cause the average person listens to this as a seven figure brand, you get offered an end cap. They agree to spend. They're like, we're going to buy a bunch to fill the end cap. You're going to give us all of that money back in advertising. So it's like, they get the product for free. You get the end cap, right? So you see your costs explode and then you see your sales explode, but it's always one-to-one, right? Yeah.

31:28And they'll have usually what they call a markdown agreement. So they'll say, okay, your responsibility is to get to say 90 % sell through, but let's say you get to 70 % sell through. So they buy 200 ,000 units and they're saying, we want you to sell through 180 ,000 units by X date. Everything you're short of that, we're going to come in and mark that down and you're going to fund X percent of that markdown. And sometimes it's a hundred percent. So just to put some math on that, you do a 200 ,000 unit end cap. They say, hey, we want you to hit 80 % sell through, but you hit 70 % sell through.

32:07So there's 20 ,000 items that we're going to mark down by$5 and you are going to fund that entire$5, boom,$100 ,000 right off your next invoice. And so that's how sometimes like it looks profitable, but you just have to kind of wait. And then by the time you get to the end of the program, it's like, oh, there's nothing less. Costco can be the same way. Like when you're trying to clear out of stuff at the end, often it can evaporate a bunch of the profit. Yeah. So the question is, you know, why are we going after retail? It's like, look, people will pair it back to you. All of the reasons to be in retail, right?

32:41It's like, there's brand awareness, like it's in the physical world. So like it's legitimizing and 90 % of commerce, or maybe it's 85 % of commerce now happens in person somewhere. right? So like there is big pools of money to be had being in person, but I'm not the bearer of news on this. It's like retail is not what it was 10 years ago, right? I think retail is still recovering from a post-COVID environment. It's expensive to have people walking around. So we love our retail partners. We're investing heavily in there. I think at some point retail has another boom and you just want to get that muscle trained that you can actually be there and sell.

33:17I mean, Mike often says, it's like, look, Target can't be down forever, right? It's a big retailer. It's an institution and these things always ebb and flow. On the channel side, right? So all this is expansion. So where you're selling or where you're advertising, we were very aggressive to advertise everywhere because there's cheap CPMs everywhere. And it's sort of the inverse of channels. You want to be in the biggest sales channels and you want to be at the newest advertising channels. Because if you're the first person advertising there, you're going to reach all those eyeballs first. It's going to be the cheapest ad spots.

33:51So we were very early to... We were the first D2C Snapchat advertiser, right? We were very early to YouTube. And I'm spending money on every single channel possible. We've often said maybe that was a mistake and I should have just focused on Meta because Meta still takes up over 60 % of my budget. But really, it's like, it's... I think Apple Evan is another example of that, Sean. You guys were fairly early on the app. And every new ad channel, because you just want to be as early as possible. There's a bunch of people there who've never seen a good ad. We're all good at advertising. We have real brands.

34:24We deliver products. No one's getting scammed. You want to be the absolute first person so you can get all of the CPMs for as cheap as possible. So yeah, this is the channel side. Mike said something very smart, maybe 10 minutes ago that we should harken back to. advertising or brand or whatever there's different ways to spend on it i'm talking about digital ad channels but the lowest price point is a way to advertise also licensing it's like why do you crush in a target it's like if there's disney characters on your thing you pay for that but it's going to help you stand out on that aisle in the same way a dude like spiral moment could or a ton of digital advertising like iDo does.

35:07Yep. And one point about this channel expansion is, I'll just draw it, I'll tease out a relationship. The more physical channels, for example, that you're in, or sales channels, the more you can make your ad dollars work because you have more places to soak up demand. And so as you grow the number of products, there's more physical channels where it could make sense for your product to be sold. And as you have more products and more physical channels, there's more advertising approaches, methods, channels, where you can tell your story and make it work for you. So like as a simple example, we expand in from water bottles to water bottles and tumblers.

35:54And then we expand from tumblers into NFL licensed tumblers. And now all of a sudden it's possible for us to have like a partnership with the Dallas Cowboys around our product that we sell for them, which is kind of an advertising partnership or, you know, Target is now able to carry our NFL licensed product. And so I think as you're unlocking your business, obviously the goal of growing a big business is that you're going to have to expand the number of places you're talking about your product, the number of places you're selling your product and the number of products you're selling. the art is really figuring out the sequencing of that like what is the next thing in this flywheel that unlocks more of the other things do you guys think about on that mike do you both think about how the i guess the overall landscape is shifting so like sean you just said in the future there's going to be more people like retail is going to come back so there's going to be more people shopping in person you know how much how much of this is just also knowing like where the puck is going oh well dude i mean i don't know if that's where the puck is going uh you know i we talked about like ai you know uh agenda commerce this me store idea like all of these ideas have been percolating in this podcast for six months or whatever so i have absolutely no idea where the future is going.

37:18But I know currently 85 % of commerce is happening in retail and I have no exposure. If I don't go into wholesale, I have no exposure. And I think about it just like hedging all of my bets. By the time this podcast is out, we're making a big push on TikTok shops. I've been a super bearer on TikTok shops. I'm like, I don't think it's going to exist very much longer. You're being bought by Larry Ellison and people who are very, very good at economics and they're not ByteDance. ByteDance is worth a trillion dollars. They will burn money to win and take down Amazon. I think they might just really like having an ad platform.

