← The Foundr Podcast with Nathan Chan
The Foundr Podcast with Nathan Chan
662: I Bet Everything On Sugar Free Candy — Now It Brings In $100 Million A Year
00:54:14
Daniel Kitay put everything he had—his savings, his mortgage, and two months before his first child was born—on a container ship full of sugar-free gummy lollies from Switzerland. When a $250,000 shipping bill landed before he'd sold a single product, he had no option but to make it work. Five years later, Funday Natural Sweets does over $100 million in retail sales across 8,000 stores in Australia alone, selling a product every single second.
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- [00:02]
A
Hey, founder fam. I want to talk to you about something super exciting. We're officially partnered with Omnisend, the email marketing and SMS platform built specifically for e commerce founders. We've been recommending Omnisend to founder students for a while now because it just works. Whether you're launching your first store or you're scaling to seven figures, it really helps you automate your marketing and get real results. Did you know on average, OMNISEND customers make $68 for every $1 they spend, which is an insanely good return. And because you're part of the founder community, you get 50% off your first three months with the code. Founder50. Just head to omnisend.com founder without the e to get started. All right, now let's jump back into the show. So what happens when you bet everything on a container shipped full of gummy lollies from Switzerland, get hit with a $250,000 shipping bill and realize how you're either about to build a hundred million dollar confectionary empire or lose absolutely everything. Well, today's guest is Daniel Kitay. He's the founder of Funday Sweets, the sugar free confectionery brand that now does over 100 million in retail sales across 8,000 stores in just five years in Australia alone. After struggling with his weight throughout childhood and cutting out all sugar, Daniel spotted a massive gap in the market. And today they sell a Fun Day product every second. So in this conversation, you're going to discover how Daniel convinced Chemist Warehouse to to submit a purchase order before he even had funding. The $50,000 stock mistake that accidentally taught him the power of limited edition drops and his brutally honest take on retail. Why it's not for everyone and how it can destroy your D2C margins. But why it's the only way to unlock true scale. So this is a true masterclass in building a CPG brand that plays in both D2C and retail. And why sometimes the biggest bets pay off when you have no other option but to make them.
- [01:58]
B
Hear the stories, learn the proven methods, and accelerate your growth and future through entrepreneurship. Welcome to the Founder Podcast with Nathan Chan.
- [02:12]
A
Daniel Kitte, welcome to the show. So you run a company called Funday Natural Sweets. I'm a massive fan. My brother told me about your company. I'd say about two years ago and we started to go to the local iga. Always looking for Fun Day sweets. I'm allergic to chocolate, dairy, peanuts, so I've always ate a lot of lollies. But I've become More health conscious these days. I'm getting close to 40, so I always buy your sweets. I'm a massive fan, so congratulations on all your success, man. Tell me, how did you start this business?
- [02:49]
B
Just before COVID Thank you. Great introduction. Glad you're a huge fan. Shame about the chocolate though, because we've just released a new chocolate product, so we'll have to keep you on the lollies. So, like as a. I'm from Perth originally, but was always sort of on the larger side. I was a pretty big kid. Struggled with my weight all through school, got to sort of uni. This was probably like 2005, 2006 or about the same age, I suspect. And I just, I guess I started socializing more within uni and friends and started dating a lot more and the weight was becoming a bigger issue. And so I guess what I did, I started exercising, which was great. I hadn't really been doing that that much, but I also cut out, made a decision to cut out a lot of the sugars that I was eating and I was eating a lot of it. I was eating chocolate, I was eating lollies. My parents, there's always a story my parents will tell every time I see them. It's. They used to come into my room as a kid and there was just lolly wrappers and chocolate wrappers like in the cupboard behind the bed. Just sort of mischievously eating these sort of products where I wasn't really allowed to. So cut out all, all the sugar. Got through uni, moved to Melbourne, still really wasn't eating much confectionery at all. And started a career as a lawyer working for sort of E Com businesses, what's now luxury escape. So pretty big sort of DTC sort of E Com business. And then make my way into the world of vitamins, supplements, which was the business I was at just before Fun Day. And I think partly it's a personal motivation. It was a concept or a type of product that I needed to create for myself to enjoy that feeling of eating confectionery again, which I had sort of not had for so long. And it was also in combination with my professional experience being. Well, I understand the world of health and wellness a bit more now. I. I'm working with the likes of Chemist Warehouse. I understand retail a bit more and also the fusion of the two loves of business and retail, but also creating a product that would solve an issue for me. And that issue was on the one hand, you've got full sugar confectionery, which tastes typically really good. But I had really strong associations of guilt after on the other end. There's always been sugar free products in category but the way that they produce those sugar free or make that claim is by including sugar, alcohol. So polyols, maltitol, sorbitol, xylitol, erythritol and sometimes in a beverage or in a snacking product they don't use that much. But in confectionery you use a lot. And then you sort of see those warning statements on the back of the pack. Excess consumption may have a laxative effect. And I was. That was what was happening to me. So I sort of set off on a way to solve the problem of there has to be a middle ground, there has to be a solution here. How do I do it? How do I create an awesome brand, get into retail and sort of pursue this product and concept that would absolutely satisfy what I wanted. And I was hoping at the time other people were also sort of having that same dilemma. And then that's what's now. Fun day.
