Growing Profitability featuring Dave Rekuc of Bambu Earth

[00:00:00] Taylor Holiday: Welcome to the first episode of a new series on the e commerce playbook podcast. We're going to be stepping aside of the normal interviews between Richard and myself talking about various e commerce tactics or Taylor tweets, and we're going to be doing a series of interviews with brand operators. And the goal of this series is to investigate different brands that are growing profitably through the lens of their GQ score.

If you're not familiar with GQ or growth quotient score, it's the algorithmic score that we've developed at CTC to help diagnose brands growth potential. It's based on 10 metrics, both marketing and operating metrics that are weighted to predict a brand's growth potential. And we're going to use this series as a way to examine.

The underlying genetic attributes of a bunch of different successful brands. And what we hope to show you is that there is no one way to build an e commerce brand, there's no one gross margin or one LTV or one organic traffic source that you have to have. But there are combinations in common that we have seen over many years that have allowed us to form this methodology.

So we're going to be interviewing a bunch of different brands through this lens, and I'll hope you'll tune in to enjoy it. And today to start out, we had to start with our own brand. We had to put Dave Recook from Bamboo Earth under the lens. Bamboo Earth has a GQ score of 119. 7, which is just below what we would call the duckweed score.

So brands above 120 are the highest growth rate brands that we see. And Bamboo Earth is just outside of that. I think they're a great representation of a middle market bootstrap e commerce brand. We'll do about 12 million in 2023 for our skincare brand Bamboo Earth. And there's lots of things that are incredibly powerful traits about this brand that make it an awesome e commerce business that is growing profitably, but it also has its flaws.

And we're going to talk about both of those with Dave today. So enjoy this first episode in a series of interviews with brands examining their GQ score.

[00:01:52] Taylor Holiday: If you are regularly engaged in the social media world, you probably have heard of Davey Pageviews from Barstool Sports. Well, today we have Davey Margins with us. Joining in today, I know he goes by Mr. Margins on the social media, but to me, he's just the brother of Steve. That's really who Dave is to me these days, but we've got Davery Cook, the president of Bamboo Earth the man with my kid's future in his hands here today to jam with us about Davey Pageviews.

All things bamboo earth diagnostic report. So Dave, good to see you again, man.

[00:02:25] Dave Rekuc: Thank you. Thank you. Good to be on.

[00:02:28] Taylor Holiday: It's been a while. Well, it's been like a year maybe since you came on and chatted with us last. Oh,

[00:02:32] Dave Rekuc: Yeah. I think the Mike Beckham episode was the last one. And I just got to have that awesome conversation with him. But excited to be back.

[00:02:39] Taylor Holiday: that. Not awesome. If you haven't heard that episode, me, Dave and Mike Beckham from simple modern have a conversation about thinking about. Return on invested capital and how to consider the deployment of your excess cash inside of an organization for the sake of future return.

It's a good one. But today we're going to be diving into the first episode of what's going to be a series of interviews here on the e commerce playbook podcast, which is sort of a novel format from us. Most of the time you just get me yelling at you most of the episode. And so. We're going to bring in some other voices along the way.

And the goal is to really give you all a glimpse of the different ways in which e commerce brands are comprised. There is certainly no one way to build an e commerce brand, but there are these common traits that we see in different levels of composition inside of different businesses. And we figured we'd start with our own.

So we'd start with the brand that we helped. Acquire inside of four by 400. And now that Dave and team over there operate. So Dave, we're going to dive into the e commerce diagnostic, what you've seen, you have a score of one 19. 7, which is just below the threshold of what we would call a sort of a genius level brand.

And so my first question is, do you think that squares with the how you would just qualitatively relate to bamboo earth as an e commerce business in terms of its underlying attributes? Do you think it's just below genius or would you argue that maybe it's Higher or lower than that

[00:03:56] Dave Rekuc: No, no, I actually I would agree with that, that there's a lot, you know, the, the bones of the company and which we'll get into in a lot of ways are really, really good. And then there's a couple of ways where we're still exposed and have some weaknesses. And I think the GQ, GQ score reflects that and I've just been, you know, I've been called just shy of a genius all my life.

So, I think it

[00:04:17] Taylor Holiday: just

[00:04:18] Dave Rekuc: just fits, you know? Yeah.

[00:04:20] Taylor Holiday: perfectly. Gosh, just, yeah, just jab you just below it, but you're, you're sure I'm sure you're well on the way there. So let's, let's dive in. And the goal with these episodes is to highlight some of the strengths and weaknesses of the business. And some of these are what we would refer to as the genetic attributes of brand things that are harder to change.

And some of them are stuff that Dave is. Very much actively trying to improve all the time. But let's start Dave with what do you see as and I'll tell you from a score standpoint your biggest strengths, but what do you see as the underlying attributes that make Bamboo Earth a really great e commerce business?

[00:04:52] Dave Rekuc: Great question. I, if I were to just summarize it in, in in two attributes really is high LTV or reasonably high LTV or high repeat rate and low carrying cost. Actually, third one would be good margins too. That's kind of indicative in skin care. So there's three things combined create, like, frame up the whole operations and finance side of the business and to a degree how you approach marketing as well.

And I'd say those are probably the three biggest strengths of the company.

[00:05:22] Taylor Holiday: So just because I'm doing that thing where I assume that everyone's familiar with everything that's normal in my world. Will you quickly tell us what Bamboo Earth is? Just real fast.

[00:05:29] Dave Rekuc: Yeah, yeah, for sure. So Bamboo Earth is a natural skin care brand. And so, we sell completely natural products. A lot of people say natural, but. We really mean it. It's whole natural ingredients, zero synthetics, no water, no preservatives. And so we sell full skin care routines. That's really what we do extremely well.

And we bring people in and they repeat for, you know, a very high percentage of the products.

[00:05:53] Taylor Holiday: So you nailed three of the four things that I think help boost your score in terms of GQ. talked about the solid LTV. So we benchmark a great LTV at 30 percent in 60 days, 100 percent in a year. You guys are above that on a one year basis. We talked about the total cost of delivery as a percentage of revenue.

