Episode of My First Million with Sam Parr and Shaan Puri.
Transcript
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Kind: captions Language: en [Music] all right welcome to the new episode of the exit strategy podcast we’re here with Chris Davis from week great Chris super excited to meet you you and I have never chatted before which rarely happens to newcomers industry super excited to get to chat today yeah now excited to be here and looking forward to it and super good to connect so loot crate is a subscription box to geeky products for 20 comic-con in a box all the best products across pop culture getting 40 to 60 dollars a value for that 20 and and in this really curated experience so that’s the origin but it’s evolved quite a bit yeah is this one of those instances where like the origin is still the bread and butter of the business like a native deodorant is the bread and butter of the business or is this the place where the origin is like you know ancient history like Amazon like okay yeah we sell books boom sell everything else do you know it’s so far bigger all largest product line and really have that holistic I anything across gaming film entertainment yeah genre deal yep gotcha and when did the business launch what did you guys like actually start the business we launched it in 2012 and actually launched a dentist at a startup weekend in Los Angeles and had gone to a bunch for fun and it was like this there’s no better place to launch a new company then Startup Weekend what happened to sort of like do you go on on stage to like pitch the business or like what does it Startup Weekend it’s literally a two-day hackathon I met my co-founder there so we you know had everything teed up launched it and business took off kind of from day one there and we were shipping a product 30 days later did you come up with a concept during the hackathon or no that came in with the concept which one - okay but are you watching 2012 I’ve done a bunch of research about Luke ray I’m a huge fan of the business by 2016 you’re doing a hundred million dollars in revenue now we’re doing 100 we’re doing like a hundred and seventy million revenue 2016 yeah a hundred seventy no you’re number one on the fastest o on the list of fastest growing e-commerce companies by Inc I read that in 2014 two hundred thousand subscribers 2016 you’ve tripled that you have six hundred thousand subscribers not a percent so tell me how the hell you built a business to do a hundred you know twenty twenty twelve ecommerce is not what it is today I was in ecommerce in 2012 you were at you’re trying to buy Facebook Likes which meant nothing when you post it on your page on Facebook there were still a bunch of people who are like actively engaged on that today if you do that zero people respond like how do you build a business with like you know I we interviewed the Hubbell contacts guys and Jesse was like ask Jesse how would you spend your first you know that with 25,000 yeah we did a 25k sea check right when we launched with a couple guys out of LA Nick Groff Dave Waxman and then and didn’t raise again until that series a until the series a in 2016 yeah so yeah so you’re profitable you’re profitable at 200,000 subscriber look cuz you’re burning there’s no way you just print 25,000 over four years you must be problem we were operating essentially it just yeah just below and at breakeven so we're reinvesting everything yeah and how many people are the team before you raise that series a we're it probably 60 70 folks at that point okay I know you look tell me what's going on in your head like you know when we like when native was doing well like I was like this can't be [ __ ] possible like I can't believe that we didn't have to raise more money in order to build such a big business and I also felt like everything was held together with duct tape because I was like I don't know when like you know water stuck in water we're gonna start leaking on this ship and I really don't know when like torpedo is gonna hit the ship and just blow this whole thing apart never happened I'm like I was consoling we worried about that what is going on in your head when you know you're doing a hundred million dollars in revenue you've raised 25,000 and like at the time like you know you were not you are not Casper mattresses in bed but not not as like Casper everybody knew about it was like this dtc doll a loot crate wasn’t why wasn’t it and what’s going on through your head I mean so we were I mean I think we’re doing the right thing we were marketing to our audience which is a different segment so we were very focused on our consumer and so that we were there I think for us is you know it’s a physical distribution business they’re crazy chaos every day so we were used to at like that that intensity level being a hundred percent direct-to-consumer though we did control the whole funnel so as long as we had scaled up different leadership in another area so everything was working we controlled fulfillment at point we were working primarily with third-party manufacturers on products and so you know the complexity scaled up yeah month to month and so you just got used to you know more more of that craziness but no a lot of it was just like you said heads down if there’s a problem solve it and then yeah really just scaling up you know capabilities across all those areas is there like um is there that you know for me I felt both terrified and invincible which is really weird dichotomy right by God to be you feel like nothing can ruin this but you also feel like everything is gonna [ ] ruin this you do have that feeling or were you just like I’m in the weeds I don’t really have time to appreciate what’s going on on a like you know on a month on a corner over the corner so well I mean that feel like you said that feeling is there depending on when things are going really well when they’re not well you’re in that rapid growth mode there’s a lot of things going really well but behind that there’s all the things that you’re trying to keep moving forward so we had you know port strikes and product recalls and like all kinds of crazy problems that come up to feel very existential in the moment that you just you know try to try to have some like perspective on after the fact but yeah you’re you know cortisol levels spike yeah where you’re just like there’s a port strike and like you know for for a long time like when you’re growing up and you see something on the news or you’re like there’s a port strike you