Sam Parr sits down with DTC operator and investor Nik Sharma to dig into what actually works in direct-to-consumer brand building. They cover Nik’s work with Judy, House, and Brightland; the COVID-19 shakeout hitting brands like Away Travel and Outdoor Voices; the Native deodorant origin story including COGS, manufacturing scale, and the P&G acquisition; and how Nik learned digital advertising by building a network of operators rather than taking courses.
Speakers: Sam Parr (host, founder of Native and The Hustle), Nik Sharma (guest, DTC investor and operator, ex-Hint Water, advisor to Judy/House/Brightland)
Introductions and Portfolio Overview [00:00:00]
Sam: We’re here on the fifth episode of the podcast with Nik Sharma. Nik and I have been friends for about a year. I’m going to tell everyone a little bit about your background — you ran acquisition at Hint Water, you’re an investor in a bunch of direct-to-consumer businesses including Judy, including House which is an alcohol company, and some others I was looking at on your LinkedIn profile yesterday. Will you tell people a little bit about the companies you’ve invested in?
Nik: Yeah, let’s see — Judy, House, Black Wolf Nation, Brightland. Honestly, mostly just DTC companies that I’m a fan of first, and then fan enough to want to be involved at a deeper level.
Sam: Are you involved in all of them at a deeper level, or are you involved in all of them at a more surface level?
Nik: I would say pretty much yeah. I definitely work on stuff every week for each portfolio company. I help them out in some way every week for sure.
Sam: Great. What’s something you did for Judy this week?
Nik: For Judy — well, today actually, I’m pretty happy. I just finished a domain migration. I ended up getting judy.co as a domain. I set it live literally ten minutes ago. I was like, “Our new primary domain.” That was exciting.
Sam: Did you buy judy.co or did you have to buy it off somebody?
Nik: Had to buy it off somebody. Yeah, it was a five-figure deal.
Sam: Five figures is a wide range. Like ten thousand dollars or ninety-nine thousand dollars? Which one?
Nik: It’s closer to ten. I’m pretty good at negotiating these domains. I did the same thing at Hint — our first offer for hint.co was like fifty, and it ended up at six.
Sam: You guys bought hint.co for 6k?
Nik: Yeah.
Sam: Wow.
Nik: So I’m just all about — especially if it’s a four-letter brand like that — the first thing I did was get hint.co, the Instagram, Hint on Snapchat, Hint on Twitter, Hint on Facebook. It was just great for brand. And I mean, you did the same thing with Native, and with Judy I’m trying to do it as much as I can. Judy’s a little harder because it’s a person’s name.
Domain Names and Social Handle Strategy [00:03:00]
Sam: The hard part is you sometimes have to steal the Instagram handle from a squatter.
Nik: Yeah, I didn’t even know that was happening. I just reached out to our Facebook folks and was like, “Hey, could we get the Native handle?” And they were like, “Yeah, there you go.” I was like, okay, great. That was a lot less media buy than expected. We actually never tried to — do you think domain names are important? Like, I think the Instagram handle is really important. Twitter, we never did that well with Twitter. But do you think domain names are important? Because so much of the traffic driving to your site is being searched on Google or found on social.
Sam: Yeah, I don’t think it’s as important. From a — sorry, is that really noisy in the background?
Nik: No, go for it.
Sam: Yeah, I think it’s definitely important to some extent — you want a good domain. Where some brands get carried away is when they try to put a verb in front of their brand and it gets too long. Like “drink something dot com” — it’s usually food and bev or fitness-related things. I like things that are just nice, short, and clean. So I was really proud to get judy.com. But other things — for Brightland I’m working on a landing page, for House I’m connecting them with PostScript and Alex, getting them set up there. It’s usually anywhere I can be proactive — if I see them trying to do something or struggling with something, I try to think, what’s something easy I can do to help them out?
Nik: Yeah, that makes a ton of sense.
Sam: You know, brand names — when we were trying to, before Native launched, I was like, okay, I want to start this deodorant business, what’s a good brand name? I went through a bunch of ideas and I was like, I want something that nods toward natural but doesn’t say “natural.” And it’s not called something like Deodorant Club or Deodorant Company — I want to be able to sell other products. When we came up with “Native” I remember a bunch of people were like, “This is a bad name, it doesn’t mean anything, and a lot of Native Americans are going to get upset.”
Nik: Native Americans getting upset — did that happen?
Sam: Kind of. Some people got upset about it. But we never tried to buy native.com. We did have a huge issue with the trademark though. I think I’ve mentioned this to you — we tried to use the Native trademark and somebody else owned it. We had to acquire that trademark, and we bought it five days before we ended up selling the business to Procter & Gamble.
Nik: Wow.
Sam: Other people would be like, “We’re not going to give you an offer for your business until you own your trademark.”
Nik: What was the price?
Sam: High six figures. So what’s crazy is comparing that to a domain — you had to get that trademark because that’s the only way your deal would have gone through. Whereas a domain you don’t necessarily need. But this just popped in my head: Soylent was like “drink.soylent” or something, and they bought soylent.com off a guy who was into some weird stuff and would promote it on that site — they bought it for like a hundred thousand dollars. And today I think they’ve raised 80 million dollars.