You guys are in a great position there as well. The third, you referenced this carrying costs, which is just the low cost of inventory. It's sort of encapsulated a little bit. In cash conversion cycle, even though your weird cash conversion cycle is a little odd because you guys actually produce the product yourself.

Is that correct? Can you talk a little bit about the supply chain for bamboo earth?

[00:06:29] Dave Rekuc: Right. That's a good point. I also take for granted that people know everything about Babe Ruth. So, we most of the goods, almost all the goods are produced in house in North Carolina. We're actually fortunate to be like, down the road from our 3PL. So we have 2 or 3 shipments a week going to the 3PL.

So it's not, you know, every quarter or something like that. You're making these big transfers. So we, we order all the raw ingredients, make it in house. So as far as quantities are concerned, we can ratchet that up and down as needed. Right. On production runs. And like I said, 95 to 98 percent of what we sell is made in house.

[00:07:03] Taylor Holiday: So this is a novel feature that I think when I look at brands that are really successful, there's always, or not always, but there's very often a manufacturing edge of some sort that gives them an advantage. To offset what is really the greatest risk of death in e comm, which is like an incorrect amount of stuff that you can't turn into cash, right?

Like that often is the thing that threatens death. And so bamboo has sort of a risk is able to, to reduce that risk in a pretty novel way. So when you think about that, does it create complexity though, in terms of how you think about decision making when you're buying raw materials versus just ordering an end unit cost?

Like how much harder does that make it?

[00:07:40] Dave Rekuc: I mean, we, we, you know, it's something like 500 unique raw materials that we purchased to produce 30 SKUs, you know, like, so my counterparts out there are forecasting 30 SKUs and just, you know, but like you said, it, like I very often say in business, it's like, choose what kind of hard you want.

And I prefer that kind of hard over just the finance sweating out the fact that I'm sitting on 700 grand of inventory for, you know, a huge PO is coming in, so I prefer to take the complexity of ordering and forecasting out all of those raw materials. And one thing you said is Some of the genetic components of the brand, you do have to actively protect.

So like this is, this is something that I kind of inherited as I moved into the role. But it would be very, very easy to kind of blow that up and, and go work with, you know, order six months of an inventory and go out that far and kind of take the easier path there. And so there's a lot of decisions that we go through that we have to consciously continually protect that in order to keep.

Our CCC low, our working capital low, et cetera. And so the fact that like a lot of the bottles are like common, meaning like this is a two ounce bottle, it's used for four products, it's used for five products. And then we can specify what it's used for at the facility at the time that it's made.

That's an attribute of our brand that means that you stock fewer bottles than if they were for each SKU. And you have to have a forecasting precision that is better if you're stocking each SKU than a shared component like that.

[00:09:09] Taylor Holiday: Yeah, that's really interesting. What is the. Life. Like what, what's the durability of these raw materials? Do they last a long time? Do they have a short shelf life? Like how, how much, how much complexity is tied up in trying to get that part right.

[00:09:22] Dave Rekuc: No, most of them, I'm mostly not dealing with a lot of expiration. There's a couple more volatile ones. Mostly it's like, oh, these need to be refrigerated until they're used. Our goods, our goods are stored in a temperature controlled environment overall. So there's a little bit of like a, you know, when there's a hurricane we're kind of sweating out some logistics of that.

Whereas somebody who doesn't care if their products are in 90 degree heat you know, that's, that's different. But for the most part, we're not dealing with a lot of expirations like food companies are where they, they have kind of a nightmare in terms of like batches and expirations and, and, and they have to manage not just a skew, but like versions of that skew.

Which ups the complexity considerably.

[00:10:02] Taylor Holiday: We work with a company called Carnivore Snacks, and they're a rapid growth company that has, that turns like really high quality meat into these almost like dehydrated chips. And they are constantly in fluxx in determining. How much of the material they get is actually going to be usable. It's like it's hard to project that in a unique way.

And so there's this part of GQ score that I've thought about, which is like the durability of the product. Like however green and consistent is the quality of it and how long does it last? And I think Is an underappreciated part of when I think about Kalo, like one of the beauties of Kalo was it was cheap to order the inventory.

It would never go bad ever. So, so even if you overordered a core skew, the risk was so low, right? In terms of the actual problem versus these businesses where there's so much more complexity on the quality, the consistency of quality or the durability or the the shelf life of it. So it's sort of an interesting, underappreciated element of ecom, I

[00:10:57] Dave Rekuc: You, you bring up a really good point. And actually there's, there's two things that like, if you were an ops guy, you probably would have added to the GQ score. So like one of them is like redundancy or frailty in your supply chain. And so like, if you have a very frail, like single supplier, single point of failure one thing that I did over the last two years is build redundancy in our most important areas.

And so like, Oh, this ingredient, like we constantly have, you know, Shea butter is used in several of our products and we want raw organic Shea butter. And so like. I have now redundancy in terms of suppliers. So if X goes out, then we jump to Y and if Y, X and Y are out, we're on Z. And so the only safety in an unsure world is redundancy.

And so redundancy and suppliers was a big push on that. So that's kind of not shown, but and again, that's, you know, I got to do that for however many ingredients in order to, to truly get there, but then like forecasting risk of skew complexity, we carry 30 products and like, we sell like 14 core.

And so in the case that I over forecast, I mostly. Accumulated inventory experience, less cash, and then I did accumulate it and I solved the problem in a couple months in a somewhat painless way. So another attribute of the brand that is. beneficial from a genetic standpoint, as you put it.

[00:12:12] Taylor Holiday: Yeah, so there's two things there. One is we had an experience we worked with in Taylor loft for a long time and seasonal apparel in terms of its complexity is crazy, but they were such a machine at they had a season of product and the goal was to maximize the marginal value of that season. But when it got to the end of the season, the product was going away.

