The Investor Behind Warby Parker, Harry’s, and the Psychology of Consumer Growth | David Bell

Summary

Podcast Summary: "The Investor Behind Warby Parker, Harry’s, and the Psychology of Consumer Growth"

Run the Numbers with CJ Gustafson | Guest: David Bell
Date: May 11, 2026

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Episode Overview

In this episode of “Run the Numbers,” host CJ Gustafson sits down with David Bell, co-founder of Idea Farm Ventures and early investor in iconic brands like Warby Parker, Harry's, and Diapers.com. The conversation dives into the intersection of economics and psychology in consumer investing, why the best opportunities often lurk in ”boring gray space,” how SaaS metrics can be adapted for consumer businesses, the critical importance of both product and brand, and David’s unique “gravity framework” for assessing growth potential. The episode is full of stories, frameworks, and tactical insights for consumer and SaaS founders alike.

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Key Discussion Points & Insights

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1. Pattern Recognition in Consumer Investing

Timestamps: [03:21]–[05:17]

• David’s edge lies in combining "pattern recognition grounded in both economics and psychology."
• The primacy of consumer decisions: “The whole sort of world economy in some sense runs on very basic consumer decisions. People are in the grocery store, people are buying clothes, people are eating and drinking…” (David Bell, 03:45)
• Decision environments differ: Most shopping is low-involvement—those are driven by heuristics and habits; higher-stakes purchases (cars, homes) involve much more deliberate thinking.

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2. The Value in Boring, Overlooked Niches

Timestamps: [05:17]–[08:56]

• Breakout consumer wins often start with everyday, “boring” products reimagined for emotion and symbolism (ex: Touchland hand sanitizer, Eos round lip balm).
• Three levers of value:
  1. Functional
  2. Emotional
  3. Symbolic
• "Really clever consumer products hit all three of those triggers.” (David Bell, 05:54)
• Removing small friction points makes a huge difference (e.g., travel-sized vitamins, TB12 protein sachets, accord framework’s “divisibility”).

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3. Personal Experience vs. Market Analysis

Timestamps: [12:56]–[16:14]

• “A lot of the companies that I’ve either worked with or I’ve seen be successful… there’s always kind of an origin story where it starts out of somebody’s personal experience.” (David Bell, 12:58)
• Great consumer ideas often come from founders solving a problem they truly care about (ex: Diapers.com, Starbucks, Uppababy stroller).

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4. Metrics: Adapting SaaS Thinking for Consumer

Timestamps: [16:14]–[20:27]

• David was an early advocate of LTV (Lifetime Value) applied to consumer/D2C before it was industry standard.
• Key LTV drivers:
  • Retention rates have a nonlinear effect: small improvements massively increase value.
  • Acquiring the right customers is critical (“selection problem”); avoid just chasing cheap promos.
  • Margin per period is the other core variable.

“...if the retention rate goes up from like 85 to 90, that might actually double the implied lifetime value.” (David Bell, 17:57)

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5. The Economics of Trust and Omnichannel

Timestamps: [20:27]–[27:19]

• Trust is paramount—modeled more through qualitative proxies than numbers.
• Real-world presence (stores) increases perceived authenticity and conversion for online-first brands (Warby Parker, Away).
• Physical stores pull double-duty as advertising and conversion drivers—but expansion must be disciplined.

“...as you’re walking home in Connecticut and you go past a Warby store, it sort of goes into the brain... But if you just sit in Boise and need good sunglasses and Warby shows up and you see that they have stores, you feel like it’s a bit more of a real place.” (David Bell, 21:44)

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6. Word of Mouth, Trial, and Multi-Channel

Timestamps: [27:19]–[32:00]

• The “home try-on” program at Warby Parker was pivotal—a non-digital solution to a digital trust barrier.
• Physical presence and unconventional trial increases conversion and word-of-mouth, offsetting promotional costs.
• Strategic brick-and-mortar increases efficiency of all channels.

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7. Unit Economics and Common Pitfalls

Timestamps: [32:00]–[34:52]

• Repeat purchase rates are often overestimated.
• Dilutive tactics (discounts, promos) can attract the wrong customers.
• Don’t let digital tracking bias you against innovative, less measurable distribution strategies (e.g., placing products in unexpected retail environments for powerful effect).

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8. Innovating on Distribution: Leveraging the “Four Ps”

Timestamps: [34:52]–[36:23]

• Of Product, Price, Promotion, and Place (distribution), innovations in distribution yield the longest-lived, hardest-to-copy competitive advantage:

  “If you innovate on distribution or crowd out the distribution channel, the returns can be long lived... Blockbuster got screwed when Netflix used to mail you DVDs...” (David Bell, 35:33)

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9. Capital Allocation for Consumer Startups

Timestamps: [36:23]–[40:40]

• Margins and sales efficiency are paramount.
• Avoid raising and spending capital without clarity of purpose; resource constraints can drive sharper focus.
• Sequence investments:
  1. People (hardest to fix later)
  2. Brand (can always be improved)
  3. Inventory/logistics (must be tightly managed, modern tools can optimize).

“A brand can always be improved, right? You’ve got to have a great brand. I think it’s a non-negotiable…” (David Bell, 39:48)

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10. Product vs. Brand: What Wins?

Timestamps: [40:40]–[42:23]

• “A great brand can’t hide a bad product, but a crappy brand can kill a really good product.”
• In fast decision categories (e.g., water), a ’10/10’ brand with an ‘8/10’ product usually beats the reverse.

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11. Subscription Economics and Sharing Platforms

Timestamps: [42:23]–[45:28]

• Surge in both “subscription-everything” and low-inventory marketplace models.
• The next wave may be shareable durables (e.g., vacuum cleaners, power tools)—overproduction and underutilization are costly at a societal level.
• Iconic Black & Decker drill example: average lifetime use = 15 minutes (!)

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12. The “Gravity Framework” for Assessing Opportunity

Timestamps: [45:28]–[52:24]

• Inspired by Jonah Berger’s “Contagious,” David’s GRAVITY framework breaks down how offline and online factors interact:
  • Geography: Where people are matters.
  • Resistance: How much friction is there in buying?
  • Adjacency: Similar neighbors behave similarly.
  • Vicinity: Like-minded folks may be dispersed but connected by the internet.
  • Isolation Principle: Great target audiences are those underserved locally but reachable digitally.
  • Topography: Managing online/offline effectively.
  • Y—(catchall: “What would you do?”)
• “Isolation” is hugely underutilized in targeting digital efforts—products that solve needs for physically isolated consumer pockets can thrive.

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13. Building for the Right Exit

Timestamps: [52:24]–[56:26]

• Most consumer exits are to strategics, not IPOs—know your acquirer from day one.
• Build relationships with big legacy companies early; consider what fills gaps in their portfolios.
• In consumer, acquirers often want product/brand, less so the team (contrast with tech’s acqui-hire model).

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14. Not Every Business is Venture-Scale—and That’s OK

Timestamps: [57:21]–[59:31]

• If you realize your company is “good but not venture scale,” that’s not failure—it may become a profitable family business or passion project.
• Traditional venture only works when a slice of outcomes are huge; a fivefold return isn’t enough.