37:57So I think it might go away, but I have no exposure right now. So I want to hedge and get into it. Just in case I'm wrong, I'm wrong all the time. It might be a great place to be. So I'm just trying to have exposure to all these different channels of commerce, right? It's like, I'm going to sell on Walmart and I'm big on Amazon and all these places because I don't know what the winner is going to be. We're at the first truly seismic change. We thought COVID was a change. We thought Facebook ads were a change. Dude, that was easy. We're at the first thing where you've heard me say, I don't know if websites are going to be around.

38:30That's how radical I think it might be. So I'm just trying to get a lot of exposure right now. One thing that I'll point out here that we haven't said already is that you should be able to look at what you sell and understand some of the channel decisions you should make based on the characteristics of that thing. Like, I think it makes sense for Sean to have some exposure to TikTok, but obviously, Ridge is an amazing marketing organization. And there's a reason why they don't have a lot of exposure to TikTok already. And that is the TikTok model really favors beauty and supplement brands because of the way that things are structured and the LTVs with those categories.

39:12That's why You look at the bestseller list, it is dominated by consumables or things with very high gross margins, very high LTVs. So I think that's part of running your business well is understanding for our particular business, what are the channels that make the most sense? And then what are the channels that are going to be harder to unlock? I actually don't doubt that Ridge can find a way to make TikTok shops work, but it's only going to be because they're an amazing marketing organization that really has scale already if they do. Like at a kind of nuts and bolts fundamental level, their product is not really suited well to be a great TikTok shop product, just like some other products are kind of custom made to be pushed on that channel.

40:00Hey, you know what's important to your business? Understanding it. That's where Sarah Sinalatus comes in. Jason, what if I told you that our margins yesterday were about 30 %? But there's a big difference between saying you're about 30 % and saying you're 27.4%, right? That level of precision can only happen if your data is rock solid and in one place where you can actually pull it from. That's where Sarah Sinalatus comes in for rich. So every single day I'm going in there, I'm looking at my contribution margin, I'm looking at my sales breakdown, my sales by product type, and it really just starts shining a light into like the black holes of your business.

40:34Jason, what have you gotten out of Saris Analytics? Honestly, everything is at my fingertips. Our dashboards pull in from everywhere, from Shopify, from Amazon, from our ERP, from Costco, every single channel. And we go to Saris Pulse and we get our daily contribution margin reporting. We get all of our marketing metrics by channel, by category, even down to the skew. Everything is pulled in automatically. I get an email report in the morning. I go check things during the day. My entire team lives in this thing. Yeah. And everyone knows the revenue yesterday. If you ask any brand, they'll tell you what the revenue was.

41:09Maybe 20 % of brands can tell you their contribution margin and about 0 % of brands can tell you their profit for yesterday. And if you're not watching your profit on a daily or at least weekly basis, it can just get out from under you. You know, to the Saris's team's credit, we have a daily growth dashboard sheet from probably 2018. And they were able to import all of that data. And the reason to do that is eventually Sheets just breaks. Like we ended up having three or four full-time people like maintaining this giant sheet. And Saris Analytics, by putting it into an actual database with actual data connectors and pipelines, it just makes it more future-proof.

41:46I'm going to give you guys a real world use case. So I just had to set 2026 financial budgets. Serious Analytics made that data available in four clicks compared to 40 hours. It used to take me probably literally a week or two to figure out what my projections for the next year could be. With Serious Analytics, I got it done in an afternoon. So it's like AI for your business knowledge. And if you want to check out Serious Analytics, that is S-A-R-A-S, and see how daily precise data can transform your profitability. you worried at all about a comp like complexity from all this expansion sean so like being everywhere as a brand i guess there's like brand dilution and then there's overall just complexity of operation you know and how does that weigh into your decisions so i don't worry about brand dilution because i think like people shop where they shop right there is some sort of cross shopping, but like, dude, I, we talked about this at Beanstalk.

42:45We were at a dinner and someone asked, well, isn't being in Nordstrom's good from the brand side? And I'm like, have you, when was the last time you've been in Nordstrom? She's like, I don't know, eight years. I'm like, then you don't know. I'm like, no, like it's this idea that like, there's any sort of prestige or exclusivity. Like, dude, you can buy Louis bags on Walmart right now. It's like the world is just flat. So I don't believe in the brand illusion piece. The complexity piece is real. Here's something. This is breaking news. I'm thinking if I even want to focus on Europe as a market anymore, like, Oh, that's interesting.

43:23You know, we have, Oh my gosh, this is, this is hilarious. We've got to talk about this because Walmart is the white whale. I mean, sorry, Europe is the white whale for everybody. Like, and we literally had this conversation recently inside of our company, Sean, I have been now through several companies where it's like, we're going to Europe. And then after about a year or two, you're like, the economics here kind of suck. We're not, we're getting out of Europe. And anyway, I feel like it's a tale as old as time. It's like, oh, it's a big continent. This is going to be awesome. Yeah. Look, and we're very successful in Europe.