just like whatever just [ ] okay now all of a sudden you’re like you dump [ ] get back to work I need to ship this product like can we cuckoo can we call it the port just get our prize it’s like you really go does back-row Venza got okay Chris we’re talking about port strikes and existential threats you’re feeling invincible and beautiful at the same and then we were talking about like the boxes and like what you sort of had in the boxes you had exclusive you’d like Star Wars boxes halo boxes you were doing your licensing IP is that correct so initially we were working primarily with third-party manufacturers and then we scaled up our own internal product capabilities later so we were basically going out and saying what’s the coolest product yeah that no one knows about finding it and then working with you know 200 plus suppliers to create something each month each box had four or five items and really we said we could you know buy anything across the entire licensed product landscape so we were buying books apparel collectibles you know early I even shipped some DVDs when I was still thinking so I was like anything that needed to be out there we would go and find and then partner with companies to produce and then you ultimately got to exclusive products is that right like at some point you were like making products other people have that you had exclusive products very early even we were working with third parties to produce exclusive products for us and which is a big part of the in the license product space they’ll do an exclusive variant that shows up if it’s you know think about a collectible something like that so we would produce we work with other companies would produce exclusive product with them so did you have to go to a Lucasfilm to try and get that exclusivity or those licensing fees or did you just go to this third party manufacturer and that sort of had those already so that was that was kind of Phase two for us where we actually started taking direct licenses ourselves at the beginning we’d go and find somebody that already had that license and work with them on a product and then over time we got to a big enough scale where we started to take more that in in-house directly gotcha okay all right so let’s look rewind or fast-forward again to 2016 you raise a Series A it’s 18 million dollars it’s led by upfront is that right yeah and who’s the partner on the is it more stuff than somebody else Greg that Nelly okay and then you’ve got like III read that you also have like Robert Downey jr. in the round as well or like it is Ventura yeah exactly this venture arm came in and often co-invest with upfront those guys that’s great and so ultimately how many people like putting the money to get to 18 million dollars up front was a large jack I think there was five or six other investors alongside up okay gotcha and then I read somewhere that you’re still a fifty look you were the 51% shareholder or something to that effect after this round of capital between you your co-founder and all these guys you still a large chunk of the shares is that correct yeah but you my co-founder myself and then my company equity yeah because we didn’t really we hadn’t raised before so we common still had a large portion of the company yeah and so tell me a little bit about how look what made you raise and yeah tell me what made you rates like how do you go you you went from zero dollars to a hundred sixty million dollars in revenue in four years which is like you know which is insane especially those four years when like targeting is what it is but it’s Eve it’s absolutely more insane the idea that you did it with 500,000 we were sort of operating like you guys were I was like if there’s a big if something goes wrong or if we make a big mistake or if I make a big mistake myself I’m not sure the business can afford it and like once we had P&G is backing it was hard for me to mentally shift it to the phase where I could be where I was like you know what we can afford to make a big mistake now and I think as a result of not being able to take advantage of that balance sheet I made a mistake by not taking advantage of it was it difficult for you to make that shift for being like cash flow neutral to burning money mentally or were you just like hey I know how this works and I know we raised this money we’re gonna put yeah I think you know it’s there’s like the basic operating metrics so you’re like you’re kacct LTV ratio less stuff so you’re tracking a lot of those operating metrics closely so you can feel good about the investments you’re making you when the burns there I think just the complete report and complexity of above that larger nor we had 300 full-time employees than another 250 temp warehouse folks that point so just there’s a lot of scale and a lot of burn Wow you did your own concealment yeah we were yeah the hundred thousand square feet in LA where we’re doing fulfillment and so there was and it’s also a bigger ship to turn so I think there was just a number of of you know we it just it’s it’s difficult to in multiple modes at once I think we’ll get into more kind of as we talk to challenge but like growth lean efficiency cost-cutting it’s hard to be with mine that’s the same time and I think as the leaders you scale your gets bigger you’re in more markets you’re more channels you have more product lines you’re really handing off responsibilities and so those areas and you’re you’re choosing where you’re focusing and so it’s yeah there’s just a lot more to manage yeah and so you’re starting your like creating a bunch of new boxes and you must be skilled Morgan’s plan at the same time in order to try and grow that but like you know continue that exponential growth where are you spending marketing dollars in 2016 to 2018 you should sort of trying to grow is it have you shifted from YouTube to Facebook or is it still primarily yeah so we I mean we had a big belief in a lot of these organic channels so one and really driven by my co-founder or Matt we had a big social team and we had social channels for a lot of our different subscription lines we had a lot of art you know 30 40 thousand pieces of organic content crated by our community and really had a whole engine around you know working with the community and reinforcing that we then had a big investment on the influencer side still we were spending a large amount of money by then in on paid Facebook you know Northey million a month and then we were doing direct response television we had