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- [00:00]
A
With poker, you're not really building equity in anything. You're kind of trading time for dollars. I kind of got to top of that. I was the biggest game that ran regularly in the world. There was not a bigger game.
- [00:07]
B
Brian Tate made millions as a professional high stakes poker player. Then he walked away from the table and built oats overnight. Today, the company is one of the fastest growing food brands. He applies the same discipline, patience, and risk control that made him money in poker to building one of the fastest growing consumer brands in America.
- [00:23]
A
I started out as a side project, just a distraction from poker. Yeah. So learn a lot. Right. I had no experience in food E. Com manufacturing. As we scale and we're constantly breaking systems, rebuilding those systems in real time, we intentionally have no brand guidelines. We do a lot of things that, that look a little crazy. Of course, we're big fans of testing and learning when you can unwind.
- [00:46]
B
Ryan, thank you so much for coming on the show. How are you?
- [00:49]
A
I'm doing well. Thanks, Mike. Happy to be here.
- [00:52]
B
Really, really appreciate you taking the time. So how did you become a professional poker player?
- [00:57]
A
So my journey started with a game called Magic the Gathering, if you're familiar with that competitive card game. In my teens, I played Magic the Gathering on the pro tour and, you know, huge nerd. As you can imagine, not a lot of money. In magic, you're playing for promotional booster packs and things like this. And so when the poker Boom happened in 2003, Chris Moneymaker, this account won the World Series of Poker. And it seemed like overnight every, you know, ESPN was showing live poker everywhere. And, you know, the online poker site started advertising the US Market and really just exploded this whole industry. I was in the right place at the right time to jump from magic to poker. Of course, with buy ins came bigger prizes, and online poker was really born. And so I started in, I was, I was just under 18 at the time, but. But right, right around that age when I got started.
- [01:49]
B
Right around that age. Well, we'll say over 18, right? We'll say over 18, right.
- [01:56]
A
Publicly.
- [01:56]
B
Publicly, I'd imagine. Although I don't know what the. I guess the gambling age, it is. 18, is it?
- [02:03]
A
Or. I think it's 18. Yeah.
- [02:05]
B
Okay, cool.
- [02:06]
A
So publicly. Yeah.
- [02:07]
B
So 18.
- [02:07]
A
18.
- [02:08]
B
All right. How. Well, how did you find that you were actually getting like, good enough, good enough that it made sense to actually turn pro or what does that even kind of mean, turning pro? Or when, when was that kind of moment that, that you figure, okay, this can actually be like my, my Full time career.
- [02:27]
A
Yeah. So I think, I think for, you know, pro can mean a lot of things. There's pro players that make, you know, 50, $60,000 a year grinding small stakes poker. That's a tough way to make a living, by the way. Lots of variance behind that number. Not a fun way to make 50k. But there's also pros that make, you know, high hundreds of thousands, maybe millions a year. So I think, you know, early on, didn't know what this meant. Didn't know the risk management side of this was really just playing a game and trying to get good at it. So I think around the time we started making, my friends and I started making money enough to pay some bills and you know, felt good about building a bit of a bankroll and it started to get a little more serious. Although I'd still say in the first few years it was more gambling than professional poker. You know, had a lot to learn about bankroll management, risk management, of course, all very important lessons on that journey.
- [03:16]
B
So, but, but by the time you kind of hung it up, you made nearly $10 million. Is that right as a professional poker player?
- [03:23]
A
Yeah.
- [03:25]
B
And so why, why did you decide to call it quits and kind of go in, go all in on, on oats overnight and I guess what was the story behind starting oats overnight from the beginning?
- [03:38]
A
Yeah. So poker, poker is very, the steps are very clear. Like as you, as you grow through the poker industry, you know, the stakes are really the limits that you play, how much money you can earn. So, you know, a $20, $40 game is half as big as a $40, $80 game. The, you know, you can make more money at $40, $80 limit, but the game's tougher. And so as you grow through your professional career, you might go from 40, 80 to 1, 200 to 2, 400. It's very clear what table you're playing at. It kind of indicates the level of play that you're, you're competing at, which, which is pretty obvious. The thing is, is the money filters up, you take a shot at the higher stakes game, you usually lose because you don't know what you don't know. You have to go back, earn your money at the lower stakes game, kind of figure out what you need to learn and kind of reverse engineer those strategies at that higher stakes level. Eventually, of course, you start catching on, you start making a little more money, Some of the concepts may click a little more and you might stay there and actually start earning at that level. And so that 12 year period where I was building in poker, just leveling up from the smallest stakes to the biggest game that ran regularly in the world. For the game type that I played living in Vegas, at the top of that, I was playing the biggest game that ran and there really weren't, there was not a bigger game that would run regularly. So I kind of got to the top of that mountain, which was an awesome experience, by the way. Didn't want to sit sedentary at a poker table 12 hours a day and so was kind of looking for the next thing. I think when there was no next clear step in the poker journey, it started making me lose a little passion for that journey. And, you know, I was in my late 20s and wanted to build something. With poker, you're not really building equity in anything, you're kind of trading time for dollars. Very cool experience again competing there, but I wanted to build something and so I was making a homemade version of overnight oats, you know, similar to how oats overnight is today. More milk, more protein, so it's really convenient and, and fit my macro needs, my nutrient needs. I was trying to work out as much as possible while sitting at a table for, for so long every day. And yeah, and it was great. It was, it was kind of right in front of me. I invested in a few friends companies, did a few, did, dabbled a little bit in some investments, but didn't find anything I liked and ultimately started oats overnight. And we launched in 2016. So started out as a side project, just a distraction from poker that I could invest some time in, which, you know, quickly picked up. In the early days, was there a.
- [05:54]
B
Moment that when you were, when you were making and having notes, was there a moment that you actually thought, okay, maybe this could become, obviously it's turned into a incredible brand. But were there moments that maybe gave you confidence that this could actually become a real business or doing, for example, like little tests to kind of build that?
- [06:24]
A
Yeah, absolutely. So first off, love the product. Myself, my friends and I were making different versions of this product. I think you kind of assume that everything's been made. As a consumer, I didn't have the idea right away to start this as a company.