Nik: A hundred thousand dollars — yeah, that is crazy.
Sam: We never tried to buy native.com. Our domain name was nativecos.com. And yeah, it’s like — what is COS? Is it cosmetics? Is it companies? And for the longest time on Twitter I never found Native because it was native_cos. So bad.
Nik: We tried to get Twitter to do what we had Instagram do.
Sam: That’s the — the guy who had the Instagram also has the Twitter?
Nik: He’s down.
Sam: Okay, I’m glad you at least got to keep one of them.
Judy Emergency Kit: The Launch Story [00:08:30]
Sam: We’d love to talk about what’s going on — I know you said Judy is sort of crushing it. Can we talk a little more about Judy? Judy sells a disaster kit for your home, which is — good timing, because people are now staying at home and realized disasters may happen. Who else is involved in the Judy business? I sort of understand it but I don’t really understand all the relationships.
Nik: So Judy is interesting for two reasons. One, it’s a really sound business — the product is basically a very functional product that provides immediate value to the consumer. It’s a very functional and necessary product, which we love.
Sam: Yeah, it makes a ton of sense. I want a disaster kit for my parents, for myself as well. You don’t need to sell me on the business.
Nik: So the other reason it’s really interesting is because of the team involved. The core team was maybe five people — myself, our ops person who’s a G with ops, a head of customer service, and then the two founders: Josh Udashkin, who is a former fan of Rimowa, and then Simon Huck, who is the founder of Command Entertainment Group and is also a celebrity in his own right, being so closely friends with Kim Kardashian. He knows the A-list world like the back of his hand. So it made for a really interesting launch because on launch day I was learning all about A-list celebrities through Judy. Every celebrity posted a Judy — from Chrissy Teigen to Martha Stewart to Kim Kardashian, literally everybody.
Sam: Is that just because Simon got all these people to post about it? How did that happen?
Nik: Honestly, Simon just has — he’s a very loved guy in the industry and in his network. And I think when people saw that he was launching something he’d developed because he saw so many of his own family members affected by disasters, they all just wanted to support. What’s weird is none of the influencer posts ever felt like ads. None of them were like “go buy this now.” It was all congratulating Simon or just talking about how handy their Judy kits are.
Sam: That’s great. That organic-feeling influencer reach is really really difficult to get right.
Nik: They did a really good job. And Josh, the other founder, is president of Rimowa, so he’s just a beast of an operator. Especially on logistics and supply chain and marketing — he’s a genius.
Sam: Is he related to the founder of LVMH? I thought the president of Rimowa was like Bernard Arnault’s son or something.
Nik: I think he’s related to them. I have heard that name come up. Maybe Josh replaced him or took a different role.
COVID-19 and the DTC Shakeout [00:12:30]
Sam: Let’s move on to what’s going on in the direct-to-consumer industry. Because I feel like there’s a perfect storm brewing right now. All of a sudden people were worried about profitability and not just top-line growth — Brandless shut down, Outdoor Voices had issues, people realized the bottom line really mattered. And then the stock market collapsed, investors are going to be a lot more cautious writing checks, and then nobody’s going outside because of COVID. The pair of Nike shoes you’d normally wear running outside don’t really seem necessary anymore. Do you think the bottom line mattering or COVID is having a larger impact, or is it just impossible to tell?
Nik: It is kind of impossible to tell because we’re in this sheltered, hibernation stage where we haven’t fully accepted that “okay, this is the reality” and figured out adjustments around it. We’re all kind of in limbo. From portfolio companies and conversations, cookware is doing really well. Beauty is not doing as well — anything related to going out. But anything that promotes happiness, calmness, or wellness while you’re staying in has just been crushing it — everything from fitness gear, jump ropes, and bands, all the way to adaptogenic drinks. Cookware I said is doing well. It’ll be interesting to see when all this settles down, how will people adjust and what will people start to realize as their priorities? I don’t think people are going to be rushing to spend a hundred dollars to get a face wash customized to their zip code anymore.
Sam: Yeah. Things change fast. It took like ten years to go from people’s wallets feeling thin to feeling fat, and then all of a sudden yeah — a customized face wash seems like a crazy luxury.
Nik: Right. It’s like the Away suitcase thing — you used to have a $25 Target suitcase or a $5,000 Saks Fifth Avenue set, and then Away came in and found that “high earner but not rich yet” — the HENRY playground.
Sam: The HENRY playground, yeah.
Nik: And they just had to let go of like 60% of their staff. The worst part is the people who get affected who just don’t know how they’re going to pay rent in two months.
Sam: Look, COVID is obviously a complete catastrophe for the country. A couple days ago I saw there were nearly 2,000 deaths in the United States in a single day. That’s two-thirds of a 9/11 on a single day, and it’s going to happen again tomorrow. It’s really heartbreaking.
You were talking about some businesses doing well just by virtue of the fact that people have to stay in — cookware, fitness. You’re right, I tried to order fitness products and the wait is like a month.