They were going to drop the price to whatever point was necessary at which to liquidate the inventory because it is over that season. That style is gone. And so trying to in that business, if there's so, so much challenge in trying to predict the take rate or like the actual, how much of this am I going to be able to sell at full price?

And it's so much about getting the product really right with trend. It's just so hard, man, in terms of

[00:12:55] Dave Rekuc: And you, apparel, you never have enough of, you have too much and never enough of at the same time. And the same is true of licensing. The Simple Modern guys have talked about that in licensing. You always have too much and not enough. You have, you can't perfectly predict that. And that's a totally different kind of business.

And so like a business like that has the flip mindset from, from accrual basis to cash basis towards the end of the season. That's done, write it off, get, just get cash, turn assets into cash. And so they, they just flip a mindset. I, I mostly don't have to do that because of the fact that it's like, it's a moisturizer, dude, like, you know, like, we'll get rid of it.

Like it still has the value over that period of time. Right.

[00:13:39] Taylor Holiday: you manage and set expectations for a media buyer in that time, because I, inside of an organization like that, because I would watch this tension between these KPIs that existed for the teams over long periods of time, where then suddenly the organizational behavior and directive would shift to liquidation and cash realization, but it would fly in direct contrast to the incentive of the people managing it.

And they would be like, Mad that they had to behave in this way because it was literally counter to their financial incentive, and it's like really complicated to try and get those things right. So the other. Okay. So the other question I have is I've heard a lot of people talk about the idea that it's a good idea to potentially consider an equity relationship with your supplier.

And I've always been like really averse to this idea, partially because of some bad experiences. I've had with suppliers that have too much control over you. But how do you think about the benefit of creating terms and deep partnership and trust as a brand in a way with a supplier versus the idea of redundancy and making sure that they are actually totally replaceable at all times?

[00:14:44] Dave Rekuc: and I think, I think that's the hard question. And so the only scenario where I would pursue an equity or like a that level of a partnership with a supplier is if redundancy was impossible and, and they were so like, I only work with XYZ farm and they're the only ones that like, you know, to go back to your carnivore snacks, I think it was to go back to that.

It's like, I only work with XYZ farm. Cause they're the only place I can source that. And that is core to the DNA of my brand. Okay, well then. Maybe I should make this farm deeply invested in the outcome here you know, and, and that makes sense to me if I'm buying commodity goods, which like, ultimately that's I'm buying commodities and I'm turning it into a non commodity.

Like that's essentially what my business does. It's turned commodities into a value a benefit based valuation product. And so in that case, I look at my suppliers and I say that, you know, I'm never going that, that, that's something I would simply never. However, you, you definitely, you brought up something important and in terms of like, they have to trust you to start to extend terms.

They have to trust you to start to extend pricing. I've talked a lot about on Twitter. Like, 1 thing that's undervalued is turnover. And I force a lot of my suppliers to hold quick ship inventory and we turn over faster because it's right there. It's on demand. So not only do we, do we solve the redundancy problem?

I know they have it. But I've also shortened the amount of time that I'm out that cash and holding that, those goods and physically in my, in my space, holding and warehousing them. And so I, I do think it is important at that level. I, I think you know, I think it's kind of similar in a sense to like the brand slash agency relationship.

You always need to be held to a standard that is market competitive. And, and the way the brand thinks about doing that to agency partners is similar to the way they need to think about doing that with suppliers. That supplier has to always be market competitive. And it's a little easier to price shop that than you right?

Like you sell a very complex service with a difficult value, you know, way to put a valuation on it. But it's, it's very similar in that sense. Like you do need to strive to get a better partnership to get a better outcome with them. But at the same time, you have to constantly make sure they're market competitive because it's extremely easy to go pay.

I mean, 50% more like it's the, the difference that you can be paying on, you know, bottles and, and any of these, these commodities is, is massive. Mm-Hmm.

[00:17:16] Taylor Holiday: Yeah. And there's something so interesting that this is, again, a whole, I'm going to avoid this rabbit trail in terms of this idea of equity with your vendors is that their business is a cash business, a lot like ours is. And so you actually like create a problem when I provide services in exchange for something other than cash, that actually is a weird incentive as well.

So there's all sorts of complexities in that. All right. The other thing I want to talk about that's novel to your business, it's a very like, you know, Yeah. Topic du jour these days, the track contribution margin. And one of the keys to that is clarity of cost of delivery, inclusive of all your variable expenses.

And you have a situation that I've seen cause complexity in this idea for people in that you own the fulfillment and the fulfillment is labor. And so it's not

[00:17:58] Dave Rekuc: us, us as the manufacturing in this case, but yeah, I more commonly people own the fulfillment. Right, right.

[00:18:03] Taylor Holiday: That's right. Yeah. And so there's something where the labor, which usually is priced into the unit cost in a way that makes it way easier to think about the variable cost per order or the unit economics.

So how do you and how often are you having to adjust that actual understanding of your unit economics because some of it exists in labor that's getting paid every 2 weeks and they're humans and they have different output levels and all sorts of things like that. That's.

[00:18:32] Dave Rekuc: initially dramatic and with a lot of work, it's become a lot more predictable. And so, the, a lot of work component is like humans with, with predictable outputs. We created KPIs around productivity. And so like they have a really significant bonus and then a stretch goal that gets them a half a day off that like these people deeply care about both of those things.

And so now we very consistently. You know, six out of eight bodies, eight out of 10 bodies in the building will hit their bonus target. And so that means that you have a rather consistent amount of output for the input that you're, that you're doing. And so, so that that component gets solved by like aligning those incentives.

And as far as like the bonus amount and things like that, they generally wind up being relatively cheap. To the business benefit, which is a predictable high level of output. And if you, you look at that bonus and amortize that over the cost of their month it becomes extremely worth it. And so in the case, in this case, I think part of that is like a salary alignment.