- [06:40]
B
What was different? What, what was different to, to how you were making the oats?
- [06:43]
A
Yeah, so overnight oatmeal was gaining a little popularity on the coast. It was still cold. Oatmeal was still very weird at this time, mainstream, but, but we were making it with more milk, more protein in a shaker cup. So A spoon free like our version is today, where the traditional recipes were more mason jar and spoon. Kind of crafty, you know, didn't travel well. Right. Carrying around this mason jar and so, so we opted for the shaker cup, more milk, more protein and it really kind of a protein shake oatmeal hybrid. Um, and you know, when looking for a prepackaged version, kind of being sick of measuring and prepping it, we were just shocked to find it didn't exist. And so right away it was sort of a light bulb moment to bring this to the world.
- [07:23]
B
Got it. That makes sense. Um, well what were, what were like those early days like after you decided that you wanted to go to all in or. Or to start. To start OS overnight. No pun intended obviously. But what, what were kind of like the first steps that you, that you had to do?
- [07:45]
A
Yeah. So learn a lot, right? I no experience in food ecom manufacturing. You know, crazy enough to kind of start the facility as well ourselves. We couldn't work with comands. I was emailing people and calling people and you know, couldn't speak the language of manufacturing. So yeah, I was about to say.
- [08:02]
B
Why, why did you vertically integrate from the get go? Was it. Was it because no commands would kind of take you on or what was. What was the reason?
- [08:10]
A
That was basically it. I mean, you know, we making this tabletop, we could do a scoop of, you know, scoop of flax, scoop of chia, some protein, some oats. So we really constructing it by hand. What we'd later learned is that it was just hard to do that at scale with like the powder component relative to some of the inclusions. Commands weren't really set up for this and so we would have had to invest in a lot of like new machinery and the barrier was pretty high to get started. That said I knew how to do it at a tabletop setting. So we just recreated that in a small 2,000 square foot facility. Hired an advisor to help us with regulatory like registering with the FDA and all the traceability and lock control required for those early things. Some of the quality programs at the early stages and yeah just kind of dove right in again. Learned the hard way pretty much everything. Learned the hard way, made so many mistakes but you know, googling everything at the time. I wish he was around would have been, would have been a little faster but you know this was, you know, we were talking to all the wrong vendors, all the wrong manufacturers. You know, we ended up just doing it all ourselves and glad we did. I mean now you know, we've controlled our own destiny through this last decade of operating and it served us really well. Now, of course there's a lot of benefits owning manufacturing and, and we've continued to kind of push those, push those edges for our benefit. Yeah.
- [09:22]
B
And talk with you a little bit about what that was like. You know, you were renting equipment. I think you put like 500k right into, into the initial, into brain equipment, obviously taking my batches. I think you had your mom doing fulfillment and then you also had like your, some of your poker friends as well that were a part of it and I think are still part of it. What do you remember from those kind of scrappy months?
- [09:48]
A
Yeah, I mean we just continue to get things wrong. So you know, we ordered our boxes, our corrugate boxes were just over a pound and you know, so our shipping costs were like $2 higher with USPS than they needed to be for the sub 1 pound cost. So we were exacto knifing the corners off the boxes, every single one to try to get it just under a pound. I mean just so many situations like this where again we knew this was not optimal but just had to make it work. And of course lots of long hours. I mean I was making them, making the oats myself during the day, like packaging everything, blending it up in this little 100 unit ribbon blender. And then you know, doing Facebook ads and email flows at night, you know, talking to customers on Facebook through ad comments, answering emails for customer service like you mentioned. Hired a few friends that played poker professionally that wanted to try something new. Hired my mom to help run fulfillment. Fun early days. But you know, some of, some of the team that we brought on from, you know, my past life left and it wasn't a fit. Some, some are still here. So pretty, pretty, pretty, pretty cool to see all that above.
- [10:51]
B
That's awesome. What was the approach for the online market? I know that you started D2C. I know that's still a massive channel for you all. What was the approach there in terms of getting your name out? Distribution, marketing. And this also new kind of idea in terms of how oats can be consumed, not using a spoon, how it's a bit more of a shake. How did you express that in your marketing?
- [11:20]
A
Yeah, so we always wanted to be. You got to grab attention in marketing and so it was easy for this format to grab attention like playing on drinkable oatmeal and just how differentiated that is. A lot of ways to market it. We started out with just really small budgets on Facebook, so 20 bucks a day or something and would see pretty good conversions. Of course this was probably the tail end of the glory days of Facebook advertising, like 2016, 2017. So we're still seeing, you know, fraction of the cost for CPMs and you know, ten $15 cacs. So, so right away the economics made sense to continue scaling. So we scaled pretty quickly through that first year. I know we did like $1.5 billion in revenue our first year. Just, just, you know, just piecing away at it and learning a lot. Again, iterative is one of our core values and happy to chat more on that. But we, we test and learn everything, you know, iterative with every single element of the business. And ads always shined as, as one of the areas that we needed to get right. I think one of the things that we've done well is really creative. You know, from the beginning we've taken a really hands on approach to creative, specifically on direct response digital marketing and always have diversified creative in pretty meaningful ways and you know, always try to push the boundaries on what grabs attention for food. But again, a lot of levers built into oats overnight to do so own manufacturing. You know, we can really showcase that like we do now. And also speaking to the R and D as well, as well as the.
- [12:42]
B
Team, can you expand on iterative as a core value?
- [12:47]
A
Absolutely. By the way, core values, I used to think for such kind of bullshit, you know, you know, people put like integrity on the wall or what, you know, whatever. It's, it's like we should all, you know, we should all have integrity, of course, by default. But, but I've come to learn core values is something, you know, beyond your function that you do. You got to be good at your job, right? Your functional area. But beyond that, what are some of the attributes that will make you succeed here and also grow? And so iterative is one of the big ones. I think any growing company needs to bake that into the culture because, you know, processes work until they don't. You double, double in size. That old tool, that old system breaks down, you have to rethink it, reimagine it. And so setting that expectation at scale with your team and your employees is so important. So they embody that. I think people are generally resistant to change. So being over the top with embracing change and just the need to iterate, I think sets everybody up for success where they otherwise may have not been. So we're iterative with all things. I mean, our creative, you know, we're producing 10 plus net new pieces of creative a week internally. We use some outsourced resources as well. We're iterative with product. We're tweaking products in market and measuring those changes in response and, you know, iterative with process at scale as well. By the way, are we having connection issues by chance? Yep, a little bit.
