A Guide to Creating Scalable Business Models

0:00You might have the metrics where to the ego, it sounds cool and everything. But what you realize is if you just planned a bit longer up front and really made sure to have that holistic view, you probably would have put in the same amount of effort except gotten way further. So that's why I always say like the heavy lifting is done up front. Hey, how's it going? I'm your host, Adam Levinter, with a brand new episode of Shopify Masters, your companion for starting and building a business. Part of being a successful founder is learning from your mistakes. So when Raz Romanescu discovered he could make money growing communities on social media, he quickly launched his entrepreneurial career.

0:37Raz grew one of the largest meme platforms to 60 million followers, launched a media empire called 10PM Curfew, and founded his direct-to-consumer business, Underlining. Underlining serves as the parent company to Tatbrow, Hyde Cosmetics, and Nailboo, merging the latest beauty trends with at-home application tools. Through many successful and failed tests and iterations, Raz has compiled a list of essentials for entrepreneurs looking to launch any new business with the hopes of scaling. Raz, welcome to the show. Thank you. So you have a very interesting background. At one point you were studying geophysics and you felt like you didn't have a passion for that.

1:20You didn't finish. Just take me back to sort of the origin story of where you came from and your first sort of foray into entrepreneurship. I immigrated from Romania to Canada when I was about five years old. Both my parents were first generation go-to university. In their minds, they were very confident that's the only way to succeed in North America or other parts of the world based on their experience. Naturally, I went to school, eventually went to university. Geophysics was actually what my dad did. He had his own business for that. So a lot of the entrepreneurial spirit came from seeing what my dad did to take us from another country to another country, not knowing the language, not having anything kind of structured there, then getting to the point in his career where he said, hey, it feels like I'm doing 99 % of the things that I'm doing at my work, but only getting paid X.

2:23Let me take the jump also and see if I could start my own business. So a lot of the risk taking and that kind of mentality and personality, I feel like I saw firsthand growing up what it looked like to take a big leap of faith where things might seem a bit scary and uncertain. But ultimately, once the dust settles, it always ended up being for the best and getting you further along. and as I was in university, you know, my main thing was always I loved fitness, martial arts, sports, and I wanted to just do that all the time. So my main thing was how can I make money but also have freedom? At the time, I was really looking at, you know, trading, investing, all these type of things, and then really started building theme accounts on Twitter, So large community pages, you know, started making a dollar a day at one point, but was very excited seeing like, hey, I made this from my device on my own schedule, wherever I am.

3:25And naturally that hunger just become like more and more, as you can see the results kind of coming in in terms of revenue. So at a certain point, I already started making enough from digital marketing and creating large communities on Twitter, Facebook, etc. That even if I were to have finished my degree, I would already be making the same amount doing what I'm doing on my schedule with something I'm passionate about. than if I were to finish the degree. And I was at a point where I was chipping away at it. The passion wasn't there. And it became a tough mountain to climb when I was focused on online marketing or these other things.

4:11You couldn't stop me. I was obsessed with it. It was fun. It was exciting and seemed like my natural course. So I waited to be able to sustain myself and kind of made an educated decision to just leave university, go full speed to LA and launch our first media company, which kind of kicked off a lot of the success and natural progression into e-commerce and launching products and brands, etc. When you say you started developing a passion for this, was it the passion for building online communities? Was it passion for entrepreneurship or passion for freedom. What do you think was driving you? Yeah, I think it was a blend of the three, you know, because in geophysics, for example, you heard, you know, if you don't have your master's or your PhD, no one even is interested in looking at you and sitting there scratching my head like, damn, I barely finished my bachelor's and still have a few years.

5:11So I'd say the freedom, the fun and kind of the unpredictability. And when you figure it out on your own and keep unlocking new levels, You get a nice bit of excitement and kind of satisfaction from it. And ultimately being able to do it from your phone or computer or wherever you want was also very appealing to me versus necessarily going to school or working somewhere you weren't that excited about. But so at some point you shift from the meme world or the community building world to seeding a product company, which is where we are today. We'll get to the whole trajectory of underlining in a moment.