43:55Like we, we have eight figure business, eight figure store, you know, doing really, really well. But when I think about the future, and this is, you just look at GDP per capita and disposable incomes, right? And it's like - Yeah, it's half. Yeah. And it's not growing. It's actually shrinking. And other parts of the world are probably going to catch up to it, like all of Southeast Asia or whatever, right? I'm like, oh, maybe those efforts are just better spent. Indonesia has 200 million people and there's not a lot of money right now, but there's going to be a lot of money soon. Or at least I trust that they're going to grow that number faster.

44:37And you look at, it just came out that Poland will be wealthier than the UK by the end of the decade. And the end of the decade - Yeah. It's an amazing story, by the way. And unfortunately, Canada is kind of in the same boat, Sean, as some of these European countries. I saw something last night that they are going to be the last of the first world economies. They're going to be the last in GDP growth or some kind of crazy number. It's depressing. Yeah. Yeah. And so look, I mean, I have a great Canadian store, but I'm looking at this, I'm like, I'm making a lot of money right now, but what does it look like in three years or five years?

45:14Right? Like, is it worth sending new products there? Is it worth building up those new businesses? I don't want to count out the Canada's, the UK's, the Europe's of the world, but like Like the U.S. is an amazing economic engine. And I just worry about that. So anyway, like, you know, we're talking about like complexity. Is that energy better spent serving our retail partners in America or serving TikTok shops in America? And that's just something I'm in the first thoughts are going through my head right now. It's so funny you mentioned it. It's like that Europe is a massive conversation for us.

45:46Yeah. Countries are another expansion. You know, like if you're talking about like, what are the buckets? It's like, well, channels, countries like geographic countries, you know, ad platforms, product verticals. Maybe those four are the main ones. Yeah. I mean, it's, I think for us, I think it always starts with a thesis, whether it's product expansion, channel expansion, market expansion. You kind of have to have as a brand, like, this is the thesis I have. Like, if you're going to go into a, like Sean going into TikTok shops, they must have a thesis. Like our customer is clearly there. We must be able to do something like they're obviously they're there.

46:24They're spending a lot of time there. We're the same right now with Europe, Sean. We have an okay business in Europe. We think we should have a much better one given the brand affinity for people in Europe. Like I under index in the U.S. I think I've said that before. Like if you look at the U.S. for my Pila business as a percentage relative to my Canadian business, relative to my – I weigh under index in the US. And I think that's just a brand positioning and a brand values problem. Not a problem, it's just what it is. And I think in Europe, anytime we put any amount of effort in, we over-index.

47:03It's like they're more socially left, they're more climate-friendly, they're more, like all of our positioning statements do better in most European countries than they do in the US. Most of the US, there are parts of the US where we just crush. So this European thing, But then the trade-off is just like the complexity, languages and currencies and the infrastructure is all different everywhere you go there. Like there's just not a lot of shared anything. Europe's not a country. And, you know, that makes it hard to operate. Yeah. And a European entrepreneur would be very happy with the$5 million a year business.

47:37But like, you know, in the U.S., you need to have$5 million months to make any goddamn money. And so there's a lot of challenges. Going back to what I know best is the ad channel side of this, you should be the master of one. You have to have an economic engine that grows and pushes your business forward. And for most people, it's going to be met up. But I like people, and it's YouTube for them or it's Google or whatever. You have to have one channel that actually can drive things. But then I think the best strategy is taking 5 % to 10 % to 20 % of your budget and just making sure you have stuff going on.

48:16because we talked about this earlier, buying ad inventory is like buying inventory. You want to have some sort of diversity, right? Mike said, like, what if you go over to Reline on Meta and they ban your account? That happens, right? Or they have a new health and wellness policy, you know? Like, maybe it's not even your account. It's just like your category gets targeted. Yeah, so like you just, you need to have some sort of backfitting, right? So that's what we do on the ad channel side. On the product or sorry, on the sales channel side, right? I mean, if you're listening to this, you either have two main channels.

48:50It's going to be your D2C business or your Amazon business, right? Nobody listening to this is retail first because if you are, like, I'm sorry. It's a very, very hard life to be living. But like you guys said, like Europe's a white whale. Every brand who's on Amazon wants to go to D2C, right? Every D2C brand wants to be on TikTok shops. Every TikTok shop brand wants to make Amazon work. It's like we all want the other flywheel to work. And the more I get deeper in the business, they're all just so unique, right? Like Amazon, there's a reason why brands can do a billion dollars on Amazon, but you'll sell your soul to do it.

49:31I want to make a point that kind of dovetails off what you were talking about, Sean, which is I think when you're leading a business, I think one of the forces that's the most destructive to creating value is looking around and seeing what other people are doing and trying to make your business something it's not. You know, I don't run Ridge and I really admire Ridge and Lomi and Hexclad and the businesses you guys have. And the worst thing I can take is just like, oh, I see this thing they're doing and I just want to imitate it because I think it's cool, but it doesn't work for my business. And unfortunately, there's just a lot of that in entrepreneurship and especially in the DTC space, of seeing something that works for somebody else for reasons that are specific to their company, their product, whatever, and then thinking like, I need to find a way to make that work in my business.