- [14:05]
B
Yeah. I'm sorry, one second. I don't know why I did that. These Bose headphones. I think it's my fault. Can you hear me okay?
- [14:14]
A
I can hear you perfect. Yeah. You haven't skipped at all for me in terms of your talking. I just, I just saw your video skip a couple times. I wasn't sure if that was.
- [14:21]
B
Yeah, I. It might be because, gosh, this is so annoying. These headphones are connected to both my phone and, and computer. And sometimes what happens? Well, actually I did turn it off prior to this, but like, like Bluetooth, my phone. But what has happened before is someone will call me on my phone and then it switches to my phone and it then won't switch back. And I did take Bluetooth, Bluetooth off, but it still decided that it wanted to try to like, accept the call and, and like be part of it. So I apologize. Sorry about that.
- [14:57]
A
No, you're totally fine.
- [15:00]
B
No, that makes, that makes a lot of sense in terms of, in terms of like I, I'd imagine with, with iteration too, because what's that really also interesting about how you've built this company is because you're vertically integrated, is that you are probably innovative on, on every, every part up and down the supply chain. Also on the marketing side. Absolutely. Because you control, you control the majority of the product.
- [15:30]
A
Right. And I think that's, that's the piece right. Is I think we think about this from like a systems perspective. You want to continuously improve all things. And the more you own, the more you can continuously improve. Right. And also the more synergies you can find to build something that's net new for the consumer. And so owning manufacturing, if you can tweak an element of your manufacturing that can differentiate the product, that makes you harder to follow by the field. That's all working with the same contract manufacturer, same format, like that's a huge win that you can't find elsewhere. You know, we've built, you know, the fact that we own our own fulfillment, manufacturing, procurement, R and D lets us tweak products in market, lets us see those early signals, lets us be very iterative of product format. I mean, we're version 15 of Blueberry Cobbler. We'd be the worst partner for a contract manufacturer. They just wouldn't be able to get it right. And so we can do all these things and continuously improve their product with efficiency at scale, all because we own all the inputs. And I think that's been something that we've leveraged for success.
- [16:29]
B
Why has odes overnight worked so well on. On the online. On the, on the, on the DTC channel? Because, you know, usually in cpg the thinking is, hey, your basket sizes are not going to be big, big enough where online makes sense. Um, and there's a lot of challenges that, that can go with, with DTC as well. And you know, most people shop grocery obviously in stores. Why has online worked so well for you all?
- [17:01]
A
Yeah, you know, online you need a lot of things. You need to have a product that's, that can drive creative, that's curious enough to grab attention. You need a product that's sticky enough to, to, you know, that could potentially have a subscription model, most likely have a subscription model drive, repeat. And you need the frequency last to. To. To get the consumption to be high enough where you can bundle, you know, a month's supply with a reasonable AOV that justifies your, your investment acquisition cost. And so we definitely have all of those things. You know, we again we talk about how weird it is to drink your oatmeal. That usually stops a scroll and, and grabs attention lots of flavors. We, you know, we bake some of these things into the marketing well and then, you know, the product's just very good and it keeps getting better given that we own the R and D and keep iterating on that product formula. So all the product formulas and so, you know, frequency, like 72% of our customers eat three to six times a week, which really helps with frequency. So we're able to force people. I say force. We're able to encourage a subscription offer up front. You know, something like 89% of our customers subscribe on first purchase. Of course, we're really generous with refunds and cancellations if customers want that. So just risk reducing upfront getting, getting people to subscribe on first purchase really helps with that retention rate. Helps with the cohort paybacks.
- [18:18]
B
Makes a lot of sense. Why did it make. Well, why did it make sense to raise venture funding for this?
- [18:24]
A
So we're running a really heavy operation. You know, everything that we're investing in, you know, from like the team, the, the equipment, facilities, it's really heavy. So, so we've got, you know, we've raised quite a lot of money like near $100 million, not quite there. But you know, our balance sheet is close to that. So we've used it pretty efficiently. Definitely minimal cash burn. We're not profitable, but a lot of investment into making this machine run. And so again I think what we're excited about moving forward is building new products, building more of a platform around the data that we collect. We probably have one of the more interesting zero party data sets of any CPG brand. You know, tying formula attributes through version control and tying that to craveability and ultimately retention. And so we know, you know, between like sweeteners, sugar sodium ratios which are optimal for driving high repeat, you know, by flavor, also tracking a lot of really unique data around consumer preferences and you know, who likes what. So we're getting really good with segmentation around our flavors and good with iteration to maximize LTV.
- [19:35]
B
How do you think about testing SKUs? What's the process there?
- [19:38]
A
Yes, so we track as many signals, early signals to retention as possible. So we track both feedback and behavior feedback. We built the stars and notes tool in our portal. It's custom so customers can basically star rate flavors they like. They can leave notes on flavors so it tracks through their shopping experience. We timestamp those and so we can track those pre and post formula changes and scrape sentiment to understand, you know, the context of, you know, if people like the cookie flavor more in cookies and cream after we made the change, how that star rating changed. Like basically the feedback they're telling us, we're also tracking behavior in terms of, you know, what they do more than what they say and you know, beyond for that it's, it's swaps activity. So we have 60 different flavors. Customers are really active with their subscription oats overnight. I think, you know, every, every, every month they're in there, they're getting 12 flavors on average per box. They're, they're customizing their box every shipment. And so we're tracking after changes within that 30 day period what they're swapping out of more than, you know, relative to the rest. And so we have, we've built what we call the flavor command center that basically stack ranks all of the flavors by these churn indicators. And so we can basically say hey, we reformulated maple pancakes, it used to be the 18th highest retaining flavor, it's now the 12th. So, so we know that reformulation was favorable for retention on a 30 day window. And so these, these really early signals are helpful to, to basically make changes, see, see the impact and continue to apply those More broadly also it helps with, you know, reformulating skus bottom quartile. You know, we'll, we'll either rationalize those skews, scrap them or, or reformulate them.