Nik: Yeah, I waited to get a jump rope.
Sam: It’s crazy. Do you think that acceleration is permanent? Like if you’ve used Instacart before and now you do, do you get off Instacart? Peloton and Mirror are thousands of dollars with $50/month subscription fees — incredibly expensive. But is this now the new reality? Is Equinox in trouble, or six months from now are these DTC businesses back to where they were?
Nik: I think there are two parts. One: will people trust going back into a public gym? That to me is mind-boggling. The second part is how much do they value getting a Peloton or SoulCycle bike for their house. I think they’ve definitely seen sales jump. Their whole game is: get the product in your house and they can have you with the subscription for quite some time.
Sam: What happens to companies like Away Travel? A huge valuation, female entrepreneurs who I thought were doing a fantastic job — what happens to a brand like that a year from now?
Nik: It’s tough to say. Two things immediately come to mind — one is private equity, and the other is just getting acquired by one of the big luggage companies. They either roll in capabilities or they basically just keep the brand going but support the P&L much better. I imagine there’s going to be down rounds for a bunch of these businesses. A lot of empathy for the founders who built something amazing and then something completely outside their control hurt their business. Also a lot of empathy for the employees who had bought into the stock or exercised their options.
The Away Slack Leaks and Female Founders in the Press [00:19:00]
Sam: Before we get there — do you think there are opportunities to buy distressed DTC businesses? Like, Away Travel is obviously going to be a super expensive business. How do people buy and sell distressed businesses?
Nik: To be honest, I’m not a hundred percent sure. I’ve definitely been doing a little more research just because I’ve gotten curious about it recently. I’ve been talking to like Mike Greylock. But yeah, it’s a completely new world for me. I never thought all this would happen. Have you ever had to learn it before?
Sam: Yeah. Okay, let’s talk about Outdoor Voices and the press coverage of Away Travel. I’ve seen a lot of articles saying, are there hit jobs going on against female entrepreneurs?
Nik: I have no idea what the answer is to that. At Native we barely got any press when we were independent. I’ve never been a woman so I have no idea whether people are doing that. It certainly seems like something is happening, but there are a lot of terrible male-run businesses that don’t seem to be getting as much coverage.
Sam: I’m not sure why that’s the case. But I think Outdoor Voices and Away Travel are very different businesses. With Away, there were certainly things that Steph said that weren’t great. But if you look at anyone’s Slack history — look at Slack history from when I was running Native, people would put me in prison. I was saying terrible things. Like if people screwed up I was like, “How could you possibly screw up like this?” Look, it’s a very intense process and all of your energy is being put on something.
Nik: I mean, I think as an employee, if you’re not used to that kind of environment — the hyper-growth startup — a lot of really successful brands or companies that sell products have a very intense marketing or customer success organization. And that’s why they’re so good. They’re so critical about their marketing, their sales, and their onboarding. I think some people are definitely not made for that. I also think you probably don’t want to be yelling at employees on public channels or private channels. But that’s up to you as a founder. I’ve definitely done it before. And if I was your employee and you were like, “How the hell could you screw this up?” — I’m not going to get mad thinking, oh, he’s mad at me. I’m thinking, he’s right. He has to deal with a company that’s trying to acquire him and he’s probably dealing with fifteen other things. Me not doing my job put something else on his plate.
Sam: Those messages from Away were like nothing I’ve never gotten before — nothing I’ve never said. In fact, they’re tame. I was like Joe Exotic when I was running Native.
Nik: Yeah. And I think the thing on the press too is female-founded companies are just, numbers-wise, considered anomalies. Because of that, the ones that go through a Red Antler or a Gin Lane and come out with a press tour — it’s a very normal thing, you know, brands launch and there’s this whole press tour where everybody’s goal is to get into the New York Times with a quote so they can throw it on their site. The press, good or bad, will follow you throughout because people are just intrigued by the story.
Sam: Two things about Away: one, they had a real commitment to customer service that was really incredible. When they were late sending packages, it was like, how about we send this person ten suitcases to make up for it. That’s what we want from direct-to-consumer customer service — total empathy and doing the right thing when something goes wrong.
And the other thing on press — at Native I was trying to court the press early on and we couldn’t get anyone to write about us. Then one day we randomly created a rosé deodorant and accidentally launched it on June 21st — we didn’t even realize it was the first day of summer. All of a sudden all these press outlets picked up the product. We were on Good Morning America, Today Show, Refinery29, probably like 30 or 50 publications in the course of 24 hours.
Nik: Wow.
Sam: And I tracked the revenue from that day, and all those publications got us an extra $25,000 in revenue. On that same day, Facebook got us like $50,000. So it was this mini viral sensation — a ton of publications, and it got us $25,000 total.
