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- [00:01]
A
This episode is brought to you in partnership with Airbnb. One of the coolest things I did last year was take my family to Berlin. We explored the city, ate incredible food, and soaked up the history. And one of the things that made the trip so special was the home we booked on Airbnb. We had a beautiful apartment with big windows, a full kitchen, and we were walking distance from everything we wanted to see. It didn't feel like we were visiting, it felt like we were living there. And that made the trip so amazing. And when you take your own vacation, that's actually a great time to host your home on Airbnb. Your swanky art collection and handy kitchen gadgets might be just what someone else needs to feel right at home on their next trip. Plus, your earnings from hosting could help offset the cost of your next trip. Your home might be worth more than you think. Find out how much@airbnb.com host. Hello and welcome to the advice line on How I Built this Lab. I'm Guy Raz. This is the place where we help try to solve your business challenges. Each week I'm joined by a legendary founder, a former guest on the show, who will help me try to help you. And if you're building something and you need advice, give us a call. And you just might be the next guest on the show. Our number is 1-800-433-1298. Leave us a one minute message that tells us about your business and the issues or questions that you'd like help with. All right, let's get to it. Joining me this week is Betterment founder and chair Jon Stein. John, welcome back to the show.
- [01:40]
B
Thanks, Guy. Great to be here with you.
- [01:41]
A
It's great to have you. You are first on the show. We told the story of betterment in 2018. It's an awesome story and we will drop a link to that episode in the show notes, so check it out if you missed it. The story basically started in 2008 after the financial crisis when you were you had been working for a firm and you kind of got laid off and had to start again. And basically you pioneered this business model. You wanted to give ordinary investors access to the kind of advice that they would get from a financial advisor, but for a fraction of the fee. And so for people who don't know about Betterment, you guys kind of simplified things by using algorithms mixed with robo and human advisors. And I think, John, I just checked, I think today, you guys, Betterment manages something like almost $60 billion in assets that's right.
- [02:26]
B
Even, even more than that today. And we manage money for over a million in America. Wow. Which is quite an honor. It's been amazing to see how it's grown.
- [02:36]
A
It's a really, really great offering service. And congrats. And you're not, of course, should mention you're not the CEO you left in 2020, but you are still the chairman and you're on the board of directors. All right, so you have built or you're starting another business. Can you tell us a little bit about. About this new business that you. You've been working on?
- [02:56]
B
Yeah. I've always loved the early stage and solving hard customer problems. And I feel like I've stumbled into another really challenging one. I've noticed that investing advice has improved a lot over the past decade since Betterment launched. But how we find those advisors really hasn't changed. It hasn't kept up.
- [03:18]
A
Yeah.
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B
Today, Financial Advisor discovery is still runs on referrals, not data.
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A
So you know somebody, somebody in your church or your, like a group of friends like will say, hey, I've got this guy.
- [03:30]
B
Exactly right. And it naturally limits the options that people get to see. And there are great advisor options out there, but they're really hard to find. And with zoom, you can now see anybody in the country. You can find somebody who's really simpatico with you, who understands your, your specific needs and goals. And so we're building the definitive directory of financial advisors. It sounds so obvious. I can't believe it doesn't already exist. And our goal with all of this is to help consumers make really informed, thoughtful choices and to reward advisors who are doing great work.
- [04:03]
A
Yeah. I mean, especially at this moment where I think so many people have anxiety about what's going to happen with the markets because it's been kind of an insane year and a lot of people are worried that the markets are overvalued and that unemployment is going up and that this proliferation of AI is going to maybe increase productivity but also increase unemployment. And so there's a lot of concern. You're hearing a lot of noise.
- [04:29]
B
100%. And I hear fear in a lot of different ways. There's fear of choosing the wrong advisor. There's fear of what that advisor will do once you hire them. There's fear of what's going on in the world, the kind of macro fears that you're talking about. But over the long term, just staying invested in a diversified portfolio is really the best thing that folks like you and me can generally do.
- [04:52]
A
Yeah. A Question about starting a business in sort of uncertain economic times because you started this during a downturn. Right. You started this in the financial crisis period when a lot of people were like, what, you want to start an investment firm? What are you doing? But actually, in many ways, it was the right time to start because it was sort of the bottom of. And I hear from young people that, that. And, you know, I'm hearing it again and again that the idea of starting business seems scary right now. There's so much uncertainty. But I wonder how you, how you sort of think about starting a business during, you know, a moment like this where we just don't know what we're. Where we're heading.
- [05:33]
B
You're exactly right. I felt really lucky and we talked a lot about this on the 2018 episode, to have started when we did. It was a time when maybe other firms weren't entering financial services and when the conditions were right. Right now, I think there are opportunities for people to get started, especially when other people are fearful. And I've been reading about, say, the period of 1929 and the great stock market.
- [05:59]
A
Yes, we're all reading the book by Andrew Ross. Read the.
- [06:01]
B
Andrew Ross Sorkin's book.
- [06:03]
A
Yes.
- [06:04]
B
Really enjoyed it. And it was a good reminder that for the decade after, things were shaky, but business was still moving. People were still starting things. People had to. I've also been watching old. I just, I got a bunch of old reels that I found at my grandmother's house converted to digital. And I've been watching this footage from the 1930s.