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Notable Quotes & Memorable Moments

• “You really made it when someone passes you a Kleenex. I guess we don’t Google anymore, we might perplexity where to go.” (David Bell, 05:00, 42:07)
• “A great brand can't hide a bad product, but a crappy brand can kill a really good product.” (David Bell, 40:55)
• “The average amount of use by the average dude that had [a Black & Decker drill] was 15 minutes. And it wasn’t 15 minutes a week or a month or a year. It was like 15 minutes lifetime.” (David Bell, 45:05)
• “Innovating on distribution often yields, you know, outsized returns.” (David Bell, 34:45)

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Segment Timestamps Guide

• Pattern recognition and world view: [03:21]–[05:17]
• Contrarian “boring gray space”: [05:17]–[08:56]
• Personal stories driving startups: [12:56]–[16:14]
• Adapting SaaS metrics/LTV: [16:14]–[20:27]
• Trust and omnichannel strategy: [20:27]–[27:19]
• Trial programs and word-of-mouth: [27:19]–[32:00]
• Consumer unit economics pitfalls: [32:00]–[34:52]
• Distribution as leverage: [34:52]–[36:23]
• Capital allocation and sequencing: [36:23]–[40:40]
• Brand vs. product debates: [40:40]–[42:23]
• Subscription models & overproduction:[42:23]–[45:28]
• Gravity framework explained: [45:28]–[52:24]
• Exit planning & acquirers: [52:24]–[56:26]
• Not every business is venture scale: [57:21]–[59:31]

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Conclusion

This deep-dive with David Bell is an essential listen for anyone interested in the mechanics of consumer startup growth and investing. His frameworks blend behavioral psychology, hard metrics, and market experience into accessible, actionable insights. The episode offers both big-picture thinking and practical playbook moves, making it valuable for SaaS and D2C operators alike.

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Book Plug:
David teases a forthcoming book, tentatively titled Founders Gold, chronicling founder journeys and operational lessons from iconic consumer startups.

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Final Thoughts:
Recognize where your strengths lie—brand, product, distribution—but never underestimate the compounding effect of getting multiple levers right. And always ask: is this a billion-dollar idea—or a great long-term business for you?

Transcript

[CJ]

How do you coach founders on thinking differently about uses of capital? In a consumer model, you want people

[David Bell]

to be really maniacally focused on two things. One is just the margin that you're making on the product and then number two, you know the effort that you have to make to sell it in a particular industry. Would I rather have an 8 out of 10 products, a 10 out of 10 marketing and branding, or would I rather have a 10 out of 10 product, an 8 out of 10? They both multiply them out, they both come to 80. But if you pushed yourself a bit, you might say in categories where people are making decisions quickly or they're less of an Expert, being a 10 out of 10 marketer with an 8 out of 10 product is actually better than being a 10 out of 10 product with 8 out of 10 marketing. A strong brand can also elevate a product too, right beyond what it really is. And you see the really great brands kind of enter into the vernacular almost as verbs. You really made it when someone passes you a Kleenex. I guess we don't Google anymore. We might perplexity where to go. The average usage of a Black and Decker drill by the average dude that had one was 15 minutes. And it wasn't 15 minutes a week or a month or a year. It was like 15 minutes lifetime.

[CJ]

What?

[David Bell]

Right. Unbelievable, right?

[CJ]

It's gonna reframe. How I think about all the tools I have sitting downstairs that I've never used. Is this thing on

[David Bell]

Yesterday's price is not today's price? Hey,

[CJ]

Welcome back to Run the Numbers, the show where we talk with the world's top CFOs and the investors who fund them. I'm CJ, a tech CFO, and my goal is to unpack the frameworks and operating principles that make you better at allocating capital and leading teams. On today's show, I'm joined by David Bell, co founder of Idea Farm Ventures and one of the earliest investors behind iconic consumer companies like Warby, Parker, Harry's and diapers dot com. He built his reputation by seeing around corners in consumer underwriting businesses, not just on unit economics, but on human behavior. And this was long before LTV to CAC became standard in D2C. David was out there developing his own frameworks for understanding what actually drives durable growth. In this episode, we go deep on how he combines economics and psychology to spot opportunities others miss and why some of the best ideas live in what he calls boring gray space. We talk about rewriting SaaS metrics for consumer how to think about LTV retention and trust economics in businesses without contracts or recurring revenue. And we touch on capital allocation in direct to consumer how founders should think about inventory, working capital and sequencing their investments across brand, product and team. Finally, we touch on his gravity framework, what separates a venture scale outcome from a good business, and how he evaluates product versus brand in today's consumer landscape. If you like the show, please remember to like and subscribe. It helps us with the algorithmic overlords. And if you're looking to hire the best finance and accounting talent, I'd love to help. I run a recruiting service that pairs you with thoughtful qualified candidates from our community of finance leaders, people who, for better or worse, voluntarily research renewal rate calcs on weekends. That's of interest. Shoot me an [e-mail] and we can talk on today's episode with David Bell. David, thank you so much for joining me on the pod today.

[David Bell]

Hey, C.J. it's a real pleasure. Thanks for having me.

[CJ]

You are looked at as a thought leader in the consumer space. You've had quite the run as an investor. And I wanted to start out with kind of your worldview here because I think it tees up some of the other topics that we'll speak to. And you've said that your edge is pattern recognition, grounded in both economics and psychology. And the economics part, I love that as a former cfo, but how do all those interactions.

[David Bell]

So it's a great question. So I think the whole sort of world economy in some sense, right, runs on very basic consumer decisions. People are in the grocery store, people are buying clothes, people are eating and drinking. And if you look around the world, maybe it's a little bit different. In the US on average, you would say a lot of the families and low personal wealth that's held around the world is by people who sort of make consumer products run supermarkets, own real estate and stuff like that. So it's just such a fundamental part of, of the economy. So it's almost like a little microcosm of how, how things work. And that's really what kind of drew me into it. And I think the economics are interesting because you're going into a decision environment like a supermarket and you're kind of making an implicit cost benefit trade off when you're picking one brand over another or you're putting things into your basket. And then the psychology is really interesting. If I put up, you know, in front of the Campbell soup limit, two cans per customer, you only got to buy one and then you're like, oh my God, I better buy two because of anchoring. So because it's an environment, CJ A lot of consumer environments, at least what you call the low involvement ones, the low stake ones, you're kind of using heuristics like let me buy what I bought last time, unless there's a compelling reason not to. As you go up the chain into the so called high involvement, I'm buying a car, then you really start to focus on the attributes. You read like Consumer Reports when it's a house. So as you go up the chain, it's a much more considered thing. But I'd say most of my academic and investing career I've been further down. Which is not to say these things are not important, but you're dealing with people making very quick decisions. And so you're interested in what are the underlying economics and psychology that's, that's driving those.

[CJ]

I love that. And you have this, I would call it contrarian belief that the, the best ideas are hiding in this boring gray space. What, what would you say is an example of that in today's market?

[David Bell]

Oh man. I think probably one of the best ones actually was discovered by my co founder of IdeaFarm is a brand that a lot of people probably know. It's called Touchland, which is a hand sanitizer. It's basically like Purell. It has the functionality of Purell, but what it has on top of that is something I'm actually writing this, this new book about or a part of it. So every product has like three, three levers of value that it delivers. So one is functional value. So here's a sanitizer. A, does it clean your hands? Your B also cleans your hands. They both have functional value. But what Touchland also has, it has emotional value. Like it makes you feel good, it looks cool, you take it out, a bunch other people want to use it. And then on top of that, it also has symbolic value. So when you have it attached to your backpack, it's kind of saying something about you. And I think really clever consumer products hit all three of those triggers. And if you wind back to someone like Craig Dubitsky, who's a bit of a legend in the consumer space, who's now doing Happy Coffee with. I always forget the Iron man guy, the famous actor. One of his early products I think was the eos, which was lip balm, turned into something that was round, right? And it seems like almost a trivial innovation. But when you do these little things because the decisions are made so quickly, sometimes they trigger and then once they trigger and attach, then you can get these really outsized wins.

[CJ]

I love when somebody reinvents or relabels something like, there's nothing more boring than hand sanitizer, like water brands. There have been a number that have come out that have like a more of a cutting edge feel to them that makes it feel more like a Red Bull.