50:25And so one of the things that's helped me to be a better leader is to just be like, there is a lot of stuff that's going to work for other people that won't work for me in this particular business. And that's not because I'm a bad operator. It's just because structurally there are going to be parts of your business like I can make Walmart be a channel that makes, you know, a significant amount of money. Sean, with your business, I really don't think that's something you can or want to do. And but you can do things I can't do, you know, and that. So one thing is that will limit you as a leader is if you're trying to run your business based on your FOMO about other people's businesses.

51:04Put that another way, Mike. I think one of my sort of like, I guess a part of my model for how we expand channels or markets or products is asking this question of like, do we have some unique leverage or some advantage here that this works? So like if I go, if I'm looking at TikTok, it's like, does what we currently have in our current machine, it's like the people, the systems, all the assets, does it give us leverage? Yeah, what's our competitive advantage, which is going to create alpha here? Well, and this builds on a theory I have that if you could perfectly look at what's going on in most of business, most of business is not contribution margin generating.

51:46It's literally just paying for the inputs. Like kind of like, you know, Ogilvy said that 50 % of ad dollars don't work. Like 80 % of sales that happen in business are just covering the input costs. It's your business and its profitability comes from the 20%. And sometimes you have to do the 80 % to get to the 20%. But also sometimes your business can be doing 10 things and you could cut seven of those and make the same amount of money. And you should kind of ask yourself, if that's true, then why am I doing 10 things instead of three? Yeah, dude, look, Amazon as a business makes all of its profit off of advertising off the platform.

52:24and it took them two decades to figure out that was the business model. It's like, they're not going to make, you know, they had a whole private label thing they tried that actually ended up being a disaster for them. They got sued over it. It's like, oh, fuck it. We make way more money if these people actually bid on each other and we make money off that, right? All right, folks, this episode is brought to you by our friends at Northbeam, the marketing attribution platform that every smart performance team should be using. Northbeam just dropped something game-changing. It's called clicks plus deterministic views, the world's first deterministic view-through attribution model.

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55:10And I talk to people with$20 products and they make it work. I know a jewelry brand on Amazon doing hundreds of millions of dollars a year with an AOV of$15. They make that work. Yeah. That's a very, very low margin business. And it is the exception, not the rule. For nine out of 10 brands,$30 tax is basically what you're looking at as a floor. How did Yeti get to be a$2 billion a year business with a product that costs 40 bucks. It's because they have a cooler that costs$300 that is only 20 % of their business. The cooler is a very tiny part of their business, but it's so highly priced, they can spend a ton of money on ads.

55:50That builds this brand and then they actually swoop in and 80 % of their business is just selling. Absolutely. It's like the 80-20 rule. I think if you could look at Yeti's D2C business, which is probably one of the best D2C businesses in the world. Like it's actually crazy. We get market share numbers and it's like Amazon, Target, Walmart, Dick's Sporting Goods, Yeti.com. I mean, it's like at the level of these like multi-billion dollar, you know, decabillion dollar corporations as a channel. But I bet that if we dove into their numbers, it would be an 80-20 rule that 20 % of their carts are making up 80 % of their contribution profit because it's a cart where somebody comes in and buys a cooler and buys four tumblers that are customized or something.

56:40And it's a$700 ring or some kind of crazy number. And there's$500 worth of contribution profit or something crazy. And this is true for every business. But like you said, Sean, it's easy. So like for my business, it's like, should we do coolers? Well, just because Yeti does it doesn't mean we should do it. We should only do it, to your point, Matt, if we can do it in some kind of a unique way that gives us a unique opportunity to succeed. So we've actually developed a product. Yeti is a great example of that, Mike. Like early on with their cooler, didn't the private equity group, Sean, you might know this, the PE group that initially bought Yeti, didn't they also own a roto manufacturing company?

57:16So like Yeti was blocked by supply and the PE buyer was like, we can unblock you and give you an incredible competitive of advantage in making this product that nobody else has it was a company called cortac and they they also own a bunch of steel and cable manufacturers so yeah it's just a great example that like you get into drinkware and it's like well everybody needs to have a cooler because yeti has a cooler and it's like to the best of my knowledge like kind of nobody i mean nobody's made it work like yeti's made it work maybe arctic has kind of made it work maybe your roommates kind of made it work, but we shouldn't jump into coolers just because Yeti did it and popularized the idea of putting these things together.

57:59They obviously have some unique competitive advantages, one of which being they were first. And that's, that's the thing that people underestimate a lot of times is that somebody is really great at a thing just because they had the first mover advantage. Like Sean, for example, you mentioned we were on snap. We were the first one snap. You know, what's going to come with that. You're going to get preferred nation status with Snap probably for a really long period of time. You're going to get offers other people don't get. You're going to get treatment that other people might not get because you were pivotal in helping them break into first in the customer's mind.