5:57It's really impressive. At this point, you've served over 1 million customers since you launched six years ago. Before that first order, when you started seeding the idea to launch a product-based company, what was the origin story of that? Yeah. Building the communities, naturally, you worked with advertisers of all shapes, sizes, you know, Fortune 500s, startups, mid-sized companies, and you realize that they all have pretty much the same pillars that you need to get right. You need to have a good product with product market fit. It needs to be demonstrable or marketed in a way that creates appeal or wants somebody to try it or buy it or somewhat.

6:39Then you need the distribution, which is you either do it organically through the community you built or through paid. So we started doing this for a lot of brands, A to Z, you know, the content creation, the organic marketing, the paid. Then we started thinking, Hey, you know, a lot of these brands, they can pull their budgets whenever they want. The reason that a lot of these brands can even afford to pay you to advertise is because they have, you know, a sound product, a sound business. And, you know, your business model is a fraction of theirs, which is you're taking some of their marketing budget.

7:15So ultimately, we started thinking, hey, since we already know how to do everything, what's actually missing for us is our own products, understanding manufacturing, understanding fulfillment, understanding what category to go into, how to market it, pretty much the whole nine yards. We started with drop shipping. So we started how a lot of people start. They see something that's working. They learn to get the basics of a store up, run a bit of paid, run a bit of retention marketing. And we started with selling car hooks that hook on the backseat of your car and hold your grocery bags. We sold about three, $4 million worth of those.

8:00Then we moved into kitchen products, pet products, then beauty products. And what we realized is a lot of the things we were doing was pure arbitrage. Quality wasn't the best. There was no brand being built. The retention wasn't there. There was no community or loyalty, but we learned how to move product, how to manage customer support, how to fulfill, how to do all these things. Then the next phase when underlining was born, we said, all right, let's take it to the next level. How do you build an iconic brand that could withstand the test of time, have enterprise value in the sense that at a certain point in time, a strategic or private equity or someone might want to come and purchase it.

8:46Also have a brand strong enough that you could sell in retailers, other channels. So it becomes a holistic brand. And underlining, we had three brands. So the entire portfolio is over 2 million orders, but our hero brand right now, Nailboo, is inching on that one million order mark. So we're excited for that gold Shopify trophy to come in the door. No, it's impressive. And Tat Brow is another portfolio brand you operate. You have a few. You mentioned a lot there, but I want to double click on something you said earlier, which is this idea of category selection. So moving from, say, the pet category into other categories and ultimately landing on beauty.

9:34What is it about beauty as a category? Is it the margins? Is it that it's lightweight and shipping friendly? Why did you choose beauty? Yeah. So how we look at every product or market we want to launch in, we want to say, is it a large market? Beauty's huge. Is there a lot of spending going on there? and is it easy to demonstrate the value? So you can do easy before and afters to kind of show people the benefits of your product. Margins are good, like to ship, and it's often high retention if you get all the product quality down right and you have everything, what's the word, across the board outlined.

10:15You know, sometimes there's some categories out there that if you're not profitable on first purchase, you're going to have a very hard time getting purchased two or three. So you have to identify everything in a sense of, you know, what the end goal is with the brand. You know, is it high lifetime value or do you pretty much have to convert them and within 30 days, try to get as much money as you can from that customer before pretty much realizing they're not returning. So I would say beauty was just a category that when we were testing everything else and we started posting these videos and starting to run some paid, just the conversions were night and day compared to some of the kitchen or other verticals we participated in.

11:06Right. But the beauty space is so uber competitive, right? Lots of players, lots of brands, no real brand or product leader, in my opinion. How do you think about the space? More importantly, how do you take a brand, seed it, and then differentiate it from the competition? Yeah. So we learned those lessons pretty significantly throughout our journey. You always have to have a unique selling point or a differentiator. And timing is also important, right? So tap brow, how we looked at it, we said, hey, microblading, which is a medical procedure to tattoo your eyebrow a certain color, it was exploding across North America.

11:47People were spending$300 to$500 per application. There was a lot of virality coming out around it. People having horror stories, the pain. And since it's semi-permanent, people would get their eyebrows dyed and it'll be the wrong color. So we said, hey, this is a clear opportunity for us to bring microblading at home. So we looked at it. How can we disrupt a brick and mortar trend online with a product that's cheaper, gives you the same result without the pain, the risk, all of that for a fraction of the cost. And that's why our first product was the tap brow microblading pen. And that was our biggest hit that scaled very fast.