- [21:12]
B
That makes sense. I'd imagine once you get into retail, I, I know you all are all in retail even though you started off, you know, D2C but what you into retail, obviously I'd imagine it changes and maybe a lot of testing goes on D2C and then maybe hero products go into retail. Is that, is that roughly kind of correct?
- [21:31]
A
That's exactly right, yeah. So we use, you know, D2C is much more, much more rich data than retail, of course, but these learnings flow through to the retail product. We also know when we're building up the shelf of flavors, we know which flavors may be more incremental based on how the baskets are being created on our customer orders on D2C. So we have a lot of rich data that we still can apply to kind of figure out what's the most incremental set of flavors to have on shelves at different partners. Of course also, you know, the extent we can get some of those retailers data, we, we can, we can really curate selections for them.
- [22:03]
B
Got it. That makes it, makes it. Well, when, when did you all head into retail?
- [22:09]
A
Yeah, so my first buyer meeting ever was with Walmart in Bentonville in like 2019. And it's very intimidating. I was terrified frankly. So classic, like take a number, get in line, tiny little conference room. We had the pouch and shaker cup at the time. And you know, the concern with going into retail was this pouch, you know, the shaker cup that we have here in the pouch. We couldn't merchandise the shaker, of course, in Walmart's hot cereal set. And so the concern was, will customers know that with this pouch they need to add milk, they can't use water, they need a shaker cup, they can't use a bowl. All these things that made it so clunky for a customer to understand, you know, without the video and all the education we can share online. And so, and we knew plenty of customers were having trouble with that, even online with the video. So we reformulated into a single serve bottle with a powdered oat milk mixed in so you could add water to a fill line. Basically an all in one solution that scrapped the need for the shaker cup, scrap the need for the milk. So it's pretty foolproof. The problem was we had never sold one of these bottles in history. So the one small problem so we went to the Walmart meeting and I have, you know, our pouch and all of our data. We had a deck and then I have this like, taped up prototype bottle. I'm like, yeah, this is doing great online, but, but, you know, you really should, you really should carry this, you know, for these reasons. And you know, the buyer, actually Quincy was her first buyer meeting ever as well. She had just joined the desk and so that was a pretty funny one. But she, you know, basically said, hey, you know, we're not interested in the bottle. We want the pouch. And it was, it was, I'm like, oh no, what do we do? So it was a really tough one. I tried to explain, you know, why the pouch wouldn't work as well and, and all the things, but we ended up, you know, at a bit of a standstill again. I was, I had no idea how to, how to proceed because we didn't think the pouch would be best. We wanted to hold out for the bottle. And so we had some conversations, you know, with our broker partners and, and then Covid happened. And so, you know, kind of, kind of good timing in this exact moment because it kind of pushed these conversations down the road. We had, we had time to better commercialize the bottle, get a real label on there, and also ended up launching first with Wegmans. So we got a couple of proof points before going back to Walmart shortly after. But Walmart was a really early partner with us. They've been a great partner. They leaned in super early, you know, with that, with that retail grocery bottle format. And so we launched nationwide with Walmart pretty early in the journey, which is again, unique for, for a cpg.
- [24:34]
B
What was that, what was that like? Sticking to your gut in terms of this format we think is going to work in retail, even though this is our, you know, it's maybe not. This is just kind of the concept, this kind of duct tape version of the content concept that you presented. But what was, what was that like, you know, a buyer telling you, no, we want obviously, the product that, that, that is doing so online and everything. What was that like for you? Just pushing back and then, you know, even though you have, you know, Walmart kind of want your product to come in, but not the product that you actually want to be in the store.
- [25:13]
A
It's tough, right? I mean, I think it's easier when you have more data to support it. It's harder when you don't. And it's all hunch. I think for this moment it was somewhere in between, you know, the fortunate thing is I'd been answering Facebook comments personally for, you know, the three or four years leading up to this conversation. So I had, you know, seen hundreds of points of confusion with the prep, even with all the video and all the instructions. So I just knew for a fact that sitting that pouch on shelf with no supplementary instruction or information, it would have been really tough. So again, the contacts, being so close to the business helped me build that confidence for sure. There's certainly, there's certainly elements of the business that I'd have less confidence in proximity. But, but this one was a clear one, I think from the beginning.
- [25:58]
B
Got it. No, that's, that's helpful. I mean, and obviously, you know, not that anyone is wishing that Covid ever happened, but at the same time, the fact that it did happen at that particular time moment, it was very beneficial not to take the Walmart deal, I'd imagine in, in 2019, and instead launch of course, after Covid in Wegmans. What, what, what has been your philosophy or approach when it comes to retail expansion? I'm like, for example, you just got into weapons, you're going through Wegmans. What does it make sense to expand stores, store accounts if you're able to, or even bring on another retail buyer?
- [26:34]
A
Yeah, so we, we wanted to grow fast. I think one of the. What since we were D2C first, we've already built this awareness with all the, all the Facebook, Instagram, TikTok ads. Of course we're were still unknown to many, but at this time we had, we had a lot of impression share through, through this. And I think this is, this is something that it's changed a bit in the last maybe four or five years. The thoughts around it, I think historically, you know, it used to be go regional, crush it regionally with your food product, and then really expand out outward from there. But being national nationwide with broad audiences on, you know, direct response media really paints paves the way to have awareness when you go on shelf nationwide. So we wanted to move fast. We didn't. We kind of took most opportunities. Of course, some if slotting didn't make sense, we'd hold off. It's not like we were looking to burn money in a bit of big way, but our philosophy has just been to get, you know, get everywhere. We think that makes our ads more effective. Not everybody buys food online, of course. A lot of people see our ads and you know, just won't buy food, let alone drinkable oatmeal online for 45 bucks. But when they see it on shelf for three bucks, they're certainly willing to try it and sample it. So we found a lot of synergies between our online offline channels that have kind of further pushed up AOVs on the D2C side, pushed up pack sizes to complement that a little more.