- [06:04]
A
So talk me through. So you had this idea for the brand. Fast forward to now. I read that you guys are selling a million lollipops a month, is that correct? Like talk me through the scale of where it is, like six years later.
- [06:18]
B
Yeah, so we're just about five years in market next month. So we launched in Chemist warehouse in April of 21. Sorry, no, five years. You're right, April 21st. And at the time, I remember even just our D2C business, I think we did like $500 in the first month. And I was like, that's awesome. Like this is so cool. Like people are buying lollies. I still remember the first customer. I know exactly what her name was and where she lives. And she still buys from us by the way. But in terms of the scale of the business now, last 12 months we've done over 100 mil in retail sales. So across our E Com business and our retail business, primarily driven by sales in Australia and New Zealand and we've got some of the markets globally but quite small, we sell a Funday product. So between gummy lollipop, chew chocolate every second.
- [07:10]
A
Yeah. Wow. So insane growth, right? Like insane growth. Very, very, very impressive growth. So talk me through. Like most people would look at starting a brand in the confectionery space, very capital intensive, a CPG like product. How did you bring this to life?
- [07:31]
B
It's really hard. So you've started the obvious. Like this is a fiercely competitive category. So you've got the likes of Nestle, Mondelez, Mars, sort of three major brands that sort of lock up almost all of confectionery. I don't know if you're familiar with the midday squares in the us Sort of also launched a couple of years ago, chocolate product, but launched not in the aisle because of the competition. Launched actually in the fridge. And I guess it was a similar concept. It was. This is Funday is a confectionery product, but it also straddles healthy snacking. It's like a healthier version of confectionery ultimately. And so I guess the first consideration is where do we want to play? Like, is this truly in confectionery? Is it truly in health? The first customer and I'd been working with them before, so I had a relationship was Chemist Warehouse. And I essentially took the product to them and said, you know, this is after hundreds of rounds of samples and testing, if I could actually commercialize this, like, if I can get it off the ground, there's a big chance that I won't be able to because there's so many factors against me, like Covid and a million other things at the time. Would you actually range this? Is it something that you'd find interesting? And the answer was yes. So I said, well, that's great, but I've got to go and place an order for a couple of hundred thousand dollars because minimum orders in the gummy world are really extreme. At that time. I'd also been trying to speak to manufacturers in Australia and Australia is a very unfriendly place for manufacturing and brands. Try to get it started. Is changing slowly, but particularly in confectionery, there's very few manufacturers that can assist. And so I ended up speaking to, at least I think it's probably close to 100 globally and connected with a Swiss manufacturer. And I never dreamed that the product would be made in Switzerland, but it was just the only option for Funday at the time. And I'd been dealing with them. And I essentially was in this scenario where I was like, I'd have to go and spend a few hundred thousand dollars, but I don't have a guarantee of an order. That's highly risky. Like, what do I do? I don't even have an E Comm business at this point or a brand. So I suppose I convinced the team at Chemist Warehouse to submit a purchase order and say, well, like, if I'm going to go and do this, I would love your support to put in an initial purchase order. And I recall it being about 10% of the overall volume I had to order. So I still risk 90% of it. But it gave me the confidence that they were serious about it. And I essentially took that purchase order, mentally underwrote then an order to the Swiss manufacturer and raised a family friends round to sort of get some, some, some capital. And don't forget at the time it's Covid so a container, it's refrigerated containers. They were at the best case maybe 8, $10,000 from Switzerland. They went up to 25, 30K. And I remember the first lot of orders I had eight containers on the water because we were finished. We were importing Finnish stock. It was made way more sense for them to produce it and pack it, but it meant that you can only fit so few into a container. So I remember getting a bill for 250k for the 8 containers and being like, holy shit. Like that's before any investment in brand retail, E Com staff, anything. So I quickly realized that is not a good way to run a business. And we essentially very quickly moved to a bulk importation local copak model. But really it was the chemist warehouse sort of convincing them to do it that allowed that first sort of thing to happen.
- [11:24]
A
Yeah, there you go. And did you speak to prospective customers market research, like how deep did you go there? Or you just kind of knew from your own personal experiences?
- [11:34]
B
In hindsight I should have spoken to other people, but I validated in some ways. So there are competitive brands in Australia that have always been inside like classic sugar free and you just had to do a quick Google to see the reviews. So even like Haribo have these hilarious. It's sort of funny, but it's scary. On YouTube you can just go like sugar free Haribo reactions and it's people just talking through their experience of consuming all this Maltitol and these sugar alcohols and comments like do not eat these 30,000ft up in the air. And you know, people getting caught out in scenarios where they're eating sugar free candies and then having to run to the toilet. So I knew just by desktop research it was a bigger issue. Did I know anything really about the texture people were looking for or the branding people looking for the price point people would be willing to pay? No. I think I took a lot of inspiration from the US at the time and the sort of, the origin story is really I flew to the US and to the UK months preceding making the decision to enter and start this business and I started noticing brands taking out the refined sugars and Putting in ingredients like chicory fibre or tapioca fibre, which is what Funday uses today. And those brands were going phenomenally well. Like they were. They were getting to $100 million in three, four years in the US. And I was like, different market, different consumer, same problem. And so it was a bit of intuition, largely intuition, largely success in other markets and then some desktop research that sort of enabled me to feel pretty confident about it. But it's safe to say I was shitting myself the first couple of months when I was sitting in retail and I was like, holy shit. Like, this is a big thing, this has to work. Otherwise, like, I got nothing, like, I'm screwed.
