“It Was So Hard”: Operationalizing Scale With Spot & Tango’s Founder

28:47Sean Frank:Now, there's been some hard spots, right? I think PetSmart is a publicly traded company worth less than you. They're worth maybe$500 million. And then there's the Chewy IPO, which is kind of rebounded. But it seems as a category overall, Pet continues to have strong double-digit growth. There is dot-com adoption. The CACs seem to work. There's lots of acquisitions. There's strategics. Is this just me projecting on you guys that it's all awesome and roses? or was there a difficult period over the past six years where you're like, hey, you know, building a factory is hard. We're going to talk about that.

29:24Sean Frank:But like really from like a revenue generation, from a sales channel generation, like did you guys see any of those challenges industry-wide or has it just been smooth sailing? No, this journey is never linear. You know, it took us 18 months to get to the million dollars of Rev Run. You know, in the old days, I think the website I built on Squarespace with like template photos. We offered like small, medium, large plans. You know, then we put it on a headless Shopify store. We built a personalization funnel that reduced CAC by 50%. So for the first 18 months, it was like, Bill, it wasn't like turn the lights on.

29:59Everyone's buying our product parts on subscription. It was like, okay, foundation of the tech and website UX UI experience, you know, how to figure out customer acquisition costs. And then some of our success criteria along the way has been how we use data to inform decision, like LTV to CAC, LTV contribution margin to CAC, and really thinking about the math of how to scale this business. I think a lot of companies do figure out paid performance marketing, like, okay, great, we can grow. Like, yay, here's a revenue figure, and you can sell that if you're raising money or otherwise, but they don't really understand how to build the EBITDA and the profitability piece.

30:37That kind of comes never in some cases, which is I've always, that's like my greatest paranoia that I wake up one day after whatever, 12, 15 years doing this and go, oh my God, no one wants, no one's interested in the company because we don't make money. Right. And that's happened. You've seen that. There's a number. That's happened to a lot of companies where it's like, oh, you know, we're going to pay this back in 24 months and you're building everything off that. And then you get to month 24 on some of these cohorts and it's like, oh, we were wrong. Like our projections were wrong. the math doesn't doesn't work and so like you know we've talked to a lot of subscription businesses i'd love you to actually get kind of granular here about like how did you figure this out like did you use the kind of the three ratio that's that's pretty that that's being talked about a lot how did you think about the ratios that you needed to hit to really grow how did that impact your user acquisition costs um what have you learned through you you're now several years into it so you've seen some of these cohorts play out.

31:37I think anything you could share here would be really helpful to anybody listening. Yeah. Happy to share. So our whole company thinks about this word payback. And yes, there's kind of the three metrics, LTV, contribution margin, and CAC, customer acquisition cost. So in the really simple terms, if we spend a million dollars on marketing and minus a million bucks, how long does it take to get to zero? And then how long does it take to generate a million bucks, right? And the math, we look at the 12 month LTV. So average revenue per customer at 12 months times contribution margin, right? So if your LTV, I'm making this up.

32:19If it's a thousand bucks at 12 months and your margin is 50%, your contribution margin LTV is$500 at a year. You divide that by customer acquisition costs, and you can look around the curve as far as how quickly you pay back. So how quickly you get to zero. So from minus a million to a zero and then how quickly you double and get to plus a million of pure contribution margin. We teach that to every single function in our company to new hires on day one. And the reason for that is the marketing team is required to maintain a cap on the customer acquisition cost. They can't spend frivolously and breach certain CAC thresholds if it doesn't meet the payback standards.

33:03And our payback is significantly less than one year. They can always spend dollars up to a certain ceiling. So let's talk about, just to dive in on specifics, is it six months? Is it nine months? Where is that comfort point for you where you say, if payback goes beyond this point, I am uncomfortable and I want to pull back? Six or less. Okay. And do you see really dramatic differences in what you can acquire customers for per channel? Or a better way of saying it is, do you see very different LTV curves by channel so that you have different acquisition costs by channel? Significantly different acquisition costs per channel?

33:44Or is it generally you can paint with the same brush? Yeah. So we look at every channel, LTV by channel, CAC by channel. We have our own multi-touch attribution model. We use post-purchase survey as the primary driver. Completion rates are very high, by 85 % actually complete a PPS survey after checkout, which is like shockingly high, but true. So you get good signal on like mid-funnel channels. Do you incentivize that in any way or is it just the type of customer you have? Okay. All voluntary. So we use that to inform CAC. But yes, we look at all the LTVs and all the CACs. We look at in-platform.

