How to Build a Content Strategy + CPG Brand Lessons | Isaac Medeiros (Mini Katana, Kanpai Foods)

20:18Turner Novak:uh this is it okay that's like pretty heavy duty though i mean it's not sharp it's just like a letter opener yeah so how long is that for people who don't have video on is it like maybe like 12 inches or something like that. Maybe like a foot and a half maybe. Yeah, it's a nice desk prop, right? Letter openers though. I mean, do people still buy and use letter openers? What was the thinking? Did you do market research around like, oh, this is the best concept or? No, I just, you know, I saw the product originally at a gift shop and I bought it and it fell apart. And I wasn't very sophisticated.

20:55I just, I liked the product and I was like, I can do a better job. And, you know, I think that's why it has such a weird telling story because most people do a ton of research and they're very intentional. And that wasn't. And we launched on Meta and that worked really well. Right.

21:16Turner Novak:The business had legs. Like, did you make a Facebook page and make some posts like text? No, I was just like had a website, Shopify store and running ads. Just very like plain, plain, like regular image ads. And this was 2021. And within a month, like it worked so well, I just got a loan from a friend and I was like, I'm going to order all this inventory. Let's get going. Facebook banned us like a week after we bought all the inventory. And it was because they considered what we were selling at Weapon. Hmm. So you had bought all these letter opener slash mini katanas, and then you couldn't run paid ads to try to sell them, essentially.

22:01Yeah.

22:02Turner Novak:Okay. And I had a tiny apartment filled with these boxes. I was shaping everything out myself. You know, you kind of just figure it out. So my next step was I tried every marketing channel I could think of. I tried Snapchat ads. I tried Google ads, Pinterest, everything. and as a consequence of that what ended up working was a silly tiktok video i made showcasing the product it wasn't like an ad i just made the video and posted it just why not and it got a sale i was just like wait where this well first of all i was like where did the sale come from like i had to trace it back because i was like i'm not running ads what's going on.

22:49And then I made two other videos and then I sold out the entire store. And I think I did a lot of things right. The first one was, I was accidentally very early to content x commerce. Like nobody was using TikTok as a platform for commerce in 2021. And the rest is history. I mean, the brand today is an extreme example of that behavior where we just post videos and it sells products.

23:17Turner Novak:So at the time, TikTok shop did not exist, right? In 2021? No, TikTok shop came around in very late 2023. Okay. So did somebody probably go to your account and click the link in the bio or something? Or was that even in there yet? No, they just found the website on Google, I'm assuming. Oh, okay. And then, how did things go? You said it was going pretty well. Are we talking and$10 ,000 in revenue, a couple hundred thousand, like how did things kind of scale up over time? I think we did like 15 our first month after the organic strategy started. And then because I didn't have ads, I could just reinvest everything into more inventory.

23:58So that first year we did around 2 million with TikTok, 2.2. And then early 2022 comes around, sorry, backtrack. I did 2 million in 2021. Sorry.

24:13Turner Novak:Okay. That's a good... In the first year, that's pretty good. Yeah. And especially with our weird product, right? Yeah. I was thinking like, what is the market size for letter openers? Like a couple thousand a year? I don't know. How many of those get sold or bought? I remember my dad called me and he was like, you just got to get a job. Even when I was working, he's like, there's no way this continues.

24:40And that's a very fair point that he made, but it kept going.

24:44Turner Novak:It probably worked because even though maybe like you hit a seal, if you're going to hit a ceiling on sales, you weren't spending money on marketing, right? It was all, you were creating the content, which you'd have to create the content anyways, even if you're running paid ads, right? Yeah. Yeah. And then year two rolls around 2022. And I'm just like, you know what? All the creators I know are on YouTube. like why am I so focused on TikTok and I could kind of smell that you know I always had this especially after we succeeded on TikTok I just had this theory that the platform was probably going to go the way was probably going to lose to whoever came around if YouTube got serious and YouTube did get serious right they launched shorts in late mid 2021 so rolled up my sleeves And we launched on YouTube in 2022.

25:40And that's when the brand really, you know, hyperscale because YouTube has crazy reach. It pays you AdSense. So we literally get paid. Like our marketing team made money. Yeah. And it lets you build. I think the core difference for us between YouTube and TikTok and Instagram is YouTube prioritizes audience. So on TikTok, the algorithm is very transient. Anybody can log in and go viral just like that. it's based on videos, right? It's based on audience or following. YouTube is very different. You can, if you have an audience, it really compounds and the platform rewards you for building an audience and prioritizing that.

26:20Turner Novak:When you say building an audience and prioritizing for that, you mean like specifically trying to target the same viewers again and like trying to get them to come back or like that, like if they do come back kind of naturally organically, YouTube then gives you even more amplification in the algorithm? It's the latter. So TikTok, you can add a million followers. It literally doesn't matter. Your reach could be gone tomorrow if your content is like dips in quality. YouTube seems to be a lot more forgiving, right? Where if you have a million followers and you built that through high quality actions, you can continue compounding and you gain more priority in the algorithm.

26:56Turner Novak:Have you found like, does the thumbnail matter? Like, does the title matter? Like, are there certain things that really drive the needle in terms of just like YouTube,

27:10Turner Novak:like benefiting in the algorithm? Or does that stuff not matter at all? Yeah, so for shorts, that stuff doesn't really... I won't say it doesn't really matter because we A-B test everything and we find that titles on shorts can boost performance significantly. But I will say when you're starting out, for shorts, that doesn't matter. I think what matters more for shorts is being consistent. So if you want to start a YouTube strategy today, you need to give yourself at least six months. And you need to post hyper-consistently across those six months. If you're going to make two videos a week, two short-form videos a week, you have to make two short-form videos a week for those entire six months.