- [13:30]
A
Did you put everything you had into this?
- [13:32]
B
Yes.
- [13:33]
A
And what was the $50,000 mistake in the early days that you made?
- [13:38]
B
Yes, that's the one that gets talked about a lot. And there's been other mistakes, by the way. That's not just the one. That was probably just the early stages. We have to order in. We can't remember a couple of hundred thousand bags at a time. And very early on, when DTC was pretty small, retail was pretty small. You don't really know what's going to move fast, what's going to move slow, how things are going to go, how viral. Something might go on social media, which would have a huge impact on units. And I basically made a mistake and just bought too much of one product, which is our frogs, and they have a shelf life, which is the terrible thing about food. As a business owner, it's like always weighing up how much stock you hold. And then on the other side, you don't want too little because then you can't supply and you can't grow. You don't want too much because then stock goes off. But you also have to balance it out with. Each retailer has strict requirements, what they call Mlor, which is minimum life and receipt. So let's say for argument's sake, it's six months and you're coming with a product with 12 months shelf life. You have six months to sell that stock to them, otherwise they won't take it. And that was largely the decision behind dtc. It was like, we need an outlet in case we're doing this. And there's a whole other sort of benefits to D2C, but out of those red frogs, I honestly didn't know what to do. Like, I'd seen brands popping up. Now, collaborations are very common. Five, six years ago, collabs were pretty infrequent, but I saw the merging of an Existing product, and they would add, like, an ingredient of the other brand. And I thought, could we take our frogs, we have a sour product. Could we coat it in our sour coating and sell it and create a bit of buzz and hype? And. And so the decision I made at the time was, let's create a limited edition product. Let's just code it, because we have access to that, and the manufacturer is really helpful around that. And, you know, coincidentally, we launched a limited edition sour frog, which everyone loved, and it was a great use of stock that otherwise would have gone off and ridden off. But at the same time, it was a really good lesson that people want the excitement, they want the hype, and sometimes people need a break from the core and they just want to eat something different, and then they'll come back. So really valuable lesson in that. And we've rolled out collaborations and new products and stuff ever since that point, because we know that's what people want.
- [16:05]
A
All right, so talk me through. So you had the purchase order for chemist warehouse. Then you had your first D2C sale. What happened next? Like what? Like, how did this thing go and become a rocket ship? Was it like that off the gate, or did it take a while to get going? And what were the levers that drove it in that first couple years?
- [16:27]
B
Yeah, well, the mindset was, it has to work. Like, I have no option. I've got all this stock. I've bet everything on it. Like, I'm going into this with, if this fails, like, what the hell am I gonna do? My wife was working as, like, a junior doctor at the time, or she might have been finishing studying, essentially making, like, very little money. And I was like, we have a mortgage. We were two months away from having our first child. And it was like pressure was on. I was like, this better work. So I think that's important. It was the mindset. It was like, at all costs, this thing has to. Has to get going. The D2C. I can't remember the numbers, but it sort of grew from a couple of hundred dollars. And then, you know, within a few months, maybe we're doing 15k or 20k. And I was like, okay, we're getting momentum. At that time, we're only in 450 Chemist Warehouse stores. Covid was happening. People weren't going out as much. Econ was pumping. And you know how many people walk into a pharmacy every week? Like, maybe a portion of the population. And then you think about frequency, like, not that much compared to, say, Coles and Woolies. IGAS where people are walking potentially multiple times a week. So DTC was like critical in reaching people that would otherwise not see the brand. So from a awareness point of view, that was important. Interestingly, which I never thought about at the time, retail being at the front of the store in Chemist Warehouse was an amazing discovery piece for people. And they were like, oh, I've seen it at Chemist Warehouse. I bought a packet, it was 450 because I didn't want to buy a 12 pack online. So it became a discovery piece, a way to de risk their purchase and then feel comfortable to buy online. So super amazing symbiotic relationship between retail and E Comm and I think the best businesses have both because ecom's fiercely competitive retail sort of demands like you can't get away from product, like you can't just close a tab or move a browser. Like it doesn't work like that. So Ecom started doing really nicely at the same time Chemist Warehouse, I was all in. I was the one messaging influencers and content creators at the time on Instagram. I don't think TikTok was really around, not in Australia. And I actually called myself Danny, like D A N I because I was like, I think people might respond to me better if I'm female. And so I had this like little alias and it worked like whether or not it would have worked otherwise, I don't know. But it was. I was so sort of insecure about this like male founder thing. That was just, that was what was the decision I made. And I put a bunch of money into creating these amazing influencer kits. They were bounce back offers to Chemist Warehouse. It was very much driven about making retail successful because I knew that if we could succeed in Chemist Warehouse and we could get the runs on the board, not only would they be more confident, start putting more purchase orders, retailers would also be looking at the numbers and that would then open us up. So within about three months of launching Chemist Warehouse, I started working with a friend of mine who had started a sort of a brokerage agency in retail and we pitched the product to the health food aisle at Woolies. And that sort of goes back to the initial point of we never actually went into the battleground with the multinationals. We went