[David Bell]

Another great example is a company that I didn't invest in that again, it's always easy in Hinds this, oh my gosh, why did I miss that? But one of the big brands that you probably saw CJ in the last week, I think was grins, right? Oh yeah, the vitamins, the gummy bears. And I could be totally off on this. But one reason why I think that thing works is you buy a big bag of grins and then inside the bag are 28 little bags each filled with like seven little, you know, green beards.

[CJ]

Right.

[David Bell]

And for me at least, like, why do I like that? Because if I travel, you're telling me I have to take a jar of gummies. It's kind of a pain. How do I squeeze it into my suitcase if I've got one of those stupid Monday through Sunday flip up plastics and I'm dropping and all my. That's also kind of a pain. But if I'm gone for five days, I take five little bags. It's easy. So I mean, I'm sure there's many other things they did too. I think it's also probably a pretty good product. But I think sometimes those like simple innovations can really tip consumers in your favor.

[CJ]

I'm packing for a family vacation tomorrow and I don't want to take a two pound jug of whey protein. So I bought TB12, Tom Brady's protein company. They have vacation packets of 20 grams of protein. It's like, okay, well I can actually bring this with me. But it's like the same core thing, just repackaged in a different way.

[David Bell]

I love this, right, Because a lot of what you're doing when people have success in these areas is you sort of removing what seems to be a trivial barrier. But. But it's actually not. And I forget what all the letters stand for. But when I used to teach there was something called the Accord framework. And this would like, if you hit all the letters, you had a bigger chance of success. So the first thing's obvious, like you have to make the thing available. And one of the C's was, is it competitively better? But to your last point, the D of the Accord model was divisibility. Like can I use it in the unit that's actually appropriate for me and you're telling me I don't want to carry the big bag of TB12, but if you give me little mini packs and so that's checked off the divisibility thing. So again it's just removing another variant that might prevent you from using it.

[CJ]

Same thing with something like a chapstick you don't want to carry around like a big thing of petroleum jelly. That would look kind of weird. Hey, thanks for listening. We'll be right back after a word from our sponsors. Scaling a tech company is thrilling. It's also really, really messy. Just ask anyone who's done it, or anyone who's tried. Better yet, ask ey. They've seen startups at their best and in their most fragile moments. EY knows you don't start a company to burn cycles on regulatory hoops, discounted cash flows, or the fine print of SEC Form S1. Although you probably do know I love myself a good s1 if you've listened to or read my stuff while enough, you can't ignore these things. That's how risk compounds kind of like negative interest. What you can do is work with EY from day one. They'll help you get it right early and often so you can stay in builder mode and keep the trains running on time. EY shape the future with confidence. Learn more at ey.com techstartups that is ey.com techstartups One more thing about Spendhound Teams using Spendhound reduce software spend by up to 30%. Here's how that actually happens. First, you get the data Real pricing benchmarks from over 1,000 companies across 10,000 SaaS and AI vendors. When a renewal comes up, you know what fair pricing is and what you should be pushing for. But knowing the number and getting the number are two different things. Spendhound also includes on demand procurement specialists who help with negotiation, strategy, contract review and renewal emails. You stop overpaying for the tools you need, you cut redundant tools before they renew, and you negotiate from a position of strength now that you have both the market data and expert support behind you. Spend out is built by the team behind Yipit Data. It's rated number one on G2 in SaaS spend management and did we mention it's free forever for SMB? When we say free, we actually mean it. You can like keep all the savings. Plus it's only $10,000 per year for enterprise with $150,000 in savings guarantee. There's a reason we're growing more than 100% year over year. Do you want to stop overspending on SaaS and go to spendhound.com cj0risk guaranteed savings. That's spendhound.com cj Most finance teams aren't underperforming, they're actually under equipped. The problem isn't the people, it's what they're being asked to do. Because there are two kinds of finance work. The kind that moves the business forward and the kind that just keeps it from falling flat on its face. And too many finance teams are buried in the second kind and they call it a good week when they just get through it. Expense reports that take longer than the trips they cover spend policies living in PDFs that no one reads. A three day approval process for a $40 receipt, that's a lot of burritos, but not worth it. Month end close that stretches into weeks. These aren't edge cases. They're the default state of finance at most growing companies. And the cost isn't just the time, it's what your best people aren't doing. While they're buried in the wrong work, you become what you spend on. And right now too many finance teams are spending on maintenance instead of momentum. And that is why I use Brex Agentic Finance that captures receipts, automatically enforces policy before the spend happens and closes your books in minutes rather than weeks. So your finance team stops spending on maintenance and starts spending on momentum. 35,000 companies like OpenAI, Coinbase, Anthropic and Doordash already run on Brex because high density talent deserves some high leverage systems. It's time to get Brex af. I can't believe they let me say that. Learn more brex.commetrics that is brex.com metrics. David how much of great ideation is personal experience versus market analysis? And I bring it up because like I come from a traditional B2B tech background. I've always been really interested in consumer. But you see in the B2B tech space, sometimes it'll just be a hot area and a founder comes into it and I'm like, have you actually always been passionate about ERPs or accounting software or is it just like the next wave? What do you think of that?

[David Bell]

This happens a lot in the consumer space. It's almost a little bit of a cliche to say it, but a lot of the companies that I've either worked with or I've seen be Successful. There's always kind of an origin story where it starts out of somebody's personal experience, right? So Mark Law is a very well known entrepreneur now who did Diapers.com, jet. Now he's doing wonder. When he started Diapers.com he was sort of a parent and it's kind of a nuisance as a parent, right? You go into the supermarket, you got to buy these big bolted things. And there was this notion of, well, if I could change that shopping process and just send Pampers straight to cj, he might really like that. And I think this is true. There's a number of cases about Starbucks, as you might imagine, that get taught at business school. And I think this remembering it roughly right, but the point I think is a good one. So apparently Howard Schultz, right, he goes to Italy and he has this aha moment. People in Italy drink a lot of coffee. People in America drink a lot of coffee. People in Italy drink good coffee made by a barista at a cafe. People in America drink crappy coffee made by me in my apartment. And there was sort of light went off around this whole idea of creating a fit space. So I can imagine to your other point that in technology, often some, some new thing gets invented and then try to figure out how to apply it. So it's almost a reverse of the process where I think oftentimes a consumer, it's like, yeah, I don't like carrying my big bag of protein. My customers won't like that. What if I put them in sachets? So in technology driven stuff, sometimes having a consumer lens is helpful. I've been trying to think about, you know, what it might mean in this whole AI race. For example, it's not something I know too much about, but ChatGPT is always kind of called the consumer product, right? Whereas people say Claude is kind of for the more serious people and so on and so forth.

[CJ]

I'm thinking about examples of founders over the years who had a personal pain point and said, you know what, I'm going to solve this and I'm going to like be a crazy person trying to solve this, even though it's something that seems simple. One of my favorite examples because I have three young kids is the uppababy stroller. And so the husband in the relationship was, was a tall guy. And if like I'm only 5, 8. So this problem doesn't apply to me. But I can imagine that if you're a tall person and the stroller handles to push, don't come out far Enough. You're almost like walking on top of yourself the whole time.

[David Bell]

Yep.

[CJ]

He wanted it to be modular because he was an engineer. Because it was such a pain in the ass to put, like, into the minivan. And if you were traveling with kids, like, I'm. I'm thinking about how we're going to have to fold up our stroller and pack it tomorrow when we get on the airplane. And then the wife, she made her name in marketing at big companies beforehand, and she had a good way to market it, having, like, celebrities around New York City, pushing their kids around. But I always think of that as like, a cool example of someone that took a simple problem, like, very seriously.

