Mike’s Story, From Yeti Knockoff to Building New Brands

22:40And I think that's been about the amount of time to fully understand retention, lifetime user values, market positioning, and where we need to position the brand in order to win. So I'll be excited to talk about that. I can share an update and details there. But in general, the point that I would make about this capital, like I was more or less faced with this kind of fork in the road where it's like, you just start putting everything in the S &P 500. And there's two reasons why I went the putting it in companies like Trevi route. One is that the market's really expensive right now, like really expensive based on historical conditions.

23:18And so you've got to believe that P.E. ratios and things like that are just going to go to levels that we've never seen before or that GDP is going to grow at 10 to 20 percent or some kind of insane level for those valuations to really work out for you and earn a good return. The other thing is, and we've talked about this a lot, is that, man, new products, new companies, they're asymmetric. You can fund a new company with a million dollars or two million dollars. And then in two or three years, it can be making five million in EBITDA or 10 million in EBITDA. And it's basically impossible to get that kind of return on capital in the public markets unless you're like Warren Buffett or something, certainly with those kind of numbers.

23:59So the reason why starting new companies is it's like, man, if you are an operator and you really can do this, then it's almost impossible for there to be another place you can stick your money that's going to be able to provide those type of returns. So that was the thought process that caused us to put a couple million dollars towards Trevi.

24:18Sean 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.

24:51Sean Frank:This means more conversions, higher AOV, 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. Yeah, Mike. And, you know, maybe a little over a year ago, I did a tweet saying that you should buy micron stock. It was at like 80 bucks or whatever, and not financial advice. But I was like, you know, it's so obvious where the puck is going. The data center is the memory. There's only one U.S. maker of memory, and they're priced at$80 a share. Right now, they're 300, 400, or whatever.

25:26Sean Frank:If you put 100 grand of that, you probably have 500 grand today, which is an awesome return that's the best possible return you could ever make in the public market like that is a once in a three-year trade or whatever and you could put 100 grand into a new brand and it could be worth two million dollars in the same period it's like it's like just the the value of you hands-on doing the work you can get like just returns you can't get anywhere else i tell people one of the stories i tell people is that um i bought some bitcoin in 2014. It's actually funny. My brother almost, I don't know if I've told this story, but my brother back when we were running Quibbins and he was making just crazy money, he wanted to buy a million dollars in Bitcoin in 2011.

26:09And the only reason he didn't is he was having issues with Mt. Gox, which was the only place you could buy it. And he ended up not buying it. And we've looked back on that. It's been like, man, that would have been like billions of dollars today. But he's also like, yeah, but Mt. Gox got hacked. So I probably wouldn't have any of it. And it's like, OK, but we were paying attention to Bitcoin and I bought some Bitcoin in like 2014 for like$50 of Bitcoin. Right. And I held it. And then in 2016, when the company was just getting started and like I said, we were very hand to mouth. We needed every dollar we could get.

26:43I sold all of that Bitcoin in early 2016 to put the money in inventory for Simple Modern. and it's like, you know, I don't know what Bitcoin's gone since then. It's gone like whatever, a thousand X or a hundred X or whatever. But what I tell people is that ironically, I put it in the one asset class that might have outperformed Bitcoin during that period because it's like, it's still, that's how asymmetric companies can be when they really work. You know, it's like, it's almost like there's nothing on earth, even Bitcoin in its heyday that can hit the kind of asymmetric returns that you can when you put your money in a business that, that that's scaling.

27:19And and also like, you know, Sean, go back to the micron example. It's like, how much micron would you feel comfortable buying? Right. And it's like, like you said, maybe one hundred thousand dollars. But I'm talking about a world where I've got to invest potentially 10 to 20 million dollars a year. And so am I willing to buy 10 million dollars in micron stock? No, that that would be insane. And so with companies, you feel comfortable. It's not just you can get the bigger rate of return. It's that it's easier to invest really large amounts of capital. And that's that's another advantage. Mike, was there something that almost like stopped you from going this route?

27:55I've been in the game long enough that I've taken plenty of plenty of L's. And that's the one thing that makes you you just you realize that, like, you're going to have some stuff that doesn't go your way. and I think that one of the biggest things you wrestle with that I wrestle with I don't know if you guys feel this but everybody wrestles with insecurity and like have I just gotten lucky you know am I am is my am I gonna am I gonna find out I'm not really as good at this as I think I am um am I gonna let people down like should I just play it safe um and I think the more money you get the easier it becomes to just kind of say like, I should just play it safe.

28:38I should put this in T-bills or whatever. And I should just kind of like, you know, drink Mai Tais and laugh. But I'm really not that type of personality. So yeah, I mean, I think, I think there's always this kind of, can I do it again? But I think that's also part of the fun part is setting yourself up with a new challenge. Like I love the idea of what if I woke up tomorrow and Simple Modern was gone and I had to start from zero. Like that's not a scary idea to me. That'd be a fun idea. So even though there's some self-doubt involved, I think that the challenge of it was really attractive.