- [06:26]
A
Family footage.
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B
Family footage that my great grandfather and great great grandfather were taking on these old 16 millimeter reels. And it's black and white without sound. And the incredible thing is life goes on. Here they are at Clambake in 1935. Here they are on vacation in their car. And it's a good reminder that despite the headlines, life goes on and people continue to find things to do. And there's still markets for great ideas and great products.
- [06:53]
A
Yeah, for sure.
- [06:55]
B
All right.
- [06:55]
A
We'll cross our fingers that we don't have a market crash soon. Why don't we take our first call and maybe we can give some advice that will be helpful and could avoid some. Some anxiety.
- [07:07]
C
What do you think?
- [07:08]
B
Let's do it.
- [07:08]
A
All right, let's go. Let's welcome our first caller to the advice line. You're on with John Stein, founder of Betterment. Tell us your name, where you're calling from, and just a little bit about your business. Please.
- [07:17]
C
Hi, Guy. Hi, John. My name is Dan Criss. I'm calling from Longview, Washington. I'm the co founder of Heretic Yerba. We focus on clean, natural caffeine using yerba mate and Guayusa. Right now we sell loose leaf blends with energy drinks, bottled, fresh brewed yerba mate and coffee shop concentrates in development.
- [07:35]
A
All right, cool. Welcome to the show, Dan. Heretic Yerba. So Yerba mate, we did. We did Guayaquil on this show. It's a pretty big national brand. It is a tea mainly grown like Brazil and Argentina, right?
- [07:47]
C
Yeah, Yep. And then Guayusa is a cousin to Yerba Mate. Also caffeinated holly plant out of Ecuador.
- [07:54]
A
Got it. And mainly selling direct to consumer.
- [07:56]
C
Yeah, direct to consumer wholesale. We're starting to get into grocery stores as well. One of our biggest issues was getting enough inventory. But we've. We've since secured that and then through markets and.
- [08:07]
A
Yeah, all right. It's a particularly interesting product because Nguayaki did a lot of work to educate American consumers on what yerba mate is because they had to spend like 20 years explaining it. So people, a lot of people know what it is. But how did you get into it?
- [08:21]
C
Yeah, they're actually the ones who kind of led me into it. I was working a lot of graveyard shifts and drinking a lot of coffee.
- [08:27]
A
What were you doing?
- [08:29]
C
Air traffic controller for about 14 years.
- [08:31]
B
Thank you for your service.
- [08:31]
A
Thank you for. Thank you for doing. Thank you for keeping me safe.
- [08:34]
C
All right, now I get to drink yerba mate and hang out. This is much, much less stressful.
- [08:38]
A
Right, I bet. So you were doing that and drinking caffeine, caffeinated beverages to stay away.
- [08:43]
C
Lots and lots of coffee. And the acid in coffee was really affecting my stomach. And it took a couple years and finally the doctor was like, you have to stop drinking this. So I stumbled upon it through guayuqi, their yellow energy drink cans. But I wanted to get away from all the sugar, so kind of went down the rabbit hole and started drinking like actual yerba mate. And when I started giving to friends and family, a lot of them still thought I was a little too bitter, too earthy. So I found this guayusa and I started blending it into the mate and it really smoothed it out quite a bit. And that's when friends and family started drinking. And that's kind of when the light bulb went off.
- [09:18]
A
And it has more caffeine than black tea. Right, but not as much as coffee.
- [09:23]
C
Yeah, that's correct. So just under Coffee, but more than tea. We just tell people it's like tea with a kick.
- [09:28]
A
Got it. And you started this in 2023, you said, right?
- [09:31]
C
Yeah, about 2023. We really started pushing it around 2024, the spring of 2024.
- [09:36]
A
And how are you? How's business doing? Give us a sense of what you guys expect to do in sales this year.
- [09:41]
C
It's good. This year we'll probably do about 60,000, about double what we did last year and expected to double that again next year. Like our biggest thing was getting enough inventory in everything. We'd import, we would just sell. So it was tough to push to a grocery store if we couldn't keep up with stocks. But now we've gotten that kind of figured out.
- [10:00]
A
All right, and before we dive in further, what's your question for us?
- [10:03]
C
Yeah, we're at the point now where we have several strong growth paths opening up at once. If different channels are loose leaf business, the energy drinks, the we're working on a coffee shop concentrate. Each one have different potential but also need different expertise, capital and timing. How do founders decide what to focus on first and how much to invest in each path while losing focus, slowing momentum, or spreading ourselves too thin?
- [10:26]
A
Yeah. All right, great questions, Johnson. I want to bring you in any thoughts or questions for Dan before we tackle his question.
- [10:32]
B
I want to say first, Dan, that I spent a semester in college living in South America and most of that time I was in Uruguay and I took up mate drinking there myself. I brought home one of the gourd mate.
- [10:46]
C
Yeah.
- [10:47]
A
So you're serious. You're like full on.
- [10:49]
B
I loved it. I loved, you know, I loved the, the difference of it. I loved the ritual of it. Exactly. There's some ritual around it. And what stands out to me, Dan, is that you're not just selling mate, you're really reframing the category for an American consumer. Right. I'm checking out your site as. As you're talking and it looks like I like how you're talking about using a pour over or French press and things like this, like making it more accessible for this market.