into an aisle where we knew health conscious consumers were already shopping. We knew that they are used to paying a premium because typically it's better ingredients in that aisle. And we knew a lot of those consumers are currently not eating confectionery because they had the same problem that I was Having. So that was probably the most imperative decision that was made. Where do you sit? You sort of unequivocally think, well, if I'm selling confectionery, it sits in that aisle. But most people do not sit back and be like, well, hold on, like, what are the pros and cons? Where could I sit? Where could I not? Like, you go to the us you go into a fridge and you're like, this product doesn't really belong there, but it's so smart that it's there because it's not crowded with all the other snacks. So that buyer who interestingly and coincidentally now works for the broker, and we work with her all the time, like almost every week and every day, she accepted 4, 4 products in the top 250 stores in their sort of premium cluster. And it was like, this has never been done before at this price point with these ingredients. I know you're doing well, but we don't know for sure, so we'll start you off here. And then if it succeeds, you'll basically scale into the next 500 and the next 200 stores. And that point in which we launch in October 21st opened the floodgates, really, to say we can now prove in grocery setting that we can do really well. Three months later, and Paul reached out to us because I had an affiliation with Woolies through a wholesale agreement that doesn't exist anymore. But Ampol was like, well, the products arranged at Woolworths, let's put into Ampol, which had like 600 sites. So suddenly we're in pharmacy, grocery, petrol and convenience. And the objective was we need to succeed in all. Each channel operates separately. The consumer is separately. And the focus was then around driving velocity in store and proving it out in that channel. So we could then expand into more retailers in each of those channels.
- [21:44]
A
Yeah, you've done an exceptional job with retail. I do want to ask you about that. But before we get to retail, talk me through about the D2C side, because there'll be many people listening watching this, where they've launched their brand. They might not be at a stage where retail is the go. They're bootstrapping. They might be doing 20, $30,000 a month through D2C. You're not going to have that much buying negotiation power with a retailer. Pos all the stuff that you know very well. What did you do from a D2C start to get the engine going on? What would you do now? Take chemist, warehouse out of or retail? Out of the question. I'm just Curious.
- [22:35]
B
I think the answer is very specific to the product and the category that you're shopping. So. So at the core of it, if you look at confectionery, 90% of consumers are buying it in store. So there you go, like if you're not in retail, you're not winning. That doesn't mean you can't have a successful DTC business, but it means customers are attuned and expecting to pick it up in retail. So that was the number one. But it was like 10% of 27 million people is a nearly 3 million people. We have to be speaking to those people. There's other benefits that Ecom can provide. Subscription loyalty, education, creating your own database and being able to get first party data and hear from the customer about what they want, which you do not access in retail or you can, but at an extreme cost. So the way that we set up dtc, the intention wasn't about creating the biggest DTC business. It was being able to actually have all Australians have access to Funday no matter where you live. So it was actually an accessibility play the unit. Economics were incredibly important, you know. And so we decided to sell bags of like lots of 12 because you start dealing with cubic and shipping and Australia Post and everything and you think everyone tells you DTC margins are really good and then you start to really drill into and you're like well what's your acquisition cost, what's your shipping cost, what's all your subscriptions costing you that you go on Shopify and you add this, add this. Next minute you're paying three grand US a month and currency is changing. So we, I built it super scrappy. We used and I don't think it exists really in mainstream but we use Shopify as the key sort of back engine. But I wanted full flexibility. What I didn't want is to go to an agency and say build me a website. And then next minute I wanted to change the header and the image and the copy and put in a stockers page and then I'd be up for like 2, 3, 4, 5k every time I wanted to do anything. So that was the mentality. We used a program called Shogun. Oh yeah, if you know Shogun. Of course I know there's been a huge evolution in that space and it's way easier to create websites now. But that was pretty innovative at the time and essentially drag and drop. So I designed the website with our graphic designer and that website was very blocky but perfectly fine. It got us to probably up to 100k a month sort of in sales and I was pretty happy with that. We only made the decision to shift away from that once the business started getting a bit more traction and we sort of had the belief in it. But for someone sort of starting a business and they're going well on DTC and I still think DTC is a fantastic avenue. It depends on the product, depends on the category. The smaller the product is, the better it is. A small product with high value is like the dream dtc. I also think there's an amazing opportunity now that wasn't necessarily even around five years ago, which is around things like TikTok shop, Amazon, which has taken off significantly in Australia, but also sending your product into Amazon, FBA and other countries. TikTok shop in the US is just going bananas as everyone knows. So you can have a thrivingly successful E com business and never touch retail if your view is to take it global. And so depending on regulations like food, we can't just put our product into the us. It's FDA requirements or if you're doing electrical or dg, there's all these sort of parameters around it. So it's sort of. I don't know. I think I would do the same thing again. But it was specific to what we sell, how we sell and what the customer is expecting. And they were not at the time. I don't believe really anyone in their mind thought buying a lolly online was like a normal thing to do.