29:10Sean Frank:Was the cap table supportive? I mean, you're the majority shareholder, but are you, I mean, you're not alone. Yeah, that's actually one of the big kind of challenges is if you're going to continue to do things, do you do it within your company structure or do you start new entities? And there's pros and cons to both. One of the cons to doing it within whatever you've already built is that functionally, the majority shareholder can just drag everybody else along. And whether, you know, whether they want to or not, like their capital is getting invested. But the opposite of that's true also, that if I broke out and was like, hey, guys, I'm starting an electrolyte brand and I own 100 percent of it.

29:52People can't really stop me, but there would be bad feelings about it, especially if it was successful. And I think that this is the problem. It's like if it's unsuccessful, then everybody's gonna be like, why'd you do that in the company? Why'd you use my capital? If it's successful and then everybody's like, why didn't you let me be a part of it? You know? So like it, this gets back to like, what outcomes do you expect? But I have great relationships with my other shareholders. They're basically all guys that have operated the business with me and, and they were excited about the opportunity as well.

30:21So, uh, we wanted to keep it in. We have an ESOP. Uh, so there was also this piece of like, hey, if this is really successful, this is an opportunity to really add to the net worth of the people that work at the company. So we ended up keeping it in, but we created it as a separate company under Simple Modern because I felt really, really strongly that we did not want this to just be another product expansion or we wouldn't maximize the opportunity. We needed some single threaded leadership on it. And I think that that's proven out to be absolutely true, that if it had just been another product line, I think we would have probably not seen it as being as big a potential as it can be because it took us longer to crack this nut.

31:09And so like, you know, for you, Sean, like when you guys launch a new product, if that thing doesn't pop in the first three or four months, then it's kind of like, hey, on to the next one. But when you start a new company, it's kind of this is the product, you know, like either we make this work or this company, this business unit shutting down. And so I think that that was helpful. The other thing that's helpful about pulling something out if you're going to do something new is that the biggest danger I've learned comes with capital and how much you invest in something. And when something is fully nested within a company, it's easy for that thing to basically become a resource suck, but it's not as obvious because it's hidden within the P &L.

31:51When it has its own P &L that's broken out, if it's losing$2 million, it's right there in red ink. If it's nested within your larger organization, it could still look like, well, the larger organization is doing great and we're making money and things are fine, even if you have an unhealthy business unit that's kind of being subsidized or that's hidden within it. So we split it out. I think that was good from a leadership perspective and also to be able to understand from a financial perspective how it was doing.

32:17Sean Frank:It makes sense to do it as separate companies that are, you know, almost entirely owned by Simple Modern, except for you want to create cap space for the leader, I assume. Yeah, you want to create some upside. And whether you do that with equity or equity-like instruments, I think is something that you can look at. Because, you know, ultimately, if you said to somebody who's going to lead a business unit, hey, you can get five or 10 % equity, or you can kind of get the financial upside of what it would be like to own 5 % or 10 % equity. Usually, I think what you'll find is they're kind of indifferent.

32:50They just want the upside. And so with our larger structure, that's more how we've done it is kind of like, hey, we're going to create this type of upside. So the structure that we did with Trevi was, hey, this is how much capital we're investing. Here's the return we expect to see on the capital. Once you exceed that return, that expected return on capital, if you hit this number, you get this amount of payout to management. If you hit this number, you get this bigger amount of payout. And so they're basically incentivized to hit the return that we want to hit on the capital and then to really maximize the return they're getting on that capital.

33:25And as that return goes up, they really benefit and they make a lot of money as a management team.

33:30Sean Frank:Are you comfortable saying if Trevi is going well? Yeah. Yeah. Yeah. So Trevi is, I think this year it will grow about 500 % year over year is what I would guess. And I would guess it ends the year somewhere between 20 and 30 million in revenue run rate. So I would say that's good for us. I think Corbin and I both would like to see it grow even faster. But I think that's a really solid place to be if we're ending, I guess this would be 24 months. And if 24 months in, you're at between 20 and 30 million in revenue and you're growing at that rate. I think that's really good and profitable, I should add.

34:10It's turning into profit right around the beginning of April for us. The biggest challenge, I think, to harken back to another episode that we had where we had Chad from Groons, which is obviously one of the home run success stories. He really hammered on this three times CAC to LTV kind of calculation where you say, hey, if my LTV is 100, I do not want to pay more than$33 on my customer acquisition cost, for example. And early on, we were just not hitting that with Trevi. And part of that's, it's a super competitive market. We already mentioned, you want to be in really big markets, but you know what really big markets are?

34:51They're super competitive. And so it takes a while to figure out how are we going to hit that.

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35:31Sean Frank:They do the heavy lifting, data imports, self-service, retention flows, team training, all of it, and it'll be live in two weeks. If you want to save 30 % guaranteed on Helpdesk and now returns, book a demo. We did another episode you did with Jordan from Instant Hydration, and they've kind of solved for that in a very different way than we did. They've solved for it with exceptional meta-advertising. So really what you have to do as an entrepreneur is you kind of have to say, well, what are the numbers I have to hit to really scale this thing? And how is everybody else in the market positioned?