- [11:14]
C
100%. That's exactly what we're trying to push into. Trying to get the energy drink drinkers to drink more natural and trying to get the Yerpa mate drinkers to kind of think outside the box.
- [11:22]
B
To your question about channels, if you had to pick one of these channels to be the engine and think about the others as just proof points, which would you want to be the real growth engine for you over the next 12 to 18 months.
- [11:36]
C
I fully see the energy drink cans being the big channel, but also the hardest to get into, just given the drink industry. The coffee shop concentrates. We have a list of coffee shops that want mate there. I think that'd probably be the easier of them. The actual physical leaf that we do now are loose leaf. Like that's the core business, but that's the hardest out of all of them. So each one kind of has their own pros and cons, if you will.
- [12:01]
B
Makes sense. And do you feel like one of them is teaching you more? Maybe, maybe some are faster to generate revenue and others you get faster learnings. How do you. Do they have differences in that way?
- [12:14]
C
Yeah, so that's the other thing is like all this is pretty new to us. So we've been kind of like fumbling through this, but we've been learning a lot. I don't know how the cans are going to go, so we're still in the development of that, been working with formulators. I don't know what the feedback from the customers is going to be on that and I feel like that's probably going to be the least information that I could get because it's going to be sitting in a grocery store or a gas station. That's going to be pretty anonymous when people are buying it. The coffee shop, I can really get a lot of feedback from baristas and coffee people. And then our loose leaf, I'm there with them, I'm selling it to people. I get a lot of feedback on that. So I learned a lot from that.
- [12:50]
A
You know, it strikes me that what you sell is a caffeine delivery beverage, right? It's a, it's a, it's like an alternative caffeine platform. I mean, you're calling it yerba, not. You don't even call it mate. Right. I think because people who know about mate know that it requires like a gourd and there's a ritual and there's certain temperature. Right. And like a metal straw. And it seems like like you're trying to make this really accessible, like through it, just make it.
- [13:16]
C
Exactly. We actually have like a saying on our site. Your drink, your rules, just however you want to make it. We just tell people, however you make tea or coffee, make your pimante. Because a lot of people come with that stigma of this, like, oh, I have to do it this way. And it's like, no, 90% of our customers don't do it that way.
- [13:31]
A
And I'm looking at your bags and it says question your caffeine at the top, which I think is interesting. And I think you may want to lean into that just from a branding. I know your questions aren't entirely about branding, but from a branding perspective it seems like you can really lean into that harder. Like this is the go to non coffee, you know, alternative caffeine platform. Maybe it doesn't give you the same like jitteriness or you know, acid. I love coffee. But you're right, I mean there's a lot of acidity. And so it seems like that's something you want to lean into just from a branding perspective on your website, on your packaging, that it's a, let's say cleaner. I'm conflicted about this word cleaner. But if, maybe that's the way you kind of frame it, a sort of a cleaner way to get caffeine and a less aggressive way to get caffeine. Something like, like that.
- [14:16]
C
Yeah, I love hearing that because we've, we've spent quite a bit of money to get that trademarked. So that was another thing that we learned as well. So like the trademark of heretic. Also the question your caffeine as well.
- [14:26]
B
Okay.
- [14:26]
C
Yeah, yeah. So that, that's really what, when people come to us, that's kind of what I'm pitching to them is like get away from the energy drinks and all the sugar and start drinking this. This is so much better for you.
- [14:36]
A
Yeah.
- [14:37]
B
I think to your question around channels, Dan, I've seen firsthand at Betterment and at other companies that I've advised over the years how too many simultaneous growth paths can dilute focus. Even if they're all promising and maybe they're all things you want to do in the long run. I think that you can sequence things, you can pick a primary lane for this current next chapter or next six months, you decide the term. But as a rule of thumb, I always advise founders to pick one thing and go deep on it personally for a while. So you, as the driving force behind this, I want you to be hands on, on the channel that you are most passionate about, either because you're growing the fastest or you're learning the most from that customer. And I heard a couple of interesting possible answers in there. And you're going to know which one to really get your arms around. You don't have to try and be perfect at everything. Right on day one.
- [15:32]
C
Okay. I like the sequence idea. That's, that's a good way to look at it. I think if we can have trigger points when we can look into the next thing.
- [15:40]
D
Yeah.
- [15:40]
A
You know what's also interesting is your name is Heretic and it reminds me a little bit of Liquid Death, which one of the great successes of Liquid Death is the community that it built around the brand where you can sell your soul to the devil and in return you get a T shirt. Right. So if you're doing farmer's markets, you really want to capture emails. Right. You want to get people to like, if you have a club or something like that, to kind of create that, that community around the brand, which I think is, is, is going to be really powerful.
- [16:11]
C
Yeah, that's a good idea.
- [16:12]
B
Dan, you have a strong DTC site from what I can see. It looks, it looks great. The branding is strong and you could think about your presence in stores, even if the economics aren't as what you'd want them to be, as a little bit of a customer acquisition strategy and like getting it in front of people. And then think about the retention and the second order is coming through the website.
- [16:34]
C
That's a good way to look at it. Right now. The grocery store tastings really help out too. I mean, a lot of people know of Yerba mate but they don't know what it is. So that's been nice, honestly, like education, education. Guayaqui talked about it and we're in the exact same boat still to this day. So it's been 20 plus years that they've been doing it. There's still so many people have no idea what it is. So it's very interesting.