a big big investment podcast we were we’ve done probably 70 different conventions which is a unique part of our industry you know for the first couple years we actually a modified school bus that we would drive around and be our booth in the these conventions so that was the in-person piece of it yeah and then tons of CO marketing so we were working you know we had Marvel and a crate we would be working with Marvel social team to post any of our you know manufacturers and suppliers that were in the box that month we’d be Co marketing with so we we had a whole co-marketing a partnership set of channels as well that we looked at but really kind of thinking about you know what are the proprietary marketing our streams we can own it or not we’re not gonna be you know put a bid against everybody on Facebook or Google yeah and then having those really be kind of scalable predictable channels alongside those and so when you’re starting to negotiate like well let me start with another question or 20 just 2017 and 2017 do you grow beyond your 2016 numbers or is there contraction no that’s what we started to pull back beginning in 2017 at that point yeah I’ve got to and so 20 looks sort of the peak is 2016 2017 ish P from Marvel and sort of working on exclusive products does that do and you’re like sort of working with Marvel and not manufacture for that licensing does that licensing make up a significant part of your cost of goods sold it’s it varies a bit but yeah it ends up being you know the average licensing rates or you know 10 to 15% on cost of goods so it ends up being GATS material to margin yeah yeah yeah I think everyone’s always curious when like a plushie doll comes out I’m always like how much of this money goes to Luke George Lucas the Lucasfilm and how much of it goes to you know Harry Potter of you versus like natural person manufactured a horse a little bit yeah it’s a ten to fifteen percent six percent across yeah every if you’re you know if you’re Star Wars you get you know if they’re like 18 percent 20 percent sometimes but yeah that’s alright that range yeah and it sounds like there is a one huge mistake that where like there’s a one big thing that you point to you’re like this is the mistake we made that sort of made us pull back on the business it’s sort of like a bunch of little Nick’s now as you’re expanding your expanding channels you’re expending the technical offer you’re distributing P&L responsibility from yourself to other managers and all that chips away a little bit to ultimately like cost you the growth trajectory that you sort of want to be on totally I mean I think the other big thing is once you you know once you have capital partners in the business then you know there’s a lot of alignment and you know getting everyone on the same page to get things done and especially with debt if you you know if you’re missing your covenants your default on your loan you know yeah lenders are it’s much more of a scaled t2c company problem but yeah you know debt has very different dynamics than then equity and so we were dealing with a lot of of complexity on that side of the business that you know it was definitely impacting focus on the other side the business we really just decide we gotta we have to we have to cut back costs to get to a sustainable level and so look was your cat going up a lot at this time was this more of an effects problem or was this of we’re spending a lot of money on marketing problem okay it wasn’t in cat had been fairly stable I think there’s definitely like increasing costs and some of the like you know the bigger channels like Facebook things like that that everyone was seeing around that time is more dollars moving there but this was definitely you know more of a kind of a structural business issue gotcha and so ultimately tell me a little bit about the dynamics with debt like what was you know I understand it they’re like you know equity is very different debt equity sort of along arrived and gets paid when you get paid a debt you’ve got not only to pay them on a monthly basis but also covenants where they’re like you have to hit certain metrics otherwise you’re in default of our obligations was it like where’s the debt it’s tough to deal with were they constantly calling you and being like hey you’re not also like did they fit like you said you would raise fifteen million dollars in debt do they think that there were fifteen million dollars in assets if they foreclosed upon business or if they took possession of the business that they would get their money back you know you didn’t it doesn’t get to that level really quickly folks are trying to work through just like what’s the plan right so without we worked through it for quite a while and ended up refinancing them in 2018 and a lot of it is just you know that trying to align you know we were looking at bringing in new new capital at the same time as we were cutting costs yeah try to achieve profitability so we’re out trying to raise equity with you know top-line not growing the way it had been so it what it does I think you know the more complexity in the capital structure it the you know more misalignment there could be just in like near term and medium term objectives you know and so yeah you know there’s a learning curve there and figure out you know how to manage those those aspects and it’s taking up a lot of your heads face it’s like it sounds like it did because you sort of you have to like not only do you have to manage the equity guys you got to manage the deck guys you’re gonna refinance you wanna fund raise again sounds like the dead guys like it just sounds like it would take up all your mental energy is that right or is this sort of like is this so I’m focusing on this one day a quarter sort of type of thing or is this uh actually this is bothering me every like there’s a little thing in the back of my head that I’m always thinking about it’s not going away slash I’m thinking about a full-time once a week no it’s yes you know for you know probably two years it’s about 75% of my time right and I’m really letting the kind of yeah managing all that everything surrounding that all of the complexity generated by you know figuring out 75% is in a state amount of time insane no for sure and that’s why I think yeah it is insane about time but it is that point you know that the you know the reality and the you know and the most important thing that I can do we had a great team of operators in place too but yeah it was you know I think