27:57especially when an account is new, YouTube seems to really prioritize just longevity and consistency. And that's, I think that's why most people don't break through on the short-term rhythm. There's just like post five videos and they're like, it didn't work. Well, it's not TikTok. Like TikTok will give you reach in your first five videos. YouTube might not.

28:22Turner Novak:So you basically just have to be committed to, I'm going to do this for a longer period of time than I probably think is necessary. And you just kind of stick with it and just keep like iterating based on what you see in the data. Yeah, that's why like people reach out and they're like, I'm really viral on TikTok and Instagram, but I can't crack YouTube. And I'm like, you're probably just not trying hard enough. Sorry. It's like a skill issue or whatever. Yeah, like just, you know, it's a valuable platform. So it's worth the effort. do you need to make YouTube native content? Can I create a TikTok, export it and put it on shorts or is that not a good idea?

28:59No, you can do that. I do find though, if you're starting a short form strategy period today, going back to even outside of YouTube, you should be syndicating everywhere. Then you should just double down on the platform that works first. If it's TikTok, that's your home base.

29:20Turner Novak:If it's Instagram, that's your home base. If it's YouTube, that's your home base. So then how do you know when to start expanding? So like, let's say you tried that. You tried like Instagram, Reels, Facebook. I don't even know what they call a video on Facebook. TikTok, YouTube, and like one of them really works. TikTok's one that really works or maybe YouTube is. How do you like, is there a certain time that you kind of know like, okay, it's safe or the right time to maybe try to figure out a second channel? Or do you never do it? I mean, I think you should. for a reach, you should always try to be expanding outside of TikTok or Instagram.

29:54But I mean, I think it's a capabilities question, right? So if you've tried that and your YouTube content is not working, you're probably going to have to start a new channel and try a different angle than what worked on TikTok. The cultures are very different on each platform. I think in 2022 and 2021, 23 even, it was very like monoculture. Like they're all just copying each other. But now each platform has its own user base that prefers it, and that's caused a bifurcation. So on TikTok, it seems to be like... How do I describe this?

30:37TikTok hasn't changed. It's still prioritized. It's kind of the meme-y format and cultural-driven discourse. Instagram seems to reward higher production value for whatever reason. maybe the audience is more mature. YouTube is very young. So if you crush it on YouTube, you have to basically like, that's why Mr. Beast's content is hyper-edited, for example. Those are just like some examples. It doesn't encompass the differences

31:02Turner Novak:to their full extremes. So then that might, maybe tweaking for those of like, okay, you're targeting like a 16-year-old average or 21-year-old average on YouTube and Instagram. Maybe it's like an average of 38 years old or something. So like just the type of things that those people are interested in naturally going to be different. Yeah, I have a good friend. They run a brand and they've cracked Instagram. They get about 30 million views a month on Instagram. Half their sales now come from organic content. They're high seven figure dollar year business. And they can't crack YouTube no matter what they do.

31:42and it's just like you look at their content and it's like parody content around liberal kind of liberal jokes and it's like well i think there's something there like maybe young people on youtube don't really want to hear any of that or maybe you know you know there's there's probably

31:59Turner Novak:an audience play there i feel like that could do well on tiktok yeah they do okay on tiktok too yeah interesting huh and you um so you started another another brand another company it's called Kenpai. Did I pronounce that one right? Yeah. Kanpai. Yeah. Kanpai. Okay. How did that kind of come to be? Like, what is it, I guess? And kind of how did it all come to be? We started a freeze-red candy. People, that's probably, that's the wrong thing to say though. So I'm going to backtrack to 2023. Because I know it kind of started, Mini Katana transitioned in. Yeah. So it started in 2023 when Manicatana kind of stopped growing in revenue.

32:40And I got really frustrated by that. So my reaction was to try to, you know, break past that barrier. And at the same time, I had noticed a lot of food and beverage innovations coming out of TikTok. What I mean by that is like people, the free distribution has given free reign for SMBs to innovate product and gain free distribution and then sell the product, right? And you sell this, like that's how freeze dried candy started. It was a bunch of mom and pops buying home freeze dryers and freeze drying like a gummy worm. And then they posted video like a TikTok.

33:20Turner Novak:This was pretty recent. Yeah, they posted on TikTok and it'll blow up three years ago. Like it started three years ago. And it's not just like freeze dried candy. There's a lot of other trends. Like sour fruit is a really big one. like people love drenching fruit and sour stuff, citric acid, or like freezing grapes and dipping them in citric acid and eating them. Like there's a lot of these like food and beverage trends. And if you look closer, like actually innovations, there's a reason why they're popular, like people actually enjoy eating these things. So that's why Kanpai started. That was the thesis.

33:56The thesis is we're going to be the company that looks at these trends and brings them to shops.

34:02Turner Novak:Oh, because no one was selling these in stores. It was all DTC. So like you'd see a video, you'd go to their profile and maybe there's TikTok shop, or maybe it was just a link, go to the website and buy a pack of freeze dried gummy worms from the Shopify store. Exactly. And yeah, so we went to, we went to the opposite route. We took that, we took what was trendy, what was happening. And we translated that into a brand that could work instead of a place like Target. it. And maybe super dumb question, but I'm sure people listening might not know what freeze dried candy is like, what is it exactly versus, you know, non freeze dried?