36:07And where's the white space? And so that process, I think, took us about a year to really understand like, okay, for us to make this work, here's what the path is. but I think I mean I don't know I think I feel comfortable saying this I think the company can do in 27 I think it can do about 10 million in EBITDA and I so I think it can be very profitable and I think it can be a great addition to our portfolio of brands but also like we probably set between two and three million dollars on fire to get to that point so like there it's an it's an exceptionally competitive market. I think if I didn't have a lot of capital, I would feel like I was showing up to a knife fight with a water gun because you've got obviously like liquid IV and element and companies like that.

36:58But another thing that people shouldn't forget is it's like, it's funny, this is kind of like a trick question I've done with people. Sean, who do you think has the biggest marketing budget in the electrolyte category? Oh, I'm going to say Costco, Walmart. You should say Costco or Amazon, Walmart, one of those. Okay, so you guys are thinking about distribution channels. What about on the brand side? Who do you think has the, what brand do you think has the biggest electrolyte marketing budget?

37:21Sean Frank:Yeah, and I would, I guess what I meant by Walmart is some knockoff Walmart brand. That's what I think. It's like great value electrolytes or whatever. Yeah, there you go. Well, it's a really obvious answer. And it's funny because it's like the way that we're conditioned to think in D2C world, it's Gatorade. You know, like the biggest marketing budget is Gatorade. They they've have I mean, they spend I don't even know hundreds of millions of dollars like you can't even the Thunder would love to partner with us, but they can't. They're in an exclusive agreement with Gatorade that they have with the entire NBA and they have them with the NFL and they have it with all these athletes and whatever.

37:54And so it's just a good reminder that it's like it is a massive market that like we tend to think about all these, you know, digital first brands. But then it's like Powerade is probably way bigger than Liquid IV. And like, you know, there's probably like there's a bunch of electrolyte brands that have kind of made their money en masse. So anyway, it's a huge market. And it took us a while in this really huge market to understand, OK, how do we need to be positioned in order to be in order to be really successful? But I think we found it. And so that's exciting.

38:26Sean Frank:Longtime sponsor North Beam is launching Incrementality later this quarter. This means that you can now have the trifecta of marketing measurement all in one platform. That is multi-touch attribution, media mix modeling, and incrementality holdouts all inside of Northbeam. You can automate that lift testing end-to-end, unify results with your MTA and your MMM. This is a lot of letters, but if you know, you know. And you can start to cut what doesn't work, and you can scale what works. And you can do this all with confidence. This is why this is such an incredible add to Northbeam. North Beam's incrementality measures what results marketing is actually generating, not just what they're claiming credit for.

39:04Sean Frank:As a CEO, that's like music to my ears. Sign up now and you can lock in 50 % off unlimited tests for the year. I think anybody would love to turn$3 million into a cash flowing$10 million a year EBITDA business over three years. But what it takes is the upfront capital and the human capital to get that done. I got a couple more questions. And then when I talk about the new brands you guys are going to launch, before we get off of Gatorade. Eventually you go to the RTD space which means we're ready to drink for everybody, right? So, you know, we're all in powders right now, right? That is where you get, it's cheap to make, cheap to ship.

39:40Sean Frank:You mix it into water, you got good margins on it. Perfect digital product. Perfect digital product. And then I go to the sauna and they have RTD element drinks, right? So element just made this push right now. So is product expansion going to be part of that$10 million roadmap or like that's even further down the line. That's when you guys were doing 50 million EBITDA. Yeah, you don't have to get out of powders, I think, to get to somewhere between 10 and 20 million in EBITDA. But like you said, inevitably, and this is where somebody like Gatorade is really helpful, like it really shows like ultimately what is the total portfolio that you want to build.

40:16It's ready to drink. And there's a variety of different ways that can look. The ready to drink is a good example of, it's a different skill set because it really only works if you have physical distribution like selling you know packs of ready to drink stuff on the internet is just not a very good business model because it's super inefficient it's like all these brands that ship food where they have to ship like eight pounds of dry ice with it to get it to you and so you end up paying you know it's like half of what you're buying is shipping in dry ice so this would be a situation where our experience with Walmart in particular, I think, stands out where like, hey, if we could get to a scale where ready to drink could make sense, then Walmart would be a partner that we would try it with.

41:04Or maybe Club, I don't know. But absolutely, Sean. And the ready to drink market is probably way bigger than powders. I don't know that for a fact, but that would be my guess.

41:15Sean Frank:I would guess it's 10 times bigger, 20 times bigger. But you're also, you know, going back to this size of market thing, it's like, well, if you are like 80th and ready to drink, you're just printing money. Right. But also like you're in the most shark infested waters in the world. Those people will freaking kill you. Like that is Coca-Cola. That is like the very, very serious operators that are at absolute global scale. And, you know, the capital that I have is a flea bike compared to what they're working with. So you you don't want to go into that unless you really know what you're doing and you really have exceptional product market fit.