12:30We sold a few million units of that. Now, when you look at regular brow products, because we expanded the line, obviously, to pomades, brow pencils, anything your regular brow brand would have, those don't move nearly as well. And they're not nearly as exciting or easy to market because it's very hard to differentiate yourself. So we always launch with like a kick in the door product. We want to make sure that we can cut through the noise because it is competitive. very cool before and afters very impressive benefits whether it's cost savings you know painless etc so we almost socially engineer the marketing story and pick our hero product and then build the brand around that versus just saying we're going to be a brow brand and hopefully we can convince everyone in the world to think our brow brand is cooler than the next brow brand And that's what really led us into nail care also, which Nailboo is our hero brand right now, and it's scaling the fastest.

13:37We realized, similar to Tatbrow, dip powder was becoming one of the biggest things in salons across North America. So it's a new application method. No one really made it their own on digital or social yet. if you looked at Amazon and these other platforms, overseas sellers, no one had a strong brand to say that they could build a community around it. So there was a gray area. And then when we realized, okay, people are actively spending$80 to$100 per application to get dip powder done. There's no leading dip brand. How do we enter the market as your modern day nailed dip brand? do it yourself at home instead of spending$100 for one application, one kit from us, it could save you up to$1 ,200 to$1 ,500 a year instead of going to the salon.

14:31So once again, easy, demonstratable product. This trend was growing in other areas. Nobody really owned it direct to consumer on Shopify or social or Amazon yet. And we entered the market with dip as our kick in the door product and we also got a bit blessed by the universe as bad as it sounds but we launched when every nail salon in north america shut down due to covid so for us it couldn't have been better timing to release a do-it-yourself-at-home nail solution when the other option wasn't even available anymore so we had the brand planned before just how the cards happened to fall in our lap.

15:17When you start seeding these products early, can you just talk to me a little bit about the pick, pack, and ship process? Are you dropshipping early and then at a certain point committing to inventory? Do you never commit to inventory and full dropship as it scales? What does that setup look like? Originally, before we started underlining, it was all dropship, but we made some very strategic relationships with manufacturers during that period of time. So when we started underlining, we actually ended up manufacturing everything to be branded for ourselves to make sure it's the top quality. So we moved away from dropshipping.

15:56But what our manufacturer did is they own the fulfillment centers in the US, and they own the manufacturing facilities overseas, where they would manufacture for us and ship it to the fulfillment centers, but then we would pay them as we sold the product. So it was like a hybrid between the two. I would call it premium dropshipping because you're dropshipping your own brand. But in terms of ability to scale and financing your inventory, we found a very supportive manufacturer that produces for us, doesn't need all the cash up front. And it's almost like a pay as you go. as long as everything stays in the warehouse they control.

16:39However, if you're trying to ship, you know, 400 ,000 units to a retailer, there's no way the manufacturer's floating that cost. You have to pay upfront because it leaves their ecosystem. If you wanted to go international and let's say fulfill in different countries, you'll have to pay for those goods to ship them to a new fulfillment center and make sure that there's no risk to your manufacturer. But when we're operating in North America, we have really good terms with our manufacturers. So I definitely want to get deeper into the drop shipping stuff in a moment. But before that, I'm going to pause and thank our wonderful audience for tuning in.

17:20Wherever you get your podcasts, please follow and subscribe to Shopify Masters. And if you haven't already, write us a review. It helps other people discover the show and our team absolutely loves getting your feedback. Thanks so much. raz going back to the whole manufacturing and supplier thing for those that have no idea how to search and vet for the right supplier how did you guys go about doing that and in retrospect are there things that you would do differently now yeah so going to alibaba aliexpress and starting to have conversations with individual brokers or middlemen, etc. A lot of them are very hungry.

18:05They'll want to add you to WeChat, to Skype, to WhatsApp, to Telegram. You can start negotiating with a lot of them. You'll be able to tell very quick which the hungry ones are. They will go above and beyond to send you free samples, flood you with things, give you information like, hey, this is selling a lot of this. If you're ever interested in moving, let's say, socks, a million units of this has sold in the last 14 days, right? So they almost kind of do that biz dev side of things also where they're hoping they find someone else that can start moving product and start a store or whatnot and have success because they make a lot of money when the volume starts picking up.