Nik: Well, I think press serves both parties. You get pickup and exposure, and for a lot of these outlets they just plug into your affiliate platform. If they can be contextually relevant to what consumers are thinking — like jumping into first-day-of-summer articles and listicles — they’re going to try to make revenue off of it. If you can be super contextually relevant to as many people as possible, you just increase your chances of getting picked up. Another example of that is Judy — on launch day, every Kardashian was posting about their Judy kit, Chrissy Teigen posted it, and all of a sudden there was an angle: “The Kardashians are promoting this emergency kit, what is it?” That became the press angle. There was a People magazine article: “What is this new emergency kit the Kardashians and Chrissy Teigen are promoting?”
Sam: That makes sense. But you have to figure out the reason for them to write about it, or create the angle. Because they’re also incentivized by page views, and more page views means more ad revenue.
Nik: Exactly. You can’t just say, “Here’s this product, please write about it.” You have to say, “Here’s why this is interesting to your readers.” I remember when my first e-commerce business — we were selling alcohol online — and this TechCrunch reporter wrote about a distillery in New York City. I was like, well, that’s not very TechCrunchy, but if they’ll write about that, maybe they’ll write about us. I said, “We know that distillery and we’re the number one seller of their products.” He was like, “Okay, let me write about you guys.” He wrote about us and then Bloomberg picked us up, CNBC, and so on. That flywheel effect from one single publication.
Nik: Totally. And if you can nail one anchor — whether it’s an exclusive or a pickup first — the others will definitely move to cover it just because if it’s coming from TechCrunch or Bloomberg, they assume people are going to be searching for it.
PR Agencies and Equity-for-Services Deals [00:28:30]
Sam: Did Judy hire a PR agency, or do you not need one because you have all these influencers?
Nik: They use an agency.
Sam: When we were running Native, I tried to get an agency and we ultimately settled on one. Before that I called up some of the guys doing a lot of DTC work in New York and they were like, “Yeah, we charge twenty-five thousand dollars a month plus one percent equity.”
Nik: That’s insane.
Sam: I was like, you don’t know anything about my business and you want one percent of it? Like, I could be All Birds and you’re asking for one percent of it, or I could be a brand that does ten thousand dollars a year. Those are two completely different things.
Nik: How could you just ask for one percent equity without knowing anything?
Sam: Branding agencies do it and still do it. I’ve heard of a couple of firms in New York that do growth marketing and also take equity. But it’s a weird concept — you’re essentially exchanging currency and your currencies just have to be compatible.
Nik: Yeah. You shouldn’t mess with exchanging equity for services. It just gets really messy. Also, what happens is when you get to a later stage — let’s say you didn’t get acquired and you start raising a Series C or D — investors start looking at your cap table thinking, “Why the hell does this branding agency have 2% of the company?” They’ll end up getting screwed.
Sam: Oh, interesting. I didn’t realize that. From a branding agency perspective I’m a little more amenable to it because presumably your business has just started when you work with that branding agency. But still. At the point where I called this agency, Native was probably doing two or three million dollars a month, and this person said they want 1% of my company. One percent of a company doing three million a month or thirty thousand a month — those are completely different things.
Nik: Insane.
Vendor Selection at Different Stages [00:32:00]
Sam: I wish someone put together like a Yelp for DTC vendors.
Nik: That’s one of the things I get asked most — who’s the best paid media agency? And where people go wrong: one, they just read stuff on the internet, and agencies are all marketing themselves so they all show themselves as the best. The second mistake is thinking, “This agency looks sick, I want to work with them.” I made that mistake at Hint — I thought an agency was sick, they didn’t necessarily do good work, and even when they did, the problem is certain agencies are built for businesses at different stages. We were too small for that agency to really care. Now I’ve kind of narrowed it down — if you’re under $200K, there’s a different person for you. Between $300K and a million or two, it’s a different stage. Two million plus is a different stage.
Sam: Yeah, you don’t want to be the smallest fish in a ginormous pond. You don’t want to work with an agency that’s also working with Nike, because you’re never their priority.
Nik: Exactly.
Native’s Origin Story: Manufacturing and COGS [00:34:30]
Sam: At Native, what happened is in the first six months we lost our contract manufacturer — the person making our product was like, “I’m done making this.” So we had to find another company. The company we ended up working with was in this 800 square foot facility, and it was perfect for us because when we called them up and said we wanted to order a thousand units a week, they were like, “That’s fine, that’s a very good quantity for us.” Other places we spoke to were like, “You need to order a hundred thousand units out of the gate.” We couldn’t even afford that.
Nik: Will you share what your COGS were when you launched?
Sam: When we launched, it was $5.50 to make a stick of Native deodorant. We were selling for $12. Our Facebook CAC was like two dollars in 2015, four dollars in 2016. By the end of 2016 we were doing a million dollars a month. So there was a ton of even dough the business was generating, but the COGS came down a ton. From $5.50, when we switched manufacturers it became $3.20. And every time we grew, they brought the cost down.
We went from making a thousand units a day at the end of 2015 or beginning of 2016, to by the middle of 2017, we were making 21,000 units a day. We had increased sales by something like 20x or more. Our cost came down to below two dollars — substantially below two dollars. And what was amazing is we found a manufacturer that was really able to grow with us. They moved from that 800 square foot facility to a 20,000 square foot facility, then a 40,000 square foot facility. Rarely do you find service providers that grow with you. Usually you outgrow them and they don’t make the infrastructure changes they need, and then you’ve got to go find somebody new.