the lesson to a lot of folks is is you know I think everyone’s probably seeing it now with kovat and just strains on businesses is that like margin of safety and risk management which a lot of those of us had like you know dive headfirst into these businesses are Pro risk I think you know the risk management side something I’ve become a lot more is if advising folks and helping people out it’s like just give yourself a lot of margin for error because if you don’t you end up you know having to spend an enormous amount of time on things aren’t driving customer value aren’t really in like the core drivers of growth of the business yeah absolutely look um when native first raised capital we raised 50,000 he’s like I would never write you that check and I was like why wouldn’t you write that track he’s like fifty thousand dollars you get one swing at the bat and if you don’t like Miss that swing you’re out of money and your business is over and so like nobody wants to put in 300,000 you can like learn from that mistake and swing again and made me one more time before you’re sort of out of money totally Mike well I think if you like and you probably dealt with this quite a bit but I see it all the time as you know especially we have inventory too and you’re launching something new a lot of people get overly optimistic about like the first run and you’re like why did you just put 40 of your 50k into inventory you haven’t sold yet you know I think if you’re like that cash might be the last cash I ever get so I proved something out you would you know think very differently about where you put money yeah point you know for us you were just in time inventory so look if you bought it you’re dieldrin on Thursday we would actually make probably the next again on Friday and ship it to you Monday or Tuesday so we’re like the number one need we had for a really long time as customer service cuz people be like I ordered with you which is completely fair for us we were just like this is the only way we can afford to grow the business because if we start like putting 40k of that 50k into inventory you know about 10k is barely gonna last like three days but like you know we’re running ads some random expense comes up there’s this other thing that we didn’t realize that we had to pay for and now we’re broke no I think no yeah as a DC company not having inventory become something that you’re that kind of controls your uses you’re making lets you be a better you know D to C business where you can really be customer centric work on the product do all this if you have you know three times the amount you sell at a month sitting and what you start having to discount it ship it out sell it we don’t want any so I think really tight inventory management lets you stay customer centric in a really healthy way that boy and like to be honest as soon as we expanded into brick-and-mortar stores it was a revolutionary change in the amount of inventory we had to hold we went from holding like you know small like you learn from holding six to seven figures all of us have eight figures of inventory and like you know the first Pio from a company might be three million dollars so you better have three million dollars of inventory sitting in your warehouse or anything ship to them and that was like I mean that’s a great problem to have don’t get me wrong and given a much smaller scale you’re just like how am I supposed to have this much inventory that just sounds impossible and I think right now for walnut we did a big retail rollout all the forecasting and demand and planning is even you know shot it’s just so different and so far behind well you know we can do in the DC side that it surprised me at first but ya caught with your pants down it’s complete garbage hundred-percent retailers to give us forecast like how much that he did or they’re building their own forecast like you know retailing would be like you think you’re gonna go we’re gonna need this and we don’t believe we don’t know we don’t believe that you know what is going on in your own store we’ve got this don’t worry about yeah so what did you do with extra inventory it sounds like you know creating these boxes back in 2000 2016-2017 I’m sure you had overly optimistic you know at least once you were overly optimistic when you’re DT only how do you discount it so that product into every product and every month every box was essentially exclusive right so we weren’t able to resell them so we spun up a much bigger econ business for customers so we you know wait 90 hundred twenty days and give customers access to products things like that but in general like you know the better experience is just for the product to be gone when it’s gone and to be executed so you know we found ways to work through it but yeah you got to be creative you know yeah and so then like in 27 2016 2017 when you’re burning need what is like the peak burn and then what happens at the end it’s like it sounds like the creditors at some point are like look we need to be really like recaps ya know I think we everybody kind of realized we needed to get the business record needed to get and then it was going to be a more challenging raising like series B think that that would be challenging given you know the changes we had to make the business to get to profitability and so you know we cut you know if you think that from Pete we’re kind of a you know six million a month of monthly op ex by the time we ended up having to file and 2019 we’d cut down to a million five so we did massive structuring and brought in some really great restructuring advisors and stuff like that to help really think about you know hard decisions but I think it’s gonna be really relevant for folks now and something I learned through this was like you can do a lot more than you think you can and giving yourself that flexible if we had done that earlier again we would have had a lot more flexibility so went through a very long process of just kind of rationalizing the cost structure gotcha okay so if you would if you thought if you would like cut you should cut out the ex earlier it’s basically like if you have to redo it you’d be like in 2016 let me start cutting up X significantly right away well I think yeah it’s you know I think it’s very you know when you’re in a growth mindset it’s a company that’s important but when you’re it’s hard to be in a growth mindset and in a cost rationalization mindset at the same time yeah and so we were trying to do that dance for a long time