34:38Yeah, so one sentence explanation, it's candy that has no moisture. Freeze drying is a process where you heat a tray in a vacuum chamber. And you use liquid nitrogen to trap all the moisture on the walls of the vacuum chamber, long story short, it makes sugar molecules puff up. So gummy worm, you know, it's normally squishy and stretchy and, and pretty yummy. Now it turns into like a Cheeto. Okay.

35:10Turner Novak:Interesting. So it's like, is it crunchy? Yeah. Yeah. Okay. Does it, what's your opinion on the taste? Like personally, like how does it compare? I'm a crunch guy. I grew up loving popcorn oh no okay so i i was like this is a massive upgrade for me so it's kind so the gummy worm example it's like it's like a gummy worm flavor but it tastes or it eats like popcorn like feels like popcorn even more crunchy than popcorn like it has no air so it's very airy it's just a straight crunch interesting like like a cheeto type texture yeah huh that'd be crazy i I probably should have ordered and tried some of these before we talked, but it does sound interesting.

35:54Turner Novak:I'll send you some. Oh, nice. Yeah, I mean, I'll buy it. I'll pay for it. But did that not exist? I feel like, I mean, it was like 2023 at the time. Someone had to have been making that. It wasn't like Skittles or like Airheads or like no one had done anything like that before. Well, there were companies that did it from the 80s with ice cream. like astronaut ice cream is a thing that a few listeners might know about astronaut ice cream what's that you just freeze dry some ice cream and it turns into a crunchy shelf stable doesn't melt it's a very bizarre experience huh that's just that is crazy ice cream that doesn't melt yeah yeah no it's is it because it sucks all the milk out of it it all the moisture is gone so dairy's still in there but it just has no moisture the reason why like i guess it can't melt if there's no moisture like if there's no actual yeah what i was gonna say the reason why it doesn't melt is because there's no moisture okay that makes sense and so it exists in the 90s did it like was there like a supply chain reason that it like didn't exist or was it like unhealthy or like too cheap or something it was just marketing so like it was a niche thing that people who are nerds knew about you know freeze drying is very popular and other industrial processes.

37:12So like a lot of ingredients and supplements are freeze-dried. You know, Breeze, which is like, they're a THC beverage. They use like freeze-dried mushrooms, I think. Like ground up freeze-dried. It turns things into powder too. So like if you freeze-dry like a carrot, like you can literally grind it up because it has no moisture. It's just like a fine powder.

37:40Turner Novak:Okay. You get like carrot powder, like sprinkle it on top of something. I don't know if you don't have the carrot, get some carrot flavor. I don't know. Maybe that'd be good. Who knows? If you like carrots, that might be fun. It's a weird example, but... That's kind of crazy. So you're basically just like, I think this will be good. I like the taste of it. I think people will like it. And that was kind of the thinking. Yeah, there was data though. It was viral on TikTok. there were like small businesses doing it like separate small businesses no one big and you know there was a lot of data backing up the decision it was more intentional than the sword thing yeah that's true and we launched in 23 last year was amazing we kept at first like it was kind of slow and then the first peel came in from world market the first peel P.O.P.O.

38:38O.P.O. Yeah, purchase order. And then I remember it was a snowball from there because what ended up happening is other retailers saw it in world market and then it was just like, oh, that's interesting. And then it broke down every single barrier. We ended the year launching in Target, kind of got experience there. And this is now a year or two and we're kind of just rolling.

39:02Turner Novak:So how did you get into world market initially? because that seems to be sort of the new strategy in D2C or CPG is like, you got to get into stores. Like, is it because like, are the margins higher? Is it like higher volume? Is it more retentive? Like, is it better overall than selling just straight D2C? You know, I'm going to tell you the reasons why you shouldn't do it. First of all, I think that's why that's like, will provide more value. Okay. Look, so basically when you sell something online, you get cash right away. Right. Somebody pays you, you get it, deposit your bank the next day. B2B is a cash hog because for you to play in a retail, you're going to be a bank of inventory.

39:51For retailers, like it's just that's what's going to happen. So unless you have the capital to fuel a very large PO, like you're not going to be able to do it.

40:00Turner Novak:So you don't get paid upfront. You have to buy the inventory, send it to them. When do they pay you? Target, like net 60, right? So let's say you produce for Target. They give you your first opening PO. You have 90 days to plan against it. It takes you 90 days to produce it because it's going to be massive. Or 60 days, you send it in. Another 60 days to get paid. your cash turnover is more than a quarter of time um that's one that's like number one reason why DTC and other business models are so much better like in retail you're forced to either to sell for that and there's there's several ways one be a very creative financial engineering right which I'm not that guy raise a ton of money which that's why you see all these fundraising announcements around food and beverage, they have no choice.

40:56Or three, self-fund or have another win. That's more me.

41:03Turner Novak:You said have another win. So like have something else that's kind of funding it. Yeah, that's my route, candidly. That's fair. So why did you do it? Because you just basically said that it sucks. So TAM basically, right? If you look at e-com, retail is still a massive, massive amount of commerce. And you can just play with bigger numbers and bigger boys. Fair. You think of every single store has a candy aisle. Like gas stations, you've got them at the checkout. Pretty much every place, like stadiums have like a candy thing. Like pretty much any retail location that sells something, there's candy there.