Nik: Totally. Did you ever consider just buying the facility yourself?
Sam: Certainly not seriously. The business was growing exponentially and you could work 80 hours a week just on the business without touching anything on the back end. It became really difficult. It was also peace of mind — it was being taken care of. When I sold the business there were eight employees at the manufacturing facility. I think they’re 140 now. At the shipment facility there were another hundred people. So we had eight employees and we had created something like 250 jobs. And I only had to manage eight people. One of my weaknesses is managing employees — giving structure, setting goals, communicating well. I was like, I can barely do that with eight people. If there were 250, I’d put a bullet in my head.
Nik: Yeah, maybe more than me actually.
Sam: The person making it was just fantastic at it. Very few problems, worked really hard. That gave me a lot of peace of mind.
Recommended Vendors and Tools [00:40:30]
Nik: You mentioned PostScript — what are some of the other companies you recommend?
Sam: For most media buying I recommend Metric Digital. Their bread and butter is DTC brands, especially if you have a retail presence. For texting and SMS email, probably Klaviyo. For influencers or texting a huge community — is that what you use?
Nik: Yeah.
Sam: For landing pages, Unbounce. For e-commerce, Shopify — although you’re not really a Shopify fan.
Nik: Which is crazy because WooCommerce is — I’m so embarrassed telling people I use it. And now I haven’t used Shopify. Look, I’m an idiot.
Sam: It’s — now you’re embarrassing me. Shopify is great, but our conversion rate went down by a material amount when we switched from WooCommerce to Shopify. My checkout page was worse. I thought Shopify would have all these network effects. It doesn’t. The checkout page is terrible — it’s a multi-step checkout page, the coupon code box doesn’t appear on the cart page. And you can’t control the server. At Native I actually bought some servers and ran them in server farms. Our site was blazing fast. You can’t do that on Shopify.
And then we used a subscription portal that was actually free, whereas today Native is on Recharge, which is what Shopify pushes, and it charges a percentage of your subscription sales.
Nik: What a beautiful business.
Sam: It went from thousands of dollars a month to — yeah, it was crazy. Look, my next business will be on WooCommerce again and I will have no shame whatsoever.
Nik: That’s it. Like when someone asked Margaret Thatcher, “How can you hold the position you have when 80 people disagree with you? How does that make you feel?” And she was like, “I feel bad for the 80 people, because I’m right and they’re wrong.” That’s how you feel about WooCommerce.
Sam: Yes.
Nik: The hardest part is finding really good developers. I have a Shopify developer on my own retainer just for myself — anything I need done, I can hit him up. It’s so necessary because Shopify agencies on retainer for these brands are sometimes not the best developers, and you can’t rely on internal teams either. I like having my own set of tools.
Untapped DTC Categories [00:46:00]
Sam: What are some direct-to-consumer industries that are untapped today? When I was thinking about launching Native, I was thinking about doing either a deodorant company or a mattress company — hindsight is 20/20, and it seems like everyone who makes a mattress company has hundreds of millions in sales. What’s the next Native? Where should people look?
Nik: Diapers is a great business. It’s really odd though because to make diapers it’s really expensive — you need a lot of inventory, a lot of different sizes, and there are very few companies that can private label diapers. You need a very expensive paper machine to make a diaper. To be honest I’m not 100% sure what the most ripe category would be. From observations though, I think pet is one that hasn’t really been done from a product side. There are a lot of food brands getting out there but not necessarily product-wise. I think there’s also a lot on the side of convenience and accessibility — making things even simpler. The other day I was thinking about direct-to-consumer sauces. There’s no DTC buffalo sauce, no DTC dressings.
Sam: Nik’s, the brand — that’s probably the closest to that.
Nik: Yeah probably.
DTC Brands Worth Watching [00:48:30]
Sam: What are some DTC brands you really admire right now?
Nik: Dude Wipes is one of my favorites. I think they have some of just the funniest content. Dude Wipes is like the Wendy’s of Charlie from Dollar Shave Club. They were on Shark Tank years ago, they’re really good operators, and so all they’ve done is build brand in the coolest ways possible. Their emails are just the best.
Sam: How rare is it to actually look forward to an email from a DTC company?
Nik: So rare. Most promotions I just highlight all and archive. Although lately it’s just been full of sales — everybody’s trying to liquidate.
Sam: What are some other brands you admire?
Nik: What House is doing is pretty awesome — their manufacturing is done literally on their farm, they have all the bottles as inventory to fill. And Helaina is just a great brand marketer, really good at pivoting and making things pop. That one’s really exciting for me to watch and learn from.
On the performance side, not necessarily a friend but someone who just crushes performance — native is one of my favorites. The home page, the landing page, the cart, all the upsells, the payment token holds.
Sam: Yeah. The upsells were crazy. We have a post-purchase upsell where we sell a travel-size deodorant. We couldn’t sell it otherwise — it sells for three dollars with free shipping, so we’d lose money if we sold it individually. And we sell hundreds of thousands of those mini sizes every month. They’re very profitable. Costco basically is almost all mini-sized stuff because there’s so much money in it.