Another. Component of what we do that is that makes it, even though you kind of look at it at labor on like what I'd call like a sort of a cash basis in the sense that like, okay, we had two payrolls that's going on our, our P and L this month, it's not getting embedded into the product and then put in a warehouse and then tracked as part of that as it would if you bought it from third party.

But since we have a high amount of turnover, it's There doesn't become a huge Delta. If you were stocking 6 months of goods are going through big accumulation and decumulation periods, then you'd have a big Delta. Whereas, I mean, you know, we have seasonality, but it's relative to somebody who sells.

Halloween costumes or relative to somebody who has huge November, December's or a ski company or whatever, our seasonality is extremely tame compared to those. And so that, that amount of labor does stay within, you know, a 2 percent band of revenue. So, so it's reasonably consistent at this point.

Yeah,

[00:20:39] Taylor Holiday: Yeah, that's good. So, so the costs accrue pretty closely to the revenue because the production cycles are pretty small versus if somebody didn't. Yeah, I've seen it. You know, a lot of people like to just be like, oh, it's skin care. Of course it has high margin. I think it is so. I see so many cases where the lack of clarity of the specificity of all of the costs that are included in the actual cost of delivery are deteriorating good product cogs, you know, and I think labor is one of those ones.

So I'm curious, like, I just put out this series about PNL design. You and I talked a lot about this in different ways. When you actually think about those costs, they show up in SG and a, they don't, you don't move them around in any way, right? In terms

[00:21:18] Dave Rekuc: No, I do, I do put

labor production labor is in the cog section or cost of delivery section. And so you can argue does a manager go in there? You know, like, all right, that's a, a bit arbitrary. But direct labor we put in in the cog section. And you could

slice, 

[00:21:34] Taylor Holiday: three payrolls in a month? What would you do? Would you accrual it or would you cash it?

[00:21:38] Dave Rekuc: We, we actually, we, we current, we currently accrue it. And we were talking to final loop and he's like, doesn't matter. Leo, a final loop. And he's like, yeah, but does it matter? You know, is it worth the accounting effort? Is the juice worth the squeeze? And he brings up a good point. Cause you can accrue things to death.

You can create a level of bookkeeping and and whatnot. I mean, you even posed a question about this on like order revenue and stuff like that. You can. You can continue to dial any number of these metrics further and further in it just becomes at what point is a diminishing returns on the accuracy worth the squeeze.

So, so we do actually by just based on number of days. So if, if you, you know, it's been two and a half payrolls at 31 days, we take that and we, we accrue it to the, to the day level.

[00:22:24] Taylor Holiday: Yeah. That's great. So the fourth attribute that I think is part of the strength. Now, I'm interested to hear how you relate to this, because I think every internal organization always feels like more resources would be useful. But you have a lean OPEX, right, as a percentage of revenue. And so the low overhead allows you to be aggressive on the marketing side, and that's intentional and thoughtful.

But how do you think about Where you want your OpEx and your people cost to sit in relationship to revenue. And how do you guys feel from a resourcing standpoint? And is that a skill that you all have developed? Or do you think this is the right way? How do you think about the people side of the business?

[00:23:00] Dave Rekuc: think that is a brilliant question because I think operating leverage relative to OPEX is an incredibly important thing. And so I look at our business and, 1 of the most important parts that you have to analyze with regards to OPEX is is this a flat cost that helps me gain a competitive edge in some way?

And so, so there are some businesses where they pay a flat. OPEX cost. That helps them produce a product that gives them differentiation, which drives down marketing costs, or they produce a flat cost. And they do lots of organic marketing, right? Like they have in house producers, SEO. And so at that point, you're, you're shuffling some of the costs around.

And those to me are good, good reasons to have a higher OpEx as a percentage. But if I look at what our product is and, and say, how, how is, what is the way we acquire customers? I want another 5 percent to go spend and pull the higher amount of customers in the door. Then I do need the bodies in house in order to, to, to create additional materials whether it is you know, content production or, or, or you know, additional editors or strategists or whatever.

So we do stay intentionally lean because I think it gives us an advantage when it comes to shaping the P and L in order to get to. You know, a 20% bottom line, we only have to get to 35% contribution margin, as opposed to if we were sitting at 25% fixed cost to get to a 20%, I now need 45% contribution margin.

I have to be 10. You know, I have to add 10 points of margin on every single thing I sell to get to the same bottom line outcome. And so for a very ad-driven brand, again, for better or for worse it makes sense for us to have a lot of operating leverage. And, and, you know, approach the P and L design that way.

[00:24:51] Taylor Holiday: And I think this is one of the most important things that is entrepreneurs and you need to stop and figure out what kind of business are you, right? Some of the people in the market that we hear a lot from you know, Sean at Ridge, they run with the same sort of idea, high operating leverage against large marketing expense and low cost of goods.

Like that's, that's one identity composition of a business. There are others that have. Less gross margin on the product. It's more expensive product. And therefore they need more marketing leverage, more efficiency, less ad dollars to generate more revenue. They can do that through organic audience development in some way.

There are other brands where, yeah, like the high labor expense produces that operating leverage in some way. So these things can be composed in different ways, but the key is to get the 20%, those three levers, like they move in unison if that one's locked. Right. And so you have to think about who you are as an organization.

[00:25:42] Dave Rekuc: And I would actually add one last thing that like people never talk about, but I actually think is somewhat important is like, at the end of the day, we're humans and we run the company and and I'm the human running the day to day of the company and flat out. I, I am a better. Contributor than pure manager.

And so if you think about it, an organization, especially you think about our organization, it's mostly what I would call a two tier organization. You have the doers report to the director, you know, the, the planners slash managers. And there's a third tier slightly with that production component where they're reporting up to a manager of them and that's reporting up to me, but you mostly have a two tier organization.

And a jump to a three tier organization means a completely different role. Like any organization, think about it in tiers. If you go from a second to a third tier, you are a different, you have a different job description. And quite frankly, I'm the one sitting in the seat and I'm probably much better at a two tier high leverage organization than a three tier low leverage organization.