41:48It's very simple math. For every 1 ,000 locations we're in, that's about$1 million of revenue a year. Conservatively. Keep it simple. We're in 5 ,000 doors, right, and growing. So once we're in 100 ,000 doors, 100 million. There's literally over a million doors in the U.S. that we can sell candy on. That's just the USA. So it feels unlimited. It just feels it can continue growing that pie, especially if your sell-through numbers just stay similar or increase over time.

42:19Turner Novak:And you could probably add new product categories too, right? So instead of making a million per thousand, you make two or three million if you can like add new SKUs or new products. Yeah, I'm just giving you the math simple for simplicity's sake, but it's like a platform. Once you have those relationships, you know, it's a platform. You can go back to them and say, hey, launching this new line, or maybe we bought this other brand and we're rolling it in. There's a lot you can do there. And how did you initially convince World Market to do it? Like, was it a process or was it just kind of like, did you like meet someone at a conference, cold email?

42:53Turner Novak:Did they watch a video? I looked out. I hired a good sales guy. Oh, really? Okay. But I'll give actionable advice for people out there. So the most underrated way to get buyers is physical shows. And people on Twitter won't talk about this. People won't tell you to go out to Suisse's Snacks Expo and hustle. but that's the best way to get a buyer. Right? And the hardest thing is getting your first buyer. And if you have data from one buyer, that's when it starts cascading. And is it because like it's a food product, like you got to get them to try it? Like they have to actually eat it? Like, is that just a big part of it?

43:32Yeah, but also they're getting, you know, hundreds of emails every month of pitches. It's like, you're not going to get their attention unless you get them in person with the product.

43:40Turner Novak:Yeah, that's fair. So you probably go to the show, bring the food or the drink and just get them to try it, see if they like it. Or in person, I've heard stories of somebody, a friend of mine wants a little chips brand, like Healthy Chips, and she sold them at Farmer's Market until the Erwan buyer just walked by and was like, this is cool. So I just think one thing I've noticed is on Twitter, people talk, the more chronically aligned the community gets, the less people talk about in-person advantages, which are becoming more considerable by the day. It feels like everyone's socially awkward and doesn't want to actually show up, but that's an advantage.

44:24Turner Novak:Yeah. I feel like generally, I've accepted that AI is going to change some things, especially with content like Twitter. I don't know what the number is, but I'm sure half the tweets that we read are LOM generated or whatever. But AI is not going to go out and meet people in the real world or whatever, like that just becomes so much more important. Just in-person events, meeting people in person, talking. I feel like with podcasts, something like this, like it's two people sitting down, talking, understanding things. You're not like, I don't know, people aren't going to sit down like, I want to listen to an AI podcast for 90 minutes or whatever.

45:02Turner Novak:So I've been kind of thinking, it's kind of like this two-pronged thing. It's like, okay, figure out how the world is going to change with it getting more digital, more online, but then also figure out like the complete other end of the barbell. This is like, you know, completely offline, completely non-connected to the internet and AI and all that stuff. Yeah, look, I couldn't agree more. I think it's actually insulting when somebody finds out it's AI. Like if you send somebody a cold email and they find out it's AI right now, it's like that's a red flag. It's a massive red flag, right? So there's something interesting there.

45:38Turner Novak:One of my friends told me this trick, and I feel like it does work. It's like, you purposely have a typo or you don't do all... You have lowercase in the subject or whatever. You just show that there was a human that messed something up, just to show that it's not just an AI-generated email or whatever. In general, the more the supply of a type of content increases, the less the demand for that content. So all, by that logic, all AI driven content will have less and less effect, because there's unlimited supply of it. So that means videos that are very, obviously AI or near perfect, become less valuable.

46:18Or that means things written by AI that are too perfect become less valuable, just like you said.

46:24Turner Novak:Yeah, or just like the, it's so obvious that this is not AI, and it's like very shittily produced, like pretty low quality, like somebody almost wants to see that. Or it stands out more, I guess. Like to your point, it's like a supply demand almost. It's not even like about the quality, like sometimes it's about taste. Like maybe you like, an extreme example is like, maybe you record all your short form videos of a camcorder from the 2000s. And that's your vibe and aesthetic. And the videos are actually high quality. Like they're edited well, right? Right. So like, that's a great way to not to obviously not be AI.

47:02Turner Novak:Yeah, that's true. So then like speaking of offline, was there some things specifically that worked then as you kind of scaled up expanding into retail, you said it was kind of just, it seemed like it was, was it inbound? Like people saw it and they really wanted. It was both. So a lot of inbound. And then eventually we expanded our capabilities to outbound with AI, ironically. Oh, there you go. After you just shit on it for three minutes. Yeah, so we do a lot of like outreach with AI to smaller accounts. So after a year and a half of doing this, I realized I don't want to be in every large account.

47:37Those accounts actually suck in a lot of ways. Why do they suck? They are competitive and matured and they have engineered their businesses to extract as much margin from brands as possible. So as a young brand. below 20, 30 million, you want margin. Yeah.