Hims and Brand vs. Performance Marketing [00:52:00]
Sam: I talked to the guy who founded Hims and Hers for this podcast. When they launched the business, they separated their marketing budget and their board said, “We’re going to spend X percentage on performance and Y percent on brand.” Right out of the gate.
Nik: He said the majority was still performance though, right?
Sam: Yeah, but that was — and he’s like, “We do brand stuff like coasters at bars.” Honestly my favorite thing about Hims is Andrew is just a genius with what I call finding new inventory. Like above urinals, the coasters, Bumble used to do coffee sleeves. I love seeing brands do stuff like that.
Nik: Yeah, that’s so creative. You’re at a bar on a Friday night and suddenly you might have a conversation about it because it’s on your coaster. It’s a product the bar is giving away for disposables.
Sam: And they covered the cost. What impressed me about Andrew was: one, the marketing channels he created that didn’t exist before, and two, I’d never heard of a DTC business at such a young stage having the ability to spend so much money on brand marketing. Usually you have one marketing budget and you split it between brand and performance — but in reality you have numbers you have to hit. And he said, “This is how we do it, and we have to invest in brand if we want to be around in 20 years.”
Nik: That’s a great point.
Sam: I feel like Away did that, and Allbirds does it as well. I just don’t know — Native never spent one penny on brand. Hint’s budget was performance too.
Nik: Most of the brands I’ve touched — it could just be because I work with the hyper-growth ones or the more performance-based ones — a lot of them their marketing budget is focused on performance. A very tiny percentage is dedicated to brand. But I do think Andrew did a great job building Hims. Everybody knew about it basically on the day of launch.
Sam: I wonder, looking back — I’d really spend on brand and then struggle to find an exit, struggle to maintain valuation. Away seems like it’s going to struggle as a result of COVID. And then I’m like, all these brands I really like that spent a ton on brand — beautiful out-of-home ads, beautiful imagery, team commercials — I’m like, did you let Vince Camuto create this? This is fantastic. I want to freeze this ad and hang it on my wall. And then they have a hundred million dollar valuation having raised four hundred million dollars.
Nik: It will be a really interesting case study in 15 years. Because just from how I’ve seen Native — native has always been well-named, and I think Hint did it really well when I was there too. It was like “performance branding” — you build your brand equity on the back of your working media dollars. Native simplified the messaging a lot, which helped. That’s why I like Black Wolf Nation too — the messaging is simplified. A lot of these products provide convenience and an actual function, they’re consumable, which I think matters. Because they have functional benefits to the consumer, you have to work a little less on the brand side. If you can show them the outcomes or the benefits, you just have a stickier brand.
Sam: That said, I would also bet money that some of these companies that spend a lot on brand probably tried to do what we were doing at Native but just didn’t have the skillset to execute it. So their pivot was to brand, and now they’re doing whatever they ended up doing.
Nik: Yeah. It’s really hard to build a performance-based company that has $500 million in revenue. I think the only way to do that is to also invest in brand. But I’m not sure brand marketing alone can get you to a $50 million company. You need some of that performance to take off, like an airplane needing energy to get off the ground.
Harry’s and the DTC Ecosystem [00:59:30]
Sam: It’s crazy to think about what will happen in this community. I think about Harry’s and the FTC saying, “This acquisition isn’t going to happen.” I don’t know what Harry’s does now — P&G certainly can’t acquire them, they know they’d have another antitrust problem. What does Geoffrey do? He built this amazing brand, somebody agreed to pay $1.4 billion for it, and now it can’t get done.
Nik: If Sprint and T-Mobile can merge so there are only three phone carriers, if United can merge with Continental, Delta with Northwest — why can’t a DTC company sell to a strategic? We’re a direct-to-consumer company that launched in the last five years.
Sam: I think it’s anti-competitive and it’s also a complement.
Nik: Totally a complement. And I respect Harry’s immensely. I think our lives — yours and mine — were made so much easier by virtue of the fact that Andy Katz-Mayfield, Jeff Raider, and Eddie from Harry’s paved this path for us. Andy was like, “We’re going to build a direct-to-consumer business online” — and everyone was like, “What the hell is that?” And, “We’re going to take this DTC business and want it in Target, and it’s going to be successful there.” When it came to Native I was like, great, I know exactly what to do with a business like that. Target was like, yeah, we know why this is a good deal — Harry’s has been taking a ton of market share. And Native is now 12 or 13 percent of the deodorant sales at Target, over a million dollars a week there.
Nik: We’re walking in the footsteps of giants. And unfortunately Andy Dunn didn’t have the best outcome at Bonobos, and the outcome for Harry’s is too early to tell. But it certainly made our lives a lot easier.
Sam: Totally. I think one thing that always gets lost — even in those press pieces slamming founders — is that a lot of these people paved the way or created these movements, and that’s something to be appreciative of. Like you said, it allows us to have a job.
Nik: Yeah.