34:21We're not dogmatic about one model or the other. Ultimately, we're using that to inform budget decisions. And yes, CAC goes up, CAC goes down, but we've been able to reduce. We actually, our CAC is lower now at$5 million of spend than it was at$1 million of spend per month. And the reason for that is conversion rate wins, audience targeting, team, technology, and creative. And there's a lot of like super basic stuff. I'll give you a couple of examples. Team who's buying the media. For us, it's all in-house. We've had positive and negative experiences hiring agencies, the buyers. The buyers oftentimes will set a campaign or a keyword strategy and like check under the hood two days later.

35:09And if CAC goes up 5 % or 10 % for us, that could impact my payback window. So having a team in-house that's watching it every hour. I wake up and look at the data. It's like one of our obsessions, right? Yeah. My kids know what customer evolution cost is. It's like, it's disgusting. Well, it's the closest thing to a crystal ball of what you're going to make in the future. You know, like when you're in a subscription business, you really can, if you have a good sense of what that ratio is and your marketing's not just all over the place, then the P &L actually becomes fairly easy to predict, right?

35:43Exactly. and creative is a huge one. So having like creative and design systems, we like to say that we're in the entertainment business. So, you know, all of our brands don't compete, but we do compete for the consumer's attention, right? And so if you don't have provocative, creative, whether it's GIF, static, video, like whatever the case may be to draw the attention in, like we've spent a lot of time thinking about that in terms of what works, UGC, et cetera, testing that on the website. We've seen conversion rate wins. There's been this years-long battle. I always encourage brands, oftentimes folks think, CAC's getting high, it only goes up with higher budgets.

36:23I can't stabilize or go lower, so I'm capped out on spend, and I have to diversify growth by going either omni-channel or a new paid performance channel or changing markets, international, et cetera. I'm not saying those things, that's not the right decision. we're doing some and actively considering other of the others of those examples but i always encourage folks like take a step back i'll give another great example last year we pushed up meta budgets um as a test like okay let's see how like where's the breaking point on pay performance in cac and cac spiked really high we learned in like the post-mortem you know a week odd later that meta was sending most of the ads to age 55 plus with the highest click through rate and the lowest conversion rate now that's an that's an audience targeting issue and you would think after doing this for years that of course that would never happen like we like we know the audience but like something somehow algorithmically started shifting those those ad sets to the wrong audience and it only took us asking the question of where those ads were being delivered which seems so obvious but it was a problem we actually weaned off that audience and cac then came way back down so that's one comment and i think at increased spend were you able to do it where you kept spend yeah we hard and cac came back in line back to the payback that I've alluded to.

37:56And the other, I think, really important point is I always talk, you know, the marketeers should be home slices with the ops team. Like get together, because if ops can get you higher margin, you can spend more at higher CAC and still hit the same payback, right? So back to the math of like, if your 500 turns into$600 of contribution margin in that example at 12 months, the marketeers can go off and increase budgets at higher incremental CAC by hitting and hitting the same payback windows because there's more. So the ops teams are like, guys, sourcing, cost of good soul, pick and pack, wherever the wins are along the way, go get that stuff because it helps.

38:38So again, and you think about retention and LTV. LTV is retention AOV. Call the customer service team. What are you guys doing to over-serve on the experience to boost retention? Retention helps my LTV. higher LTV, higher contribution margin that helps CAC. So marketers can spend more dollars. So it's kind of the, and again, this is not like rocket science. A lot of brands like these words and metrics have existed kind of forever. But I think for us, it's really doubling down culturally speaking with how we train and talk about it internally and use that to govern decision making is one of the reasons we've been able to grow at this rate profitably.

39:22Sean Frank:Sean here to tell you about Saris Analytics and Saris Pulse. Ridge is profitable every single day, and we've taken that super seriously since we built this business. We track contribution margin by day. We look at the SKUs we sell every single day. And we have to do this manually up until Saris Analytics came out. We take all of our SKU level data. We build it into the data warehouse. Everything that goes into making a true P &L, I get on a day-to-day basis. Saris Pulse gives you clarity so your COO and your CFO and your CMO start speaking the same language. Contribution margin shifts teams away from hoping profits survive the season to manning them in real time.

39:57Sean Frank:Book a walkthrough with the Saris Pulse team today. Click the link in the description. And thank you, Saris, for bringing you this show. I think it's a consistent theme that I'm hearing from the operators who are doing the non-first-day payback model, which is like, I'm guessing, you're not first-order profitable. that when you're doing that model, you have to be disciplined is pretty much my takeaway. And that you said it, it's like your kids know your payback ratios. Like that if everybody in the company doesn't understand and respect those payback ratios, you can get in trouble really quickly.