41:52Sean Frank:Mike, when you started Trevi, were you guys expecting to light a couple million bucks on fire to figure it out? Or was that just sort of a, you know, I guess we have to do this. I could have and should have kept the burn lower in retrospect. That would be the, and I guess I would say two things. One is I lit a good amount of money on fire, but in retrospect, I learned some things through that, that in my subsequent ventures, I'm going to be able to be more capital efficient. And so maybe I bought something with that money I let on fire. But also, like, I think that there was a strategy that we saw early on.

42:33And more or less, it was the go really low on price, go really aggressive on price strategy that we saw. And we just were like, hesitant to do it. I guess it's kind of like I like I knew in the numbers I saw some stuff in the numbers where I was like I think this would work but um in some ways it feels like taking the going really aggressive on price strategy is somehow less than sometimes like it's like especially in the kind of d2c community it's like we're always trying to figure out how do you charge more for your product so the idea of trying to figure out how you're going to charge less but we know that that's a really effective model and you know like I said the biggest company is Gatorade and you know they're selling stuff for whatever, 25 to 50 cents a serving.

43:17So, uh, saw that as a path and what, and we tried to kind of, we were looking at what everybody else was charging and what they were looking at per serving. And we tried probably six or nine months to do a kind of an in-between where it was like a value play on that, where we weren't charging what other people were charging, but we were still charging, you know, I don't know, 75, 80 cents a serving when most people were charging $1 or$1.25. And the more we looked at it, it's just like, this is a treadmill that doesn't really go anywhere. But what if we got really aggressive and we're trying to charge 50 cents a serving or something like that?

43:54And when we did that, we realized that's actually how you get this LTV CAC ratio in this category that nobody's really done that with Amazon. Nobody's gone the super aggressive route with a really high quality product. And that's how we can really make this thing work for us. So it just took a little while. And I think we were hesitant to kind of break glass on the strategy that was the right strategy. In retrospect, I don't know why I was so hesitant. I think maybe some of it is you feel like you're giving up margin, you're giving up the opportunity of bigger profits. But it's one of the more counterintuitive things about building a company is that everybody ends up at operating margins between 10 and 20 percent.

44:32You know, it's like Yeti might charge twice as much a cup as I do, but they still end up at the same operating margins, you know, in the same range. And so the truism is if you're in electrolytes and you're charging$1.50 a serving, all that means is you're just spending a lot more in marketing, convincing people to buy it, you know. And if you're charging 50 cents a serving, it means you just are spending a lot less having to convince people because it's that much more attractive. So what I would advise to people that are getting into a new category is even before you getting into it, kind of mapping out all of the competitors that are currently in the space.

45:08Like, OK, if I was going to draw a grid, what are the two main dimensions that people are using when they buy this? Right. And then I would graph out a little four box grid and I would say like, OK, where are all the competitors positioning themselves on these two main purchasing factors? And where is there a place where there might be a good amount of customers, but nobody's really positioned themselves. And if you can find that, then you've got a really good chance of being successful. But if you can't find that, it doesn't matter how big the market is. If there's no obvious white space, then it's going to be tough.

45:43So the one other thing here is it's not even just the market, it's a channel. So like I mentioned electrolytes, we are playing this extreme value play on Amazon and it's really working for us. But nobody had done that on Amazon. But if you go into Walmart, like you said, Sean, like there's definitely extreme value, you know, Gatorade's a lot cheaper than anything on Amazon. And then you've got like the Sam, you know, Sam's choice or whatever, electrolytes that are like a cent to stick somehow. But it's not that extreme, but you, you know, it's like, how are you hitting those prices? So that's, that's the way that I would think about it.

46:19What is the channel that you can launch in where you can hit the kind of customer acquisition numbers and prices that you need to hit and what's the kind of white space and the positioning that you can find where you can hit that. And if you can answer those things, then you've got a good shot.

46:35Sean Frank:One quick, quick aside. One reason why it probably costs two,$3 million to launch this and get to where you are is that good factories in this space just have high MOQs. So like your initial bite at the apple is just so much higher if you want to go with a good factory just for the audience. Now, the second thing is you said you have good skills at wholesale, at Amazon, and that's where you're tackling these. Now, you're launching new brands. Are you going to try to learn DTC marketing, Facebook ads to make those new brands work? Or are you just going to lean on your core competencies, Amazon wholesale?

47:08Sean Frank:sale. So there is one that we're doing that I think will be more of a D to C play. But I've wrestled with this some. And in general, I think the wisdom here and the research says when you're really good, you know, or elite at something, instead of saying, hey, what are some other areas where I'm not as gifted and I need to get better there, like learning how to lean in and really maximize the advantage in places that you're elite is the best way to play the hand. And I'm increasingly like, that's probably the answer for me. Now, I, like I said, I've got some other people that are really gifted that want to run brands.