- [26:38]
A
Yeah. What you're saying makes so much sense to me because I look at my own purchase behavior. I have bought your product hundreds of times and only in a supermarket. I didn't even really know you do that much dtc. So when you said to me you started like making $500 on your first day DTC, you're pumped like first month, it's like, yeah, okay. Wow. I didn't realize. Yeah.
- [27:00]
B
So most people didn't believe that it would go well really just in general, but also online specifically why it hadn't been done. It was like, what do you mean you're going to sell a bag of lollies for 450. Like you can buy Allen's, a natural confectionery 200 gram bag for like $2.50. That's like a huge, a huge premium. People don't know what sugar alcohols are.50 grams, one serve. Like what are you talking about? That's never been done before. Like there were so many firsts that everyone was like the branding, but don't know, don't Know how it's going to go.
- [27:32]
A
So what did you do on pricing? Pricing is always an interesting one, right? Like it's such a massive lever to grow a business. Often not talked about, nowhere near enough. Smart people look at it, play with it. I'm not one of them. But I'm curious, what did you do?
- [27:52]
B
Well, I set up a business plan, right that was the first thing I did. I just got it off Google. Now you go to chat, make a ripper one for you. But part of that was pricing strategy. So I remember looking at two brands. One was Halo Top which is massive five years ago, massive, number one pint sized ice cream in retail and Remedy Kombucha which is pumping kombucha five years ago. And I looked at the multiple on a call it like a non healthy version or a standard version in that category and what they were doing and I thought well that gives me a bit of a guide of what consumers will pay as a premium to the comparison product that they're used to. And I took that as a guide for what I think is reasonable. So let's say a Coke was like 250 and Remedy was selling for, I remember at the time in indies, about five bucks. So I was like, you can sell, you can have 100% markup. Halo top was I think $10 or $11 for a pint compared to like Peter's ice cream, that was four. And I was like okay, I'm seeing this. But also those brands are smashing it. There is a customer there that's willing to pay more for better ingredients and a better product. So the key thing to note around pricing is it's only more expensive because it contains good ingredients. Sugar is incredibly cheap. Things like fibre of tapioca and chicory root are super expensive. The ingredients we're using, the manufacturing process, it's all just more expensive. And the test is, will someone pay more for a better product and how do they know it's a better product? Where does education come in? But fundamentally it was what's reasonable? Like how much is a cup of coffee? What do I feel is not taking the piss? And also at the same time what are our unit economics? Like this business needs to be profitable otherwise we won't be here in a year or two years or three years. And that was the hardest question to answer because there are so many unknowns and uncertainties. For example, we would mid Covid like is the container pricing going to continue to increase? Is are they going to be raw material surcharges and we were getting them all the time. Like in the first year, I reckon we got four raw material increases. We were paying three times the price. And I remember looking, I set up an inventory management system in the early days which is one of the best things we did. So I could see landed cogs coming in every time. And I was like, this business not going to last long. But luckily by that point Covid had subsided, a lot of those freight issues had resolved and the scale of the business was a bit bigger where we could then lean on suppliers and manufacturers to help us out with extending terms and even just getting economies of scale.
- [30:45]
A
Okay, so from a unit economic standpoint, you were able to get to 100 grand a month and be profitable on your first purchase. Yep. Okay, great. And when it comes to building your website, you recommend to founders working out how to do all that yourself. That's I believe, I believe that's a core competency. You were running ads yourself as well or using agency?
- [31:06]
B
Agency, okay. It was a. We still use an agency and I think it depends on the business and it depends on the product and it depends on what the customer, their buying patterns are. For us, Digi direct to consumer is critical. Like we've got around a thousand subscribers monthly subscribers to our business, which is like unheard of to get lollies to your door every month, which is insignificant to some other brands like toilet paper and other bits and pieces. But there's a lot of power in that. But for us it was like we are not necessarily a natively digital business. We need to be at the forefront of social influencer content marketing. We need to have those direct relationships with the customer. But we know 9/10 of purchases are not happening online. So when we start to think about where we invest in terms of team, it's like we need the best offline retail business and team possible. In saying that the E comm business is a couple million dollars, like it's not nothing, it's just in comparison to the rest of the business, it's a smaller pie. So you can't be good at everything. And my view is like we can double down on team which we have done on the retail side or we can lean on expertise of agencies to help us. I would caveat that by saying as the business grows we will likely have to bring more people on in house. And I've been speaking to amazing businesses. I got off the phone with the guys from High Smile yesterday and they're unbelievable. Business sort of like under the radar, I would say Australian business In the Gold coast. Of the Gold Coast, 100 staff like killing it in global retail, not just Australia. And they do everything in house. And so I can see the benefit in doing that. But you've got to be really clear. And he said like they're a natively digital business first retail comes after conscious decision, backed up by the fact that their team validates that and the size of their team validates that. My approach is DIGI allows us to get one on one contact and allows us to reach people that otherwise would not be able to. And for those convenience occasions. But it is not the core reason people, the core reason people want to buy or where to buy.