[David Bell]

Yeah. 100% CJ. And I think there's something like really kind of inspiring about that, too. One thing I try and invent myself, or I think a lot of entrepreneurs do implicitly, is you're going through your daily life as a parent or whatever, and you sort of ask yourself, what's wrong with the status quo? Why do I have to lug around all my protein? Why is my stroller kind of cramping my stomach? Why is that? And just to sort of give a shout out for one of the real OGs and consumer would be the Warby Parker guys. Right. When one of the founders lost his glasses, the question was, why do I have to pay 500 to replace something that's probably made for 20 or 400 or whatever it was? Once that question gets in the brain, someone who's really tenacious might sort of pursue the elements as to why, why that's.

[CJ]

So I want to talk about metrics for a bit. I'm a total dork when it comes to metrics. And I find it fascinating to compare consumer brands and D2C versus, like, traditional SaaS thinking. And many SaaS investors that I know, David, they obsess over LTV to CAC. You were one of the first people to kind of bring this view to D2C.

[David Bell]

What.

[CJ]

What was your version of lifetime value that others missed?

[David Bell]

Oh, man. So I was really influenced, I'd say, by. By a couple of people who are still pretty. Pretty active. I guess There was this kind of idea in marketing that, you know, much more expensive to get somebody new than to retain somebody that you've already got. And of course, there's also the selection problem, which is why you don't always necessarily want to attract people with freebies and promotions. Right. You want to get the right people in. And then when you've got all the right people, you Kind of want to hang onto them. So what happened probably 20 plus years ago in marketing is the, basically the discounted cash flow formula from finance kind of showed up at marketing. People said, let me think about what's the value of CJ as a parent in buying Pampers and what's the margin I make on them? Divide that by 1 plus the discount rate and raise it to some value of retention and basically sum that up over all of the periods for which I think I can keep them. And there were a couple of professors, one who's at Harvard, another one who's at Columbia, they wrote a book called Customers as Assets. And they had a very simple way of doing that formula, which is not that complicated, but they had a simple fractional expression that you could apply if you assumed that the retention rate was constant and that the margin was constant per period. So what that does is it really forces you to think about two things, like who should you actually bring in? And then having brought them in, how do you make them more valuable? Well, the two things you do, one is you can make them more valuable by retaining them at a higher probability. And it's amazing in that formula, if the retention rate goes up from like 85 to 90, that can have a, that might actually double the implied lifetime value. And then the second thing would be, is like, how do you grow margin? You know, how do I sell you more stuff so that every time you show up there's more money on the table. And it took a while, but that, that viewpoint became kind of embedded in the quantitative area of marketing. And I give another shout out to a guy who's really pushing. And that would be bloke Pete Fader at Wharton, has a whole class where he gets into that in a little bit more mathematical detail. But when the whole D2C thing came along, that formula was kind of tailor made because now you actually had individual level data on somebody, you could probably come up with some estimate of what you thought it cost to get them. And sometimes it's very simple. Like I spent this much in total on my advertising on Meta and this many people came in and let me just divide one by the other. So yeah, the Internet, D2C was kind of made for that sort of stuff.

[CJ]

So my wife the other day there's a ring at the doorbell and it was actually a milkman which I didn't know were still around. And we ended up signing up for this service because we have three young kids, they drink so much milk, where they bring farm fresh milk locally to your house every week. And I looked at the pricing sheet for it, and it was essentially a subscription product for like the most bland consumer thing that you buy every day. And so it's. It just made me think about how many things I buy in my life. Like this is repackaging it as essentially a subscription. People laughing because I always talk about the difference between recurring and reoccurring. Whereas recurring, it's like they're going to charge me 20 bucks a month, every month, same time. I use Uber all the time, but it may be a $5 ride on a Wednesday versus a $12 ride on a Tuesday. But they're also contributing to my overall lifetime value.

[David Bell]

Yeah, you know, it's so funny that I'm really dating myself here, but when I was a kid growing up in New Zealand, that's how you got the milk. There was a milkman, and you would leave your four bottles at the gate. And there were two ways you could pay for the milk. One is you could leave in a plastic token. So your mum had gone to the store, she bought like 2 bucks worth of tokens, and maybe each one was 10 cents or whatever. Or you could leave an actual coins, you know, leave 10 cents in each bottle or whatever it was. And I remember when I was a kid, I got really, like, deep trouble with the parents because me and my buddies, like, ran around the neighborhood stealing the milk putty so we could spend it on cavy. But it's funny how that's coming back, right? Because you're getting a better product, you're supporting local farmers, it's super convenient, there's recycling involved.

[CJ]

And yeah, I love that you mentioned running around and taking those coins. I want to touch on trust economics here. How do you quantify trust in a model? The same way that Maybe a SaaS CFO would quantify retention.

[David Bell]

That's a great question that people think about a lot, right? And I'll give two sort of historical things that one of which I think is quite funny. So this is way back in 1993. You can look this up. The New Yorker, which has really great cartoons, right, had this cartoon where there's like a little dog and he's standing up on a chair and he's hammering away on a laptop, desktop, whatever. And he turns around and he says to his little dog friend, he's like, on the Internet, nobody knows you're a dog. And the point is, the point is sort of this anonymity. I see a great website. I don't really know if there's Anything behind it. Right. So let's sort of layer that up a little bit. So there's a professor at mit, his name was Glenn Urban, which is like urban suburban. And he did a huge study in the early days of the Internet for gm. And the idea was it was kind of an early version of a bot. We want to go and buy a shared truck, a trucker. Trev would like take me through the survey. And what they found was this increased conversion by some really important economic amount. Right. Again, another brand that I really liked that I guess eventually got shut down. But Craig Albert, who did Carol first real customized vitamins thing, one thing that was great about his website is he had all these different ingredients from milk thistle to gold knows what turmeric and he would give a very honest perspective on what was the scientific integrity of those things. One more and then I'll get to the general point. So Andy Dunn back in the day too, you could buy a pair of paints from bonobos, you could rip them, you do whatever filthy and you could send them back. It'd be no questions asked. I used to ask him about that. He said, well, what you're doing is you're sort of creating this reciprocity. The fact that they're going to do that makes a normal kind of person less likely to exploit it. So I think as you get into AI and start think trying to establish trust is absolutely critical. And one thing that helps in consumer for sure, like one empirical reason why Warvi when they open stores, part of the reason that the e commerce in the neighborhood of the stores goes up. It's really two effects. One is as you're walking home in say Connecticut and you go past a walkie store, it sort of goes into the brain. And then when you search for glasses, oh, you remember it right as an advertising effect. But there's also the reverse. If you just sit in combs, I need good sunglasses and Warby shows up and you see that they have store, you feel like it's a bit more of a real place. So I think gets to what you said earlier about economics. How do you signal in a credible way that you're trustworthy?

[CJ]

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[David Bell]

Woo.

[CJ]

Everything a scaling company needs. They've got 5.050 wow 50 stars on G2. They're backed by A16Z and Sequoia. Heard of them and CPA led implementations that get you live in 45 days. That is simply unheard of in the ERP space. If your books aren't running as fast as your business, check out Rillette. Book a demo at dot com CJ that is R I L L E t dot com CJ that's me. It's so funny you bring up the example of Warby, a ddc, an online brand. They're like we're going to have a brick and mortar store. Because I had the same reaction when I was living in the seaport in Boston where away suitcases had a big store there in the back of my head. Like as a cfo, I'm like how could this possibly be viable to pay for this real estate to sell the suitcases out of? And I'm just having the aha moment in my head that it was actually an advertising opportunity for people walking home from work thinking about I'm going to go on a business trip next week and my luggage stinks.

[David Bell]

Yeah, 100% CJ. I mean the quantitative sort of finance guy in you too is like you also have to make sure you don't add too many of these things and they're not too expensive to run. But there is a point at which having them when there's that advertising benefit and it's driving E commerce where that's. That's material, you know, you still need to make sure they run efficiently and everything else. And I know it was in the news recently, I guess with Allbirds, right, which was a brand that the people really genuinely loved a decade ago. And I don't know whether this is true or not, but the opening of sort of too many stores maybe was part of the undoing. So you still need to be judicious with it. But I think there are real benefits of having physical stores when you're an E commerce brand.