[00:26:46] Taylor Holiday: That's such an underrated principle. That was like the fundamental change at CTC as we scaled, even that, like the second you add that middle management layer, one, you don't really have clear models for what the capacity is supposed to be of those people. And so inefficiency gets introduced really, really easily with that.

So it's interesting. How do you think about career progression in light of that reality?

[00:27:10] Dave Rekuc: Yeah, I, I think in a lot of ways, I actually, the, the role will move upward in terms of seniority and then we're, we're going to add leverage to some of them. So like, take like a supply chain manager might become a supply chain director and you add an assistant or a VA or like other levels of sort of leverage to that, but avoid building out like a true department underneath them.

And so, and like, that's again, sticking pretty hard to like, we want high operating leverage. I want that to be an individual contributor that we just sort of lever up in various different ways. Take away the grunt work you know, essentially, and you can use partners, software you know, AI. Like there's various, depends on your role, but there's various ways.

That you can can lever that up. I mean, you know, take our content production. You could take like our, our marketing machine or content production right now and add a partner without adding a truly a truly new level. And so you can increase total output in ways that are not just strictly like more vertical org structure.

And those are more attractive to me. Over the next one to two years and, and when I, if and when, I mean, hopefully I build this into a large enough company that I'm forced into a, a third tier, right? That's, that's the hope if and when that's something I'll be very intentional about. And and I think that you, like you said, you need a lot from a management and structure perspective, incentive management structure.

Becomes your new job, I guess, in addition to coaching. And you have to think that through really quickly. So one word of caution I would give to brands that are like rapidly growing is just be careful when you make that jump, that is super duper intentional and you understand that you're changing your role because there could be, I'm a growing company.

I need this middle letter of management. And you just introduced a ton of operational inefficiency and destroyed some of your operating leverage. And it's a really hard stage to go through.

[00:29:07] Taylor Holiday: And I think it's hard to know whether the strain that someone in a role feels is a reflection of their present skill or what is truly too much for someone in that role and like understanding capacity of people in different things is all this relative understanding that you gain over time where when you started with somebody and the company expands, all of a sudden that individual gets to a place where they say this is too much for me.

The question is, Is that too much for an experienced person in that position, or is it like in a way that truly requires an additional role, or is this a upskilling of an individual that needs to be required? Like, that's the thing I've struggled with a ton is we empathetically want to say. Oh, this is too much.

Okay. I need to get you more resources. I need to get another person. And there's something very human about like this person is saying they're overwhelmed. I want to solve that. But the temptation to make it another person, especially when the workload might be 12 percent too much. Now you've taken 120 percent of a workload and you divided amongst two full time employees.

That's, that's a problem.

[00:30:10] Dave Rekuc: Right. 60 percent and it became the new norm. So like that 60% what is it? Work expands to fill time.

[00:30:17] Taylor Holiday: Yeah. It's

[00:30:17] Dave Rekuc: Work expands to fill, fill time. Right. Like, so, and, and that's another problem. So I think operating leverage is something you have to be like consistently intentional about if you want to maintain a high degree of operating leverage.

[00:30:29] Taylor Holiday: I think you, and I think it's a thing you have to get your employees educated around is that to understand, this is a thing I think that it's so easy for the narrative to become that you are exploiting them or you have a bad work life balance. I think it's very important to educate the people around the kind of business that you're in and why operating reliability leverage is actually a critical component to the success and health of this business longterm.

And so we're going to pursue that as a cultural identity attribute. Period. Like we have to, and here's why, you know, and I think, and then, so we want to do that within the confines of a healthy work environment, but we cannot sacrifice this ideal because the composition of this business, the attributes of this business demand it.

And I think just getting people uneducated around that, I think is really helpful.

[00:31:14] Dave Rekuc: I agree.

[00:31:15] Taylor Holiday: All right. So we, we talked about the strengths. Now we're going to go after some of the weaknesses. Okay, so in terms of areas where there is room for improvement, right? Number one is the amount of organic demand that gets created.

Most of the customer acquisition is paid primarily in meta. For you all. Other things is that there's a serious seasonality to the business. Between Q4 and January, those are the big peaks for this business. And then you kind of struggle through the summer months and you survive the down periods.

It's not quite as bad as FC goods or something like that, but there's definitely some seasonality. And then the last thing I would put on there is the amount of. Distribution channels that exist. Now, some of this is intentional. It's not always a value proposition to have more distribution channels, but right now you are exclusively DTC and Amazon.

So there's two, no wholesale, no broader retail. I don't think any other marketplaces. So comment on each of those and how you think about and relate to them, starting with the organic traffic.

[00:32:11] Dave Rekuc: All of 'em are true, like , guilty. As far as as far as what you laid out. And so that, that's definitely a part where, where you say like. Dave, how do you feel about this business and this score at a 119 short of genius? And I agree with that because these are real weaknesses that are legitimate threats.

And one, one part of when you grow larger companies are usually more stable companies, but one does not imply the other. You can build a larger. Same stability company, if we continue to be completely reliant on meta for our customer acquisition, if we continue to be reliant on, you know, 1. 1 channels you know, because honestly, like, even some people that are DTC and Amazon, they're getting, you know, 60, 40 or 70, 30.

We're getting 12 million on Shopify and a million maybe 800 last year and will be a million and change this year on Amazon. So it's not, it's a small percentage of the overall pie still. And I'd like that to grow independently and I'd like it to be less of a function of the meta spend because actually, even though we have a second channel, it's still a significant function of the meta spend and, and acquisition there.

So, I do think that as you grow, you have to be intentional about removing risk and creating stability. Otherwise you can just wind up with a. Larger version of your instable small business. And so, guilty as charged across all those. 

[00:33:38] Taylor Holiday: So as you think about solving them, I'm curious if there is one that feels most threatening to you or most urgent in terms of the thing that you're. Care. You care about them, care about the most, or is the focus really more about doubling down on your strengths?