where we were where I think you know a healthy dose of pain upfront get you back so you can get back to that growth mindset and keep everybody lined yes I think it’s difficult to be into two differences as an organization at once and you know you kind of you always want to be a growth-oriented I think it’s a company but sometimes you know it’s you just got to make bigger harder choices faster sure and so tell me you like I like tell some of the like effects things that you were able to cut to go from six million in op ex 21.5 I mean four and a half million dollars in our backs a lot I’m sure there’s like you is it I’m sure there’s a lot of things right I’m sure some is personnel I’m sure it’s like you know I don’t look you know like your office space or you need a thousand square-foot shipping facility some is maybe reducing the number of boxes you have what are some of the things that you focus on backs yeah so you know we looked it areas where we could you know cut where Aries Marcia so we moved to a 3 PL in 2019 we built out a much bigger team in the Philippines on the customer support side because we were getting 350 thousand tickets it’s a month and so we kept our core team here in the US and then had a team there just talked meant going back and just you know talking to Oliver enterprise software vendors and really squeezing those prices down because those can inflate quickly you realize you have you know a hundred and fifty users of something that actually only 20 people are using so I think we kind of across the board we had great a head of Finance who helped lead all that just like you know down to the line-item everything was you know everything was an option and we pushed and cut and and you kind of go through the whole business and you look for opportunity and how long does it take to go from six to 1.5 is that like a like two two and half years two years yeah okay gotcha yeah and then ultimately you file for bank robbery organization is that correct yes yeah and that happens in 2019 so that happened last year exactly yep in August of not sure look I honestly I think there’s gonna be a lot of companies that are facing that this year as a result of kovat as a result of dtc financing drying up as a result of poor people focusing on profitability tell me what that process one in part entailed well like how hard is it to go through that and what happens at the other side but from my perspective at what I would imagine is the equity shareholders are wiped out the dead holders now become the equity holders they’ve got to put in more attached to recapitalize the business well I think that’s what happens but tell me what happened with you guys and sort of how you went through that process totally so I mean you think your high-level overview is pretty accurate there’s chapter 11 chapter 7 we went through a chapter 11 process which is where your restructuring and really trying to figure out the best way to you know you have creditors like trade creditors you have your actual senior lenders and subordinate lenders all that stuff so you’re you’re really trying to go through a process that maximizes the value to creditors when you’re going through that and so for us we’re just the point where we had you know in 2018 spent more money on kind of legal and professional fees that we had on sales and marketing and you just get to a point where you can you can’t grow and muscle your way through it and so you know at chapter 11 restructuring is the yes approach there and so with that went through that in August and you know as part of that went through essentially an auction for the business at that point where the largest creditor you know bid and acquired you know acquired the business through that process it was fairly quick in October is when they the acquisition happened fitters at the table a lot of other folks looked at it but yeah the way the the credit bidding and all the stuff works you know it’s primarily the large creditors that have the best shot of the deals yeah and and then but the actual process itself like you know the Delaware Court is actually you know they’re they’re supportive of employees and of keeping the business up and running their goal is really to like you try to facilitate a fair process and keep the business operating so it was yeah I think from my kind of my my my expectations of the process to kind of how it’s all played out it’s been really smooth and the business is growing again and it wasn’t it’s obviously disruptive but it definitely is set up in a way that you know keeps keeps things from falling apart while you’re going through the restructuring itself okay I won’t ask more questions about the restructuring but before I get there do you still spend 75 percent of your time focusing on like your cap table and your lenders or is it now like you’re spending more of your time in the business no I mean I think now you know it no we’re that’s all done yeah that was done when essentially is the business is coming out of the out of that acquisition process in October so a lot of it’s just been getting rebuilding customer trust getting products out you know the last year is we were really getting constrained financially started to have some delays we the whole time through the whole process we made sure that there wasn’t a big impact on the customer experience but that last like six months were straining to get a product out there were delays things like that that we have been focused really on since then turning the customer experience piece which for which gets lost in all the short company building running pieces has always been the you know the goal so it seems live in focus there gotcha like during bankruptcy basically was just hard to meet not only the financial obligations of their debt holders but also just like customer expectations as you’re running the business of getting a product out on time and so you’re trying to sort of turn that ship around and say hey consumers we’re on in this now we’re gonna ship our stuff on time we’re back yeah that’s really the even more so the pre-bankruptcy piece once you’re in bankruptcy and you have the definite ancing then you can operate much more normal course your vendors have protection and everything else so that was really when we filed it in August is when we turned kind of all the operating teams to focus on let’s get all these products that are late in and out and try to get back to some kind of normal operating case and just so people understand dip financing it’s