47:57Turner Novak:Because you might land a customer and you actually lose money on them, even though you added revenue. Most people in Irwan are losing money on Irwan. Really? So what's the benefit? Is it just you get a halo saying that you're there? You get a supposed halo. If you ask me, I don't know. It depends on your category. Yeah. Interesting. I, um, look, most CPG brands die because they ran out of cash. Like that's, that's not product market fit. Um, and for us, our strategy has been to chase smaller chains this year. And there's a lot of small accounts in the U S there's hundreds of thousands. So we do a lot of AI outbound.

48:44Turner Novak:Interesting. Okay. What's the hardest part about selling to those smaller brands? Are they lower values? You just need to make sure you're not spending enough money. You need to figure out ways to do it. Thinking about organic, other ways to cut costs to make sure that they're still profitable. I think it's like any other long-scale strategy. It's just about fulfillment and logistics. The effort for a$100 a month account is the same level of effort for$1 ,000 a month account. but if you're set up for it's you know it's not difficult and that's just like back end stuff like having a 3pl okay do you guys have a 3pl that you work with no okay we have a we self-fulfill okay was there a reason that you did that i just finished my warehouse move and i had a list of things i needed to do and you know it's a long ass list and like moving out of the u.s was number one Right.

49:42So it's a matter of resources.

49:45Turner Novak:Yeah. Okay. We should definitely talk about how you moved all the production. One thing I did want to ask, though, is you mentioned one of the strategies to kind of doing the wholesale was raising money. So I think if you talk to most investors, the average consensus is consumer brands are not good investments. You don't make money on them. You talk to any VC and they're like, oh, I don't invest in CPG. Those are bad categories. Is there any truth to that? Or what was your thing? Because I think you did raise a little bit of money. What would you agree or disagree with that? I raised money after the brand was working.

50:22Just putting that out there. We had PMF and we had our first POs. I think that I would generally agree with that for VC returns. That's the caveat. So a VC needs a thousand X, it needs a crazy return on investment, right? That's how they operate. Consumers are very different playbook. You have a brand and maybe sells for a hundred million, 50 million, 200 million, 300 million, billion dollar outcomes are incredibly rare. So you just need to engineer for that, right? And VCs don't want to participate and these kind of little outcomes. I think with that in mind, it's like, if you go out and raise from friends and family at a low valuation, like 10, 5 million, and you get a 10X return, that's pretty solid, but that's just a different investment criteria and different investment thesis.

51:14It doesn't fit VC.

51:15Turner Novak:It seems like the issue then is VC say, okay, we like the 10X, that's kind of fun. What like, but that's not really what we're looking for. You know, you can get to a hundred million valuation, We need you to get to a billion or 5 billion. So you need to get really big, really fast. And then that's probably where things start to fall apart. And it seems like if you look at the graveyard of VC brand investing, it's like they just scale it up fast. It's like you just do a bunch of paid ads. Because we talked about how great Facebook is, like you can scale it up. Yeah. And that breaks your business because rarely can you go back to profitability after you do stupid stuff like that for long enough.

51:55I mean, look, I think it's just a disconnect in expectations. And that's fine, right? Go invest in an AI startup and it might go to a billion. That's a better return on capital. If you're going to start a food and beverage brand, your best bet is friends and family. If you are going to raise VC, especially early stage CPG VC, you're going to take a massive dilution. That's the caveat. So there are investors, but the dilution will be absolutely nasty.

52:20Turner Novak:Interesting. What kind of dilution do you usually see? From talking to friends, you know, buy your Series A in my own 30%, 40%. That's brutal. It's just not worth it. Yeah, I feel like generally in more, I don't know, tech world, you're probably usually above 50 % at the Series A. There are some cases where you might raise a couple rounds. Like the company takes three years to build a product, truly get product market fit. But you had to do like an extra round in there or something like that definitely happens. But I feel like the most down the fairway that you see is after the Series A closes, you have like an option pool, like there's fully diluted, you usually own a little more than 50 % roughly of the company, sometimes more.

53:05I mean, don't get me wrong, there's founders in CPG who are smart and retain a lot of control. But, you know, it's very easy to lose a lot of equity early on, because the capital is that inefficient.

53:15Turner Novak:And I think the other thing too is when you raise money, like each dollar typically, there's like a preferred 1x return. So if you raise a million dollars, or let's say you raise $10 million, generally, the way that it goes is there's like a 1x liquidation preference. So if the company is bought for 10 million, it doesn't go like pro rata, everyone, like the first 10 million goes to that 10 million in preferred shares and the investors get everything. So you kind of run into that issue. Like let's say you raised 50 million or you raised 100 million, and the company is legitimately worth$100 million.

53:47Turner Novak:You built a good business, but the investors get all the money instead of the team, which really sucks. If you're doing consumer, you should do it because you're passionate about physical product and you're passionate about your category and you should just prepare for a decade. I mean, this is not my quote. Trying to remember who said it. A consumer brand isn't a real brand until they're eight years in. That's a long time. It is a long time, but not a consumer, right? Yeah, fair. And if you just think about like some of the greatest, most iconic brands, like maybe like Nike or something, like it's like 50 years in and it wasn't really like a household name maybe until 10 years later.

54:34Turner Novak:But then if you just like look at one of those like stock charts, right? like all the compounding and like the value is created in like the last five years or whatever. If you look at a company like Monster Energy Drink, I think they're one of like the highest returning stocks of all time. Like even you like, you know, it's just like one of those charts, it goes up like 25 % a year. Coca-Cola also, one of those charts just went up 20 % a year for decades. I don't know about lately, maybe they've kind of fluctuated around a little bit. But those things take a really long time. And then all the values created like in the last five years.