- [33:30]
A
One last question before we go to retail as well. Just around the Launch, you spent $25,000 on a brand strategist before going to market. Most people would call that a ludicrous investment for a startup. Why did you do that and what did you get from it? And was it ludicrous?
- [33:47]
B
I don't think I've really ever told anyone the real reason, but I had. So we worked with an agency called Stratosphere who are the lead agency for Chemist Warehouse. And I desperately wanted to get into Chemist Warehouse. It sort of made the most sense. Close to 500 stores, good business, thriving traffic, particularly in Covid. Easier to work with like private business at the time, much more flexible, no range review periods, way easier like talking to standard people without the bureaucracy of retail and big governance behind it. So I made the decision and I'm not sure if it was necessary to use their own agency to help create the graphics because like how can a business say no to their own agency? It was like that was my thought process. In the end it worked. I don't know whether that was the reason or not, but I was like, your agency has created this brief with these graphics and this design. And I, it was must have been part of the consideration because obviously if the product sucks or whatever, they're not going to take it. But that was the real reason I went to them. And they also knew the buyers and they knew what works in retail. So that 25k was sort of a way in. At the same time I had hired a graphic designer. Her name's Matilda. She's still with the business. She was final semester of uni doing business and graphic design. And I said, I have like no money, but do you want to do a three month unpaid internship? If it works out, I'll pay you. And she did three months. During those three months we were in discussions with the branding agency. And it was really her that finessed the final designs of it. So it was a combined effort between myself and. I knew sort of what I wanted, but I couldn't articulate it. An intern designer who hadn't finished uni and then essentially the chemist warehouse agency. And we put it all together. And what I will say about that, two points. One, I always thought we need to act like big business if we want to be taken seriously. It means branding, artwork, design. Everything is thought out properly and strategically. But in respect to the big business, I made the decision. Even a small thing. I need a P.O. box. We're sort of moving offices. We went to Click Collective to our own sort of E Com self fulfillment place. And the decision was if you pay $30, you can call it a suite. And I was like, cool, that's great. 30 bucks. And we seem like a bigger business. We've got a suite. Someone rocked up for an interview the other day to suite in Windsor and they're like, it's an Australia Post. I'm like, yeah, we're down the road now. But like, I think those were sort of part of the considerations behind doing the right thing, acting big, investing in it. And the point that I was trying to make before, that I forgot was we still haven't had to redesign the packaging. We've made tweaks, but the product five years ago is still the product that you see today on shelf with the same colors, the same renders. We've shifted a few things around, but like, the investment upfront was amazing. Is it right for everyone? No, because you end up learning so much about your brand that essentially you evolve over time anyway.
- [37:14]
A
Yeah, you know, look, the packaging is really great. Like you've done an exceptional job with the brand. So let's talk about retail. So founders that are listening, they're getting traction on the EE comm side, DTC side. What advice would you give to them when to pull the trigger on retail? They might have some retailers tapping on their shoulder. They like the brand, they seen it around. Can we stock it? Or they might just not have that much interest. Maybe doing 10,000, 20,000, 50,000, $100,000, $200,000 a month. But they're not really tackling retail. What advice would you give? And then I want to talk about the Amazon TikTok.
- [37:53]
B
Yeah, yeah. Retail is not for everyone. Like, retail is incredibly hard, very risky and very expensive. So if you're an E Commander or in business and you're profitable and it's going well and you're Growing CAC going down, lifetime value is going up. You can enter into a subscription model, you've got loyalty program, like you're a full integrated dtc. Like, don't necessarily give that up because that's an amazing position to be in. Retail unlocks scale, but that scale can come at a cost. So first of all, in the instance of say, Funday, we get questions from customers like why would I buy online in a 12 pack for $54 when I can go buy one packet for $4.50. Right. Which is just a 12th. Because they can buy one and then they can buy one of this, one of that, one of that, one of that and they can sort of customize and they're in Coles and Woolies every week anyway, what's the incentive? Oh, and by the way, in retail you're also on 20% or 30% every X weeks. So it's far better off going into retail. And like the short answer is like, yeah, like it is like if that's what if price is what you're after, it probably makes more sense to go into retail. You also want retail to succeed because you, if you capture too much of business online and then no one goes into store. Let's say you have your top 10 performing products online and your bottom three in retail. Like you're just going to have to pay a lot of money essentially to list those products in retail. It can be hundreds of thousands of dollars, put money behind it, change your labeling, do a whole thing and then get poor performance in store and then get deleted three months, six months later at the next range review. So you sort of got to know like why you want to do it. You also need deep pockets for retail. You can do it. And where retail's been really good in Australia is probably five years ago, definitely seven, eight years ago, if you went to Coles and Woolies, say Coles has 800 stores, Woolies has 1100. If you pitch to them, they would almost always put it in the full distribution. So you had largely an untested product. Now in 1100 stores, you've got to give each store, let's say 20 items. You've got a lot of stock and what happens if it doesn't sell? Clearance deletions, all this sort of stuff. So it's highly risky. The way that I see it is online fuels in store. We get to speak to people through our website, education, social content that drives the awareness and discovery in store. Vice versa, if you go into store and you go to the front of a Wool Ease store. On most weeks, you'll see a Funday tower. That awareness, I consider a more powerful ad that's showing up. Otherwise, on a phone, it feels more real. It's way harder to get there. It's totally symbiotic. The other thing is, if margin is important, largely retail is not the right play if you're wanting to scale your revenue and growth. Retail is the biggest unlock of that