- [27:53]
B
Since you have all this on like online awareness that you've done. And it's so interesting because I've had so many companies and also investors come on and say, oh, you got to go one break at a time, one store at a time and kind of making sure your velocities and sell through is all kind of working before you expand. Where I really, really appreciate your perspective of, hey, we want to go wide. This is the reason why we're going to, we want to go. Why? Because we already have so much brand awareness built online and it actually, it actually makes our product just a lot more accessible. Also being in a store another way that, that, that people who are interested would, would want to shop for the product. What, what is it like managing or that marriage between online marketing, online online marketing and trying to get people maybe to come in store and actually purchase your product and actually driving that awareness and having that lead into in store sales?
- [28:49]
A
Yeah, I, I think, you know, this is another, another thing where I think a lot of brands kind of get this wrong and force purchase paths. Like they may have a slightly higher margin on D2C so they're trying to, you know, QR code someone back to their website. They want them to reorder there. We're, we're, we're, we think that's a big mistake. We're big believers that you want to be as many places as possible, make it easy for the customer to find you. But then the lowest point, lowest friction path to purchase is what you should stick to. So, you know, if a customer does their Amazon, Amazon is probably our least favorite channel to be acquired on. Right. But you know, lower, slightly lower margin. But if a customer grocery shops on Amazon, like we want you to buy on Amazon, we don't want you to have to maintain a subscription separately. And then, you know, you end up canceling that because it's a hassle and you buy our competitor next time you're grocery shopping. It's so I'd say that we just look at this as very synergistic and again, want to be everywhere. We do love to differentiate the offering slightly. Like I mentioned, having that retail specific product really kind of takes the channel conflict out of it. Right. Pricing is different. It's a different product. And so it makes it easier to go fast and grow these channels without having like products just copy pasted across the different channels.
- [30:00]
B
What are some of the differences being in grocery stores versus being in, in, in mass chains like a Walmart or Target?
- [30:08]
A
Yeah, you know, that's a good question. I think that slightly different for us, it's a slightly different flavor set. Like we have, you know, like vegan offerings and sprouts. We have, we have slightly lower velocities certainly in some of the grocery outlets than we do in some of the mass chains like Walmart and Target. Um, those, those foot traffic in those sets is slightly lower. Um, but overall we, we look at them pretty similarly from the sales perspective.
- [30:34]
B
Okay, got it. But in terms of like, like marketing, do you.
- [30:39]
A
Yeah, I was gonna say that I'm like not super close to understand really the grocery mass differences. I just kind of.
- [30:46]
B
Fine. That's really fine. Yeah, yeah, that, that's really fine. Uh, can you, can you walk us a little bit through as well, the manufacturing journey? Because I think. Do you have three facilities? Is that right?
- [30:56]
A
We have two facilities, yeah.
- [30:57]
B
Two facilities. Excuse me. Okay. What. When did it make sense to expand to the second facility? That, that's the Ohio facility, right?
- [31:06]
A
It is, yeah.
- [31:07]
B
Yeah, yeah. What was that journey like when it came to? Why open like a second facility? And why also when I know that you started vertical from the get go and um, and it was forced upon you. Comands weren't interested in terms of working with this product. This product was very challenging. Once you grew to a certain scale. Did it ever. Did you ever think, hey, maybe actually we should maybe take a load off and actually use a comand. Maybe not exclusively, maybe we also manufacture, but we actually bring a co manufacturer name partner and not actually own everything.
- [31:52]
A
Yeah, we've once, once we sort of figured it out and built the team around it, we've got really great leadership on that side of the business. Our CEO Z Colombia, you know, he's done this a lot at a world class level before. You know, he's phenomenal. Vincent Comerford. You know, once, once we got this dialed, the benefits became clear. You know, we're not paying a third party's margin. We're at cost on everything. Labor inputs. We can schedule our online time. You know, we can build, build new rooms, hire a new team quickly. And so, so we, we were already seeing the benefits to the point where there was no turning back. You know, one of the things that we learned as we scaled because we didn't just go to Ohio right away. When we were, you know, In a first 2,000 square foot facility, we moved to a 10,000 square foot facility in Arizona like something like a year after. And then from there we just splintered off into these like 20,000 square foot facilities all, all in this clustered, you know, two mile radius. Out of need. Right. We were growing fast and needed space. There wasn't a joint space so we had to go find something next door that was a cluster. It was, you know, we had all this intra freight and managing, you know, all the different staging for materials, the quarantine incoming, all the testing. We didn't have the space to do it efficiently. So it was a very inefficient operation with like five different facilities in Arizona. We recently consolidated those facilities into one 90,000 square foot facility that I'm in today, which, which helped. And then we opened Ohio, which is over 300,000 square feet, which, which is just a beautiful huge facility in Cincinnati. You know that the benefit there. The real intention for Ohio was, was really shipping cost savings. The reason we wanted to go to the other side of the country is 70% of our orders would originate more cheaply from, you know, from the Midwest or somewhere in Pennsylvania just, just with the direct business shipping as a percentage of revenue as one of our, one of our biggest line items. And so this is a massive win net all in like a 400 basis point margin when just from turning the facility on. Lots more gains to capture as we get efficiency dialed in up there.
- [33:53]
B
Got it. That makes, got it. That, that's why Ohio makes a lot of sense. There's cost savings when it comes to shipping.
- [34:01]
A
Yeah. By the way, something that we learned that might be interesting is the economic incentives to build were significant. So when we looked to build a facility, we looked at different states, different regions, different cities and we actually ended up getting offers from different areas to support through payroll tax credits, grants to offset machinery investment. And Ohio is doing a lot of investment at the state and local level to incentivize manufacturing job creation. And so lots of support from the government out there, which is really cool to see and definitely something I'd encourage anyone who's looking to build, you know, build a facility or you know, expand, make sure you, you don't, you know, bypass that, that economic incentive piece.