Or so how do you think about which of these is the biggest threat that you got to solve for it or represents the biggest opportunity? Maybe not just a threat in terms of figuring out a resolution for

[00:34:04] Dave Rekuc: Yeah, I, I, I think I think I care less specifically about solving the seasonality problem. And, and I know that you and I've had talks about this before and, and you may to some degree disagree, but I actually think. I will accidentally solve that, but it won't be a high priority for me. I will accidentally solve it by new product introduction and by creating more marketing moments that ultimately just drag the line up.

But the truth is I, if I can create a marketing moment on January 1st, that drags the line up higher. In terms of revenue, and we're talking about peaks, people don't want to talk about here, but it pulls the revenue peak up higher on January. And it is simply a better return on investment than I do not care to pull up the peak in August.

I will pull up the peak in January. And so that's where I look at that as a weakness and say, to some degree, you're correct. But in it being a little bit of a weakness, meaning like that time of year, we are weaker in terms of of revenue, but but I don't care and would support even higher seasonality if it meant a total net better result.

So that's 1, I would probably rank rank as the lowest 1 that I would rank as the

highest. Sorry, go ahead. 

[00:35:16] Taylor Holiday: real fast on that? Do you think that's because you have so little carrying costs and inventory risks? Like if it, if it, if it was different, where there was a lot more inventory risk about being wrong in that period or the inventory went bad? Do you think that would be different?

[00:35:30] Dave Rekuc: And I, I also think, hi. For you, disproportionately, we'll look at our acquisition, right? Cause like that's, that's part of where you think the repeat revenue doesn't tank in that period. So like, if you look at the total top line, you're talking about maybe a 20, 25 percent difference from call it like a, you know, a median month to a low month.

Right. And so that top line is the, the total amount of goods that I'm moving. So a 20 percent difference. Seasonal to the point that it would cause a problem in my operations and finance. If we had 100 percent difference, especially because I have a fixed cost in production then, then we might start to cause a problem, but at a 20%, it's not something dire that I have to fix.

And yes, my carrying costs especially because in skincare historically has good product margins. I have even better carrying cost margins because I'm stocking the raw material, not the finished good. So, I don't have labor embedded in that cost yet, so I'm stocking only the raw material, not a finished good.

So, what's sitting in my warehouse is the raw, not the finished goods, which makes my car carrying cost lower than even a typical skin cares if that makes sense. 

[00:36:41] Taylor Holiday: I think that when I think about these things, I think the opportunity that I would get excited about and what you and I have discussed is the idea that there is a new product development that solves sort of a myriad of these problems at once, right? Where it's like, we've talked about sunscreen based moisturizers that are better in the summer.

And so therefore you have a new product which helps acquisition, which is great on LTV and is good in June. You know, it's like if you could do all of those things, that would be amazing, you know?

[00:37:06] Dave Rekuc: And that's why I said, I'm going to solve it accidentally because I'm going to introduce products. SPF tinted moisturizer is a perfect example. Like I'm going to introduce that product. It's going to move better in summer months. I'm going to introduce other products that move better in summer months.

So I'll solve that problem accidentally. But if the net result of my efforts, especially around creating like marketing moments is just better amplified in January. Then I'm just going to do it, you know, in January and it's not to say that, like, you can't have both because ultimately like, okay, well, what are you doing in August?

Like, put a little work in, maybe don't go on vacation in the first, like a week or something, you know, so, I don't want to give excuses, not necessarily an or decision, but if you asked me in terms of priority list, I would put that towards the bottom. Whereas if we were to go back to that list of weaknesses, I would put organic and distribution channels high on the list in terms of priority.

So we are over dependent on on really a single or particular form and you say organic, but actually to me, I would be really, really, really happy if I could go acquire 100, 000 worth of customers a month. In Amazon and Google non brand search, because at least I am differentiated into where my where the money's going and presumably they're not as correlated.

You know, if you talk about like an investing, you want like a certain funds that have only a certain degree of correlation so that you have a balance in that portfolio. And so to me, I'd actually be happy to just see. A hundred grand of new customer revenue coming in via Amazon and Google, and that would also be a significant step towards, even though that's not necessarily organic that is a step towards a more diverse and therefore less risk loaded acquisition profile.

[00:38:54] Taylor Holiday: Yeah. So there's, there's a bunch there. That's really good. So I think one of the things that people talk a lot about, and the reason I would say organic versus alternative paid channel is one, my experience is that there's an opportunity cost to efficiency in most other channels. The exception possibly being Google categorical search.

Now we've banged on that door a significant amount, not like, you know, I don't know that we've given it the absolute best try, but it's not like. We're like, Oh, we've never tried it. You know, it's, it's, it's there and I think we could do it. And I do like the idea of the non correlated risk because I think a lot of times people would be like, Oh, from meta to tick tock to Snapchat.

And I go, this is all social advertising. They're like the, like when you, in a perfect example is that the iOS app risk. Was equally applied in all of those channels. So you didn't actually

[00:39:44] Dave Rekuc: But not on Google.

[00:39:45] Taylor Holiday: risk exactly, 

[00:39:46] Dave Rekuc: Right. Right. 

[00:39:47] Taylor Holiday: right? So you have to think about what is the attack factor that that channel might face and do those other channels share that risk.

I think that the question I have and the challenge with the organic thing, because I think everybody would love a short, quick solution to organic demand creation if it was out there. What I see is that it becomes this thing that is really hard. Especially for bootstrap businesses, that obligation to a 30 day P and L to ever justify the investment in because the payback could be really latent.

There's a high likelihood of failure audience. Things like audience development are slow. So how do you find space for efforts or do you just think, no, we're going to solve the alternative paid channel first before I take on anything in that category?

[00:40:31] Dave Rekuc: I mean, ultimately at the end of the day, like I, I think at a certain point you, you get into having to make growth bets for a company. And the funny thing is that the the willingness to take risk of the entrepreneur it typically just goes like this. And it's like at the beginning of their company, they're taking an enormous risk.