58:33Exactly. And that can be in products that can be in different channels. And so that's worth remembering as well is that sometimes people have advantages you don't. And so if you just try and imitate what they're doing, it's not going to go the way you think it's going to go. What do you think the number one GMV product today on TikTok Shop is? we talked about them a lot it is a shark ninja cooler they released a cooler for 250 dollars and they are hawking the come out of it you should look at it check out the numbers like so that's why shark ninja is a scary business is because we said that like hey it doesn't work for supplements it only works for supplements it only works for beauty it's very female focused somehow they got a cooler a 250 bucks be the number one gmb let's talk about this this is so good.

59:18I want to talk about this because here's the thing. We have no idea what's going on on their P &L here. They could be like, you know, we're going to lose$20 million a month on this cooler because of the halo effects, because we, you know, we have, we're generating so much free cashflow over in these other, and, you know, creamy and our blenders and everything else that we can just deterministically come in and buy our way to the top of market share in subsequent product categories. That might be the case. It might be that they're just crushing it that they found a way to make coolers work where it's first order profitable.

59:50We have no idea what is going on behind the scenes. And that's the problem when you just see something somebody else is doing and being like, well, it must be working. It's like, well, yeah, it might be. It's probably working for them on some level, but they run a business that's like completely differently situated than like everybody else in the world, basically. Yeah. I think it's working for a couple of reasons. One, they're a$10 billion company and if they want their stock to go up, it probably helps to say we have the number one product on TikTok shop. Okay, so that is a value none of us would get.

1:00:22Okay, but if they spend$100 million to make their stock price go up$2 billion, it's a trade anyone would take all day long, right? The second thing is, they're the first product on TikTok shop in the multi-hundred dollar price point. So imagine just being able to offer affiliates, hey, I'll give you a$200 commission if you sell one of these things. Exactly. It's like, you know, dollars talk. It's like, well, I mean, it's like the, it's like the crypto thing all over again that like the reason why they're being successful on TikTok shops is they're spending a lot of money. The question is how are they spending a lot of money?

1:00:58And that's the relevant piece to understand whether or not there's anything you can take from it, from your brand. And there's lots of times I see people doing things. And then when I learned the how I'm like, well, number one, that makes sense. And number two, that's the reason why I can't do that. Cause I don't have that particular advantage or, you know, whatever. So I love that example, Sean, because it really illustrates what I'm talking about, which is you really have to run your business. And it is somewhat helpful to look out there and see what other people are doing. It's somewhat instructive, but it becomes less instructive the less similarly positioned a company is to you.

1:01:33Like even us watching what Yeti's doing, it's like, it's helpful, but there are also a public company that's a multi-billion company. So they're different, you know, and there, there are a lot of things about how they're situated that are different than us that might work for them that don't work for us, or even vice versa. We can do some things that they can't do. Like they can't sell in Walmart, for example, doesn't work with their, their strategy. They can't sell on target. And so, I mean, I guess they could, but they're not going to because of their strategy and it would take down margins and the street would freak out, whatever.

1:02:03So you just have to, you have to kind of parse what other people are doing through that lens. Yeah. The second thing I wanted to go back to is, you just said it and I was going to bring it up earlier, but you don't know what other people are doing, right? You don't know if it's working or not. We had a competitor who came out and they launched wallets, okay? And they hired a former VP from our business to go over there and run products for them, right? Then they recruited people out of Ridge. A guy I was paying 85 grand a year, they offered him$200 ,000 a year. Okay. Let me try for this a little bit.

1:02:38And that sounds like they must be killing it, right? They're coming directly out after us. They're hiding all these people. We got word like a week or two ago, they're essentially bankrupt. They just laid everybody off. They're like, they're shuttering business units. And it's just a good reminder that like, you just have no idea what somebody else's business looks like. And if you can't figure out their game and the only answer you could think of is they must be evil geniuses, they're probably just stupid. 99 times out of a hundred, there is no secret. It's just, they're paying more and they're not making money.

1:03:14You know, like I, I occasionally it's like, Oh, I found out this one little clever thing. But usually what I've learned, Sean, when there is like a way that somebody is making something work in a way that I didn't anticipate, it's either something super proprietary or it's a tactic that dries up, you know, and it's like, oh, they found this like arbitrage kind of that they hit for a couple months and then it dried up. Matt, do you want to go back and kind of finish the arc on what we were talking about earlier with Simple Modern? Because I do think one of the things, I mean, you guys tell me if we want to do content around it, but I did a lot of like setup.

1:03:49What we've really done is we've tested kind of all the way up and down the funnel. And I think what we've learned, what I would hit on if we, if we went on it is how like, we really just basically shouldn't be spending money on performance marketing. Yeah. So I do want to, I want to talk about this, Mike, because where you started giving us context on what got Simple Modern to where it is today and everything we've just talked about, you've got to have a, I guess a strong or a forming thesis now about if you're going to spend money on marketing at Simple Modern, what stage of awareness and like, are you focused on?