- [16:56]
A
And then down the road you want to think about. I love this idea of a concentrate because I'm imagining you would just like pour a few drops or, you know, a tablespoon into a cup of hot water. Is that, is that how it's going to work?
- [17:07]
C
Yeah. So we've been working with a couple different coffee shops to have Yerba mate, but for somebody to brew it like a barista just takes too long. So we have a formulator working on Yerba mate concentrate that would be treated just like a chai, so it'd be in a 32 ounce cardboard thing. And if a barista is making a mate latte or an iced mate or a hot mate, they can do it within seconds rather than four minutes.
- [17:30]
A
Really, really interesting idea. John, final thoughts.
- [17:34]
B
I think you're right to be excited long term about the energy drinks. I just, I get excited thinking about that and how you could really define a category. But I want to, I want to see you funding that. That sounds expensive. Too, to get that out there and distribute a packaged product like that. And I think you're being smart by finding near end ways to fund that through current sales.
- [17:56]
A
Yeah, for sure. You want to sort of hit 100,000 in sales and then 200,000 sales and then see where you are at that point.
- [18:04]
C
I love it. That's probably a good way to look at it. And the energy drink category is definitely probably the hardest out of all of them.
- [18:10]
A
Yeah. But the mate category, you've got, I mean, you got something really interesting here and you got a great brand. So good luck, man. Good luck. Dan, thanks so much for calling in Heretic Yerba is the brand. Keep us posted.
- [18:21]
C
Thanks, guys. Thanks, John.
- [18:22]
B
Thank you.
- [18:24]
A
Look at you. I didn't know you. You lived in Uruguay and like did the whole mate thing.
- [18:28]
B
Yeah, yeah.
- [18:28]
A
Did you brush a gourd back? Brush your gourd back with you to.
- [18:32]
B
To the US I didn't use it as much as I thought, you know, because it's such a part of the culture there. It's something people do every day. And here, you know, the challenge is making it kind of fit in or adapting it for the art culture in America. Right. But he seems to be on a good path.
- [18:49]
A
Yeah, for sure. All right, we're going to take a quick break, but we'll be right back with another caller and another round of advice. Stay with us. I'm Guy Raz and you're listening to the advice line right here on how I built this lab. Welcome back to the advice line on how I built this lab. I'm Guy Raz and my guest today is John Stein. He's the founder of Mike Betterment and we are taking your calls. And John, you ready for our next caller?
- [19:20]
B
Let's do it.
- [19:22]
A
All right, let's bring our next caller. Welcome to the advice line. You're on with John Stein. Tell us your name, where you're calling from, and just a line or two about your business, please.
- [19:29]
E
Hi, Guy. Hi, John. My name is Mike Smith. I own MTS Woodworking in Salem, New Hampshire. I build custom handcrafted furniture working directly with homeowners, businesses and designers to turn their ideas into one of a kind pieces. If you can think it, we can make it.
- [19:47]
A
Awesome. Mike, thanks for calling in. All right, so you have got a woodworking. You do like custom furniture. And these are like tables and cabinets and desks and things like that. And you do everything yourself?
- [19:59]
E
Absolutely everything from buying material to delivering it and designing it and building it and taking calls and emails from Customers, the whole bit.
- [20:09]
A
And you make this in like, a workshop that you rent?
- [20:13]
E
No, in my basement. Like in my.
- [20:15]
A
In your basement?
- [20:16]
E
It's a 12 by 24 room in my basement. There's also a washer and dryer in the same room. And I. It's ridiculous. Some of the things that I've done that I have no business doing in that space, but I'm doing what I can with what I have.
- [20:31]
B
You get a lot of sawdust on your clothes that way.
- [20:33]
A
Yeah, I bet, I bet. And have you been doing this, like, your whole adult life? Is this like, what you. Were you a carpenter?
- [20:40]
E
No. So I've had. I like to say that I've had all the jobs. Right out of high school, I joined the Air Force. I was a mechanic. After that, I went to college and got a degree in biblical studies and youth ministry and music and was a youth pastor. I still am a youth pastor part time, but when my second son was born, you know, when you have your first child, you get a big baby shower and all these gifts and all kind of stuff. So number two was born and we're on our own. So we're at Babies R Us shopping for furniture, and I see some of the stuff that's available, and I was just, you know, I could make something better than this for less. So I went out and bought tools, built my son a dresser, and from there just kind of did stuff for friends and family. And they kept encouraging me and saying, oh, you're really good at this. And I eventually started listening. And then in. So in 2020, we found out that my third son was going to be born. And we were like, oh, man, what are we going to do? I'm like, I'm not paying for childcare, so I'm just going to. I just quit my job and started doing this full time.
- [21:49]
A
Nice. So now you can run the business out of your house. And that's really started out to save money on childcare. Okay, and so what's your question for us?
- [21:58]
E
Well, my question is right now my biggest constraint is space. If I had more space, I'd be able to do things more efficiently and also hire some employees. But I need to try to figure out if right now is the best time for me to take on debt in the form of expanding our home or buying a bigger home or maybe even taking out a commercial lease or if I should just wait a little bit and focus on paying down our personal debt.