And then as their company grows they're, they're focused on de risking their company, but they never risk back up some, which ultimately ironically is the thing that will create the larger, lower risk company long term. And so what I mean by that is like, You have to carve out a way that like I can go spend 50, 000 and it might not work and, and, and I don't mean this strictly with media that, that applies to product that applies to SEO that applies to you know, hiring a content creator and influencer relationship whatever.

So we have to be willing to get at bats on. Growth bets that can fundamentally change the rules of the game for us as a company. Otherwise, we will hit a local maxima of. Where, you know, with these products, with these relationships and investments that we've made, we've now de risked all this, but we very likely you've said this before, if you try to hold something in stasis, ultimately you're going to decline because it's a competitive marketplace that is consistently doing this.

So you are either doing this, which actually holds you in stasis, or you can figure out how to, how to create a, a, a larger growth inflection point and outpace the increasing demands of the market. So trying to hold yourself in stasis is ultimately One of the most risky things you could do on a five to ten year time horizon

[00:42:18] Taylor Holiday: One of the things that I think is underappreciated is I think brands should treat exactly what you described, which is the risk on growth bet in the same way that maybe families treat like saving for a vacation, which is to say that you need to actually financially think about setting aside a pool of money that's going to yield potentially nothing back.

So that you, you create the opportunity for yourself to say, okay, this 50, 000 that I've now put away in this kitty is going to go to something that, and you should do a right calculation and you should be thoughtful about it. And I'm not saying be foolish with it, but I'm saying that in terms of the financial implication for the health of your business.

You survive it if it's zero, you know? And I think that sort of planning and principle that, and if, if people, I think go back and listen to our episode with Mike Beckham, I think one of the areas that so obviously becomes the place to do it is in product development. It's like that's the place that I think has a potential for all affecting all of these elements that we're talking.

But the same is true for the creator and the SEO and all those things as 

[00:43:18] Dave Rekuc: Right, and and so with the the organic and distribution channels so we are pushing into seo this year and one of the ways that we found so I do actually think product is partly going to solve that like we we have a generalist offering in terms of our product Which means that any of the particular items don't hyper specialize in solving x So you have the ability to go reformulate this and hyper specialize in solving x so like repairing facial serum Does a whole bunch of stuff you can go to the bamboo earth page it, you know Scarring and dark spots and this and that okay tweak the formulation and make it dark spot specific And now you have a thing that has categorical search.

It has Amazon search and it builds a specific pipe or funnel around it. And so like, in some ways you've created like a new growth bet that, you know, we're going to, we're going to go back to the current engine in terms of like what we could do, but it opens up. New variables that are very likely favorable towards the brand for things like categorical search or, or SEO you know, blemish serum, blemish control serum, or dark spot serum, or, you know, problem serum, natural, organic go, you know, and, and now that's a different set of rules that you have to operate in,

[00:44:34] Taylor Holiday: Different creative, you know, ideas on the front end for Facebook, like that's why I think product is, it has so much potential to solve for so many of the different core events for many brands. They can make better margin with a better product. They can have higher LTV with a better product. They're all sort of correlated to that.

It's funny. Like, we were. The heart and soil guys. And so we were talking about sort of thinking about trend as it relates to supplement. The same is true in skincare. I think in a lot of ways where it's like colostrum is this thing that's like taking off in the world as a supplement ingredient. And so being able to tap into a massive trend with a product of really high quality allows you from an SEO and organic demand and categorical search, because there is in these new things in particular, there's an arbitrage period for SEO and, and paid search where.

The supply of competition is maybe being outpassed by outpaced by the demand that can help to alter those margin profiles. So I think there's something really there that is also allows for that organic demand to be tapped into in a way that maybe some of these other things have been competing away.

It's all competed down to nothing. So there's no organic demand to be had 

[00:45:38] Dave Rekuc: hmm. And the. 

[00:45:39] Taylor Holiday: up among so many people.

[00:45:41] Dave Rekuc: Right. And so if you're going to go back to our strengths, like, in what way can we leverage that in the future? And like, what, in what way can we make owned manufacturing a true competitive advantage? Not just like a 20 percent savings on cogs, which is roughly what it is, not just a 20 percent savings, but a true competitive advantage and speed and cost to go to market or iterate.

Like you want to make X, Y, Z formula better and track the unique repeat rate of that SKU. You get what, you know, why are we not, why, why not going through those cycles? And so, part of it is I have to set up all of the systems that do this and, and get get us through the steps to get these things to market and to build that engine so that we have.

Call it like a lean production testing machine. But ultimately that's a should be a competitive advantage that we can leverage to solve the weaknesses. So using a strength, solve the weaknesses. And then one last thing I want to say about organic channels for moving on is you challenged me back in August about organic channels.

And I went immediately to like social media and it's, you know, you have different forms of visibility and who's to say the organic algorithm doesn't go away, which I, which I still stand by great argument. Thank you. And but one thing you said, Dave, I don't mean organic social. I don't even necessarily mean organic SEO you know, organic search.

I mean, any way that your customers find you that is not paid. And so I've been, I've been ruminating on that more and. Distribution channels is, I did a no commerce survey just recently, this is like my new favorite thing. Every time I have a thought, I just run a survey on it. And I asked them, have you ever been to a spa or an esthetician for a treatment or advice?

55 percent yes, 25 percent on a regular basis. That is 55 percent of our audience that is highly influenced by specialty retail, which we can go occupy, not just to sell through specialty retail, but to then become an influence on organic demand for them. So that, that's a, that's a, like a double solve of distribution channel.

Future organic influence. And I mean, your thread recently on Calo and what you did there, like, that's also a spot where there's trusted existing authorities. That can influence 55 percent of our existing customer base and a huge market, right? And so, to me, that's been a particular area of interest that I'm going to push into this year in order to, uh.

[00:48:06] Taylor Holiday: dave. Like, so Brian Garofalo, who's going to be on an episode here in a few weeks, the CEO of Skullcandy, one of the things that he does really well. And one of his playbooks, when he goes into these new brands is the first place he launches with retail is specialty retail.