1:04:23Right. So like, is it going to be more like what Sean and I heard from Dude Wipes where I think they said like 70 % of their dollars go into brand and just like these massive top of funnel things? We're starting to think it might be even more than that. Wow. The reality is that we just cannot scale for two things. We can't scale performance marketing very well with our company. And the reason that we have seen for this is that, number one, we don't have great economics. So like you have to be hitting like$20 CPAs or less. And as we talked about, you know, that's going to be difficult to do. But the problem is you don't know when you're going to have something that really can work.

1:05:03So we might say, hey, we're going to release these 10 new designs across the year and we're going to put some performance dollars behind them. We're going to try and move them. What we found is like two or three of them aren't going to really work. Two of three of them, it's going to be fine. You're going to sell the inventory. It doesn't really generate contribution profit dollars. and then two or three of them might pop off. But the problem is you don't know which two or three and you have to have the inventory to push the performance dollars behind it. And so, you know, just when you start to get cooking, boom, it's out of stock.

1:05:31So it's like, what do you do? Welcome to my world, man. We would launch a bunch of CCs and then you have to chase them. And everyone's mad. Your marketing team will be like, why didn't we order more of it? And it's like, well, because I ordered all this other stuff that you can't sell. And they're like, well, that stuff's bad. Nobody talks about those that are gathering dust bunnies. They want to know about the one thing that is moving. And so what we've kind of learned is, number one, we can't scale at the kind of CPAs we want to hit. And then you have these kind of inventory concerns. But what we're seeing is, and this is bearing out in some house testing, is that when you have a really diversified set of channels that you sell in, you have more places to kind of suck up demand.

1:06:11And so that's good for more awareness level advertising that you just get in front of people. Like we did one test that was super interesting. It was a YouTube test and we saw the biggest kind of incremental ROAS from Target from this YouTube test. And it's like, well, that's interesting, you know, that you're like, and I guess it makes sense. You're getting in front of people, they're seeing a video and then they're walking through a Target aisle and they think of you or you're top of mind. And so they pick up an item. We saw it in all of our channels, but it was interesting that in that particular test, we saw the biggest lift in Target.

1:06:45But here's the other reason why, like, I think we're moving up funnel and trying to figure out how to do that intelligently, which is that when you are doing more brand focused marketing, that not only can you gather it in all your channels, but you can gather it across all of your products. So if we just make simple, modern, more desirable, it makes our backpacks 5 % more volatile, more, it makes our, you know, kids drink wear 5 % more attractive, makes our adult drink wear 5 % more attractive, makes our coffee tumbler 5 % more attractive. And so you can scale up and down marketing more easily because that demand gets spread out across all your channels and all your different offerings.

1:07:24It's not hyper focused on this one thing that you're doing performance marketing on. And that's really attractive when you're trying to manage a supply chain. Yeah. Also, only brand marketing does that, right? Like if you like performance marketing, try to sell the best water bottle, you get zero percent lift on your backpacks or whatever else. Right. That's right. And that's the problem is that you're constantly managing kind of supply chain chaos. But what we've so what we've kind of come to is, hey, it really makes sense for us to be investing in brand marketing. And we've done some testing that says, hey, this can really work well for you.

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1:09:25I endorse them. I love them. Check it out. So Revo, I love you. You're a great sponsor. You're a great tool. You're my best friend. Talk to you guys later. Goodbye. I think another thing that's really interesting that's kind of come up in a couple of other episodes is that our ability to produce assets for brand marketing with the AI tools is really going to go up a lot. So one of the things that was a little bit of a limiting factor in the past, we worked with Raindrop and made a great commercial, but it was pretty expensive. and now it's like you can come up with 50 brand focused advertisements that are focused on you know different stories or different customers different areas of your business and you can do it pretty affordably and so I think the creative explosion that's coming as a result of the digital technology is going to make it even more possible for us to really get after it yeah I'm actually funny enough when it comes to this like channel expansion i'm a little i'm like 50 50 now on like bull versus bear on ai's impact on creative and these channels like i'm a little worried that the ai slop thing is just going to turn so many people off um because it's so bad and that it's i while it's the argument is like oh it's going to get better so fast i'm like yeah but it's going to produce a lot of crap in the meantime.

1:10:47So like, I'm both, Mike. I can see how it's going to make it better and easier like operationally, internally. And on the flip side, I'm like, what does it do? Authenticity is going to matter more. And I don't know, but I don't know how that's going to play out for digital brands. Like one thing that I was not aware of, but I'm really glad exists. Every nano banana-ish image has a watermark, like a digital watermark. There's tools to remove it. Somebody built that SaaS app like right away. But you would figure that like we are going to increasingly live in a world where people want to know this was a real thing made by a real human.

1:11:26I have no idea how that's going to play out. But the digital slop thing, like there is clearly, and I don't know that I've seen any surveys on this, but it does seem like the younger you are, the less impressed you are with AI's ability to kind of conjure something digitally, that the AI slop thing is even more repulsive to them than kind of older cohorts. Although I can't prove that. I've just read that kind of qualitatively. Look, I don't think it's a problem for brands. It's a problem for platforms. It's like, look, we're going to make the ads that perform best. So if it's AI or if it's in person or if it's whatever, we have a tendency to just go towards where performance is.