55:09Turner Novak:And isn't that interesting too? Because if you look at early stage shards, it's like they almost died like 20 times. Nike almost died like 10 times. Right? Oh, yeah. Fair. Like Amazon, classic example. Or Carvana. Have you heard about what's happened with Carvana? Their stock is high again. Yeah. So basically, I don't know. It was worth, I don't know what the market cap was, but like$100 billion, something like that, dropped 99%, literally 99 % drop. And then I was back and fully recovered again. It's basically a meme stock at that point. Yeah. Well, yeah, maybe that's the other way. You start a company, you go public, you become a meme stock and you launch a token and that's how you fund it.

55:51Yeah. I mean, look, I think in general, if you want to get rich quick, tech is your best bet. And I think there's still more risk there, if you ask me. more risk starting more of a tech company versus a brand consumer is far easier to get like a small outcome in like i think anybody can if they work hard enough they can build a seven figure

56:14Turner Novak:good lifestyle business and consumer yeah can you when you say lifestyle business what what do you what do you mean by that you know low seven figures you can draw a few hundred thousand a a year from it. It's a great outcome for most people. Yeah. I've always kind of not liked that word, though. Like, it's kind of like a dirty word from people, like almost like. Like putting it down almost like, oh, it's just a lifestyle business. I don't think that's a dirty word, man. I think that's it's like how people for a long time were like, oh, agencies suck. They're the bottom feeders. And then like one guy sells an agency for 40 million or whatever.

56:56And everyone's like agencies are awesome. you know, no business is like inherently bad. I think it's just, it's bad for your needs, maybe.

57:06Turner Novak:Yeah. I think it's really just ultimately, what do you enjoy doing? What are you good at? And like, you know, do you, do you personally, did you make$20 million from it? 50 million, a hundred million, like maybe you made more money, but your life was miserable and it sucked. Or maybe you made like slightly left, but like you truly actually enjoy what you're doing and you're actually good at it. And like you get, you're passionate about it and you get joy. Yeah, like I, look, I could, I could have gone, done something in AI, got a million views against it, raised silly money, kept getting views.

57:40But like, I love candy. I love anime. I love my life. Like I don't, you know, that's kind of the thing I'm optimizing for is having a great life.

57:51Turner Novak:Yeah. Well, and so speaking of, speaking of, actually, this is not related at all. but we were going to talk about it. Maybe having a great life, optimizing things. You recently completely rebuilt the supply chain and all your manufacturing that you're doing. What made you start going down that route of thinking you had to redo everything? So for context, Kampai makes all of its own products in Los Angeles or used to. And that worked really well for us up until tariffs. Kennedy's not a super high margin business, so we can't eat the tariffs like other business operators can. And I mean, it's not just us.

58:32Like I think US Steel just put out their earnings and they had a really bad quarter as well because of tariffs. Like it's not just us. If you import a raw material, there's no exemptions right now. It's actually a crazy statement. The whole point of this was to bring back manufacturing apparently, which is why I stood at my factory. I thought, oh, we might get a benefit from that.

58:56Turner Novak:So you built a factory in the US? Yes, in LA, of all places, because I wanted to be local. And there's no exemptions for me. I import chocolate or cacao, fuck you. You're paying us tariffs. It's a tax. It frustrates me that the feds have tried everything in their power to avoid same-sex attacks, but it is a tax. And it just pisses me off because it's the most anti-American thing I can think of. The Boston Tea Party was over a tariff. That jumpstarted the whole revolution. And people are forgetting that. Anyway, I could go on a tangent. Point I'm making is our business went from a decent business to a shitty one overnight.

59:42Right. So we rolled up our sleeves and we we decided that we need to fix that. And I set a timeline of 60 days because, you know, runways imperative, that kind of situation.

59:59And I mean, it sounds crazy saying this, but like I had. I dug through every sort of idea. and what it came down to was something called USMCA, which is the trade agreement between Canada, Mexico and the US in 2020 that Trump put together. So Trump caused this, but he also saved us. So that's the funny thing. The trade agreement says food produced in Mexico is terror free. So you can see what my next step was, right? We got to set up a factory in Mexico and import our raw materials into Mexico and then re-import into the US. instead of making it here in the U.S. with U.S. labor, we're going to go pay Mexican labor to do it.

1:00:40So, and I recommend this for other food and beverage founders. We found a great compromise. We found an existing candy factory. We set up a custom production line inside their facility that we manage and help oversee. They allocate the labor and we get candy.

1:00:58Turner Novak:Also, it's an existing company that has like an operating candy business. Yeah. So we didn't send up a factory from the entire ground up this time. We wanted to have the mobility and flexibility. And by the way, a lot of food and beverage businesses do this. Poppy did this in their very early years too. They set up like this kind of quality structure. How do you do that? So this is different from doing contract manufacturing? It's like a hybrid because we own all of our own equipment. We own the lines. It's just they operate all the labor. A contract manufacturer will own everything. And this is beneficial because do you expect probably building your own stuff again soon?

1:01:35It lets us have flexibility. I think the name of this game in this macro climate is being able to pick up your shit and move. Like, how fast can you do that? Yeah, you got to be nimble.