- [34:48]
B
On the, on the VC, that's, that, that's great. On the, on the VC capital raising side, do you ever get pushback from VCs that they don't want a, they don't want a heavy capex business to, to invest in and they just want to invest in maybe like the brand and not also like a manufacturer.
- [35:08]
A
Yeah, when we were building this from the start, we heard that a lot. It was like an asset light world. Right. I think there were a bunch of examples of you know, private equity buying a company like you know, divesting the manufacturing side and flipping it. You know, I think in the last four or five years I think that narrative's changed a lot. We've seen a lot of challenges on the supply chain front. A lot of 1 in 100 year supply chain crises and I think now strategics and, and, and most, you know, most buyers of businesses understand how valuable it is to control supply chain have, have a lot of ownership there. And so I think that pendulum has definitely shifted and I think VCs are taking note.
- [35:50]
B
Yeah, I, I think so too. I also had on a while ago I had on George Milton from Yellowbird Sauce and he also is vertically integrated. They, they, they also have their own manufacturing facility and getting to raise money from the beginning was I think very challenging just, just because it was asset heavy. But then that seen a flip around maybe like after Covid that kind of flipped when it came to investors and investors that said no to him because they were asset heavy were like oh actually I'm interested. And he's like wait, wait, what?
- [36:25]
A
So anyway, and even just it's not just owning the manufacturing, it's the relationships that you get through owning the manufacturing. Because we have, you know, imagine we have direct relationships with all of our different suppliers. And so if there's you know, issues. We had a, you know, an oat shortage a couple of years ago where there was a drought that impacted yield. And so you know, through that time of course we're able to navigate this way better than our competitors that are relying on a third party to, to manage these relationships on their behalf. And so again we've, we've had very good success with keeping supply, keeping stock even through all these challenges because of the ownership and the relationships.
- [37:01]
B
Are you also now at this stage like buying like futures and notes and, and, and different commodities or, or.
- [37:07]
A
No, not yet. No, we do, we do price, we do take positions on, on different materials based on where we think the market's going. And so we're not quite doing any like hedging or any, any other like financial things like that. But, but we will take, you know, we'll spot buy verse contract according to where we think, where we think the market's going, and our team's pretty good at that.
- [37:32]
B
I mean, maybe the answer is everything, because I can't imagine how difficult it is having your own manufacturing plant. But what is the biggest challenge when it comes to. I mean, I know you talked about all the opportunities and all the benefits of owning your own manufacturing. For you, maybe from a planning perspective, what tends to be the biggest challenge.
- [37:50]
A
On the manufacturing specifically, you're saying?
- [37:52]
B
Yes.
- [37:53]
A
Yeah, yeah. You know, I think it's the processes. You know, we're, we're, we are one, you know, we're one manufacturing operation. We're one fulfillment operation. And so as we scale and double the business, you know, year over year and have, have all this growth, we're constantly breaking the processes that served us in the last chapter and entering the new one. So I think if you're working with a big contract manufacturer, you know, there's probably a little more flexibility and in how they manage your, you know, manage your scale. Of course, if you have the right, right type of partner. For us, though, it's been, it's been, you know, breaking down systems, rebuilding those systems in real time. And so what that looks like is we often have to build, you know, a year or two ahead to make sure that we can still maintain, you know, quality, consistency and all that, because our quality programs are really tight. So, so, so, yeah, so it's, it's a lot. It's very heavy in that way. It is a separate business, I should add. I mean, this is something that, you know, we feel like we have two businesses, Right. We have like the brand and we have the manufacturing fulfillment warehousing operation. And, and oftentimes there's, you know, there's a lot of overlap, but they are run almost, almost separately, even though the teams are very tight. Yeah.
- [38:59]
B
Would. On the manufacturing side, do you also. Are you also the co manager for other brands or.
- [39:04]
A
No, no, no. We've, we've considered that at times when we overbuilt supply, but, uh, we've had the fortunate, fortunate problems of the growth coming and always needing to, to find more capacity. Yeah.
- [39:17]
B
How do you think as well about balancing flavors? Because you have, you have a lot of flavors and different SKUs. I know that you talked about iterations and there's also. This is also based upon feedback and what, and what customers want, which I love that you mentioned how the first few years you were kind of answering and also consuming all the comments and what customers wanted and the feedback and everything. But how do actually manage that? Because especially when you're doing your own manufacturing. Like how do you, how do you create a test? How do you think about it? Innovation or, or iteration in that regard?
- [39:55]
A
Yeah, so, so our, our supply chain side of the business is a little crazy I think. You know, we, we relate. We release one new flavor every single month and then we're also developing for release a second flavor every single month through our flavor and development program. So effectively launching two new SKUs a month, which, which is just absurd by any count. You know, we have 13 full time food scientists that are working on the roadmap and so, you know, we have the next two. You'd think you'd run out of flavors eventually, but we still have 24 months slotted so we're still looking good. But, but yeah, it's, it's every month of our customers, our subscribers get a new pack of a flavor and development. We then survey those customers, understand that they liked it, they didn't like it. We scrap the ones that they don't like. Most of them make it through sometimes with some tweaks based on that survey feedback. And then so we'll relaunch those flavors after we sample them with our subscribers. We'll launch them like four or five months later with, with the tweaks. And so customers are really part of that product development experience which again builds a lot of connectivity. The supply chain side of that of course is crazy because we're, you know, we have to produce full product even for the sample. The fid, it's still a full scale run with unique packaging and you know, nutrition facts panel and ingredient decks and all that stuff. So it's a big ask on the supply chain side. And again, another reason we like to own it, because we can uniquely deliver this for customers. Yeah.
- [41:15]
B
Is there has there been a skew that you, that you, you've been surprised it hasn't worked or, or hasn't been given? Hasn't been great, great feedback or is it, hey, this hasn't worked. Let's iterate, iterate, iterate and get the flavor better and better and better or what the customers want until it works.