- [22:26]
A
Got it. Okay. Before I bring John in, give me a sense of what your Sales were.
- [22:29]
E
Last year, so last year it was a little lower, it was about $68,000. But the year before that I was closer to 80. It kind of varies from year to year, but.
- [22:39]
A
And that's gross. That that's, that's including your costume. Okay. Okay, John, I'll bring you in here. So basically Mike is looking to, trying to figure out whether to expand, right. Get in a bigger space to do more work. But of course there's a lot to consider there. So just thoughts. Yeah, for, for Mike.
- [22:58]
B
Mike. My family has a long history of making furniture in upstate New York. I had great, great grandparents who are making chairs who started out just like you, making chairs in their basement or spare bedroom, you know, back, back 150 years ago. And that became this company, Harden Furniture, which at a time was the largest family owned furniture company in America. So I know it's a great category. It feels like you've already proven product market fit. You've got people who want to buy your furniture, but you're throughput, constrained. So my questions for you, and I know you want to scale out of that phase, my questions for you around one. Which parts of your work truly require your hands, your touch versus what just requires somebody competent?
- [23:49]
E
Right. So I think one of the things that I definitely need to be a part of is the design and working with the customers. That's something that's essential for me to be able to continue doing. And then maybe some of the more detail oriented things. But a lot of the larger processes like that take a lot of time, like sanding or driving around to pick materials up or delivering or even assembly can be. I could train people to do that. I would say probably 20 to 30% of my time has to be me.
- [24:25]
B
That's great. And if you had, let's say 30% more capacity tomorrow you got a slightly bigger workshop, you got somebody working for you part half time. Right. And you increased your capacity a bit. Would you have demand to fill that capacity immediately or would it take some time to ramp into the demand?
- [24:44]
E
I don't think I'd have any trouble because I don't have any inventory and I don't advertise. So everything I sell is already sold before I start making it. So like it's already paid for. So if I had someone working for me along with helping me with these tasks, I could make products that I could advertise. For example, like Adirondack chairs and outdoor libraries. I know they sell really well, but I don't have time to make them Because I'm too busy with the custom stuff. So I would definitely have ability to grow if I had people working for me.
- [25:19]
A
And so the Adirondack chairs, are those your best sellers?
- [25:24]
E
They were. At one time. I, I sold a lot of outdoor libraries. Like, people might know them as little free library, but I can't use that name.
- [25:32]
A
Oh, I know. Those little boxes. Yeah, sure.
- [25:35]
E
Yes. And I was selling them on Etsy, and I actually was. I sold like $30,000 in a year of those, and I just kept growing. But the problem I had with those was shipping them because I sell completed ready to go products. So they're these huge boxes and they. And the shipping companies kept smashing them. And then I have to make them again, and it's just me. So I would get, like, way behind. So I kind of transitioned into the custom furniture market, and that's been pretty good, I bet.
- [26:03]
A
I mean, the challenge is it's very hard to scale custom work, right? I mean, you can scale repeatable work. So as you mentioned, the Adirondack chairs or the, the free libraries or, you know, a specific, like, table that people seem to be reordering. And then you could kind of, you could kind of lock in the, the material and the dimensions, and then you make like, slight customizations, right? Like a color or something like that. I, I think that to me, and, and John, you might have a different perspective, but I think you've got two options here, right? Which is you keep doing what you're doing and how you're doing it as a solo craftsman, but you dramatically raise prices and you create a longer waiting list. So you're essentially like, limiting the volume. You're increasing your margins and your overall sales, but you're doing less work and you're more in demand. Or you do fewer custom projects and then you hire somebody or part time to do the sanding and pick up the materials. And they're more sort of standardized pieces with maybe some minor customization like a stain or something like that. And there you get, you know, you increase your revenue, but also you are building a more complex business. I think that those are your two best options to, especially to do it safely.
- [27:27]
E
I agree. The only reason I can't do anything like that right now is because I have no place to store anything. So if I had more space, I could, like, have inventory.
- [27:35]
B
I get worried when I hear you talking about wanting to take on debt to fund that growth. And I'll tell you, the story of hardened furniture doesn't end happily right. The company doesn't exist anymore. My family furniture company, partly because they took on debt and partly it was due to foreign competition, but ultimately went under. They couldn't service the debt payments. What I want for you is to find ways to expand thoughtfully. So I'm thinking like, what's the smallest expansion you could make that would meaningfully change your income? Because you want to grow this thing, that passion to grow. It is clear. But how can you do that without increasing your risk profile too much? So guys, right on with those couple of ideas of like raise prices. I mean, if you can raise prices, raise prices. That's the easiest change you can make. And if you can build more standardized things, I like that. The challenge with standardized things is they're often commoditized by others or copied by others if they get good and if you get big. So I understand wanting to keep it custom. And then can you rent space without a long term commitment? Can you just get a little. Can you use the corner of somebody else's shop to expand? Can you get people part time or without a long term commitment to actually hire somebody and take on that burden? So how can you. Are there ways for you to grow in the smallest way possible?
- [28:57]
E
Yeah, yeah, that makes complete sense. The smallest way I can grow would be just to put an addition on our house and just have it be part of that that doesn't require some debt. But if it's done in a smart way, it wouldn't be a huge impact, I don't think.