1:01:46Turner Novak:You never know how the world's going to change. Yeah, because like tomorrow, Donald might wake up and be like, you know what? USMC is done. No tariffs for American manufacturers. And it's like, okay, we're back in the US, I guess. Yeah. So it was actually more profitable to, instead of manufacturing it in the US, like this whole thing was supposed to be designed around, it was actually more profitable to make it in Mexico because you can import the raw materials to Mexico and not pay as many or as much. No tariffs. No tariffs. And then you're paying Mexican labor because it was, I mean, it's probably a little bit cheaper.

1:02:25It's way cheaper.

1:02:26Turner Novak:It's like$6 an hour. And then you ship it up to the US and you don't pay tariffs on that either. Interesting. So it really just defeats the whole point of this at a high level, like bring back more jobs to the US. I saw the jobs numbers for like, it was like last month's manufacturing numbers. It was like loss of 30 ,000 workers. And I think we had a conversation outside the podcast where I said, look, everyone's really quiet because everyone's hurting. No one knows what to do. It's like you're just helpless. So the best thing to do is position yourself to be nimble and flexible to be able to change.

1:03:06You really have no choice. I think if you're starting out and you have a very small company.

1:03:18So if I were to start a food and beverage brand, I'll get a very small shared kitchen and make all my own stuff. It's just a start. And then I would find a co-man and then I'll take the approach of... Don't sign anything that's five years long. Just don't do it. That might backfire heavily on you.

1:03:35Turner Novak:Because you may have to commit to five years of renting a facility or paying them for usage? Yeah, or if it's a contract manufacturer and you commit to it, you might find yourself with no margin next month. So maybe even pay slightly higher costs for having a shorter commitment? Yeah, yeah. I mean... I just think it's in general, I wouldn't even start a physical product brand in this environment, but here we are. Yeah, I guess no more competition coming in, I guess. Maybe that's a benefit. Yeah, but I mean, the funny thing is my competitors are just committing tariff fraud. They'll just lie about the country of origin.

1:04:14Turner Novak:Really? Yeah. So who are some of the competitors? Are there like big, have the big CPG companies started like really leaning into deep or to freeze-dried candy? The big CPG companies do the same thing I do. They make it in Mexico or Canada. That's how they navigate this. My smaller competitors are the ones committing tariff fraud. I'm not going to name names. But yeah, I mean, Mars and Hershey copied us and launched their own freeze-dried lines towards the beginning of this year. How'd that go? It was interesting. It actually kind of indirectly helped us because it was like a lot of small mom and pop shops and they basically wiped them out.

1:04:55And then it's like three companies now. Those two big guys and us is a third option. And retailers kind of think strategically about shelves where they want options for consumers. So it actually helps us a little bit.

1:05:08Turner Novak:And that's because they might not have freeze-dried candy and they add it. And then since they added it, they need to slot you into because Hershey had some or? Yeah, because more optionality, it's now a section of the store adding incremental revenue. And we're very differentiated. Like a smaller competitor can't even, you know, they can't manufacture enough or they might not stand out enough. Interesting. Okay. That makes sense. You generally don't want to be the only people in a category. Like that's a bad thing. You need headwinds. So, and that's kind of going back to when you started it, you were like, okay, this kind of already exists.

1:05:43Turner Novak:But you were one of the first who was selling to retail, right? Yeah, I think we were the first or one of the first. Okay. One thing interesting that you said before is you don't think EBITDA is a good metric. Seems like a hot take. I mean, cash flow is important. Where did I say that? Oh, I don't know. I think you said it on a podcast. Did you not say it? Or did you not mean to? I think I probably meant that cash flow is really what I look at. Oh, fair. Okay. When I operate a business, I'm very tactical, bootstrappy. So what I do is I have a 13-week cashflow model and I just look at what comes in and comes out and what I can take out.

1:06:19I'm very simple-minded and that works really well for me. I think what I meant is like, if you're looking at an accrual book, it's like, it's not as tactical. It's not really as useful. By the way, if you're starting a CPG brand, I cannot recommend enough having a 13-week cashflow model.

1:06:35Turner Novak:What's the importance of a 13 week cash flow model? Why 13 weeks? Is that basically like a quarter? Yeah. Yeah. Okay. It's enough time to know what's good, to actually be able to predict accurately and not long enough of a time period for you to be useless. So it's just very tactical. Yeah. Just because you know inflows and outflows, like week two, I have this order coming in, I need to pay out week four, but I'm going to be short. So I need to make sure by week three, we delay something or bring more in or something like that. It just lets you plan a little more tactically. You can literally DM me on Twitter and I'll send you my template.

1:07:18It saved my butt a few times in my business.

1:07:21Turner Novak:Yeah, I know. That was one of the big things we did when I interned at a private equity firm. And then I worked at a bank where we lent money to a couple private equity-backed companies. And it was always... We did 13-week weekly rolling cash flow models because you lever those things up and it's super small margin for error. Yeah. And CPG is like that because you're lending all these products to retailers. So you got to track all those net terms and everything. A lot of e-com operators are just not very sophisticated financially because they've never had to be. Because things were good for the past couple of years?

1:07:55things were good and you know you get product you sell it money comes in boom like it's not you know you're not acting as a bank for for your customer base are there any

1:08:06Turner Novak:any other creators out there right now or like accounts that you like oh man these guys are really crushing it business or like just in general creators oh maybe both when i like find old references of who i'll watch when i was starting i'll watch peachy babies which is like a viral slime company peachy babies peachy babies they're really impressive um they used to be have more subs than mini katana so like when i started i actually like they were on youtube first and i was like watching what they were doing a really great business no marketing spend really impressive there's another one called the marshmallow co gourmet marshmallows on youtube Interesting.