1:12:06That's what businesses do. But if your job is keeping people addicted to social media feeds, AI is an existential threat. Because you get way more content, but if that content gets people churning off, then they have to make a decision. Every time I see a video and I'm like, oh, that's really shocking. And then it's like, oh, I'm actually like, I don't know how I got enrolled in it. I got enrolled in community notes with Twitter. So I'm like, I'm a moderator or whatever, but like I never do anything with it. But what it allows me to do is it allows me to see proposed community notes. So like things will get a community note, but then there's also a process before community note happens.

1:12:48And you see all of these like, you know, keyboard warriors kind of fighting with each other about whether or not something should have a community note, which is kind of funny. They're like noting each other's community notes. But in watching that, it really does, you do start to feel like your trust in the things that you're seeing erode because you just see how many posts are getting kind of like people are like, hey, this is farmed from here. This is AI. This is misleading because of X, Y, and Z. And every time you see that, it just makes you want to go out and touch grass, basically. It's like, I just got to get off of here because like, man, how much I saw that one of the things X is going to do is that they're going to start listing the country of origin that something was posted from, which I think is super smart.

1:13:35But but yeah, I agree. I agree, Sean, with your take that this is an existential threat to the platforms that it's one thing to get on Instagram and be like, oh, I see somebody else's vacation photos and those look great. And I know that's not their real life, but I still like kind of seeing it. And then, but the moment that it's like, oh, they didn't even go on that vacation. You know, they just like got on Nano Banana and just like made that up. Like, it's like, what are we doing here? You know, like, I'm gonna go do something else. Yeah. Well, dude, I mean, look, this is one reason to have in real world retail exposure.

1:14:04Cause it's like, look, I don't know how it's going to play out. Like we are going through the biggest cultural shift ever. It's like, you know, people are like, we're in a recession. Everything's at all time highs. The market dips 1%. People are like, the boats are burning. Life's over. I don't know, man. People are at a very, very heightened stage. So I don't know where things are going to land. It's deemed a lot of exposure. Yeah. Mike, I'm going to send you a, I wrote a whole internal, like a memo recently on this, on like our company and responsible AI and what we're, how I'm thinking about it.

1:14:37It's, I'm actually coming at it, Sean, culturally. Like what, because like, here's what I do know. I know there's going to be, this is going to be like the most divisive topic. of this decade. I think politically, societally, it might actually be more divisive than any topic in the past 50 years. The Luddite thing is going to gain a ton of, I mean, like there are just going to be no tech people. There are going to be people that are just like, nope, I want it out of my house. I mean, one of the more interesting things is that you talk to people in Silicon Valley and a bunch of them, it's like, how much screen time does your kid get?

1:15:10And they're like, zero. Okay. So I had a thought last night. So in the Jewish faith, if you're super, super observant, you're not supposed to even light lights during the Sabbath, right? So in really Jewish neighborhoods, you could pay a Christian kid to come over and turn all your lights on, turn all your lights off, right? And I was thinking, I'm like, dude, that same thing applies to like, imagine just really rich people having a screen guy. You go through your life without outscreens. You go through your life, you never touch a phone, whatever. And you just have a guy, hey, you need an Uber.

1:15:44This guy, like an assistant just calls you the Uber. And you can really like, you could see rich people choosing to go completely screenless. Just being like, I will never interact with the screen. I'm just going to read books. But like, I need someone to order me Chipotle. I need someone to do whatever. And that's your screen guy. He's just there. He looks at the screen for you. I think the version of that that could come, Sean, is just voice, where it's like, I never have to get on a screen, but there is something where I can say, hey, I want a burrito, you know, and my voice assistants like got it.

1:16:12But I think you're right. Like, it's interesting that last week, so we built this, this house and it's, it's a nice house, has quite a few rooms. You know, in some ways has more space than we need. It has over four outhouses. We've got, we've got the bison stables over here. but anyway like upstairs we have like a craft room and what I noticed is like this craft room has like I mean just almost not gotten used at all and I went up there last week and I put a puzzle out and I just started working a puzzle at night and I loved it I loved it I mean there was no screen I put on music and I just sat and I worked a puzzle it was one of the more analog things I've done.

1:17:03And the thing that was shocking is how enjoyable it was. And I just contrasted it with, man, if I wasn't doing this, I'd probably somehow be on a screen. Right. And the level of enjoyment I had, it was like, it was like almost kind of like waking up from a trance. It was just like, why am I not doing more of this? And so then I have my kids, like they, they have homework and they came up there and they're sitting up there doing their homework. And there's like, literally my dog comes up there. There's one point, there's four of us up there. My wife got this like coloring thing that she was doing.

1:17:35Four of us are up there. We're in a room. There are no screens and we're all doing our thing. And I was like, number one, when was the last time this happened with our family? But number two, I was like, this is so enjoyable. And I really think that there is something here about we're going to be pushing back on this. Like the screen time cannot go up forever. And this kind of actually comes full circle back to like why you got to be diversified. Like there are some studies that have been going around X this week that we've already seen peak social media. I don't know if that's true. Like you kind of get into the data and the cross tabs and it's like maybe the way they're asking questions, who knows.