- [29:12]
A
Well, is there another altern? I mean, obviously you could save money because you could do the building, because you could build that yourself. But is there a sort of an alternative way? So I mean, I rent office space. I've got a studio up in Sonoma county and I rent office space there very cheaply. It's a. It's basically a corner of an existing office and I rent a sublease a corner of it. You know, I am sure in New Hampshire you could find an existing shop where you might be able to rent space from them. Or maybe there's like a shared maker space or maybe there's a short term commercial lease that you can find. Have you looked into something like that?
- [29:51]
E
I have looked at the maker spaces. Their biggest draw is all the tools that they have. But at this point I have everything that they have and they don't offer any storage capacity. So if I take more than a single day to get a project done, then it doesn't work. But I have not looked at like subletting from an existing shop. So that's something I could pursue.
- [30:14]
A
Yeah. And I wouldn't be afraid to raise your prices, Mike. I mean, you know, we're living at a time where a skilled craftsperson is in high demand and it's not, you know, to get off the shelf stuff is one thing, but to get somebody to build something custom, that's different. And I think that you, you don't want to undersell your products. I mean, if your margin, you mentioned you did about 60, 70 grand a year in sales. And what's your net income after that?
- [30:43]
E
About half of that is profit.
- [30:46]
A
So I think you've got to raise your prices because building materials are getting more expensive, but also your time is expensive.
- [30:54]
B
A general rule of thumb that I'd love to see is 80% might be profit, 20% might be cost of goods. So if you think about what you'd have to do to your prices to get there, then you would have room to rent space and hire people and expand confidently.
- [31:13]
E
Thank you so much for your input. I always feel like I try to do best by everyone, but I have to do what's right for our family as well.
- [31:21]
A
You got to do it, Mike. You got to do it. Raise those prices. Mike Smith, MTS Woodworking. Good luck, man. Thanks for calling in.
- [31:28]
B
Thank you, Mike.
- [31:31]
A
Yeah, I mean, well, you know, the other thing, John, is I'm in the Bay Area, and if Mike's business was here in the Bay Area, I mean, the demand for somebody who's skilled out here is so high, the wait lists are so long.
- [31:45]
B
This was the category that kept hard and furniture going for a long time. Was the contract custom work. A lot of it was, was for offices, custom build outs, custom desks, things like that. It's hard to compete on the commodity stuff, the Adirondack chairs and whatnot, because those are so cheap at, you know, name your. Your retailer. Coming from abroad. Yeah, but with, you know, the. Things are changing. Right. The prices of goods from abroad are going up. So I'm optimistic that Mike's going to be able to raise his prices and find a path.
- [32:16]
A
Yeah. All right, we're going to take another quick break, but we'll be right back with another caller. Stay with us. I'm Guy Raz, and you're listening to the advice line right here on how I built this lab.
- [32:27]
C
Foreign.
- [32:38]
A
Welcome back to the advice line on how I built this lab. I'm Guy Raz, and today I'm taking calls with Betterment founder John Stein. And let's bring in our Next caller.
- [32:47]
B
I'm excited. Let's go.
- [32:48]
A
All right, let's bring in our next caller. Welcome to the advice line. You're on with John Stein, founder, Betterment. Tell us your name, where you're calling from, and just a line or two by your business, please.
- [32:56]
D
Hey, guy. Hey, John. My name is Maggie McDonald. I'm calling from Atlanta and I am the founder of Floof Ball. We design soccer themed dog toys and accessories inspired by famous teams that fans know and love, but with a unique dog twist on all of our designs.
- [33:12]
A
Okay, cool. Welcome to the show, Maggie. So these are dog toys and accessories. So like T shirts and stuff like that?
- [33:20]
D
Yeah, so we basically call them like soccer kits for dogs. So what they typically include is a plush soccer ball, dog toy, and a matching bandana. So if you are a fan of a team that you love and you have your own jersey, well, we think a dog should have their own kit as well.
- [33:39]
A
And so. Okay. All right. So these are like, if you like a specific team, you can get the logo and the brand, like on the dog, whatever accessory that you buy, kind of.
- [33:51]
D
So we put a unique dog twist on all of the designs. So one example that is one of our newest collections is inspired by Liverpool, but we actually make it called Liverpooch. So instead of their classic logo, we have a dog with wings.
- [34:09]
A
Yes, I see. So it's like, instead of. Because it's a Pegasus, I think for Liverpool, but it's a dog with a chew toy. And I guess you can do that because legally that's a. It's like parody. This all protected. You don't, you're not, you're inspired by the designs, but you don't need their permission to do that.
- [34:24]
D
Correct. Which, which is very popular in, in the pet space, especially with toys. You go to a pet shop, you'll see, you'll see that concept everywhere.
- [34:32]
A
I love it. How did this, tell me how this idea came about?
- [34:36]
D
Yeah. So my husband is from Argentina, and when Argentina won the World cup Back in 2022, we were of course, very excited, very special time for our family. And we were looking for something for our dog to celebrate with us, and we couldn't find anything on the market that existed quite like what we had in mind. And so my entrepreneurial spirit really started to kick in. And I spent about six to seven months trying to figure out how to build a dog toy. And I just brought it to life myself.