1:08:482 million subs.

1:08:50Turner Novak:If I wanted to buy them, how much do they cost? I think they're like 30 bucks for a pack. That's a lot. Yeah. Interesting. Okay. And it's literally like sugar, right? What are the ingredients in marshmallows? It's probably pretty cheap to make. I think they make a Nutella one. They do a peanut butter. They do all sorts of unique marshmallows. Okay. That's interesting. Interesting. Do you have a favorite founder or CEO or business, just either current or throughout history that you've gotten a lot of inspiration from? It depends on the life comes in seasons, right? So when I was younger, it was Elon Musk, just because I have autism.

1:09:29So I remember when I was 14, and I found out he probably had autism. I was like, that's awesome. I can do anything. But as I grew older, I prioritized my life a little bit more it's probably going to be like like anyone else charlie munger or i remember mark human had a big impact on me too because that guy's just failed so much early on did he really fail a bunch he had like a garbage pickup business disco lessons computer consulting like he just had a lot of businesses before audio net before his big exit and it's just like honestly that's how i operate like i just i before the candy brand i had two other things i tried and they didn't work out what were they are you open to talking about them yeah one of them is called waku waku which is like letterboxd it's a movie lover app like a community app and you should log in and you review movies okay yeah i've seen that before i'm it's It's massive.

1:10:33It's a really big business. I made that for anime. So that was Waku Waku. We got to a few hundred thousand subs on YouTube. I forgot the user base, but it was like, it had a solid user base. I just couldn't monetize it very well. What did you try doing? We tried doing like this traditional, you provide a good app and then you put SuperWawa up and then you try to monetize subscriptions and it just couldn't. It turns out anime lovers are broke and they don't want to pay for things they don't need.

1:11:06Turner Novak:That's fair. And then I also tried selling figurines. Oh, really? Okay. Similar playbooks. Custom made or? Both. We tried custom made and we tried like reselling as a distributor, quasi distributor. And it's just like awful business to be in. Super low margins. That's why the margins are just so low. You just can't make money. Yeah. Interesting. Is it like, why are they low? Could you just increase prices to get higher margins? Let's say you're starting a figurine business and you want to make a thousand units of a figurine to start. You're going to have to pay massive mold costs on it if it's a quality one.

1:11:43And just because it's really hard to start up, is my point. It's capital intensive. And it's not like candy where there's a guarantee built in demand. I think, are you familiar with the Libubu craze?

1:11:58Turner Novak:kind of familiar not super familiar but i've definitely seen it yeah they're like are they like little stuffed animal things or something yeah they're like they're figurines it's a chinese company don't ever say chinese people can't do brands because this brand is the most valuable toy company in the world now yeah i've seen i like i keep seeing it everywhere people people are talking about it it's just because they're really cute they're cute they're like hyper unique I think and it's the mystery boxes where you get like it's like gambling. Oh, I didn't realize that. So it's like one of those But like a kinder surprise like you get like you open something and you get like a random other toy with it Yeah, you get like a random level for the box in a collection and Like they're able to roll these out And do it fast because they own the factory they're Chinese.

1:12:47Yeah, they almost look like

1:12:51Turner Novak:it's almost like a like a teddy bear mixed with like a lilo and stitch almost they look like they're devious is how i would put it is it that they're super cute like is that why people like them yeah and i also think what they nailed was the accessory component of it where like you can hang them on things so you know you know how starbucks early they like having a starbucks cup in your hand on wall street was the stat was a status symbol like laboos are a status symbol you can hang them on your jeans on your bag or whatever and it becomes a fashion statement that you're able to get one interesting it kind of reminds me maybe not quite the same but with crocs like crocs are literally like the ugliest shoe i've ever seen i do not understand how those are a fashion thing but they're super comfortable so there's kind of like utility but then they have those like little what do they call like the little things charms yeah the charms you put on and like you'll see a kid and he has like 80 little charms on his crock.

1:13:47Turner Novak:Like he probably spent$200 on all the charms. I met somebody that ran a charm business. It was like doing 500 ,000 a year at like 80 % that margin or something crazy because they're just like little pieces of plastic. And he had LTV. If people would buy the same charms like two times a year because there's just, they fall off. Oh, the same, the exact same one? Yes, because like their footwear and that goes through like, you know, they get beat up. So they fall off. Interesting. And it's like the thing that just always blew my mind with Crocs is just like how passionate people are. And like you'll go to some kid's house and they have like four different colors of Crocs.

1:14:27Turner Novak:It's like what? It's right. It's part of their identity. Yeah, that's true. Well, cool. This is a lot of fun. Thanks for coming on the show. And thank you for listening. And thanks to Ramp for supporting this episode. Upgrade your corporate card and get$250 at ramp.com slash the peel. If you missed it, make sure to check out last week's episode of Michael Dempsey at Compound. He was the first investor in AI Unicorns, Runway, and Wave, and he's loaded with hot takes on the future of AI, robotics, venture capital, and crypto. If you liked this conversation, please like, comment, subscribe, and name your next CPG brand's SKU after me.

1:15:01Turner Novak:If you don't want to miss a future episode, subscribe to my newsletter, The Split, linked in the description to get each episode plus a transcript emailed directly to your inbox every week. Thanks again for listening. See you next time.