Timing Is Everything in DTC [01:02:30]
Sam: I really think 60% of this industry is building your business and 40% is getting the timing right. Outdoor Voices was a hot brand — brought in Mickey Drexler from J.Crew as their chairman, brought somebody from Nike who was like president — they just didn’t get the timing right on when to find a home for that business. Same thing with Casper. Fantastic brand, absolute brand geniuses. First month they launched they had a million dollars in revenue. They were sending out air mattresses because they couldn’t receive orders — “We’re going to send you this air mattress until we can get you a Casper mattress.” They pioneered out-of-home ads in New York, particularly subway ads. I don’t remember seeing simple yet elegant subway ads until I saw Casper. Now literally all DTC businesses are doing this. They just didn’t find a home at the right time.
Nik: Yeah.
Sam: I know we committed to some subway ads this summer. What happens to those?
Nik: We’re trying to look at it. Native agreed to do some subway ads in New York — current sales pick up in summer because it’s warmer, you’re thinking about sweating, you’re outside. We wanted to buy some out-of-home ads and they were pushing for — I don’t know exactly what time they were pushing for, but I pushed for summer, which is now the worst time ever to run subway ads because ridership is down probably 90%. We’re trying to push them out a bit so we can still get some traffic. The deal you agree to is based on historic traffic numbers, not a guaranteed CPM based on actual ridership. Absolutely terrible timing.
Sam: Nothing you could have predicted.
Nik: I was super excited. I was going to do stuff like, “What stinks down here? Not you, if you use Native deodorant.” And the subway guys were like, “You have to be careful — you can’t make fun of the subway while buying our inventory.”
Sam: What stinks? Not you. Use Native deodorant.
Nik: Yeah, I think that would have been okay with them.
Facebook Ad Prices and Market Opportunity [01:07:00]
Sam: It is crazy out there. When I talk to people advertising on Facebook these days they’re like, “Prices have come down substantially. CPMs are down because United and Toyota aren’t advertising on there now.”
Nik: And then the really savvy people went in and started creating campaigns, and the overall inventory got super cheap.
Sam: I remember in 2017 Marc Pritchard, the chief brand officer at P&G, went on the Wall Street Journal and said they were cutting their Facebook ad spend by a hundred million dollars because Facebook just doesn’t provide the return on investment it should. I was sitting there pre-acquisition thinking, fantastic. You’re missing it out here.
Nik: Meanwhile, I’ll go ahead and increase my spend. That’s what happens in auction-based platforms — if somebody pulls out, inventory gets cheaper.
Learning Digital Advertising [01:09:30]
Sam: If someone’s going to start a new business today, what’s the best way to learn about digital advertising? I spoke to Kara Goldin earlier this week — she said they ran a Super Bowl commercial and it cost under a million dollars. When you said you focus mostly on performance ads, it sounds like that’s changed now. But you’ve run acquisition at a bunch of companies. What’s the first step someone should do if they’re cold — working at Johnson & Johnson or working as a paralegal somewhere — and they want to run a DTC business? Where should they go to learn about digital advertising?
Nik: They know to text me. The main thing — I always tried to find like, was there one site that was really good at educating you, or that one course? But it just doesn’t exist. And this world changes so fast that there’s really nothing that can constantly keep up. What I found is the best tool is just building a group of people that I constantly talk to. Most of them initially were just actual acquisition people — head of marketing at ThirdLove, or Madison Reed, or some of these big DTC brands. Then I started figuring out I could use Twitter to network. Now I’ll talk to people running tens of millions of dollars of ads all the way to people doing a thousand dollars a month in sales.
It’s easy for me to learn just by seeing what other people are doing. The other thing I do is stalk the really good brands and see exactly how they do it — looking at their creative. If you go to Native’s Facebook Ads library, 80% of the creative looks the same. That’s the creative that’s doing really well. I constantly have a list where I’ll go through the top 50 or 60 brands and just see what all their landing pages look like. If I identify similarities, it’s because it works. I learned by observation — looking at what other people are doing, figuring out the why, and then taking that why and making my own version.
Sam: That’s a great point. Someone made fun of us for having a landing page that looked like Harry’s and I was like, you’re using this as an insult, and I’m picking it up as a badge of honor, as a compliment. We didn’t spend the money to do the testing, we looked at other people and emulated. And if you look at brands spending millions a month, we don’t have to do the testing — they’ve done it. We just have to see what they’ve come out with.
Nik: I’m a big fan of work smarter not harder. Looking at competitors or best-in-class sites to see what they’re doing really well. And when you develop a network on Twitter, Slack, or wherever — some spending a thousand dollars a month, some spending ten million a year on Facebook — it helps in a few different ways. If I know I’m helping out a telemedicine brand trying to onboard new customers and their journey requires going through insurance, I have a friend who runs marketing at another telemedicine brand for women where they have that whole funnel. I can just text him and ask a question. Or I needed a Shopify developer two months ago and asked a couple friends and right away they were like, “Oh yeah, here, use this guy, he’s the best.”
Building Networks as Education [01:14:00]
Sam: Totally.