- [41:32]
A
Yeah, it's case by case. I mean there's some that, you know, like I hate mint chocolate chip. It's one of our best performing launches ever. You know, I also don't like banana flavors, but you know, our banana flavors are quite good. They seem to do very well like banana pudding and some others. You know, I think we had a root beer float flavor that was a massive hit it seemed. But you know, that was, it was very, very niche. We had some big, big, you know, big positive feedback from some of the people in our Facebook VIP group. We have a VIP group by the way, of 100,000 private group with 100,000 members on Facebook. So a lot of our conversation happens in that group around what we're developing next. Good way to build community, by the way. But, yeah, so there's been some surprises and some hits, but overall, if a flavor scores really poorly, we'll just scrap it. If a flavor scores well, but there's room for improvement, we'll tweak it. Sometimes that decision is made based on what, what's more incremental for the catalog as well, because at 60 flavors, you know, the 61st is. It's got to be something interesting to make it worth the ad.
- [42:37]
B
Totally. I know. On the financing side, have you, has the business ever almost. I know that the business seems to be in a very good spot now, but has there been moments in the business that you've all almost ran out of money?
- [42:55]
A
Oh, absolutely. For sure. Yeah. I mean, I think, I think, you know, early on, I mean, again, we've been, we've been in a very healthy place like last like four or five years. Early on, though, you know, our model of, you know, poker player turned oatmeal entrepreneur doesn't necessarily fit the pattern recognition that makes consumer VCs, you know, build confidence out the gate. So we really had to prove it through our data over time. I also, as an outsider, didn't have those relationships with VCs. And so, you know, I had to, I had to kind of break in and, you know, just, just, just get to meet people and really just share projections here. No, a lot of times, and then show up later, share projection again and they, they say, oh, you hit your, you hit your numbers, you beat your numbers. Like you build confidence that way. But, but that took time and there were a lot of points where, you know, I had to fund it myself. I had a, a friend that, you know, you know, funded early on our seed round. We became friends, a bit of an outsider to cpg, but he let our seed and ended up supporting and some financing shortly after. So we were very scrappy raising from, you know, uncommitted funds and, and different, you know, different vehicles before we got, you know, real, real visibility in the space.
- [44:08]
B
It's very hard to make CPG profitable. What, how do you think about profitability?
- [44:15]
A
So, yeah, we take a long term approach. The whole growth versus profitability trade off is, is a, it's like an age old, you know, challenge. Right. I think we really focus on margin. So, so like we're focused more on, you know, we, we are, we are EBITDA positive this year. We're, we're focused more on margin expansion though than ebitda. I think marketing spend of course is, is still important to us as long as, you know, we're spending that efficiently. And, and for us we think about payback periods on CAC investment and so we target, you know, four month payback period on our acquisition cost which, which we think is still pretty conservative. It lets us grow at this rate, you know, and gain, gain that, that impression share but also also be efficient on the bottom line. So, you know, really hyper focused on margin. Another reason we love owning manufacturing, owning fulfillment. We can do all these margin improvement projects, you know, across the business that, that really helps with, with margin expansion.
- [45:08]
B
How helpful have your investors been?
- [45:12]
A
Varying degrees of helpful for sure. I think everyone's been helpful as in, you know, intros when needed, you know, friendly referral, you know, back channeling hires for, you know, for a certain, you know, back channeling references for hire. So I think, I think they've been pretty helpful. We've been lucky to have a bunch of good supporters around the table and a really strong board. Cool.
- [45:37]
B
What's your, since you're now EBITDA positive, what's your philosophy on future fundraising?
- [45:45]
A
Yeah, we don't plan to raise again. I think for us it's kind of a never say never thing with that because of course with really outsized growth, if we want to go international, new product lines hit, new product expansions hit, there could be opportunity to raise more money and go faster and, but we don't have any plans to raise capital in the future.
- [46:07]
B
Got it.
- [46:07]
A
And I think the other thing to add there by the way, would be, you know, debt has been really helpful given that our balance sheet's pretty heavy. We carry a lot of inventory. We have an ABL facility that's been great and has really kind of put more mileage behind our equity capital that we've raised and dumped into the balance sheet. And so that's, that's been something. It's a lot of extra effort, you know, managing, you know, all, all the different, you know, filings and, and reporting requirements to manage that. But. Yeah, exactly, but, but overall it's been a great tool to, to getting more, more leverage out of the equity capital.
- [46:40]
B
Yeah, that makes sense. And the, and the equity, I imagine then you're spending it predominantly on Marketing and also SGA costs.
- [46:47]
A
Right? Yeah, exactly. And you know, but, but that's but and that's generally true. But you know for the most part our big financings are A and RB were dumped into you know TI and inventory and, and more equipment.
- [46:58]
B
Okay.
- [46:58]
A
And then, and then the ABL would, would kind of unlock the availability there which we can then spend through to, to get more, more, more range on our marketing investment and so.
- [47:08]
B
Oh I see. Okay. Okay got it. Have there been any high risk bets that have paid off besides starting the business? But anyway like any like marketing, any, any marketing. Any marketing campaigns for example that were kind of more like high risky in, in terms of trying to build influence or anything that actually ended up paying off.