like debtor-in-possession finance thing which means that like a lender is gonna fund you to continue running the business through bankruptcy and as that happens they get like a day of the first mean position because they’re basically like this is post bankruptcy and we’re giving you money in order to continue your business yep uh-huh so how much is ever in possession financing do you get to continue around business so we had it was I think publicly ten million dollar facility that came in when we were doing that and so that came in and allowed us to do handle a ton of this the stuff that I kind of backlog of things we needed to handle and so what is the tablet and what is a cap table I won’t talk about the business as well sort of post bankruptcy you’re seeing 20/20 but what is it a cap table look like post bankruptcy so you had up front and Robert Downey jr. and 15 million dollars in debt imagine a fraud and blabber down here now sort of wiped off the cap table and the guy who is her largest lender and sort of put in more money in the debtor-in-possession financing is now your largest taps like the largest equity holder on the cap table yeah the group the group that did the acquisition it’s basically a reset of the entity and all that right so that that group the there’s essentially there’s the old an old company in the new company and then that whole new company everything transitions there and then how do you remain incentivized because like you know there’s that old company and you were like this you know you’re the CEO of that old company that’s here with a new company and like do they negotiate with you to give you an equity stake and incentives as well it happened I mean to in a lot of these cases that you know they want some continuity and in leadership and yeah so you know most of the folks at the company today or folks that were the company prior to the bankruptcy yeah I and we’re you know I early team back now my goal has really been to make the transition as effective as possible yeah and work with the team on that I care a lot about the brand and want to to survive and be strong and so I think you know I think that’s really been the focus is can we get get like let everybody get back to like a normal operating environment which is all I think the team is really you know we have big chunk of the company is in design and product development and you know people want to see sound like a positive story tied to the the products we put out in the world yeah well one I certainly think looking you know you’ve been working on the business for eight years I can imagine there’s an incredible amount of like your own personal sweat blood and tears built into it and I think a lot of times people get lost on that like I don’t even work at native today and I still think about it on a daily basis I’m like this is what I beat this is Howard you know look whatever it like tweet about it and tweeted me and they’re like I’m trying it like okay if you don’t have a good experience let me know I’m like actually I have no financial interest in this and if you tell me you hate it there’s not anything I can do about it either yeah but there is a certain there’s a lot of like personal like loyalty to the brand and especially if you’ve been doing it for eight years totally and I think the customers that are still with us from there I mean there’s just a lot of you want to see it do well and you want to see it you know be something that the people love yeah and so what is working for the brand today like we’re like what you know you must have cut down on our backs significantly and you know you’ve probably retooled marketing where you’re like hey Ivan some of the influencers that years ago you’re still using but at that Facebook that’s when is it a million dollars a month any longer what is working today in order to grow the brand again so I mean a lot of the same traditional DC channels are still working well I think you know the dynamics shift you know depending on what’s going on you know I think we’ve seen like on Facebook for example the last 60 days costs come down but in general it’s manageable right I think all the same best practice for us it’s kind of like if you’re if for our product it’s not something that is a consumable that you need it’s something that you want and so having trusted brands and partners tell you that this is something that you should have yes your influence or things like that is still a great channel that works and I think a lot of its just figuring out the unit economics but we’re seeing you know all the same channels that work before work well we’re not really and some of our like higher cost channels like remnant television things like that we’re not we’re not doing anything there but we’re looking our most efficient channels and our best channels Facebook included and leaning into those and being disciplined and you know I think again the the actual underlying market dynamics that made this work well which is you know there’s a million different Marvel T’s on amazon.com and our core demo is not going in to target to buy a Marvel t-shirt that at like curated collectible consumer products perience had it really shifted throughout the eight years we’ve been running the business and so you know once it was kind of liberated from a lot of the you know the the corporate issues you know yeah it’s there and I think we’re looking at you know new experiments we have a thing called loot launcher we’re doing which is like a crowdfunding approach so we can take more you know do a larger number of partnerships try more things out be more experimental and so we’re using that crowdfunding model so I think we’re just talking about that is that like is that like sort of almost not Groupon because it’s not disconnected but it’s that like if we sell 7,000 of these will go make all this stuff exactly captain exactly Labs yep so we’re doing we’re doing more of those and I think the pre-order model works really well and so we’re I think there’s there’s still a ton of demand in the category and I think direct-to-consumer is such a great way it’s where we’re all consuming the content building out kind of new new economic models around those opportunities there’s a ton of time we can do there’s so if you really shift it sounds like a month that has shifted from like doing a better job understanding demand over the last like two years or maybe three years where you’re like you know we’re really optimistic about this new box of conscious new box [ ] didn’t go as well as we wanted to be up all this excess inventory to let’s pre sell this box let’s make sure at least 7,000 people want it before we make it let’s not make a max of 10,000 so we don’t have a ton of excess inventory is that is that something that’s is that accurate or is that not accurate percent right I think yeah turn curves are all fairly predictable but they’re all different by product lines also when you’re getting it in 2530 different subscription lines like even with models that work well like the bike demand planning and things moving it’s just a lot you know asking yourself to xq on that dance perfectly every month is challenging so building in some some flexibility and some predictability has been super helpful that is you know that’s so mind-blowing because it’s almost the exact opposite of what you’d expect you went from being having no discipline basically early on or not no discipline of course but basically saying look we’re we’re operating on a gut perspective and we think that’ll work and there’s money here so you scale the business and you think okay now I actually trust my gut more I’ve been in this for four or five years I’m like you know we’re not 100 million dollar run rate we have hundreds of thousands of subscribers we’ve gonna run we’ve only raised 500,000 and think it’s a much larger mistake today than it was you know three years ago and what did you guys that’s how was your gut yeah just ask question how’s it like when you guys expand it outside of Yoda right like weirder areas where your gut was just totally wrong I don’t trust my gut any longer actually I mean the reality is that like once we expended outside of tiara we were a part of PMG and so there are a lot of like different interests playing alongside of where we could expand whether we would expand like you know we have to sit within a PNG division and that PNG division really owns the PL and so as a result there’s more limitations look you know I would I was like okay great we’re now part of PNG we can make whatever we want PNG make some paper towels we could make native paper towels of that you know very much was not the case we had more independence in terms of making those decisions pre PNG and we did post p.m. so your guns man egde 12 by the you know we’re even inventory on seasonal sense things to that effect and when I made wrong decisions there were a lot more consequential and I think overall I liked I was trying to you know you try to maximize revenues here almost like I want to I’d rather have too much of this product instead of too little until your business is large enough where you’re like I see how many things are on my belt like all this excess inventory that I ordered too much of is getting to be a huge you know huge asset on my balance sheet and it’s not a good asset it’s not going anywhere and moving forward like I shifted my mindset to be like I’d rather sell out of this sense rather than have too much of the Sun and now I think that wasn’t as we brought in a bunch of CPG finance execs that was I think the number one thing like scaling up DBC brands can do is expense your excess inventory is cost of goods in month because I think I’ve seen a lot of folks that you know if the image were just hearing your balance sheet your P&L looks great but the reality is that’s excess inventory and you start to realize maybe 10% of gross margin should just be rich down inventory costs yeah so there’s a bunch of things you can do to like not convince yourself that the models working as well as is that I think can help companies duel to just a better more discipline around forecasting demand planning an inventory yeah great advance I I guess I have two more questions one is what you wish you had done differently do you wish you had never taken a debt do you wish you were more focused on topics early on do you wish you hadn’t expanded into as many boxes or do you say hey you know what like learned a ton and this we did what was right I think you have you learn a lot right and so I think during the learnings you have to make sure that’s a positive piece of it because yeah the pain and agony is is gonna come in those moments and you gotta find some healthy way to reframe it I think there’s a ton of things I would have done differently there was you know we’ve gotten so used to hyper growth that the route was taking and the kind of confidence to solve hard problems on the fly we just didn’t need to think that way and I think I become a much better communicator with boards lenders equity you know that that like really important structure that sits on top of the business then really if you’re gonna it really needs to be managed the right way you have a lot of great mentors and through a lot of experiences I think could have done better there and I think like I said it just goes back to I think risk management and you know making hard decisions earlier faster and bigger then then you’d like to yeah and we had a you know this CEOs done like twenty turnarounds come into the company it advised and we’re talk about cuts it’s like have you ever cut too deep when you’re doing a cut and he’s like I always cut too deep and I never regret it and I think like wow I didn’t internalize at the time I I think part of the point is because you can always build back up and then you eliminate existential risk and so I think I think there’s a lot of lessons there that a lot of companies are going to go through during this period of time which is yeah the world has changed know that and make big decisive action more so than you think you need to right now because it gives you the flexibility when you know which there’s gonna be a lot of incumbents that are too / distracted and debt-laden right now they do a lot of these b2c brands capitalise on but you need to be in a position to capitalize so you know make hard big decisions fast and so do you think he’s right you can like you should cut deep like you should cut too deep and you don’t regret it or did you cut too deep and you don’t regret it was he right I think in the face which was much earlier in our lifecycle it was the right advice I think there’s obviously a point you need to like customer experience in all these companies is number one so this just has to be in a way that is maximized as customer experience so you can’t like if you have 20 thousands and customer support tickets you need enough folks to respond to those tickets if you’re delivering a product you’re competing with everybody else it’s