Nik: I’m a big “questions person.” My theory is — and this is the reason it kicked off for me — I don’t really have a formal education in anything. And I also wasn’t a big reader. So my thought process was: instead of going to books and instead of going to college, if I just surround myself with the people who write those books and get the information first, I should be in a good enough position.
Sam: That’s absolutely right. I have a formal education and I can tell you I almost never use it on a single day — unless someone’s saying something that requires me to go, “I’m a Harvard lawyer and I don’t have to do this.” That’s basically the only time. And you’re talking about networks — in San Francisco, when we were growing Native and were really small, I started hosting an e-commerce brunch. One Sunday a month I’d get about ten people who were all in e-commerce into a room and we’d talk about problems we were having from an operations, personnel, and marketing perspective. I’d ask what’s not working for you on the marketing side, where are you spending money. That network really helped me understand the shift from desktop to mobile, mobile static to mobile video, landing page colors that worked, how important creative was versus headline, how important the display image was before a video started. Coming out of those brunches I’d be like, “It’s Sunday at 2pm and I have nine hours of work to do today because all these guys had such good ideas, I need to get started executing.”
Nik: Yeah, totally.
Sam: Myself, Scott Swanson — he was head of marketing at ThirdLove — Hadamard at Madison Reed, and Mike Dubow when he was at Stitch Fix. We’d all get lunch once a month, all with pretty much the same customer but not competing. And Scott and I would come up with an idea that we discussed over lunch and it would make us an extra hundred grand the next weekend. Third Love and Madison Reed did a ton with podcasts and TV, so we learned a lot about that before we stepped into it. It helped us figure out the right agencies, who the right buyers were, all the way down to random team stuff.
Nik: It’s like your personal Yelp where you have a bunch of people who’ve had experiences. It’s brainstorming where you need other perspectives to open your eyes. For me I had a guy — Eric, who runs Nectar Mattresses — and I saw his business go from zero to north of $200 million. Every month we’d come in and I’d be like, “What the hell is going on over there? How is your growth that huge?” Really helpful. Looking at someone from a big perspective, or someone small but growing, and struggling, but having a lot of insight.
Sam: Those networks are underappreciated. They’re totally below the radar and a total advantage.
The Shared Customer Acquisition Opportunity [01:19:30]
Nik: You’re talking about how we had different businesses but certain things would work — I don’t know, there needs to be a private equity firm that buys up a bunch of these businesses and spreads the biggest costs. One of the biggest is customer acquisition.
Sam: Definitely. The customer who is a Native customer is probably a Hint customer, and the customer who is a Hint customer is probably an Outdoor Voices customer, and we’re all paying Facebook to acquire these customers independently instead of saying, “We have this one email address that would probably apply to all three of us.”
Nik: I’ve thought so much about this. There was actually a company that tried to do exactly that — the farthest it got as operators was sharing Facebook lookalike audiences. But everybody got super protective about their email list, especially if it was a big list. And secondly, anything from a bigger company with more than 50 people naturally had a chief technology, chief privacy, or chief legal officer, and that’s where it gets really tough.
But if somebody could figure that out — here’s another one — imagine a Shopify app where I’m at Hint and you’re at Native, and it’s one landing page, you check out on the landing page, and it pushes the order out to both Hint and Native. On the back end it gets fulfilled like a normal order. On the front end the customer pays once, puts their information in once, and it goes out to two stores.
Sam: So there’d be one checkout?
Nik: Yeah. It could be that, or more so: the reason a lot of people don’t do acquisition collabs is because it’s like, “Who owns that customer technically? Is it on my store they checked out or your store?” In this case everybody wins.
Sam: I think the first step to getting there is the private equity company coming in and buying these businesses and sharing costs. Because once they prove that “hey, this stuff works and we can bring your marketing costs down 35%” — and that’s the biggest line in your expense sheet — all of a sudden everyone’s going to be like, “This company has a competitive advantage and we have to.”
Nik: I think there are certain companies trying to do this. I’d be surprised if Atomic and Hims & Hers don’t share that kind of stuff. I’d be surprised if the new Gin Lane isn’t trying to do that as well.
Sam: People are attempting it. Like back when Facebook would share interests with you — I’d look at Native’s audience and see what other things they liked. That’s how I found a lot of media partnerships. The first time I ever did it, the Honest Company was in the top five and I was like, “Yeah, this is it.” We have the exact same audience and each of us has to acquire these customers independently. Doesn’t make any sense.
Wrap Up [01:23:30]
Sam: Awesome, Nik. Really appreciate your time. We’re way over already. Thanks so much for being on the episode. If people want to follow you, where should they find you?
Nik: You can text me at 917-905-2340, or you can follow me and tweet me on Twitter at mrsharma.
Sam: Fantastic. Thanks so much for your time, really appreciate it. I always love chatting with you. I feel like you and I have this ethos of performance marketing for DTC businesses — there’s no hoopla, no putting yourself out there like royalty. You’re like, “I’m a commoner fighting the good fight.”
Nik: Exactly. And it makes it a lot easier to challenge.
Sam: Awesome. Thanks so much for your time.