47:44And increasingly my role is going to be, I'm an advisor to all of these CEOs and these people leading brands. Like I've kind of gone out there, I've got my scalps on the wall. I don't feel the need. Like I've got to be the first guy through the wall on these brands and like where I'm like, um, leading. And I like the idea of like more like, Hey, I want to work on interesting things with people, really high character people that I enjoy, but I'm also okay with letting them kind of lead the charge. So maybe there'll be some of that. But in general, I think Amazon's freaking huge. Their advantage is only growing and I'm really good at Amazon.

48:18And so like I'm most of the things we're looking at, I'm going to start with this question of, can I leverage the advantage that I have with Amazon and wholesale? do I see a really clear path? Because the reality is probably that I could spend the rest of my career doing that and not run out of opportunities. But I also do like learning new things. So we'll try. Well, there's one that I haven't announced yet that Ventures, the very first thing that Ventures is doing, they've already got the product en route. And it's pretty interesting. It's a really big category. It's kind of a twist on a really big category that's gaining steam.

48:54and I think it's got an interesting opportunity and we're working with some friends of the show on the marketing side of it and it'll be more of a DTC play. So we'll see.

49:06Sean Frank:That's awesome, man. Okay, so now let's talk about the setup of ventures. What we covered is that Simple Modern has climbed the mountain and is super successful and is spitting off cash, probably too much cash for it to eat. You have a bunch of great leaders and you want to give them opportunities. You want to let them go run, be their own boss, be their own CEO, but inside of your guys' framework. You have a track record of doing it now with Trevi, right? And you've learned from that. And now it's like, okay, now it's time for simple ventures. We're going to spread out. This is going to be a formalized process.

49:36Sean Frank:We're going to do this a couple of times. What is the timeline for? Is it one a year? Is it two a year? Is it, do you, have you identified the categories you want to go after or is it still looking for the best opportunity? So I think this year, I think we will launch three new businesses is my guess. So interestingly, I mentioned this in chat, but this is the first time I publicly said it, but I think the listeners of the pod are going to hear more about this. We've got a really exceptional software engineer who is on the very forefront of the AI stuff. And we had him start working on an internal tool last year.

50:15And what he's built it into is so exceptional that we're probably just going to turn it into a company. Like I think it could very easily be a tool that becomes a part of any e-commerce operators stack. I'm kind of in awe of this thing that he's built and what's possible. And as an aside, I have thought a lot about the SaaS space and how AI is going to impact it. And I don't think I'm in this, hey, SaaS is going to zero. I think I'm starting to be in the other side where it's like we're just going to use way more software. But that's a different topic for a different episode. So we are going to do something in the kind of software side.

50:53But in the venture side right now, there's at least two things that we will launch this year and maybe three. The biggest question is I've got two guys there, Brian Porter, who's my co-founder with Simple Modern, and Lee Graves, who basically ran our operations with Simple Modern. So those guys are exceptionally capable. and I think that the big question is that I'm asking them is do you guys want to be launchers of brands where we hand it off to other capable leaders when we prove the concept or do you want to take one of these and run it yourself and I don't think we fully answered that yet so we need to kind of figure that out to understand how many we want to launch but this year at least at least two probably three in simple ventures and then probably also a software thing so that would grow portfolio to like potentially as many as six things by the end of 26, which is quite a bit.

51:46And my expectation, by the way, would be launching companies. I think you can get better at it. I think the more capitalized you are and the more experienced you have, the better chance you have. But I would still view it as there's probably more than a 50 % chance that anything we start is not an asset we want to hang on to, that it's either something that you close or you sell off and that the minority of these are things that we end up holding as kind of continuing parts of the portfolio. But you mentioned this earlier, Sean, like obviously Simple Modern's in this. It doesn't need capital. It's spitting off capital.

52:23Trevi could easily be in that place in the next six to nine months where it doesn't need capital. It's spitting off capital. And so if you can get the snowball going, then it's pretty easy to see how you could really quickly have really large amounts of capital that you have. play with and you can invest. And like my big dream, I guess I would say is I want to be in what's going on with technology. I want to buy freaking robots. I want to have a hundred optimist robots, you know, working on stuff. I want to like get involved in the bigger game that I think is unfolding. So I love selling people physical products.

52:58I think that's going to be a great place to be even in a world where technology is going absolutely ham. but dude i want to i want to be a part of this kind of bigger like shaping the world stuff and to do that the ante for that table is tens and hundreds of millions and so like i need to get businesses that are producing enough capital where i can really be a part of the bigger game

53:19Sean Frank:that's going on people always talk about you know companies have like a one percent success rate right that's not actually true yeah well what i was gonna say is like that's restaurants and that's venture capital stuff. It's like TikTok drop shippers. Yeah. I think if you have the experience, if you have the capital and you're trying to do consumer, it's like, look, it's probably a 50 % success rate. And even if it's not a success, you have something, right? You can make the economic works a little bit. Most of the time, Sean, it's really about what's the rate of return on that capital. It's not about like, are you going to go bankrupt?