40:36And so like everybody we've had on here who has run that model successfully, I think you're echoing some of the things they've said. and and that's the reason why i think it's everybody it's great for everybody listening to this to hear it because it's not sexy but that like knowing your numbers inside out and knowing them up and down the organization uh and having discipline of sticking to them um these are these are the things that are just prerequisites you know they're uh whatever like the starting point of being able to build the type of business that you've built is there anything else you would add there like have you seen a lot of change to your ltv over time as you've scaled up the number of people has ltv come down some i've seen that in some businesses that as you get into less qualified people your ltv compresses some um for us ltv's gone up it does change like different cohort their seasonality if you're running like deep discounts or gwp's gift with purchase like obviously higher discount could attract a different quality of customer which has a higher propensity for churn um but overall like on the aggregate we take those averages the the LTV does go up.

41:43And that's, we've never pushed price. We've never taken price. A lot of brands in the category do, I'd say. We probably could have been smarter about that historically, but we've just never done it because we've been able to offer this affordable health and wellness solution. We're quite puritanical that we don't want to push price onto the consumer. But we have ancillary products, supplements, treats, and that helped boost the AOV. And that's one of the reasons why LTV has gone up over time. The only thing I would add, for earlier stage businesses, it's do you understand how to measure this stuff?

42:17Like, are you actually calculating CAC correctly? How are you loading CAC? What's an example of how you might do that incorrectly? Because it seems like I just take my meta budget, you know, how much I spent on meta and divide it by new users. So, like, what are some ways where I might be, some things you might have learned about CAC? Sometimes folks will load or not load in like agency spends commissions like how does your top of funnel your brand budgets impact that so like at the end of the day do include any of your team like your internal team that's focusing on marketing and cac we uh not on that's opex we put that in the opex line item um but and but the measurement point also is on like the behavior of the cohorts and we learned this early there were a couple of channels um i won't name them but in the early days you could grow these businesses quickly because there was a you know within the app universe let's say and you partner with those brands someone will be in a gaming environment and want like the bigger sword and then there'll be a host of brands you could choose from if you buy the brand then you get the sword and you can continue playing the game those cohorts were awful i remember like like second order rotation.

43:32And it was like, I think the churn rate was like at least 90, if not higher percent. So of every 100 customers, 90 churned out. Thankfully, in the early, early days, you know, we were using tools like Looker, like a BI tool, which then Google acquired, Segment, and using that to tell us about cohort behavior. And oftentimes, I think early, early stage businesses like zero to one, they're not thinking like data is like this kind of foreign concept and it's too expensive and I shouldn't do it. That's a later stage thing, but let's focus on like just getting revenue as high as possible. And I would argue that as much as you can build in like data systems or BI tools to help you understand what the heck you're doing or like how the business is performing, I think is really important.

44:23It just helps you avoid some of the landmines along the way, kind of to the earlier science experiment conversation, it's like as much information that you have at your disposal will help inform the right decisions.

44:34Sean Frank:Yeah. And with AI, everyone has a data analyst, you know, in their pocket, right? So you don't have to spend crazy money on any BI tool. It's like, look, throw your data in a Google sheet and throw that Google sheet in Claude and you'll get some good answers. If you're doing$5 million a year and you can't afford it, that's rich, rich does a lot of that right now. Well, and I'm going to add a point to that, Sean, because this obviously isn't an episode about AI, but I think that the thing that's going to be interesting about the future is that increasingly that's going to be everybody's behavior.

45:06Just like, hey, I'm just outsourcing all my thinking on this subject to AI. What I am finding is that really where you want to live is that you have put in thought to a subject, you've done work in it, you understand what the number should be, what's normative, what's accurate. And then you kind of earn the right to outsource a lot of the lifting mentally. When you just outsource it from day one, what you get is people that will just blindly follow whatever the model spits back at them, even if it's nonsensical. And that's when sometimes your team will say things that you're just like, that's clearly not right from like first principles from what I know about the business.

45:46And so anyway, I think that obviously the AI stuff is going to be incredibly disruptive and incredibly helpful. But if you outsource all of your thinking on a subject, then it's really, it can cause really bad decision making. So I always encourage people to do things manually themselves first, to have an understanding of what's true and how things work, and then to really look to how do i automate this how do i you know how do i outsource this in some way anyway just a thought for for the group and honestly and we um with our with the allentown factory um it was all manual for the first like 12 months right some folks even that started working like why is this process automated it's like well we have we have it's a like a semi automated process but we don't know like we don't know like whether it's you know equipment efficiency or preventative maintenance or downtime or the labor model like let's just feel our way through the roof next 12 months let's make a bunch of mistakes and once we know the the right way up the mountain then we can resource against that with the appropriate level of capex but you know it's this expression like suck it in semen it's an english expression because i've lived in london for a long time, but it's like, let's just do it for a little bit.