18:49And some of the manufacturers we met, they've been with us for a very long time and they've just always been so solid from the first simple small relationship you forward with them where it might be a few thousand units then it gets to the point where uh they know you're solid they know you're confident in your ability to market and move product and it naturally just evolved so i would talk to a lot of different people try to get you know reach out to people on alibaba aliexpress have conversations with them and ask them like, hey, this is what I'm trying to accomplish. Do you know anybody? Is there anyone you can intro me to?

19:28And you'll find a large variety of different prices, quality, turnaround time, and ultimately who you work with will really set you ahead of the crowd. If you find someone solid that can be a partner for a long time. One of the things you mentioned in the context of brand building, whether it's Nailboo or Tatbra or otherwise, this idea of building community around your brand. This has become sort of a hot topic. And obviously, it fits your background unbelievably well, given your past experience building communities on Twitter. But for those that have absolutely no idea what you mean by building a community brand, what is the playbook for executing this?

20:14Yeah, I would say it also starts at the product level. So one example, Tat Brow, when we launched it, you can apply product to your brow and that's about all you can talk about. So it's very hard to create content only talking about your brow over and over and over again versus Nailboo, which we created a group called the Nailboo Fam on Facebook. It's about 91 ,000 of our most engaged customers. And there's hundreds of thousands of posts in there of people sharing like, hey, this is my new Manny. I just got married. I just did my daughter's nails. What does everyone think about this look? So if the product has content creation and kind of, what's the word, self-expression and a form of art involved, naturally you are going to get so much ugc content created from that without even having to ask it's just built into the product other products you're going to have to socially engineer it a bit because you can only make certain categories seem cool to a certain extent without it being forced so i would always start by making your brand relatable you know make whoever your audience is even if it's every female or male or both in the U.S.

21:33feel like you speak their language, you understand their problems, and make it very clear why you're here and what problem you're trying to solve with your brand. And then just following the basic kind of guidelines around social media community building, you know, post a lot of reels and kind of viral content. If you don't know how to make it, tap into creators that clearly know how to make content and let them take the lead. And I would say every brand now has to be a mix of like a media company and a brand in order to entice retailers, stand the test of time as competitions coming in here. So like there was an interview with Ryan Reynolds a few days ago, and he was saying like storytelling is one of the most powerful tools you can have when it comes to building a moat around your brand.

22:27That's what will differentiate you long-term when someone can say, hey, we have the exact same product quality, same manufacturer, same shipping times. Like who has the deeper connection with the customers or who has like the culture behind them and who has the bigger engagement, the following is ultimately what, customers, retailers, strategic acquirers will look at when making their decisions. So it's a 3D game nowadays. Yeah, that last mode is an important one. I'd love to get your take on that. You know, 2024, this idea that people follow people before they follow companies and the importance of having an influencer backing a company is so key.

23:16There are some famous examples here, just the ones that come off the top of my head, Right. Like Elon Musk has way more followers than Tesla does or the Tesla company page, for example. Richard Branson vis-a-vis Virgin, same thing. Even micro influencers like Alex Hormozy, he has way more followers than his acquisition.com page does. So in the context of the space that you play in, specifically in beauty, are there similar trends that you're seeing play out? I can think of Ipsy and Michelle Phan having a deeper success story than Birchbox had because Michelle Phan had this huge following on YouTube before she seeded the idea for Ipsy.

23:54so for you and the brands that you're building do you see a personality or individual influencer being a big catalyst for the next phase of growth of nail boo or tad brow so we align with thought leaders creators and celebrities to really push that forward you know me typically i don't act as the face of underlining just because i feel like to some the messaging may be confusing if I'm not somebody that's been a nail tech for 15 years of my life, etc. or something like that. But we use a lot of thought leaders in the space, a lot of micro and larger influencers. And to really set our brand apart, we work with a lot of celebrities.

24:40We've done a lot with like Paris Hilton, Brittany Aldean, Glorilla, quite a few other celebrities where we'll do activations with them will even whitelist through their social accounts. So when you're in the feed, scrolling through Instagram or Facebook or TikTok, you'll actually see Paris Hilton sponsored, then it's a Nailboo ad directing to Nailboo. So we really try to align ourselves with individuals that do have a following, do have a cult-like audience to almost piggyback in a sense and latch our brands onto their fame and kind of influence. And they help you tell that story, right? And as you mentioned, storytelling is so critical.