- [47:34]
A
Yeah. So so we've got, we got one that, that didn't pay off. That's super interesting. That's probably worth covering. We take one of our other core values is, is rational and we think process versus results. So we're very process oriented. This is a pokerism where I think too many people make decisions rate the quality of a decision by the outcome and oftentimes the outcome is highly variable and doesn't really. Isn't really tied to the quality of the decision. So you really need to be process focused and focus on inputs. One of the, one of the ideas for our refund policy which is super generous. You know we have, we had an idea on the team like how, how do we make this obvious that we'll just give you your money back if you ask like no questions asked. We're just going to be super generous and just refund you. If everyone knew that pre purchase our cap would be so much lower because there'd be no stress around buying the product. And you know money back guarantee does not necessarily mean money back guarantee. Consumers are hesitant even with that language. What are the, what are the things you got to jump through? And so we had this idea to come up with this campaign called scam. We call it scammer ads where we basically encouraged our customers to scam us and just buy the product, ask for a refund. And we built this series of of ad creative. They basically like UGC this Gen Z influencer saying like you know I know how to get free oatmeal. Check out oats overnight dot com. I ordered a 24 pack so I'm going to get my money back anyway and just ask for a refund. They'll give it to you no questions asked. Like this is their policy, you know go order quick before they change the policy. So we had a whole series of these ads. Of course, some of the team was like, this is a terrible idea. I think our agency we work with was like, I got to go on record, Brian, and saying, this is awful. And you know, we loved it though because, you know, our refund rate was like 1.5% of the time. That could triple and still be very profitable if CAC came down, you know, 25%. And so we were, we were pretty optimistic about the process here to get to this idea. Of course, the problem is we'd see the CAC production right away. We launched it, cat came down like 35, 40%, smash it right out the gate. Problem is, of course you don't get the cohort data until like that month one renewal. And so we were holding on tight for the first 30 days. And I'll tell you, like, people definitely scammed us. The refund rate went to like something like 25, 30%. I forget it went so high. I mean, these cohorts will forever have an asterisk next to them because they're so, they're so red. And it was, it was just a massive, massive loss for the business. But the best part about this and the reason I like to share it is culturally, this was still a win. Like, even though the outcome was bad, we still talk about this as a win in terms of, in terms of taking shots if the bet's intentional. And we've done, you know, we've got a bunch, we call them gbs is great big stupid ideas. You know, we encourage these ideas from all over the org. And Nick, there's some wins too. Like we removed our starter pack offering at a time where CAC was, you know, elevated. We killed our lowest price intro offering, which pretty counterintuitive, but this was part of that theme of going into higher AOVs, more subscription on first purchase. And, and that changed the business radically. I don't know that we'd be here if we hadn't made that bet. Which again, also got a lot of pushback internally. And so, yeah, so we do, we do a lot of things that, that look a little crazy. Of course, we're big fans of testing and learning. When you can, when you can unwind.
- [50:46]
B
From, from a growth market perspective. Is there, do you have any opinions or thoughts that you think are actually quite different in terms of the general. What generally people think about growth marketing?
- [51:06]
A
Yeah, one of them that comes to mind is we. This is a little, yeah, maybe a little controversial, but we like to throw out the brand guidelines when it comes to creative and growth marketing, like intentionally have no brand guidelines. I think a lot of, a lot of brands that we've seen try to stick to like a similar feel or a similar text or you know, color colors or you know, whatever it is. But we want our ads for creative diversity and incremental reach. We want our ads to look and feel different. And if you think about when you order something online, you know, you don't often remember the ad, you remember the email follow up, you remember the unboxing experience, you remember the product experience, but you don't really remember that ad that made you purchase, at least not with a lot of specificity. And so based on how, you know, these algorithms work, you know, you want to create as, as, as different feeling ads as, as possible, the widest range possible. And so we have like a very scattered media mix, creative mix and you know, that's intentionally done that way. And I think, I think a lot of brands handcuff themselves when the brand marketing team is too heavy on the, on the growth, the growth side.
- [52:14]
B
I love that. I love that. I think that's great. What is, what, what does the next, what is the next five, five, ten years look like? What in terms of what you achieve? And, and who do you think is like your real competition at this point? Or does it not or, or you're not really thinking about that?
- [52:36]
A
Yeah, I mean I think are we. We sit in a weird set where, you know, we're, we're competing with, you know, Kodiak Cakes and Quaker and the hot cereal set and grocery and Mass. We're competing with Premier Protein and Premier Nutrition, you know, Orgain and you know, Fairlife in Costco, in section 20 in the supplements, more RTD protein shakes. So we kind of sit in between a lot of categories and I think that helps us. So I think in terms of competition as a business, we think about us, you know, we're serving food at scale, healthy food to the country. So I like to set our sights higher and think that our competition is more the bigger strategics. You know, we want to build something that uses more of a platform approach. For good reason though. I think the platform approach is a little played out, but we feel we have a reason to exist as a platform with the data that we collect and how we're able to build products with customers. And so five years from now, you know, and certainly beyond, you know, we want to be multi product serving, you know, high protein products with extreme flavor variety direct to consumer. And the best of those making their way into retail stores, but basically making it easier to get your protein in, be healthy, and building products that people crave and can stick to.
- [53:49]
B
Is the goal then to. To be. To still be independent?
- [53:54]
A
Yeah, we're, you know, a lot of thoughts on that. I think, you know, back and forth internally, of course, a lot of different. Different opinions. We're definitely at the stage where there's, you know, there's. There's interest in some sort of partnership. But we're also. We do want to stay independent for now. There's a lot. There's a lot to build, a lot to prove out as well. So we're excited to go. Go capture that upside and build it. Cool.
- [54:16]
B
Cool. What's one book that's inspired you personally and one book that's inspired you professionally?
- [54:24]
A
Oh, that's. That's a good question. I think the Rise of Superman. Personally, I'm a big. I love flow states. This concept of flow states and being in this generative state. I think the Rise of Superman kind of examines extreme sports athletes and how, you know, pushing your body to the limits forces you into this. Into this flow state. It also talks about ways to kind of tap into flow states outside of, you know, putting your life on the line. I think that's. That. That's been a really good one. And also just kind of goes into how we build. Build our org, you know, the types of people, types of leaders that we build that. That we hire. We want to make sure that they're going to be adding to the potential for flow states in group settings. That's been a big unlock for us professionally. This one's tough, I think. Who was a great book for hiring? I think in the early days, we were pretty bad at the interview process. I think I was just talking to people and getting a feel. But adding more structure around interviews and more process there has helped us find better talent. And so who has a really good framework for hiring process?
- [55:35]
B
That's great. Well, thank you, Brian. I don't think we've had anyone mention these two books, so you are very original. Thank you, Brian. This has been so much fun. Thank you so much for your time.
- [55:46]
A
Yeah. Thank you, Mike. Definitely fun to be on and hope you have a good Christmas.
- [55:51]
B
Thank you. You too. You too. Thank you so much for listening. I hope this was helpful. I hope you loved it. And if you do love it, then you'll subscribe@theconsumervc.com to the newsletter. Thanks for listening.