because we're in, say, 8,000 stores. You've got one store online. Yeah, you can have some E commerce stockers and whatnot. So if you want to scale sales, you want to get units out, you actually get economies of scale. Like, if you get price breaks, that can be really beneficial because you may never get to that scale. If you're making great, like, EBIT or even GP and you can manage your costs, online is a great place to be. And I think that goes into the next part about online is not just DTC anymore. It's like fully expanded into the world of affiliates and TikTok shop and Amazon affiliates and other E Comm businesses. So we sometimes feel like we're fighting online versus retail. Same brand, same owner, same everything. But there's tension between retail and online, you know, and so it's not for everyone, but for us, it's been a huge unlock. It's been a huge unlock in terms of volume, which has then bring, like, brought down the cogs significantly. So we're more profitable and we've invested every cent back into the growth of that business. And we are now taking that into the US and launching in US Retail nationwide in September, because we now have economies of scale, because we're a more sophisticated business working with retail. And so what may have been a $5 million online business could become a $500 million business between E comm and retail. So it's the big unlock is a question of do you want to do it? Do you have the risk appetite to want to do it? And do you want to manage a business with retail because you get a contract, the contract says, like, yes, we have terms, but we are not obliged to order from you at any point in time. And there's a huge risk.
- [42:55]
A
Another thing that comes up for founders is like, if I don't go into retail, my competitor will, and then they're gonna grow faster than me. What would you say to that?
- [43:07]
B
Depends on the objective. Like, if you are running that E Comm store and wildly profitable and happy, don't do it. There's enough room for people in retail. My personal View is if you can unlock both, it's way better. I think the offline, whether it grocery, pharmacy, specialty is the biggest asset the business can have in today's age where the barrier to entry for DTC is ultimately an hour away. Because you can get an AI to build your entire website for you. An agent can work overnight while you sleep for free, essentially. And so anyone can do it. Anyone can drop ship. It's like there is an element to retail, and I think if you can get it right, that is the best business because it actually brings down your overall digi marketing costs significantly. Because you. You've got eyeballs seeing it every week. Like we see our tower builds in store, our mesh ends, our side caps, our end displays at Woolies Coles Chemist warehouse as advertising. And the scale is enormous. So I think just because someone's doing it doesn't mean you should do it. There is definitely a defensive play being first to market in retail, because if you're successful, maybe it blocks out someone else. And if them getting into retail unlocks better pricing, for example, or just greater brand, that could put your brand at risk. But I genuinely believe we live in this globalized world and economy that if you know how to play your digi strategy right, you can scale. Like, you don't need retail to do it. The hard part is managing your unit. Economics, like, as you scale.
- [44:59]
A
Yeah. It's all about the numbers. So one thing also I find really interesting about you and your business, Daniel, is revenue per employee. Like, that's crazy.
- [45:09]
B
Yeah, right?
- [45:10]
A
Like, that's astronomical. Most people that you know, you say you run a business. One question that comes up is, how big's your team? You say, oh, 25 people. Most people wouldn't be thinking you're running a $100 million business. So what's your take on that?
- [45:26]
B
It's a good question. I mean, 25 direct employees, but we work with partners that we work with every day. So the model of the business is not to have everything in house. So if we had to take everything in house, we'd maybe be at 40 staff or something.
- [45:45]
A
It's not many.
- [45:46]
B
It's not. I do think I hire really well. I'm unashamed around that. I think I only want great people. Someone had a saying, it's only hire a person if there's two sort of conditions. One then get shit done and they give a shit. Those are the two things that I look for. So character, desire, motivation, and then skill. And if you can marry those up, you're fine. And yeah, there's been over five years, couple here and there that have not fit that. And you sort of learn some lessons the hard way. But our attention is phenomenally strong. I think maybe one person in the entire business has left out of five years. And so the culture within the business, it's a relaxed environment, but a hard working environment at the same time. No one takes themselves too seriously. People have the authority to make decisions. There is no more, hardly micromanagement. And it means that you don't need that many people. Because if people are empowered and they're there because you need them to be there and they are providing an additional skill that I don't have, people get a lot done and a lot of wasted time in corporate is submissions, proposals, stage gates, da da da da. All good in theory at a big scale, but it slows down the business and you need more people, you get bogged down with more shit. And so we just run a really simple business which is everyone in the team from customer service to junior developer to CEO basically have an equal say about what they think about the product strategy, what markets we should go into and why. That means people are empowered, people want to come to work, people are highly efficient and get a lot done. Then the other thing I'd say about retail is Whether you're in $1,000 or 2,000 doors, same supply chain, you're just delivering to another warehouse. Yes, you might need a bit more expertise in trade, marketing or account management. But you also get to a point of economy like you, you get your point of like, we haven't hit our point of diminishing returns, now we've got 7,8000 stores. The team is not too different when we had 3,000 stores. So you get the efficiencies as you grow. And my view has always been to hire ahead of the curve, knowing that I'm highly aggressive around the growth and where I want to be and you know, we just make really good hires. I also think people over complicate business a lot and they just put people into a role because that's like what's done and that structure is what's done in the industry. My view is, nah, it's super flat. People wear many hats and you know, at times I think we've got too many people. And then, you know, I'm amazed. We do a weekly wrap up of like what we've achieved in, in the last week, every Friday on teams. And I just look at them like, holy shit, there's like this looks like 100 people have been involved in this. There's a marketing team of, like, eight.