47:06And I think that's true. I would echo that sentiment, Mike, I think internally, it's like, let's just like do first. You know, it's like this AB mentality, just like test it first. Then once we figure out the way, then let's dial it in and invest. If you're scaling an e-commerce brand today, ads alone aren't enough. Aftersell focuses on the one moment that every brand already owns after checkout and turns the post-purchase moment into more profit. Monetize every order with post-purchase offers and thank you page experiences without disrupting checkout or hurting conversion. Enterprise-grade tech used by Gap, Ticketmaster, Macy's, and Target now driving results for brands like True Classic, Hexclad, Ridge, and Jones Road.

47:48I would know. This is the reason I ended up buying three pans from Hexclad instead of two. Aftersell has already generated over$1 billion in additional revenue for e-commerce brands, revenue that doesn't require more traffic or higher cap. So check out AfterSell and tell them that the operators sent you. Yeah.

48:07Sean Frank:And it's kind of like, um, you can't outsource marketing until you know how marketing works, right? Like everyone who's ever had a horrible experience with an agency, it's because like, they don't know Facebook ads. And it's very easy for someone to do something horrible to your ad account that you just don't recognize. And then circling back to uh you know people are not understanding what what a cac is warby parker when they went public they were like here's our marketing spend here's every order we've ever had this is our cac and it's like so that was just you know cost per order like it was not new customer acquisition by any means because if somebody bought four times they would be counted four times in that data and just shows even public companies this up um russell i want to talk about omni channel your Your space has a big Amazon-like competitor in Chewy, but it also has a lot of these brick-and-mortar retailers.

48:58Sean Frank:Are you doing stuff in Omnichannel now? Is that like a red herring? Should people avoid that from the pet space? No, I mean, it's still a huge opportunity. Ultimately, customers shop in multiple places, whether that's online or in pet or in brick-and-mortar. For us, a couple of things. One is we are primarily DDC. We also do sell on Amazon. We sell our treats, supplements, and pup gum, which we can talk about if you guys are interested. Our newest launch is on Amazon as well. We haven't felt an urgency to go on shelf. It's just a different business. But given kind of payback and the economics and our ability to scale efficiently and profitably direct to consumer, we haven't felt a business need to diversify channel.

49:55It's also a very different business. I mean, as you guys know, brick and mortar is different payment terms, different implications on working capital, inventory, cash, merchandising strategy, planogram, scale. you need a lot of to build true scale brick and mortar you need a lot of doors you need the expertise and the manpower to help manage that um so there's there's considerations there um chewy is a different interesting case study i mean chewy is a is a you know a retail platform so we don't i see chewy as you know we compete with chewy for maybe ad space um and competing for attention otherwise, but they're not really, they have some chewy branded product, but generally it's a retail platform.

50:41Will we be on shelf one day? Absolutely. I think it's really a question of when and meeting the consumer and the customer where they're at. But to date, haven't pulled the trigger. We're talking about it. We're thinking about it. And there are brands in our category that have been successful. They've done it. They have kind of omni-channel brands as well. And like, I would say there's always mixed experiences. It's interesting. There's, there's either like legacy brick and mortar businesses that go online to try to do the DTC thing. And it's hard because the culture is brick and mortar. And all of a sudden it's like CPCs and CPAs and CACs and all the things we're discussing.

51:19Then there's the inverse of that, of like digitally native brands that go retail. And there's a Delta. and there's some DTC brands that try to replicate even like the brand design system on shelf in retail. It falls flat. It doesn't work. Like it falls flat. So I think, you know, for us, we want to be prudent operators. Ultimately, you know, we stage our decisions. Like we have our factory at this growth rate to be able to support digital and brick and mortar is another entire consideration. We talk about, you know, operationalizing growth. I think if we do retail, it's not going to be, you know, launch in one city or regional.

52:02It'd be a national play. So like, okay, cool. Great. Let's do that. Who's going to make the widgets, right? We got to go back to the ops in the execution side of like, okay, we got to scale inventory. How much inventory do we want in the balance sheet? Because inventory eats cash. Like what are the inventory turns? What's the sell through? So we start with kind of going back through that decision logic and, you know, the arrows and the to use the green button analogy, the green button is not like go press the button. It's like, OK, it's like yellow. Right. Let's hover and assess what we're doing at the moment.