53:52Are you going to lose all your money? It's just like, yeah, you could put a couple million dollars here and earn a 5 % return per year, is that worth it? And so like, I think that's more of kind of like what you find yourself in practically. If you, if you are smart about it and you pick a category, you know, wisely, then probably your worst case scenario isn't that you lose all your money. It's just that you're like, well, this thing's kind of limping along. I've got a couple million dollars in here and it's producing 150K in EBITDA. And like, that's, I should just have the money in the market or in bonds or something if I'm going to earn that kind of return.

54:27Like this is way too much headache for the amount of return that I'm getting. So that's the more likely problem. And I think that that's where like opportunity cost becomes the bigger issue. Like the real risk isn't like loss of capital. It's just the opportunity cost that capital could be better used somewhere else.

54:44Sean Frank:Mike, are you still structurally keeping everything the same? So like these are single threaded organizations with single threaded leaders. You know, they I'm assuming they interface with like common things like finance, right? Like centralized. Yes. So, okay. So we have shared services. This was something we talked about before the pod. Right now we're still nailing down what are shared services, but in general, accounting is a really obvious shared service. I think logistics is another, you know, logistics warehousing is another fairly obvious shared service um hr could be another and and kind of has been another shared service um and then i think there's some other places where we're looking where it's like maybe so as an example i i think you guys are familiar with some of his work chris gans yeah we've worked with chris so chris gans on our team he worked at pepsico amazing designer especially when it comes to branding and packaging He's actually done some work for Nine Ops and Chris works with the Trevi team, for example.

55:48But it's kind of like, well, we needed him to kind of really understand how we were going to position that brand and the packaging or whatever. So could we use Chris on some of these other projects? Like Simple Ventures has pulled Chris in and he's made the packaging for some of their new things that they're bringing to market. And he's just great at it. So like, could you have somebody in packaging that's kind of a shared service where like they're just like an absolute subject matter expert on that? Maybe we'll see. Right now he's nested under Trevi, but he's so gifted that we're kind of borrowing him in other places, which kind of implies to me that maybe that could be a shared service.

56:22So I think that there's more than just kind of like, oh, legal was another one as a shared service that we've got across. So there may end up being more than that. But I will tell you that my biggest conviction is that organizations are just going to be a lot smaller going forward. I think that the future that AI is going to enable is that you're going to have a lot more companies and that they're going to be smaller companies. And that as a result, with all of these new things we're starting, I'm trying to start them as single person things or, you know, at most teams of two or three. because, and you know, like with Trevi, for example, I was talking with Corbin, we think we could price scale it to a hundred million in revenue with five employees potentially.

57:09And some of this is the decisions you make around channels and different types of complexity. But I think with the technology, I would be, the way that I'm approaching starting new businesses and the way I encourage other people to think about it is that you should just be building businesses differently where you're thinking like, how big can we get with as few people as possible because that's probably the way that the future looks. And obviously it increases your speed, your agility, and your likelihood of being able to earn a return. The less overhead you have to apply to make that thing work.

57:44Sean Frank:Yeah. I was at a dinner last night, Mike, with maybe like 11 other founders here locally. And one of the guys asked everybody to kind of go around the table and just say like, you know, a year from now, if we're sitting here, what are we celebrating? And the only thing that came to mind for me was I want to 10x the size of my team without adding any more humans. Well, and one of the things, Matt, I want to say on this is that like I love all the people that work for us. And so I am not trying to use AI to get rid of humans. Instead, I'm trying to say, how do I empower the people on my team to run businesses?

58:18And how do I multiply the number of businesses and spread the number of people I have out across more kind of money-making vectors and that that's kind of my answer is like, I want to take my human capital and I think I can go a lot further and I just want to spread it out across more business units.

58:36Sean 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 managing them in real time.

59:12Sean 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. It sounds like you were already on the path of like the simple ventures like Portco. So, and then my experience with you is that the AI thing has just sort of been an accelerant to say like, it's almost like giving you extra permission to keep pushing on this. And I know in some of our group chats, I can see like many people are thinking along these lines, right? It's like the productivity gains in small business like SMBs, which is what we all are, right? Relatively speaking, those gains seem to be getting bigger and bigger right now.

59:48Sean Frank:And the velocity is like pretty remarkable. so it this to me i don't know sean where you sit on this but like the portfolio approach seems to be the obvious place that i i think a lot of us are going to wind up it's really really hard to grow a brand to a billion dollars it's like uh you know hedge class on the way comfort's on the way but like it's really really hard to cross that threshold it just takes a lot of time it takes a lot of focus there's a lot of energy but at a certain point it's like there are these other opportunities that pop up and we're all very good at taking a brand from zero to 10 or zero to 50 or zero to a hundred even.

1:00:24Sean Frank:Um, but like there's that chasm between somewhere like 200 to a billion. It's just, it's very, very hard to get across that. Um, so yeah, look, Ridge, Ridge launched a brand. I think we're gonna launch more brands. I think, you know, Matt, you're, we'll do one of these for you. You're a multi-brand owner. I think all of us are, as entrepreneurs are going to be doing more and more things. And I kind of want, you know, as you put a bow on it, Mike, the human is a leading operator on the Operators Podcast. He has that whole business unit. He is the CEO, chairman-in-chief of Simple Modern, the multi-hundred-million-dollar water bottle company.