25:27You guys get written up in so many publications. You've been in Forbes, BuzzFeed, Cosmo, Glamour, Elle. The list goes on here. How do you guys get this free press? So it's a mix of free and we have a PR company. So it gets to the point where, like, if you're just starting off, You do not need a PR company to succeed on Shopify or win. Obviously, some of the trust badges are key. If you're building a landing page, it's nice to see you featured in. Vice versa might give the customer a bit more confidence in buying your product. But at a certain point in the game, when you're actually reaching a level of scale where customers are Googling you to try to compare you against other competitors, or a retailer might be deciding between nail brewer brand XYZ, or a strategic might be looking at, hey, I want to make an acquisition in the nail category.

26:27this is where a lot of this press and everything starts paying dividends is who is crowned as kind of one of the main competitors main players and that's where you get a lot of the value so I would say it's an expense that doesn't always pay off when you're first starting off so I would wait a bit longer term until you have you're in scale mode not figure things out mode and then And when you have that momentum underneath you, having that press, I feel goes back to building that moat, that storytelling. It's one thing for you to brag about yourself as a brand. It's another for creators, influencers, celebrities to brag out about it.

27:13Now, third party publications bragging about it. Retailers, if they have your product in there, they're starting to talk about you. You just become bigger than life and you don't necessarily need to always tell your story anymore because it's starting to just have a much wider reach. Let's shift to the design aesthetic for a moment. So you mentioned this idea of creating landing pages. Looking at the designs of these brands, so Tat Brow, Nailboo, same thing. Super clean, simple, modern, you know, very scroll friendly, I'd say. Do you have a design framework you stick to when you're building these sites?

27:50I think our goal is to always build something iconic that it could last for a very long time. So we look at things in 10, 20, 50-year increments just out the gate. So we always try to pick iconic names that are memorable, they look great. and we have a hair care brand launching in one month exactly with a major retailer followed the exact kind of process we use for tap around nail boo and hide we try to go for accessible luxury i would say so we're not trying to sell at the highest price points but we're trying to give people the product quality the product packaging the same experience as if you were to go spend a ridiculous amount on some of the luxury brands.

28:37But we try to give you that same look and feel at a price point that's slightly higher than just a mass price point. So I would say premium mass, premium luxury is how we try to brand and take these products. We also look at it in a way that if you were to take any of our products and put it side by side, some of the world leading brands that are luxury, it looks like it belongs. When you said earlier about this North Star of building an iconic brand, what do you mean by iconic brand? When do you know that you've reached that point? Yeah, so I would say you have massive distribution outside of purely your own online store.

29:22You know, so retailers, press, blogs, creators, celebrities, et cetera. they're starting to talk about you and involving you in conversations without you forcing it or paying for it. So that's one key takeaway. Then in terms of market share, so we tried to pick the nail category because it hasn't been disrupted in a very long time. Much like if you look on the retailer shelves, you have like your OPIs, your SCs, your Sally Hansons. A lot of these brands, they're just like grandfathered in and they've been there for a very long time. But they're not moving at the same pace as like a social first or a digital brand is.

30:06So for a brand that started digitally to move into retail, when you're getting, let's say, hundreds of millions of views a month on your socials, you are naturally going to start taking market share from some of the brands that you're next to in retail that don't really do anything on social marketing or don't understand that, you know, in five years, if this brand gets 1000 % more views than you get so much more press so much more endorsements, they're likely going to take your market share. So I'd say that's, there's a few little breadcrumbs that you could pick on. And the first few years, that was our goal.

30:45But you could never confidently say like, you're at that iconic brand level. And the next phase is become synonymous with the category. like when you think athleisure you think lululemon aloe yoga gymshark when you think fast fashion you think fashion nova pretty little thing sheen timu right so you become iconic when you think nails and you're part of that conversation or you're one of the first brands that come to mind that's how we measure it yeah that's cool i love that idea by the way of owning one word if you can own the word nails, for example, that's huge, right? Like Volvo's own the word safety for some time.