52:36I think that to add just a little bit of commentary to what you said, it is very difficult to make a business work across a bunch of different channels and a bunch of different contexts. Because when you start the business, you really highly contextualize it for your first primary channel, usually. And if you haven't started with Omnichannel, it's difficult. And that's everything from the packaging. You know, like if you knew we were going to sell 100 percent of our products online, then you're going to make different packaging decisions than if it's like, well, we might sell some online and we might sell some in stores, for example.

53:13And like another one that I'm convinced of, I mean, your team, obviously, you mentioned this, but like the expertise you have on your team is different based on how you contextualize the business early on. another really big one that's sneaky i think is pnl that your pnl construction how you think about pricing how you think about margins it is actually really difficult to change people's thought process about those things i mean somewhat you can kind of get stuck in a particular pricing model and then say well if we're going to go into physical retail we're going to have to change our whole pricing model and that's not going to be optimal for online but then we can be in both places and is that better.

53:52And so it's really disruptive. I think this is probably my advice here as somebody who's done a lot of omni-channel is that if you really want to do omni-channel well, the earlier in your business, you realize you have that aspiration and are starting to try and think about it, the better, because there's a ton of pain and channel conflict and difficulty down the line if you're a very mature business in one channel or one approach of acquiring customers. And then you try and just stack another one on top of that. Some businesses are able to do it, but for the most part, it's really challenging if you haven't started.

54:32And you said this, but this is another theme that keeps coming up again and again. The really good operators don't do things just to do it. They don't say, well, other people are in physical retail. We should be in physical retail. They ask the question of, does this make sense for our business? And they have the security to not necessarily do the hot thing or the thing that other people are doing just because other people are doing it. So I love your answer. You're looking at it, if it's right for you and your business, you'll do it. But also you're not rushing into it. You're not blindly chasing growth in that way.

55:05You're being pretty intentional about it. Yeah. Thank you. And there's other considerations like assortment do you launch all skews or one skew price absolutely actually and we also personalize the product so how do you offer that level of personalization on show there's some brands that have done it really well and then there's others you know it's heartbreaking i've seen a number of ddc brands go live and target um in a number of different categories some have been wildly successful and then some you see in like the deep discounts or like the two dollar aisle in the front and they're just trying to push that And like that, that's a signal, right?

55:40It's like, okay. Well, to draw an analogy here, if you, I had a, my sister-in-law, her twin sister lived in LA and we visited her out in LA. And while we were out there, she was telling us that something like 40 % of Los Angeles turns over every two years. I don't know, Sean, you probably know the number, but there's like this insanely high turnover of the actual population base in Los Angeles. And the reason is you get a lot of people that come in and they try and get on, you know, with Hollywood or with something, you know, kind of talent based as a model. And they don't and they churn out and there's more cohorts that are coming in to replace them.

56:18So it's not like Los Angeles is declining in population. But here's the parallel. When you walk into a Target and you see 10 brands that you've never seen before. What you should process is that means that there's 10 other brands that churned out, right? And you don't see that. You only see what's on the shelf. But what you don't see is the graveyard of hundreds or thousands of brands that took their shot in Target and it didn't work, just like the person who went to LA trying to get into a movie and it didn't work out and then moved back home. and so like you said it's tough it's tough to it's not about selling in in retail it's about selling through and it's about staying in and that's one of my big things when i hired i've said this before when i hired our chief sales officer under the role i said you think this is about this this job is about selling things but it's not it's about making the right sales and there my advice is like you do not want to be in physical retail unless you have what it takes to stick for multiple years because otherwise you're just not going to love the economics.

57:24And it is going to be a little bit of a downward drag on your e-com business, which you kind of mentioned. Like I'm one of my I'm very close with the guys running Baseball Lifestyle, and it's one of the better growth stories. But they're starting to see they've got this amazing growth, but they're also starting to see that like, hey, all of this 300 percent year over year physical retail growth does actually eat into e-com a little bit. So it's like, it is additive on the whole when you get into physical retail, but it's not all additive. Some of that is taking customers that might have converted online and it's moving them over.