1:00:59Sean Frank:He is now running as an advisor or key insight into Trevi, but also he sees what's coming with AI. He sees what's coming with his expertise, and it's a great time to be in physical goods. He's going to spin up three, four of those in the next 18 months, and he's going to become a SaaS bro. He's a SAF software coming out of the pipeline. A SAF bro. All of that is so that he can build robots in space. That is what Mike's all about right now. That's the next game, dude. Optimus robots in space. You will write about this a lot, Sean, but we are in the most amazing time in human history. And there is nothing more exciting than that I might have a small seat at that table and get to influence that and be a part of that And, and like, man, that'd be awesome.

1:01:47It'd be awesome if I translated the skills I have clicking on my keyboard and like being a part of this, like larger, like transformative moment in human history. And so it's like, again, it's first principles thinking, right? It's like, that's what I want to do. I want to be a part of like the really crazy stuff that's going on. And, and it's fun. And I think, you know, like I will almost for sure come back in a year and I'll have a list of things that's like, well, we should have done this differently. I did this wrong, did this wrong. I really would emphasize that like the only thing that'll make this work if it works is that I have elite human capital that I can entrust with things.

1:02:21If you don't have that, like even for me, it is my weeks right now are crazy. You know, like I have so many different kind of direct reports and one-on-one situations and context switching that I have to do. I would not recommend this for most people. And if you're going to do it, you absolutely have to have leaders where it's like, literally, if they couldn't talk to you for a month, they could do it and they could operate independently and autonomously because otherwise, I just don't think the risk reward is worth it. I think it's too overwhelming. But the fact that I've got really, really capable people around me, whether it's with operators or with any of the simple modern stuff, makes it easier.

1:03:04And, uh, and I'm really, I'm really enjoying it. It's, it's exciting. It's like, it's a great time to launch a brand. I think that in general, like physical stuff is not going to get disrupted. People are still going to be drinking electrolytes, you know, uh, like, uh, that's not going away. Even if the AI becomes like super sentient, you know, and, and changes all kinds of other stuff and people are still going to need drink out of water bottles, like all that stuff's going to change. So I'm, I'm still really bullish on physical goods. And I I think we're in a great time to be building companies.

1:03:35I will say like my one observation, Matt, to what you were saying is that I think in the D2C space, my biggest critique is that people are thinking too small, that it's like almost all the AI stuff is how do we make ads more automated? How do we make more ads? And it's like, yes, I get it. And that is a big part of it. But that's also thinking pretty small about technology and what it's capable of doing. and what I'm trying to do right now is rewire my brain about what's possible. So the way that I think smart people work is smart people basically create goals and then they map out what are my limitations and what are the constraints and then they kind of goal seek to where they want, like how do I get to where I want to get.

1:04:22And what I think AI is doing is it's taking a bunch of constraints that we've grown up our entire life and thought, well, these are constraints I have to work around. And now all of a sudden they're not constraints. And so you just have to, like, it's actually really difficult to reprogram your brain and make it realize, Hey, a bunch of the things that you would have just assumed were impossible or that you had to work around, you no longer have to work around because the technology is making it possible for you to think differently. And, and so that's a big part of what I'm trying to do right now is just rewire my brain.

1:04:52Sean Frank:Mike, you know, the, the books like good, great, great by choice, you know, like all the seminal, I think it's Jim Collins, right? I've got a theory that I'm playing with right now that I think the idea that good is the enemy of great is no longer true. Like all things are good because the nominal cost of doing everything now is zero. Whereas the, or it's getting close to zero. Whereas the nominal cost before, like you used to have to trade to say like, I've got 10 things I could do. I need to pick, I need to figure out what the one great one is because they all cost me something. Or do you think that we're at this place now where like taking shots, every shot is just getting cheaper and cheaper and cheaper to take.

1:05:28Sean Frank:probably the most expensive part Sean already hit on. It's like just the physical making of the things. Everything else in the production, the go-to-market is damn near zero or quickly getting there. I think you're going to just see a collapse of costs. And it's like, you know, if it's not product and if it's not advertising, everything will get very, very close to zero. Like, I mean, everything should just be cheaper. And then what you're going to see is orgs are just going to spend way more on product or way more on marketing. Well, and we haven't really talked about this on the pod, but one of the, I don't know, kind of things, one of the thought processes that's coming out of Silicon Valley is people are like, basically like, you better amass some capital now or you're going to be stuck in the underclass.

1:06:12And that's pretty dystopian. But I think that there is some reality to, in a world where a bunch of things that used to be important value adds in a chain are going to zero. They're getting commoditized. the way that I would assume that works is that the things that don't get commoditized just explode in value basically if that makes sense like their importance explodes and uh so it's like oh yeah before it's like oh if you've got a great brand designer then that's like a huge value add and it's like well you know there's gonna be pretty freaking awesome tools for that you know that they can in an afternoon you can come up with some great stuff especially somebody with but but you know what you still need you still need judgment and so maybe that judgment now becomes 10x.