got to be the best product like if you had to start making trade off and your product quality decision that’s not really a business anymore so I think outside of that like but really know what those core areas are and then everything else has to be fit that is fantastic advice and like I feel first your this is my favorite interview that I’ve done ever in my entire life because not only did you you can read the screen like - a hundred on 25,000 capital invested which is literally nothing compared to the you know Dollar Shave club’s of the world and Harry’s of the world voices - you went through like Jake look I feel like a lot of people and myself included never had you know I had a hard day at work but I never like my hard day work was a good day for you I never went through a recession and like in many ways I was a real coward about the business you said I’m gonna raise money I’m gonna go to the mattresses this is 260 billion dollar business and I’m the [ ] take advantage of it me I was a real [ ] and I was just like we’re gonna hire very slowly because I think I’m gonna run out of money every day I don’t know what the [ ] I’m doing over here there’s like you know everything is going wrong and there’s gonna be a torpedo hits the side of this boat at any given time and so for us we didn’t face those problems but it was intense but but I knew what I knew that we wouldn’t face those problems because there’s no there’s there’s nothing wrong with that I think it was gonna you got through that like very few people like you know very few people go through those hard days come out the other end and they’re like we’re gonna build another sustainable business that requires an incredible amount of tenacity and courage and B but you know it’s not easy to go to a bunch of employees or look we’re not gonna keep this fulfillment center anymore outsource this we’re gonna outsource some of our customer service we have a core team here but when outsource them but like it’s not easy to get up day after day and sort of make those decisions rationalized Rob that’s for two years come through they’d be like now we’re gonna start building again but that requires more tenacity than I’ve ever seen that’s like a [ ] G like you know General Electric type of restructuring it’s really spectacular and like I’m in all the results of that today that I would have been in 2017 or 2016 and we’ve been no I really appreciate that I think the you know the one the the thing for me has been the benefit to of scaling once we got to bring in a lot of seasoned folks so when I was having a hard time making hard decisions folks hasn’t seen this a few times yeah like these decisions aren’t don’t you’re overthinking these things like these we have to do we have to do and so I think great leadership teams especially these companies get to scale folks need to start removing themselves from decision making because yeah we’re so emotionally tied to the brands to the products it’s hard to make hard trade-offs when it’s your baby and yeah yeah so you know I think you know getting better and finding great advisors making yourself lessee ultimate decision maker and helping having people that know certain parts of the business better than you help you make the really hard choices is is been you know huge for me and those advisors you know asking people I trust yeah I think in any of these areas you know there’s a hole on the restructuring a debt side there’s a whole separate universe that most of us never interact with that does this and you know it’s the same way we you know I’m the growth and marketing side we were scaling up and I was trying to figure out who the best DC marketers who just hitting everybody up and learning as much as you can so I think it’s the same kind of general principles they’re out there they’re ready to help okay two final questions one what is your favorite video game assuming you play video games and - what is your favorite box being in the last okay so I think everybody I think this is the moment for VR to really take off so there’s a game called pistol whip an oculus that’s amazing that’s so fun do you like literally or your arms are dead within 10 minutes because you’re just a little running around like in this it’s amazing or you like working people you’re a pistol whipping shooting first-person shooter or like if you don’t have a VR this is the time and VR head says yeah oculus is the one how long have you had not to us a year okay yeah we had one D we haven’t the office we like we’ve had him for a long time we had an interaction but yet we’ve had it for a while but ya know like it will change it’s a there’s beat Sabre there’s some amazing games that like more casual gamers can get really into so but yeah pistol-whip is amazing and I’m gonna go to oculus and pistol it up today yep it sold out obviously because everybody had the same but yeah waiting list yeah no it’s it’s but he’ll be back soon and then what was your second question what what has been your favorite box that loot crate has ever sent out over the last eight years we you know one of my favorites is we had I’m trying to actually member the we have themed names for everyone so they like curated but it had a replica hub like a one-fifth scale replica lover board like a Doc Brown when he’s pulling the to jump starts yeah there is like a collectible figure we had an it had a back to the future be excellent to each other sure which is like the best message of all time and it’s just like yeah held my favorite favorite gear there’s where did that box come at that was in the 20 and of 2015 okay always fascinating yeah yeah Chris this is amazing thanks so much for sharing your journey I feel like you’ve got a lot more experience than those people in direct-to-consumer you’ve seen a lot more things when it comes to direct to consumer and like very few people would be as honest and upfront and as open as you’ve been so I really appreciate that as a founder and I really like realized you know the amount of tenacity and courage you’ve had to go through this and build a successful business on the other end all this you is is superhuman and like heroic and so I’m like I hope I hope people in your company if I were to your company I would think of you as the superhero that would go box you’re one of those people in the direct consumer industry and thanks so much for being here and yeah I think this is so far and this is really great I can’t believe that yeah no this is awesome thanks so much we gotta talk to