57:59So anyway, and there's less margin in physical retail. So I'm obviously a big proponent of Omnichannel. I just think people need to be aware that there's certain, there's definitely trade-offs that come with it. And then, and then kind of the other, my final thought on this is how do you support that from a marketing side, right? So it's not meta ads. Are you doing billboards? Like what's, what's your top of funnel strategy are you pushing radio are you pushing podcast linear ott ctv like what's your playbook of stuff that's like really measurable versus stuff where you're going to get an impression and maybe in store sale like there's there's like that gray area and so there's also some trade-offs there kind of even support retail launch so uh anyway i think it's exciting at the end of the day like i think for any brand being on shelf is it a wonderful moment if you get on shelf as like a credibility builder, but then it's, it's the grind, I think, to your point about like staying power.

58:51So we'll see. I will let you know when we, when we press the green button.

58:57Sean Frank:Every SaaS company says they are AI powered, but very few can explain what it actually does for the revenue of my brand. This is why PostScript's approach stood out to us. They don't just build AI for demos or buzzwords. They built it to drive real incremental revenue. PostScript's AI called shopper, it shows up inside of SMS at moments with real buyer intent. When shoppers are likely asking questions, hesitating, maybe even about to drop off, shopper can answer product questions instantly, answer questions about fit, availability, recommendations, order issues, the kinds of stuff that people usually bounce for.

59:29Sean Frank:This means more conversions, higher A, less lost demand. So you are driving more revenue and doing it more efficiently. Check out shopper from Postscript. We use it at PILA, which is why I am telling you to check it out. All right, so let's talk about this factory. You brought it up a couple times. It's never easy to launch something in the physical world like that. You have permits, you have hourly employees, and you also have to, the downside of a factory is you're all the demand. So you have to keep that thing running at 99 % uptimes or whatever. And you also can't make too much or else now you have a perishable food problem, right?

1:00:08Sean Frank:So what was the driving force to be like, we have to open this factory? And how long was that process? And where are you now? Yeah, so launched on Kibble in April 2020, the business grew very rapidly. As I mentioned, in our peak, we had outsourced to six co-manufacturers across the country. And there's trucks driving from east to west coast, up and down. Again, I refer to that as kind of like the three-dimensional Sudoku puzzle, which was like unbelievably difficult to manage from a supply chain perspective. So we sat down and decided, okay, let's insource. And then the question was like, what does it actually mean?

1:00:43So let's own supply, let's build a factory. We actually built what's called a box in a box. So it's an existing shell and we built walls infrastructure inside. um we made that decision in kind of late 2020 um we went live with this facility in october of 2022 um i mean it's been a long journey um the first was was identifying the where we looked in connecticut looked in new york old infrastructure as far as like existing shell is concerned we looked in the meadowlands as well for like warehouses you could build a factory inside we almost pulled the trigger obviously it's like close proximity to Manhattan for all the obvious reasons since headquarters there we came close on a couple of facilities there and I'll never forget we were standing in the parking lot it was raining that day I swear to God there was probably three or four feet of water like rushing into the parking lot and we looked at the agent the broker and we're like is this normal?

1:01:42and the agent started laughing and said like of course it is it's the Meadowlands it's built on a swamp and we're like So these buildings flood and they're like, well, maybe. And we're like, okay, let's flood that. We're like, let's go west. So we ended up going to Allen, South Pennsylvania. Amazing road infrastructure. There's a bunch of other big businesses there. You know, FedEx is there, Amazon, Chewy, the list goes, Ocean Spray, Dr. Faber-Curie, the list goes on and on and on. Lehigh Valley is thriving, great labor pool. So we planted roots there. The process was hard, expensive. You know, we were in bathroom trailers, break trailers, office trailers, you know, talking to influencers and our marketing team at the same time as like, you know, the jackhammer or bringing in equipment.

1:02:29And so that was a process for sure. We're now three years in, you know, we've got 100 people in that facility and we are physically there a lot every week. We talk every day and it's this balance of building inventory, what skew to your point, how do you like verticalize and bring products from upstream suppliers all the way through to the factory, to packaging, and then out to warehouses for last mile distribution. I would say it's been transformative from a P &L perspective, you know, adding 30 plus points of contribution margin, fully loaded, like contribution margin, cost of good soul, picking packs, shipping delivery.

1:03:09It's been a big game change for the business. and I'd say crucially we control the supply when you rely on others and again I'm not suggesting that everyone should go build a factory it's obviously difficult for all the reasons but you know for a business that was growing this very important for us to be able to own that supply chain piece so it was a very difficult but it's paid off for us ultimately and we've continued to scale that facility and we've continued to automate that facility and find efficiency. And again, it's contrarian. Most brands don't do factory and certainly in the pet space.