- [35:09]
A
Nice. Okay, cool. I mean, the pet category is. It's crazy. It just grows year over year. I've got two dogs, two cats. We spend a lot of money on our pets. And I have children too. I probably spend more on my dogs. And so I totally get this. And tell me a little bit about where you're selling right now and what you expect to do in sales this year.
- [35:30]
D
Yeah. Yeah. So right now we're in four different channels. We're in direct to consumer. We're in wholesale. We're on Chewy, and we're starting to explore some professional club partnerships as well. So this year, we're expecting to end the year at 75k.
- [35:45]
A
Awesome. And before we dive in further, what's your question for us?
- [35:48]
D
So, as I just mentioned, we're in 4 different revenue channels, and I'm struggling as a young founder looking to scale this business. Really where to put my focus for scaling. I initially thought that I really had to put most of my focus into our direct to consumer channel to really kind of build our brand and connect with our target Persona. But direct to consumer marketing is becoming very expensive, and therefore it's become a lot slower to scale than I had originally anticipated. So with that in mind, I'm wondering if it's worth considering shifting my focus if I'm really looking to scale.
- [36:25]
A
All right, John Stein. Really interesting idea. I love it. She's got liver pooch and barkzil for Brazil, but with the same colors. And Chelsea. Not Chelsea, but Chulsi. It's cool. Really cool idea.
- [36:41]
B
Maggie, the challenge that you're facing is a familiar one in consumer categories. This idea of dtc. You built an amazing product, and I really do think this is great. I can already think of people I want to buy this for. I also think that being picked up by Chewy is real validation. That's, you know, that's not just a channel for you. I mean, that says that you're meeting a high bar, you're operationally sophisticated. It's a real trust builder. It is familiar, this idea that you build this awesome thing and then you kind of cap out when people, you know, like the early word of mouth sort of like, has. Has a max. And I experienced this at Betterment where we were, you know, we just. We maybe hit a ceiling on retail and we started going B2B. We started the 401k product. We started the advisory solutions product because we realized in the long term, over the long run, those B2B businesses are the way to get scale, and then they feed you more retail customers as you go. And so I think you're doing a lot of the right Things already getting into Chewy's. Great. And I'd ask you questions like which channel is giving you the clearest signal right now that you know, if you focused on it, customers would keep coming back and you could add scale to it?
- [37:56]
D
Yeah, gosh, I do think it might be our, our standard wholesale. We've started to gain quite a bit of traction in the back half of this year and we've been seeing a lot more reorders than kind of when we initially started. So that's, that's definitely been a good indication. I guess.
- [38:14]
A
These are gift shops mainly.
- [38:15]
D
Yeah, so we mostly it's, it's gift shops, pet shops and sports shops. We actually sell a lot to like soccer specialty stores. And they actually tend to be our highest converting wholesale retail customer and also our highest repeat rate as well.
- [38:31]
B
And do you have a sense at the same time of which channels are giving you the most margin at least directionally, like where, where you're seeing profitability?
- [38:42]
D
Yeah. So in theory it's our direct to consumer. But as as I mentioned in my question, our marketing spend is just getting so high. But actually maybe what I will say in terms of our best margins, it right now, it actually might be the professional club partnerships. We just started production with our first club partnership a couple months ago.
- [39:05]
A
And what team is that?
- [39:07]
D
It's El Paso Locomotive. It's a USL team in, you guessed it, El Paso. So those margins have been our best. Yeah.
- [39:17]
B
Do you, do you see that club channel? Is that more of a credibility building channel for you that you have those partnerships or is it a kind of a scale marketing channel?
- [39:28]
D
Yeah, I kind of see it as a scale marketing channel. I guess one of my visions for the brand is a fan could walk into their favorite club's team store and see see floof ball on the shelves. So I definitely see it as a channel to scale for sure.
- [39:44]
B
You know this market better than me. I would think a lot of those club stores do deals with the national organization and are getting inventory through them and that organization may want a cut at some point of what you're doing.
- [39:59]
D
Yeah, absolutely. And you know, maybe the reason we saw better margins I guess with, with El Paso is because they are lower league. So maybe they don't have as many kind of hoops to jump. So yeah, I definitely get what you're saying there for sure.
- [40:15]
A
I mean the other question I have is about Chewy because Chewy is such a. I mean I think it's the biggest distributor of pet supplies. I think bigger than Amazon. When it comes to pet supplies in the US and you're talking about, I mean, there's an incredibly trusted brand. I mean, are you able to work with them to push it out, to promote it on, on their site?
- [40:37]
D
Yeah, I guess that's, that's kind of what I'm wondering right now, like where to put my resources because there's definitely the opportunity to work with the brand to do kind of on site promotion, things like that kind of pay a little bit extra I guess to market on their own platform. But maybe, you know, now that we're talking about this and I'm thinking about it, maybe that would result in a greater return on my marketing spend, my marketing budget than my direct to consumer marketing just simply because of their large platform.
- [41:06]
B
Yeah, I think you've hit on something there. I think thinking about Chewy as marketing is a really interesting way to think about it. And, and they, they would love for you to think about it that way too. Yeah, totally. And you can build customer loyalty. You're going to be shipping boxes, you can put a QR code or you know, you put your website in the box. So when people get it, they come and they come to you directly for the next order. But rather than trying to make full margin or full profits on every Chewy order, you can take that on D2C and pay less to acquire your customers.