1:06:55Like it's worth 10x, the leverage on that judgment. But the actual creation of the assets is easy. But the capital piece is inescapable, that like capital, you either have it or you don't. And in a world where a lot of things are getting commoditized, you want to have capital. And so I guess I would co-sign on the idea. I'm not saying you're going to be in the underclass, you're going to be stuck in this dystopian hellscape if you don't have capital. But like, Like, I think in the world we're going into, like, I guess another way of saying it is, you know, the CEO of Anthropics, like, I think we're going to go into a period where we're hitting 10 to 20 percent GDP growth.

1:07:31I don't even know if that's possible. But like, if it is, you know what you want? You want freaking capital. You want capital because that means that your capital is going to be compounding at just an insane rate if the GDP is growing that rate. So anyway, like a lot of this episode's about that.

1:07:46Sean Frank:Yeah, I guess like, doesn't that make sense that that actually is true? Because isn't GDP mostly a measure of labor productivity? And if we detach productivity from labor, that the measure itself is going to look really weird, right? Yeah, I mean, it's mostly going to be a measure of capital's productivity. Hypothetically, it's possible. We've never seen anything like that growth rate in an economy of the scale of ours or as developed as ours. But also like the number on Q4, I think, was five point something percent, which that's like a China GDP growth rate. So, I mean, maybe. I think Elon Musk talks about in the future, money isn't a thing.

1:08:23Sean Frank:And it's like the closest thing we have an example to is textiles. and it's like 100 years ago maybe 200 years ago like a shirt cost you a week's labor or whatever and now if you work at mcdonald's you can go on team or she and or whatever you can get all the apparel you want in less than an hour's worth of work right and that is them shipping it making it the whole thing and the value of of that good because of technology because open markets because whatever has just collapsed and it's like what if that happens to everything so it's like it's like you know i i don't believe in like you need capital to skip the permanent underclass what i'm saying is maybe maybe everything just collapses in the same way textiles does where like the the dollar you do have just goes so much further because labor is free now that's what we're seeing like you yeah the argument is that that technology is going to be really deflationary and so uh to kind of try try to tie a bow on this episode i think i actually have a concept that really works with what we're talking about, which is why am I doing all this?

1:09:26You know, like the question that you end up, you make a certain amount of money and it's like, what am I doing here? The thing that I think I've gotten, I've gotten two really helpful gifts from making a lot of money. One is that you get there and you realize it's great, but it doesn't complete you. It doesn't make you whole. It doesn't make you happy. It can't fill some of the things that you you might think it could fill. And you're freed from a lifetime of imagining or hoping or dreaming that it can make you whole in a way that it can't. So I think there's a lot of people who spend their whole life and they really think if I just had a little bit more money, I'd be happy.

1:10:07If I just had a little bit more money, I'd be fulfilled. And I don't have that illusion. So that's really helpful. And I think the other thing that having a lot of money does is it really helps you to to understand how valuable your time is and how thoughtful you should be about what you spend your time on. As we've been talking about this, we're obviously talking about more businesses. I mean, I've really spent a lot of time thinking about how should I be using my time? Do I want to be spending it building companies or whatever? I do think, Sean, to your point, I think that there's a future where work is going to be more optional for people.

1:10:40I think most of human history, it's like you have to work, right? If you want to not starve to death, you've got to get out in the field. And I think whether it's UBI or whatever else, I think we're going to live in a world over the coming decades where not only can you not work and get paid to not work, but also, and still have a high quality of living, but also there's going to be more and more people who don't really have anything to contribute with the level of our technology. And so thinking about all this, thinking about simple ventures, what it's made me realize is the way that I'm wired, I'm going to be one of the people that wants to work even if there's no financial gain from it.

1:11:18Even if you totally stripped out the financial piece, like I just needed as a person to have puzzles to work on and I'm a builder. And like when you're a builder, you build. And so part of the reason why I've done all this stuff is that I want to be able to work on interesting things. I want to build things with people that I really enjoy. It's the reason why I still do the pod because I get to show up and I get to spend time with you guys and I get to riff with you guys. And so like, I do think our fundamental relationship with work may change, but that's why I've structured the company the way that I have is because I want to continue to build things, whether or not I need the money and I, and I really don't need the money anymore.

1:11:57I want to do it because it's part of who I am and the type of identity that I want to have. And ultimately you should structure your company. You should structure your money. You should structure your investments in a way that's consistent with the type of person that you want to be.

1:12:10Sean Frank:Mike, that's a great way to end the episode. You are a rock star. You're a great human. We're happy to have you in the Operators Podcast. We're happy to have all of our fantastic sponsors. Matt, any parting words? No, man, let's end it. That was awesome, Mike. Thank you so much for sharing. Yeah, great spending time with you guys. Great questions. If you were looking for investors, I'd invest, brother. Keep crushing. I do want to hear about the SaaS thing, Mike. I'm dying. Yeah, okay, so you guys got to stay on. We're going to discuss this. end the pod now