1:03:54Most people just outsource. Outsourcing is easier. I would say the most important purchase consideration is the ingredients in the product. A consumer will look at an ingredient panel to inform whether that's something they want to feed their dog. And they ask our customer service team constantly, where is it sourced? Where is it made? And it's like, well, we make it. We source it. We control the supply chain. No other brand can make that statement. Any other brand in the cohort or category, they're like, I don't know. That guy makes it. Where does he get the... I don't know. He sources it. So I think inherently, there's this big disconnect of brands that are very good at marketing, but don't understand fun and non-sweigh the product versus the spot in Tango.

1:04:36And don't get me wrong, it took us years to do this. This is not like, oh, we waved a magic wand and here we are. We've built a muscle over time. But I'm a big believer in an asset. And it's in many ways how companies used to be run, right? You own your manufacturing and your prudent operator, P &O manager, et cetera. So it's been a really cool. I've learned a ton about equipment and building and all the rest of it stuff. Things I did not bring to the table, but some expertise that I've been along the way. So one of the observations I would add here, Russell, is that there is a flywheel of competence in many areas of your business.

1:05:15And it turns out that you being way better in operations makes you way better in marketing. And that the better you get in marketing, the better you get in operations, the better you get in data, the better. So it's like, okay, we find product market fit and we use this volume to build out vertical integration. And so our COGS is whatever, 15%, 20 % less than it would be otherwise. And that means that our LTVs look this much better, probably even more than 15 or 20 % better. and because our LTVs are this much better, we can spend this higher number on CAC than if we were just buying this from somebody else.

1:05:56And because of that, we can get a lot more volume, which makes our factory more efficient and we acquire more customers and we have more data and we have more momentum. And it's a positive feedback loop. It's a flywheel. And one of the reasons why I wanted to highlight this is that kind of the worst of our industry is the kind of TikTok drop shipper mentality that you see sometimes on Twitter of like, well, all I had to do was spin up these three ads and I'm on a$5 million a year run rate. And that stuff never makes any money and it certainly doesn't last. What lasts is being good across multiple areas.

1:06:39This idea of skill stacking, I think is the way to think about it, that when your business, to build a business that's resilient, especially in the years ahead, you're going to have to be good in multiple areas that are complementary to each other so that your business can do things that other people can't really compete with. And my guess is you're very, very difficult to compete with. It's possible that, I don't know, I'd love to hear if you think this is true, but it's possible in the dog food space that nobody has your particular set of skill sacking that you've developed. And so when you talk about the combination of marketing and operations, you're an end of one that nobody can quite do the combination of things you can do because of the competencies you've built.

1:07:23That wouldn't be true if you guys were just great at paid ads. and that wouldn't be true if you just ran a dog food factory you know it's what makes it special is the combination and so this is a thing that i'm thinking about constantly with our businesses and things that i'm building is how am i building complementary skill sets that stack on top of each other where i can just do things that nobody else can do because it's great to compete with people and to be able to out compete people but you know what's better is to compete in areas where nobody wants to do the exact thing that you're doing.

1:07:55They either can't or they won't do the exact thing that you're doing. That's a lot easier way to make money. And that's how I want to make money. And that's what I take away from your story is that you guys have kind of built that type of a business. Yeah. And we call it competitive moat. It's hard to replicate what we're doing, given all kind of the reasons and some of the background that I've provided. And, you know, that's been like an incredible asset for the business as we've kind of like thought about the ops and the marketing piece. And then other comments I'd make is, you know, the expression, like, you don't know what you don't know.

1:08:32And I'm always the first person to raise my hand and say like, I don't, let's ask, I don't know, go figure it out. I have a question. Here's a dumb, I have a dumb question. It's when you understand supply chain, you know when and how to ask either a 3PL partner or last mile delivery carrier or your trucking company or otherwise like well hang on a second like we shouldn't be paying x per pallet store or y on price and like you've we've gotten very but again that's that's taken like time that kind of the skill stacking but if you don't know to ask the question is the point by seeing your doing you won't and i think with a lot of these companies there are so many margin wins along the way some like super like tactical ones but even like more strategic where you start actually building this higher contribution margin kind of earlier plan paybacks but but see i just getting the reps and the scar tissue it's like oh that's how it works okay i had no idea let's go ask a bunch of questions about that and and the hope being that sheds light on maybe a new opportunity where your team can say oh let's keep exploring and all of a sudden there's a