1:18:18But I know screen time can't go up for forever. I know that there is going to be a period where it's like we're at peak screen time and there's no more impressions. There's no more, you know, digital ads to sell. And so like, I think that nobody knows what's coming over the next five or 10 years, but I think it's a very safe bet to say it's not going to look like the last five years and that we are going to look back on this period and we're going to say that was clearly peak something. And so you have to kind of have a theory about the world of like, what is what are we at peak x right now and i think saying hey we're at peak screen is a pretty good gamble mike that's a good takeaway for everybody i would love a room with bean bags and candles and i get to play with legos that'd be sick so add some legos to that your room dude and i'll be coming we have legos up there like i kid you not there's some legos and my son we were walking through walmart the other day and he's like you know dad we haven't worked legos in a well, I'd love to work a Lego.

1:19:14And I'm like, yeah, I'd love to work Legos with you also. And so I don't know, I, in some ways it's, it's very quaint, but in other ways it was like, really, it was a cool moment. As a side note, Sean, on your, your analogy about, you know, the Sabbath, I went to Israel once, and this is true when, when it goes into Sabbath, even the elevators, like it's considered work to press a button, a number on the elevator. And so once it goes to sundown Friday, all of the elevators, the way they work is they're programmed to just open on every floor of the building and then they go down and then they do it again.

1:19:53And so it's like because it's considered work. And I always thought that was kind of humorous. Dude, totally, man. Well, look, a lot of cool stuff to unpack there. Matt, send us away into the new digital age. I don't know. Vertically stretchy Matt here. I think that that's the episode. I don't know what happened. This is hilarious. Like my camera decided to try to flip itself. No, that was great, guys. I actually took some notes. I was messaging my chief of staff. I'm like, we got to talk about a couple of things. This is one of those episodes where I felt like I learned something. Yeah, I just want you to share that document.

1:20:28And that's even something we could share with the community about, hey, in our internal policies and perspective on AI. I think every organization is going to end up like a very simple example of that with our company is that we have some departments that have been very proactive in embracing AI. And I think with your organization, they are either going to view AI as an opportunity or a threat. And if they view it as a threat, then they may not come out and say it, but they are going to fight any kind of technological advancement that you try to push the organization towards. what you really have to do, I think, is build a culture where they believe that embracing what technology can do is actually going to help them to get further in their career.

1:21:16And so we have an example of a department where it's like, I think they're going to be able to do the work of five with four. And so we're going to make it a four person department and repurpose somebody in that department. And that's going to allow the four people that are still in the department to earn more. And I think that's a winning message. And I think for every company, you need to be thinking about what are people taking away from your approach towards technology? Because most people are pretty scared right now is basically my take. Yeah. Mike, the thing I've been telling my team repeatedly is we've seen this movie before.

1:21:53It's a little, it's always a little different, right? But like history rhymes, fighting AI or fighting automation or whatever we want to call this, fighting the current version of technology that's coming or is here. That's like going back in time and looking at the computer and saying, I don't want to use the computer because I really like the feel of paper. Like you can't really take that stance with technology, not as a company. Like we're, and I think one of the things I've been really emphasizing is like, whether you like it or not, we exist in a competitive market and our competition is going to use it.

1:22:25So we have to decide how we are going to respond or how we're going to leverage it. And there's so much optionality here, guys. Like the, the, it's not going to be everywhere. It really isn't. Mike, when you read what I, I'll send it to you and I'll show you like, because I'm thinking of it internally and I'm thinking of it externally and it's impacting how we're looking at channel expansion, product expansion, markets, like everything. And you guys have seen it up close. You've had social posts where people went crazy because you used AI on a social post. and so like this is it's a it's a real thing that i think everybody's going to deal with and as your as your brand gets bigger um you're you're a bigger target also yeah for for people like things that small companies can get away with you can't get away with if you're a big company matt share it with ecom fuel that's where the community is now so mike go if you want to see it you got to log into ecom fuel and you gotta you gotta check it out there mike i don't think you're being radical enough five person teams you come in four think about five person teams to becoming two.

1:23:27I think that's where AI is going to do. I think that's where it's headed. It's just like, how quickly are you getting there? And, and like, you want it, like, I think this is the other thing is that if you've got to manage the rate of change in your organization to something that people can take. And I think that's the other thing that's going to be a really interesting question here is like, there's one question is like, how quickly can the technology go? It's a different question about how quickly can your people handle the rate of change? And you're going to have to manage that as an organization.

1:23:55Anyway, I got us off. We're done. We're done. I'm going to quit talking. Great. Great. Hang on with you guys as always. That was fun. All right. You guys can get out of here. That's the pod. Keep rocking in the free world. Do do do do. All right. The Operators Podcast is coming directly in your guys' inboxes. There's a newsletter. Subscribe to it. ECF Fuel. We have great sponsors all over the place. Here's the list of them on screen right now. Subscribe, like, talk to you guys later. Goodbye.

1:24:29This is called Final Fantasy complete 2orrow come on The millions ofments will return Your life is 9.3