[CJ]

On the Warby point, you were early to the game on that maybe you could tell the story about discovery there. And what I'm really interested in is if there was a metric that you saw and you were like, oh, wow.

[David Bell]

So that started, you know, I was teaching at Penn back in those days and I was teaching the, basically the intro to Marketing. Funnily enough, there was no course or anything on like digital marketing and E commerce, like nobody was really studying it. And thanks to Mark Law. And I'd been an early investor in diapers.com not when he was a student, but I worked on that, sort of analyzed the data and I showed this stuff at class. It was really cool. Cj you have a map of the US And I put all these little dots where they currently had customers, right? So it's like in April and the next map comes up and it's May and you see more dots appear and you do it quickly and you can see how this thing's sort of spreading. And the reason I was showing this to the students is you could detect, using some statistics is that when you get customers in a certain location, you can kind of double down and get more there. And part of it's because, like I might see you wearing Wabi or whatever. That's one of it. Or the box that says diapers.com but the other reason is if you and I are next door neighbors, we're probably quite similar in a number of regards, right? Similar size house, probably similar demographics, similar income. So because of those birds of a feather flock together thing, you get this effect. So I kind of show this stuff and then these four guys show up in office hours. I think the only one that wasn't in my class was Andy Hunt. He was in someone else's core class. And they came and said, oh, this E commerce stuff is interesting. Thinking of starting its brand. And I said, what are you going to do? We're going to sell glasses on the Internet. And so I'm sitting there thinking to myself, I don't think this can be a very good idea. I don't wear glasses, but I wear sunglasses. Don't you want to touch and feel them? So that the term that a Prof. At Harvard came up with is they called it a non digital attribute, meaning there's something about a product that's very hard to communicate it purely through the Internet. And I forget which of the guys said it, but they said, oh no, we've thought about that. We're going to do this thing called Home Triumph. We're going to send C.J. a box, we're going to figure out how many will be in the box and that's how we'll get around it. I went from kind of thinking, yeah, I don't know if this would really work to actually when they started to really unpack that there was this big monolith behind that whole industry, right, that owned the distribution, owned the brands, owned the franchising and did the manufacturing. And you and I have no idea when we buy Gucci sunglasses and you know, the Sunglass Hut or whatever, that this kind of one entity almost pulls in strings. Like once that was unpacked, then I started to become a bit of a believer. I said, well this is really interesting and you might remember if you saw it back in the day, there's really good messaging on the website where there was a bar chart like ours cost this, theirs cost this, theirs is this in the store. So they really used it to their advantage to kind of hammer home the point that people were being ripped off.

[CJ]

On the surface you think glasses, that's a personal thing. And as many digital things as I've seen that try to like put them on your face, they always look still kind of off, but it works. And you probably think the same thing to a degree with like Zappos in shoes. I'm guessing their return rate is still pretty high. But I guess there's some kernel of truth there where we overestimate how personalized people think these things are or are better at picking them at first glance than you would believe.

[David Bell]

The interesting thing that we discovered doing some research with that try on program CJ is let's imagine the conversion rate, let's call it 50% might be a bit higher than that by now, but let's say it's 50. So you might say, well, I send a box out to someone, it costs $15 to do the two way shipping. My price point's 95. If they don't buy anything. Have I wasted kind of 15 bucks? And one of my colleagues and I did this study where we figured out that actually the word of mouth value of just like throwing that into the home and having other people see it actually made up for the $15. And if you could also like nudge people. Like I used to get a lot of my E commerce stuff because I lived in Philly, because stuff gets stolen. So I would get my stuff shipped to the office. But the good thing about that is the box would be sitting there right in my mailbox. And if I happened to get a home try on from Walby, you open them up and you're having lunch. And so there's just more incidental exposure happens because of that. So once they put a store in a particular location, if you're a guy who, you know, feels you can understand the product completely through the Internet. You just buy online. If you're someone who wants to touch and feel, you're either going to do home try on or you're going to walk into that store at the Seaport when the store's there. If you're a guy that wants to try on 50, you funnel off to the store. So the people that get left doing the, you know, five in a box, they have a much better fit to it when there's a store. And so the conversion goes up when the store is there. If there's no store, then unfortunately that dude wants to try 50, he might order 10 home try ons and really sort of hose your economics. The presence of a physical store improves the efficiency of the other two channels and improves demand overall.

[CJ]

That just put my brain in a pretzel. But it makes so much sense because you want to meet the consumer where they want to transact.

[David Bell]

Exactly.

[CJ]

Where do consumer founders still get unit economics dangerously wrong today? We threw around a couple things there where, like what's the cost to make this, especially if it's a multi tiered distribution and then even the costs around sending something in the mail physically.

[David Bell]

Yeah, I think there's sort of three, three things that you struggle with, right? So one might be if it's a product that's got any kind of repeat cadence to it, you're kind of overly optimistic about the chance with which that happens. And it turns out that your repeat rate is not 40%, but it's only 20. So that can be a problem. Number two, you might have acquired some of those customers by doing sort of grand dilutive things like, you know, offering people discounts, offering people free shipping, other kinds of things that kind of get the wrong people into the funnel. And then thirdly, I think you said something interesting earlier about metrics. I think younger generation, obviously me, I'm in the, I'm in the exa. The exa generation. A lot of people who are younger have kind of grown up with marketing where they think it's of digital marketing and they think that digital marketing is better because you can measure it. Drop this much money into meta. This is what happened. This is the implied effectiveness of that. And that sort of might be true, but it also might be kind of a false metric. Like if you had done some awesome activation down in the park in Battery park, that could be way better. Or if you dropped your product into a channel that people hadn't thought about. So I'll Give you an example. There's a fellow I was chatting with a couple of weeks ago, and he's got this kind of cool shoe product, and it's a big, chunky shoe for the all American guy. Okay? It's called. It's called Stokes. I'll give him a shout out. So in his thesis is this certain class of guy that doesn't want the on runner and the fancy thing and the slender and all the bells and whistles. He's just a big dude. He wants a beer after work, and he wants shoes that are either wide or wider. So the marketing's, like, really funny. One of the hacks that they've been pursuing is instead of throwing that thing immediately into footlocker, they have D2C, obviously. But footlocker, you got to somehow get the message across that you're different from the other hundred things. Right? But what if you just dropped it in? I forget the kind of store, but we'll go with this. Like a trucker supply store. There's like 400 of these in the Midwest. And the trucker guy goes in to buy other stuff and he's, oh, my God, look at these shoes. And then what you've done is you put a customer in front of, like, a binary decision, oh, do I want this or not? Right. And it was a little bit of the same story with Touch the Land when that thing started showing up in, like, a Sephora or an altar. That kind of tells the customer, oh, this is a beauty product. Right. The third piece of the answer is it sometimes prevents people from thinking more creatively about other levers that are much more effective, be they sort of forms of PR or especially, I think, around distribution over and over again. Innovating on distribution often yields, you know, outsize return.

[CJ]

Can you say more about that? Innovating on distribution. I love that phrase.