1:09:40Sean Frank:positive outcome all right russell well we're getting towards the end of the pod now it's the plug section. Tell us about all things Pupgum. This revolutionary new product that everyone's going to rush out and buy. 20 ,000 sales on Pupgum we expect from the audience. What is it? So Pupgum.com, we launched in May of last year. So what is it? It's the newest. It's innovative. It's like first of its kind. It's a dental chew categorically. It's called Pupgum. Of course, that's provocative because dogs can't chew gum in fact we ensure encourage consumption that's how it works so what is it firstly in the kind of new product development phase a lot of people have like a dental stick in the pet space it's all made by the same co-man it's elongated it's star shaped it's a kind of a bland color and people call it literally like dental stick it's like an aov put it in the box you know enhancing the economics we kind of started on that process and it's like well hang on a second guys like what can what can we do differently here is there a way a to improve the ingredient deck and b let's have fun with it um and so there was this like playability aspect of the product that kind of led us to this like this concept of gum um because it's chewy i think half our team thought it was like a really dumb idea it's like whatever you do don't launch a gum for dogs that's like bad for business our view was like Our core business is food.

1:11:08We're launching outside of the spot and think of ecosystem as pupgum.com. It's playful. If it works, amazing. And if it doesn't work, turn it off, right? It's blue. Our primary competitor, their product is green. What's novel inside is a hard clinical claim. Postbiotic. It took two years to develop on the R &D side. The postbiotic removes the biofilm in a dog's teeth. The biofilm leads to plaque. Plaque leads to bad odor. This reduces the biofilm and eliminates that. Imperial odontal disease affects 90 % of dogs three years of age and older. So is there a problem? Yes. Is it a big category? It can be.

1:11:50Is there a lot of innovation in that category? No. We launched Pupgum. It's growing faster than our Uncable Hero product in the early days. We've stocked out. It's been a fun ride. You can buy it at pupgum.com. It's been, we actually, I will just share quickly. You're running out of time. We launched an internship for a dog breath sniffer. We launched the product and we had over 500 applicants, mostly MBAs. I think the New York Post picked it up and said it was the worst internship in history. Like smelling dog breath is kind of a, but it was playful and fun. Seth Meyers picked it up. So it's been a really fun brand to launch.

1:12:30And first time it's been kind of outside. You can also buy it as a Spontangler.com customer, but it lives outside the ecosystem. There's some reasons for that, but you can pick it up at pupcom.com. It's been early days yet, but so far going. Dude, I love it. I'm in. I'm going to be a customer. Mike, send me the address afterwards. We've got the dog, some unkibble, some pupcom, et cetera. You can give it a try. Well, I'd love to because it is interesting that you're continuing to see innovation in the space. like my dog had their his like I guess his update and his vaccinations a week ago and there were two different things that came up with the the vet that I was like oh I didn't realize this existed and one I bought I bought a different product because I didn't even know it exists but pup gum sounds even superior to it like this idea of instead of brushing their teeth what you do is you add a little bit into their food you add something that kind of like when they eat it it works kind of like a greenie or whatever but it's like it's just naturally a part of their food which sounds like what you're doing here but you're doing even more than that that's it which is awesome um such a cool like innovation and then the other one was this uh he loves being around us but when he's away from us we put him in his crate he just goes ballistic if he knows we're in the house because he just doesn't want to be in his crate and i was asking the vet and they were like well there's this dog pheromone thing that it releases a dog pheromone like that they that's similar to what they smell when they're nursing as a baby pup and it calms them down i'm like so i've got a i've got a dog pheromone releaser and i'll let you guys know how that goes does it work i haven't i haven't tried it yet but i mean it it was just interesting to me that i'm like wow okay those are two new things that i was not aware of you know i've had dogs uh before most of my life we just haven't had them the last couple years and so uh but this is this is a really cool product i mean and like you said it's innovation and uh and it's solving a problem that everybody has like my my dog's breath is you know terrible uh so and i would say you know the expression innovate or die like we need to stay ahead of the curve on product innovation and honestly we see ourselves as being like we offer highly differentiated products um and we're staying ahead of the pack forget the operational piece like just on the product side there's more coming um you know we have a very strong product development team and new product development cycle um so new stuff is coming out i mean we're obviously focused on the core of the business but you know it's there's a lot of opportunity yet within pet is given i mean i read a stat the pet category is larger than coffee and razors combined okay just in terms of like scale so you think about that it's like wow well what else can we do well i love it man i want to

1:15:13Sean Frank:I'm seeing you win. I love the new products. Thank you for coming and telling your story. You were transparent. You're an expert. You're all over the place. And hell yeah, brother. Spontane go to the moon. Awesome, man. Thank you so much. Really fun chatting. I appreciated the dialogue and feedback. Really enjoyed it and look forward to keeping in touch. We'll end it there. Thank you so much.

1:15:43Thank you.