- [48:44]
A
It's impressive. So you cut your teeth, it sounds like, at Lux Group.
- [48:50]
B
Yep.
- [48:51]
A
Jeremy was one of my first mentors.
- [48:54]
B
Really?
- [48:55]
A
Yeah. I met him a very, very, very long time ago. And he said one of his biggest regrets was he didn't invest in founder when we first met each other. And I know Adam quite well. I was in. I was in forum with him at ipo.
- [49:09]
B
Yep. You still in?
- [49:11]
A
No, not a member anymore. But is that where you cut your teeth, where you learned a lot of this operational stuff?
- [49:17]
B
Yeah, I'd say so. Like, I. I think business product, brand is quite instinctive within me. I've always been super entrepreneurial in spirit. I've just never really had the opportunity to prove it until Fun Day. The Lux Group experience was one of those, like, ideal places to land as a first role, because Adam, at the time there was maybe 30 staff or something, and they're going through this huge. This is like, 2014. They're going through this huge wave of buying, like it was when they bought luxury escapes from. I think it was APN or whatever. And what it meant was if you could prove yourself and show that you've got it. There was just a million opportunities flying around the business because they were acquiring and growing and different teams. And I just put my head down and I worked, like, the first six months. I just finished law. Like, I was getting admitted and I was on a casual contract of 25 bucks an hour. And I was like, I don't give a. Because, like, I'm learning so much. And I remember going to Adam, I was like, do you think I can go on a contract? He's like, are you not on a contract? I was like, mate, are you kidding? This is so good. I remember, like, getting 60K. I was like, this is like, the best thing ever. That wasn't even that long ago, but it was that business where I started literally doing customer service. Then it went into sales, that sales part of the luxury escapes business. I remember doing, like, the business, like, $100 million, and I was just managing people on the phones and not through the website. And I was like, holy shit. Like, I can actually do this. And no one asked me to do things, but I was just reporting on growth every week. And I got very close with Adam and Jeremy, and I would share things that they weren't actually expecting me, and I was communicating what I was doing. Then there'd be an opportunity for, like, the GM of customer experience, because they now had 15 businesses and millions of customers and teams in India and whatever. So it's one of those businesses where I feel like I got a lot of business acumen. I got a lot of people management. I got a lot of good sense in how to run a business. I was on the leadership team. I was like, three years out of uni, totally imposter syndrome. Like, I'd probably still feel like that today, funnily enough, but it was just one of those times where I just absorbed so much. I thought I was really good, but I got definitely got more than what I put in. And then even after that, I had experiences which I would say were not ideal with businesses, products, experiences that did not work out well. And I look at those very, like, in a very unique way, where it's used to think it's only about the positive experience. It's actually having a negative experience is equally, if not sometimes more better at shaping who you are and who you want to be. And so the combination of the two, it's like, I know the good way to run a business, the bad way to run a business. I know as a leader who I want to be, who I don't want to be. And those were sort of the foundations. And I say to people all the time, like, what business do I get into or what product? It's like, just get involved in an industry. Like, just work, like, whatever it is, whatever you're interested in, give it a crack. Learn a lot, because I guarantee if you're there long enough, you'll figure out a way to improve how it's currently done. You could leave and you could create a business to solve that problem. Unless you're in it, you don't know. It's as simple as that.
- [53:04]
A
Yeah, I agree we have to wrap, but I couldn't agree more. You being paid to train has been an awesome, awesome part of your career to be able to build the kind of business that you've built now. So we have to wrap there, but congratulations on all of your success thus far. Massive fan of the product, and I look forward to seeing what you continue to build.
- [53:24]
B
Thanks, man. Thanks for inviting me. Good to chat.
- [53:27]
A
Hey, founder fam. Thank you so much for tuning in today, and if you enjoyed this episode, please take the time to leave us a review and let us know what you think. This podcast is 100% free. We work so hard to go out and find the most successful founders and entrepreneurs all around the globe. So your feedback helps us grow, improve, and even bring on more incredible guests and insights. So if you have a second, please take a moment and leave us a review. It really means a lot to me and the founder team. It makes so much of a difference. Thank you again for listening and I'll catch you on the next episode.