And what he chooses is. The shops he knows the cool kids want to see product at. And while that's not the revenue driver that Best Buy and Walmart and Target are all going to be the place where most consumer electronics get sold, those are the latent part of the customer curve. The early adopters that create social content that drive culture, they exist in the cool specialty retail.

And so he, the very first thing he did was he held an event and he brought them all there and said, we're coming back to you. We deprioritized you because your orders weren't big enough and you're But what we miss is that drives culture. And so this, this sequence, I think about like ASAP, right? Like the, where is ASAP soap in every high end hotel in the world?

So that when you go into the Ritz Carlton, when you go into these places, now, is that a big PO? Maybe like they have, they have a lot of units, but more importantly than that, every person who owns a nice home, when they travel stays at the Ritz Carlton. If you create that experience, that's the organic loop that gets, starts to get created.

So I totally agree.

[00:49:19] Dave Rekuc: Right. Yeah. So, and so not only are you moving product through that specialty retail partner and we've talked, there's been a lot of talk of DTC companies in general are going to try to push into retail and big box is a completely different game. Specialty retail, we're, the funny thing is we already have these people coming to us.

And our previous solve was which we tried to push them to the fair the marketplace and the concept was, and it's a reasonable theory that it was going to compound and us referring that was going to turn into compounding business. And the truth is, we've just pretty much moved our business and ran it on a 3rd party platform and are kind of invisible to some of the details for no real reason.

So I'm going to go own that and step 1, take back control of the inbound and then step 2, be more intentional and push outward. And, and do so with with, with product and and sales support materials that are designed for those channels and, and

[00:50:12] Taylor Holiday: I love that. So if you go to the spa going woman of a specific demographic, now we can start to think about being omnipresent in her reality, both digitally and physically. And I think that's, that's the idea that Kilo thread that you're referencing is that was a lot of how we thought about it. It was like, how do we get omnipresent in the CrossFitters life such that when they see the digital ad, it really is an actual, like, I like to think of it as closing the mental loop.

Oh, that's what that is. You know, like that moment that you can create because they've seen it, they felt that they felt it a small bit, whatever it 

[00:50:41] Dave Rekuc: Yeah. And, you know, one interesting thing, I've read your Kalo thread. I've, I've read it. I've heard this story before, and I like. I've had to digest it each time and one thing that always jumps out at me is I've told people this about branding. A brand doesn't mean anything until you inject meaning into it, right?

And so the interesting thing, this may or may not be true with K Lo, but I'm sure at some point CrossFitters were a subsection of your customer. And then you decided, Hey, this is a subsection we have a lot of track traction in. We're going to push into it and make specific investment in this. And one thing that I, I've been hung up on is you're like, you got to define your customer.

I'm like, Taylor, our customer is freaking women in the United States who use skincare. It's a hundred million people. Like, what do you mean? But now I look at it and I say, that's true. But you know what? There's a very active subset that goes 25 percent that goes to said spas, gets influenced by said spas.

So you have to choose who you're going to go invest in and what is currently 25 percent in my profile is still 25 million women in the United States. It's a huge tam. And if that is who we resonate with well. You, you, even though it's, you can't look at your profile and say, okay, 80 percent of them, what are they like?

They're women in the U. S. who like skincare. Like that's, that's their common thread right now. You have to choose a subsection and then go influence them in a way in a way that then influences their digital or online behavior. Mm

[00:52:16] Taylor Holiday: we notice this all the time, but people feel like when you try to narrow that conversation, it's as if you're rejecting the broader tan. And it's actually not the case at all. It's the sequence to it. Right. And so it's funny because when people were like, there's no way you sold a hundred million dollars to CrossFitters in that thread.

And I'm like, no, not at all. But the way we actually got to CrossFitters was we started with first responders and it's because we had a woman who wrote a blog for that. Her, her blog was firefighter wife. Right. And that when we saw that article, it went, Oh, firefighters and police officers can't wear their ring.

Their wives care about that. Let's go after them. And we found out, guess what they all did crossfit. And so it was like this movement. And then we went to golfers and then we went to, you know, people in healthcare service. And then we went to people who work in assembly lines. And then we weren't, and we just went, Okay.

Section by section and replicated the same idea where you're going to surround their realities because all, although they share a common trait, married and engaged active adults, that was the broad cam, right? The, the, the digital and physical realities of a golfer versus a CrossFitter are very different.

And the things that influence them, the media publications, they're very different. Right. And so you just got, you do, you decompose the broader TAM into actionable segments.

[00:53:26] Dave Rekuc: And actually great parallel to that is like. Uber had a launch local scale national strategy and so like Uber looked at it and geographically carved everything up, which makes sense to set a marketplace and all that, but like, okay, New York City, we're going to go launch and how did they become the de facto ride share of, or, you know, yeah, ride share of the United States or potentially the world?

They did it city by freaking city. And and so you can carve your customer base up into those meaningful segments and go scale each. And, and that's how you can become the, the sort of de facto provider in in whatever market you are.

[00:54:04] Taylor Holiday: I love that. There's a, there's a thread there, Dave, waiting for you, but the Uber city by city brand expansion strategy. But awesome, man. Well, you told me you had 45 minutes. I got an hour out of you and the people are going to benefit from it. So I appreciate you, man. And I look forward to, it'd be fun to revisit this in a year and see what that GQ score is and see where you guys sit.

But I think for everybody, what we want to show you is there's lots of different component parts of great e commerce businesses. As Dave mentioned, we're really transparent about this. So we're about 13 million in revenue, somewhere around 20 percent on the bottom line. So we're profitable. There's cash here.

This is not externally funded. We're doing this ourselves in a way that shows you it can be done. And here's some of the ways in which it looks when it works. We're going to have lots of different people on these episodes in the coming months. So Dave, thanks for being the first. Appreciate you. We'll talk soon.

[00:54:48] Dave Rekuc: Yeah. Thanks Taylor.