[David Bell]

The sort of the four P's of marketing, right? It was cooked up by this guy, Philip Kotler. I mean, that book that he's marketing management, Kotler and Keller. It was around when I was an undergrad in New Zealand. I think it's the biggest selling marketing text in the world. And the four Ps are the four levers, right? You have a product, a price, a promotional strategy, and a place. And if you think about the order of effectiveness, let's say you and I are competing, and I decide for some crazy reason to drop the price. Well, you can do that in an instant. And then we. We might actually both be worse off, right? So that's the first One. The second one is I come up with like, just do it. And you're over there at Adidas, you're, oh my God, those Nike guys, damn it. And then, you know, eventually you come up with some other slogan and the benefit goes away. And then the third thing is I come up with some like really cool new way to make the shoe. It's got more bounce. It takes you six months to figure that out, right? But distribution, this is based on academic research. If you innovate on distribution or you crowd out the distribution channel, like the returns from that can be really long lived. And it can be like real dramatic ones. Like Blockbuster got screwed when Netflix used to mail you DVDs in the mail, right? And when you turn a hard good into a soft good, that can sort of wipe out the people who are selling the hard goods in physical space. Or if you put your product into a channel that no one else has really thought about, you'd sell no units of Purell in Sephora. It's not. The Purell is a bad product, but no one's going to buy it there, right? First of all, it's not even going to get in there. But when Touchland goes into, into Sephora, that's a very different kind of advantage.

[CJ]

This is a great place, I think, to talk about capital allocation for a bit because I'm from a world, David, where like 75% of the cost just walks on two legs. And we don't sell anything that you can touch in the real world. But in D2C, a huge portion goes into inventory, supply chain and a bunch is wrapped up in working capital. So how do you coach founders on thinking differently about uses of capital? In a consumer model, you want people

[David Bell]

to be really maniacally focused on, on two things. One is just the margin that you're making on the products and then number two, you know, the effort that you have to make to sell it. So I think a lot of really good consumer brands, at least at the early crew, they should almost sell themselves, right? And a lot of really great early brands. There's always like a tribe that's kind of formed around that. Whether it was like yoga people at Lululemon, you know, rx bars of CrossFit. And there has to be like real financial discipline around. This is a product that has a cost basis of this. If I'm not selling it for this or more, then I'm really in big trouble. And I think what happened, you know, it's, it's not really assigning blame to anyone but if you go back in history, right, and say what happened maybe to a brand like Casper, who was a pretty cool brand, is that, you know, they would sell a mattress that you got to make money on and you're not going to replace your mattress that often. But if some investor, you know, convinced you what you were really doing is revolutionizing sleep, then you've got a mindset about what you're selling that actually might be, you know, might be completely wrong. So you're really going to anchor on the fact that most of the stuff that you sell has to be profitable on a per unit basis. There's not really any increasing returns to scale or by network effects and really meaningful effects ways like there is in software. You can propel things a little bit, right, by having people, you know, attach Touchland to their backpack and like take it out at lunch. So that, that might generate more than sort of linear momentum, but like just really anchoring to the fact like what's the cost basis and how do I go beyond that? And then secondly, being from New Zealand, I see this all the time. So when money is too easy to come by, oftentimes founders think the problem is money. I gotta go out and raise 3 million bucks, otherwise I'm hosed. But actually what you should be doing is say I have to do this and if I don't, I'm totally hosed. Then to do this, who do I need to do it? And once I've sold those two things, like what's the minimal amount of money, you know, I could use to do that? Whereas I think sometimes people start with the reverse, like I'm raising, you know, a seed round the 5 million. Okay, for what, what, what if you only had one? You know what I mean? I'll give a shout out to a friend of mine from New Zealand, started a company called Powered by Proxy, it charges up your iPhone, actually sold it to Apple, which is really hard to do. And I think, you know, when he was raising $3 million, you know, more well funded technology competitors in places like Silicon Valley, you know, raising probably 10 times that. But as a consequence, he had to think more about the engineering and think more about go to market. And you know, ultimately that led to success. So resource constraint can be a good thing. I mean, obviously not taken to the extreme.

[CJ]

And how do you think about sequencing when to invest in brand versus inventory and team? Is there an order to that? And, and I know you need all of these technically to work, but like order of magnitude.

[David Bell]

Great question. I mean, you think most you know, you're always looking for what's like you said at the start, right? What's the patent recognition? I think most things that you see successful at some point there was always like a great person behind them, like a great founder at some point. So I think you probably start with the people because the people are harder to fix. I mean you can fire them, but that's also costly. But if you've got the wrong people, the wrong work ethic, the wrong mentality, that's kind of hard to change. A brand can always be improved, right? You've got to have a great brand. I think it's a non negotiable. You think about, you know, some of the most valuable companies in the world also correlate almost one to one with the best brands in the world, you know, from, from Apple on down. So like the brand is, is absolutely critical and having someone who's a real expert who knows how to do that if, whether an outside or inside person is important. And then I think the third things are the blocking and tackling, like how much money do I need for inventory, how can I finance that? Can I cook up some model that's going to make me more efficient? I think probably one of the great things with AI and so on is you can build things with technology that tell you with more accuracy what's the right number of units to order and sort of how to do that. So I would do it in that sequence.

[CJ]

Some investors really focus on product differentiation and then others will argue that brand is everything in consumer. So if you think about liquid death, I brought up water earlier. Where do you land on that spectrum?

[David Bell]

A great brand can't hide a bad product, but a crappy brand can kill a really good product. So I know it's a little bit of a academic, you know, trying to play it both ways, but you really have to have both, right? If you've got a product that's fundamentally mediocre, all the window dressing in the world is not going to solve that. But if you've got an awesome product and the product is phenomenal, but the wraparound the products is just really lousy, like those things are equally bad. The way I think about being successful is like a great product is kind of a non negotiable. But you could also have a bit of a thought experiment and say in a particular industry, would I rather have an 8 out of 10 products, a 10 out of 10 marketing and branding, or to rather have a 10 out of 10 products and 8 out of 10 they both multiply them out, they both come to 80. But if you pushed yourself a bit, you might say in categories where people are making decisions quickly, quickly, or they're less of an expert about what's in the groom's bag or whatever, being a 10 out of 10 marketer with an 8 out of 10 product is actually better than being a 10 out of 10 product with 8 out of 10 marketing.

[CJ]

I think that's what I'm trying to get at that. Are there scenarios that you've seen where a strong brand can compensate for. I won't say a weaker product, I'll

[David Bell]

just say a good product 100%. A strong brand can also like, elevate a product too, right. Beyond what it really is. And you see, you know, the really great brands kind of enter into the vernacular almost as, as verbs. You know, you really made it when, you know, someone passes you a Kleenex and I guess we don't Google anymore, we might perplexity where to go.

[CJ]

We've seen the pendulum swing where everything becomes a subscription. You can get meat delivered to your door every month and suddenly you're paying for everything like you're paying for Planet Fitness. We've also seen marketplace models where a lot of these companies actually hold no inventory, like Airbnb has, has no homes. Have you seen shifts in how consumer products are priced and packaged and monetized over the last 10 years?

[David Bell]

You mean in terms of like just building for demand, not holding too much inventory? I think people are trying to get much more sophisticated about that. And certainly in the technology examples that you gave, right, the idea of being very asset light and just kind of connecting things. Even a business like Farfetch'd, you know, is a place I really like to go to do my online shopping. Right. They're basically just exposing people to the inventory that's in these different places, tips and then organizing them for to be shipped around, they're not holding inventory. So yeah, I think anytime you're not paying for and or hanging onto a physical asset, that's always a great thing, as long as it's not devaluing the value proposition for consumers. And you know, obviously Airbnb is a great example. Right. You don't have to invest any capex into any of the, any of the properties. You're basically just putting people together. I wonder how far you could kind of push that envelope on sort of sharing things. Rather you're willing to get stay in someone's home that you don't know, you're willing to get Into a car with a stranger. Like, what other kinds of things might you be prepared to do on the basis of trust and a platform that would allow for a more efficient allocation?

[CJ]

I've thought about that a lot. Like, I have a dog and we've used Rover before. And that's like trusting.

[David Bell]

Sure.

[CJ]

Something that you care about a lot with potentially a stranger. And then, I mean, care.com, it's had its problems, but like finding a babysitter online, that's been another way. I guess Craigslist is the OG of linking up people.