- [41:40]
D
Yeah, that's a great idea. And it honestly just gave me an idea where maybe on the packaging itself, even to the product that I send to Chewy, maybe I can make it even more branded than it already is to encourage the customer that buys to kind of connect back with the floof ball community in a way. So it's not just like, oh, I bought this on Chewy and forget about it, but still a way to kind of grow the brand even though it's not direct to consumer.
- [42:06]
B
I love that. And as a consumer, I'm sure it's not an eco friendly attitude, but I do love a well branded box. When I get something that's beautiful and like it really, it tells the story of the brand. You know, I love that. I love a little postcard in there. You know, like I see on your website there's this photo of you and your husband, you know, celebrating a soccer one. That kind of stuff builds connection with your customer.
- [42:29]
D
Yeah. John, can I ask you a question?
- [42:33]
B
Yeah.
- [42:34]
D
When you mentioned you kind of shifted your focus to B2B, how did you continue to connect with your end consumer and grow your brand while doing that?
- [42:44]
B
That's a great Question. I'd say that focus doesn't mean exclusivity. So we still market direct to consumer at betterment. That's a lot of the brand origin story. That's where we came from and we built around that customer. But our marketing dollars, there's only so many dollars we can spend efficiently in that channel and I think we max that out every year and really the only way we can spend more and continue to grow faster is through B2B where we have more of a repeatable sales motion. We can find more ways, we can always hire more bodies and call on more businesses to sell more 401 s. So it's those kinds of scale channels that over time you have to look for it doesn't mean giving up, doesn't mean you only do one thing. But where are you putting your focus and your, your, your time is so valuable in this and so I really want your leverage going towards those channels where you feel like you can scale them right now.
- [43:38]
D
Yeah. Awesome. Thank you.
- [43:40]
A
Yeah and I mean I've got a child who's a, believe it or not, is a fan of Everton and like that's the team. He picked this, the other team in Liverpool and we actually went there a few years ago to see, to see his matches and yeah, I mean when you love a team like you love everything, you buy their jerseys, you buy their stuff. I mean this is a really, really cool idea. Congrats.
- [44:03]
D
Thank you. Thank you. Yeah, someone actually gave me the idea for Everton fans to give them Liverpool treats to feed their dogs.
- [44:11]
A
That's a great idea, right? They hate Liverpool so much.
- [44:14]
B
Funny.
- [44:15]
A
That's a great idea.
- [44:17]
D
Thank you.
- [44:17]
A
Maggie McDonald. The brand is called Floofball. Good luck. Thanks for calling in.
- [44:21]
D
Thank you so much. Pleasure.
- [44:23]
B
Nice job.
- [44:24]
A
John, before I let you go, a question for you which is now that you have all of this experience, right, having built what you built and you're building now a new company and you've been involved in advising so many founders. Like if you go back and say hey, you know, I have all this experience, John, I'm going to give you some advice. What would you have wanted to know?
- [44:45]
B
Oh wow. Aren't we lucky to first of all to be here giving advice to folks who are just starting out and I think that all the time one thing that I have been shocked by as I've been advising more and more folks is just how hard it is to find that early product market fit. And once you've got it, lean in and give yourself some grace that it's going to take some time to find it. To me, that's the sort of unpredictable part of the journey journey and know that you just got to keep talking to customers. You got to keep finding people who are in the part of the customer journey that you're working on or in the part of the in the product consideration set that you're looking at. Keep talking to them and you'll figure it out.
- [45:31]
A
Yeah. Betterment founder John Stein. John, thanks so much man.
- [45:35]
B
Thanks guy. Always a pleasure.
- [45:37]
A
And by the way, if you haven't heard John's original How I Built this episode, you've got to go back and check it out. We'll put a link to it in the show notes, so make sure to check it out. And here's one of my favorite moments from that interview.
- [45:48]
B
I'd been up all night. I knew that I would have to deliver this amazing speech if I wanted Betterment to be successful. And this is my baby. This is the thing that I've been working on for the last three years. And I had a BlackBerry at the time and the BlackBerry timestamps when you leave these notes. And I woke up in the morning and I saw every 30 minutes, all night long I had been awake and like writing down edits to my presentation. It was probably the most nerve wracking day of my life.
- [46:18]
A
Hey, thanks so much for listening to the show this week. And by the way, please make sure to check out my newsletter. You can sign up for it for free@guyraz.com or on substack. And of course, if you are working on a business and you'd like to be on this show, send us a one minute message that tells us a little bit about your business and the questions or issues and that you're currently facing because we would love to try and help you solve them. You can send us a voice memo@hibtid wondery.com or call us at 1-800-433-1298. Leave a message there and make sure to tell us how to reach you. And we'll put all of this information in the podcast description as well. This episode was produced by Nora Gill with music composed by Ramtin Irabloui. It was edited by John Isabella and our audio engineer with Kwesi Lee. Our production staff also includes Alex Chung, Casey Herman, Carrie Thompson, Kathryn Cipher, Romel Wood, Sam Paulson, Neva Grant, and Elaine Coates. I'm Guy Raz and you've been listening to the advice line on How I Built this Lab.