[David Bell]

Yeah, the OG of services, for sure. I even think about, could you do the same thing for certain kinds of durable goods? So if I went home to my apartment 10 minutes away, I mean, I have a vacuum cleaner. Like we have a vacuum cleaner in the apartment. And probably most of my neighbors do too. And there's probably like 250 vacuum cleaners at that building. Is that really an efficient thing for the economy? You know, what if the building just hit five and we shared that? You know, So I think society is kind of plagued by an overproduction of durable goods. And this is a real fun thing from a case I used to teach by Black and Decker. So Black and Decker, you know, sell the drills and stuff. And at some point they were coming under pressure from Japanese competitors and, you know, things were going pear shaped for them. And there was a research study in the case that talked about the average usage of a Black and Decker drill. And I never forgot this. The average amount of use by the average dude that had one was 15 minutes. And it wasn't 15 minutes a week or a month or a year. It was like 15 minutes lifetime. What? Right. Unbelievable, right? And you even think about, you know, if you own a car, I mean, it's 24 hours in a day. Like, how many hours are you actually driving that thing? And so I think the. The economy is full of like an overproduction of resources that are durable goods that are potentially shareable. Like, you might not want to share your neighbor's fry pan, that maybe you share a snowblower, or maybe you share a vacuum cleaner or something of that sort.

[CJ]

That's going to reframe how I think about all the tools I have sitting downstairs that I've never used. David, I want to switch gears a bit and talk about this gravity framework that you have. I'm hoping you could walk us through the variables.

[David Bell]

This was something that I cooked up actually, after reading another friend's book. So a friend of mine at Wharton wrote a really interesting book that your audience might like. It's called Contagious, and it's about why certain kinds of content takes off.

[CJ]

Oh, by. By Jonah Berger.

[David Bell]

By Jonah Berger, yeah. And what I loved about Jonah's book, not to deprive him of any sales, but he has this acronym called Steps. And Steps tells you, like, why this story in the New York Times got read by a thousand people and this one got read by two. So the first S is something called social currency, which says, you know, I share things with CJ that make me look good. Like, I tell you some cool story about a little. Little dog that, you know, drove a stick shift car or something, and I send it to you. You realize, man, that's David's really interesting, you know, So S is social currency, and then T is triggers and so on down. So I had this idea when I was working on my book, which was really about how online and offline interact. I got to have some sort of framework, like what Jonah has. I got to have an acronym where every letter is, like, a chapter of the book. And so I landed on this idea of gravity. And I like that because gravity is also a real word. And in addition, it's a great metaphor for E commerce in the real world in the following sense. So the first customer of Amazon was a guy who lived, you know, 50 miles from a bookstore. And so for him, the real world had, like, very little gravitational attraction to it. Didn't have much pull because it was so far away. And there's actually a famous model in sort of retail science. It's called the gravity model. And it explains how people choose what town to go to to shop based on where they are and how big it is. The more attractive town is the one that you're close to and has, like, a lot of stuff, you know? So I felt, well, this is a good metaphor. So then I say, oh, okay, how can I spell it out? So anyway, chapter one is. It's called geography. It's all about the fact that you and your family chose sort of where to live. You didn't just open up the map and throw a dart and say, oh, let's move to Arizona, right? So people's location decisions are really careful and thought out. And as a result, you get, you know, similar kinds of people in certain locations and, you know, their demographics, their preferences. Like, you may have chosen with three kids to live somewhere where you got a yard and it's close to a good school and, you know, other things like that, right? Then the R is resistance. So this is the whole Bezos thing about taking friction out of a buying process. A is adjacency, which says, you know, people who are close to each other behave in similar ways. And I first saw [e-mail], oh, somebody bought in this neighborhood. And then there's a higher probability that the second sale comes there, too. Because if you and I both have young kids and we're neighbors, and you bought from diapers.com because the supermarket's a nuisance, then probably I face the same problem, Right? And then V was this idea of vicinity, which was to say there are communities who are very similar to each other but may actually be quite physically distant apart. And this was kind of a cool idea that came from a professor at University of Toronto who said what the Internet does is it creates communities of people who are similar but might actually be, like, really far from each other.

[CJ]

So true.

[David Bell]

So you're in Connecticut, you know, I'm in New York. We're pretty close. Let's imagine you're, like, a really good statistician, and I'm kind of like an economic historian. So we have different skills, and we work together. We actually create really interesting research because of that. And then the Internet comes along, and you basically dump me, and you start working with some dude in London who's also like a statistician. So you work over a greater distance for someone who's just more like you. And this is actually one of the sort of problems, in a sense, of the Internet. So I talk about how that affects buying behavior, and then the I is my favorite one. It's called the isolation principle. And the isolation principle says the stuff that's offered to you in your community by stores is a function of what the majority of the people in the neighborhood actually want. Because if you're running a store or restaurant or whatever, you got to offer stuff that local people are going to buy, right? So the joke I always used to make was I would go into the supermarket in New York, Philly, wherever, and I'd ask this guy, like, in Philly, where is the Vegemite? And the guy said, what is that? Vegemite? And then the reason there's no Vegemite is because, like, no one else in Philadelphia wants to eat it. So it's a waste of time for the guy to put on the shelf because it's taking up space, right? But you could offer that on the Internet because there's no constraint. So this isolation principle says, if you want to sell [e-mail], why don't you target locations where, you know, CJ is there with a young family, but for whatever random reason, you're living amongst all these old. All these old people, and you're going to show up at the store, that's going to suck. There's going to be Pampers, and that's it. So you're actually a great target for the Internet because you're sort of isolated in your preferences. The T is topography. Like, how do you actually manage omnichannel? It's online and offline. Some principles. And then I kind of ran out of steam. So the why was very corny. It was like, okay, what would you do with this framework? But that was the idea. It was trying to explain and give people ways. Thinking about, how do I do E commerce and how does it relate to the physical. The physical world.

[CJ]

Do you think there's one variable in there that's most important or people don't focus on enough?

[David Bell]

I think what people don't do enough, I think, for my taste, is the isolation thing. And I see this over. So, you know, really good targets for you if you're doing something digitally or something through, you know, Internet E commerce, are people who are just kind of hosed where they are. And I'll give you an example. So I have to make sure I spell it right. This company, I think it's called Tavola Tivoli. They. They send you meals and they send you a little oven.

[CJ]

Okay. They send you an oven.

[David Bell]

Yeah. Or a thing to cook it with.

[CJ]

Yeah.

[David Bell]

And then they send you the. It's like a $60 item. It was. It was cooked up by some, no pun intended, some students from University of Chicago, I believe was the genesis of it. Right. I think it's been very successful, like doing a few hundred million dollars in revenue or something like that. I invested in a company that ultimately went bust, but I think it was a great idea. It's called Pop Up Pantry. This is like 2012. And what pop Up Pantry would do is they go to local restaurants in LA that were kind of cool. They'd bring in their Michelin chef and they would go to CJ's restaurant and they'd figure out how to make an appetizer, entree, and a little dessert for 40 bucks for two people. And they would SUV it and freeze it in a bag or whatever. And then it shows up. Me in Philly, I got a beautiful lamb shank off a restaurant menu, and all I need to do is boil it in a bag. So it was, to me, way better than like a blue apron or whatever because you're getting a restaurant meal and doing almost nothing, you know. And what we found was really interesting early on, cj is that a lot of the orders for that were actually coming from the middle of the country because, you know, no disrespect to someone living in a small town, but there might be like, Pizza Hut and.

[CJ]

Yeah, they don't have a great restaurant there.

[David Bell]

There you go. You're sort of isolated. Right. So I think for both physical and digital products, I think that's something that founders can really kind of think through, like who's out there, that's just not getting what they want because of who they're around or the physical. And obviously things like online education, farfetch. I mean, these companies are tapping into that.

[CJ]

This is amazing. Well, gearing towards a close. We've talked about ideation around a product. We've talked about scaling it with proper unit economics. We've talked about distribution in the marketing. I want to talk about working backwards as to what a great exit looks like at day zero. How do you talk to people about this?

[David Bell]

Boy, that's actually a great thing. So we had a Little framework at IdeaFarm that we sort of. I think now we use implicitly, but we wrote it down. It's called scoped. And these were like, you know, again, acronyms, what we look at. And the E in that was exit. And obviously, if you're building something in consumer, I think, C.J. it's not that likely that you're ever going to list that. I mean, it happens. And obviously there are big legacy companies from Nike on down. Obviously, Warby Parker is a public company. It's been up and down a bit, but I think is doing pretty well now. But I think the more typical path is there'll be a strategic who buy the business for, let's say, between 500 million and a billion dollars. And I think that has to be part of the calculus of both the founder and the investor almost from day one. And I suppose if you're really thoughtful about it, you might try and develop relationships with some of these big conglomerates, whether it's l', Oreal, png, Unilever, and so on. So I think, well, given what they've currently got, if I as a founder or I as an investor in this founder did A, B and C, might that be attractive to those entities? And I think the other side of that, again, not to be pejorative, but historically those kind of Companies often have struggled to really innovate in terms of what they're doing. And I remember someone senior at P and G saying to me, she knew the history of the company very well. I guess when you get senior, you know a lot about the history. And I think she said in the 100 and whatever 20, 50 year history, they'd been bang on with a really breakout innovation every 10 years, whether it was the Swiffer or whatever else. And then somehow as the sort of D2C economy is picking up, maybe they'd gone 15, right? There was this kind of feeling of, man, we're just not quite sure how to do this thing anymore. We've got people coming at us left and right who are kind of collectively eating our lunch. So I think an acquirer is just another sort of segment that you need to think about. Right? In the same way you think about the customers, you should be thinking about, well, who on the other end, if they bought it, could sort of turbocharge it in a way that I could not. And why might that be attractive to them? So I think in consumer, probably more so than other spaces like that has to be really thoroughly thought through. Otherwise you're sort of trucking along like, okay, now how am I going to get out of this thing?

[CJ]

I could definitely see consumer brands needing to land with a larger strategic, whereas there are a lot of software companies that they're doing similar math. I call it the next buyer theorem, where it could pass through even more hands to just be a standalone tech company, an ipo, and still potentially be burning cash. Or I guess it could go to a strategic too. But I mean, like the mix of the outcomes are slightly different.

[David Bell]

That's really interesting. I wonder if it's the case too that in a technology space you see, and this is just my anecdotal impression, that you see companies getting snapped up, I guess because these, the acquirers have of course have huge balance sheets in many cases. But also there's often an attribution person X, like she's just a real genius and if I don't bring her into my ecosystem, this thing that she's developing could, you know, really go crazy. Whereas I think in the consumer it's a much smaller scale of exit that you're thinking about. And I suppose you're sort of the founder may come in for an earnout, but you're probably more buying the product and the brand in the case of a consumer acquisition, whereas in the early tech acquisitions, I guess you're doing that too. But you probably in many cases, if it's very early, you're also picking up the talent.

[CJ]

There are definitely fewer acqui hires, I would think in the consumer space. Like Alexander Wang went to Facebook from scale AI to develop like a large language model. I don't know if they're hiring the person working on the next granola bar to proctor and Gamble to chef that up.

[David Bell]

Yeah, 100%. And I think that's interesting, isn't it? Because I think, you know, there's real truth to this too. I think when you're in some of those rarefied spaces, right, there's kind of the cult of the genius. You know, I just watched if you haven't seen it, it's a great movie. I watched this movie called the Thinking Game and It's about Google DeepMind and the fact he's 50 now. I think he got the Nobel Prize. I don't want to butcher his name, but I think it's Demise, not Dennis Demis Abyss. Abyss. And he was an awesome chess player when he was a little kid. And they asked him like, why do you like to play chess? He said, well, it's a thinking gigs. That's where the movie comes from. But you know that guy, I mean that guy got the Nobel prize, right, for folding proteins, even though he's like a neuroscientist. It's not to say it's easy to do consumer stuff. It's certainly not. But I think sometimes in those other spaces you've got people who are just on some metric are just sort of off the charts and that they're seen as a scarce resource that if you don't snap them up, you know what, that might be bad for you.

[CJ]

Well, one more question for you. And I think it's something that a lot of founders grapple with in any type of company. What do you do when you have a business that you think is good but it's not venture scale?

[David Bell]

Yeah, that's great question. Because a lot of businesses are not really sort of venture backable oftentimes, right. So I think you could say, well you know, this could be a business that will sort of kick me off a reasonable kind of dividend. Maybe it's something I build out as a family, you know, maybe my son or daughter comes after me, they figure out how to do it. So I think, you know, there's many reasons of sort of just personal passion, personal freedom that you might want to do something like, you know, build an awesome coffee shop or have a great gym or you know, create Some, some phenomenal products. So I don't think everyone that goes into the consumer space is necessarily thinking about, you know, I need to put nine figures in my pocket by selling this thing to somebody. So I think sometimes the consideration is just, yeah, something I'd like to see in the world, can I make it exist? And by nature of what consumer products are, you see people doing this all the time. Right. They start a microbrewery or a great restaurant or a fitness business or something that's not necessarily going to be a venture backable thing. Because I think traditional venture too is based on a model where there has to be outsized returns from at least one or two things in the portfolio. So by definition, you couldn't really put your money into something early if you thought it was only going to be a 5x at best. Every single thing. I'm talking mainly about technology investors. Every single thing you're probably putting money into, you say, well, there's some probability that this could be 50. I know that's not that high, but I'm not putting money into anything saying there's a chance. Exactly. Whereas if you invest in something that's maybe a physical service business, certain number of boxes, whatever, you might say, well, yeah, this can only get so big, so quickly. Therefore, under the best possible scenario, it's only going to be five. Like an early stage venture investor is not going to, not going to want to take that on.

[CJ]

But in many ways realizing that and leaning into the fact that time is a moat can, can really help you

[David Bell]

in the long term. Yeah, 100%. Yeah, 100%.

[CJ]

Dave, this has been an absolute blast. Thanks for coming on the show. Are you working on any books today that you'd like to plug?

[David Bell]

Sure. It's not finished, but yeah, I'm happy to do. Yeah. Working on a book, actually, if someone has a better idea for a title, so tentatively called Founders Gold, you know, as an antidote to Fool's Gold. And it's basically a linear journey through companies that I've been fortunate to invest in or work with the founders. And starting with like diapers.com and so on. And each chapter is under why they did it. But then here's three or two or three things that you and I as an outside reader could take from what like mark [e-mail] or what Jordan did with Caraway and so on and so forth. So yeah, I need to, need to finish that up. I've been working on it for a little bit of time.

[CJ]

Awesome. Well, I'll I'll be one of the first in line to to read it. I I appreciate you coming on the show.

[David Bell]

Yeah, I appreciate you having me. This has been a lot of fun. This is not my typical Friday afternoon. It was a real, real pleasure.

[CJ]

Around the Numbers is a mostly media production. Yelling an intro by Fat Joe. Artwork by Meg Delesandro. Show is executive produced by Ben Hillman. Nothing said on this podcast is intended to be business or investment advice. It's the sole opinion of me. A guy who feeds his dog way too much ice cream and has a history of net operating losses. Lol. If you like this podcast, hit subscribe and give us five stars. It will take like two seconds and our algorithm will overlords love it. Drink water, call your mom and have a great day.

[David Bell]

Peace.