Zero to over a billion dollars in 32 months. It's maniacal.
We're quite literally just getting started.
Where do you think is that gap to really jump from average or good to great?
If you want to have the greatest odds of success, it's by creating a new format. New formats win.
You obviously spotted one really great opportunity. I'm curious what other opportunity you spot.
I think there's an idea that no one else is going to be able to run at that is a $10 billion business idea.
You should just say it now and we'll bleep it out.
We'll talk about that. I think that's the biggest opportunity for founders.
What are the inputs necessary to get to 100 million in revenue for an e-com brand in three years?
Here, here's what I'll say.
So, here's three things I'd love for you to deliver. One, I want to know the origin story. Like, how the hell did you have the idea and why did you have the confidence in the idea? We're going to go there. Two is you sent us a thing about your marketing funnel, which is like, you know, what does world-class marketing look like in this scenario? And then the last part, I want to riff with you, brainstorm on like where to from here. You obviously spotted one really great opportunity. I'm curious what other opportunities you spot.
Okay, sweet. Um, dude, I've been taking AG1 for I don't know, six to 12 months now because it's like eating candy. It's like you open up a pack of gummy bears and then you eat them and then you're like, I just had vegetables.
I hate to tell you, but I think I just had vegetables, maybe.
And so I want to know where were you sitting when you were like, you know what? What if we did this?
Yeah. So, um, I'd like to describe myself as an entrepreneur who had short stints in private equity and investment banking. So, I've started three companies. This is my third company. And I actually didn't want to start a company. So, I was on my way from Boston at a private equity firm called Summit Partners and was leaving that investment firm to go get my MBA at Stanford. And I told myself, look, I just want to have like a normal MBA experience for two years. I'm not going to start anything. Maybe I'll do an internship in the summer. And then it was like two weeks before going out to Stanford. I was at my parents' place in Utah and just doing some work and I'm drinking a greens powder. I'm in my dad's office and I just remember looking up like super vividly in the corner of the room being like, there's no way I'm keeping this habit past 30 days. Like I'll do it because I always finish what I started, but like I'm not going to stick to this habit post 30 days. And it wasn't just the taste. For me it was like, you know, you got that weird like frothy sediment at the bottom of the drink. And the biggest thing for me that I think this is probably unique is I remember staring at the bottle sitting on the countertop on like the drying rack and I remember being, and I'm sort of an OCD person, I remember just being like, if I commit to this habit, I've got to like stare at that bottle on the countertop for the rest of my life, right? Like there's just no way that's going to happen. Um, and so that got me thinking about, hey, how do I take a comprehensive supplement nutrition and put it in some format? I didn't know it'd be gummy at the time when I had the idea. How do I put it in some format that gets people looking forward to it? Like they'll go to bed at night being like, I can't wait to have that the next day, which is a complete pivot, I think, to how people sort of think about supplementation.
Can we like roll it into a blunt now?
Yeah, exactly. Look, hey,
Well, we'll talk about that. I honestly think that's the biggest opportunity for founders. Like people just want to rip on the formats that work. But I think if you want to have the greatest odds of success, it's by creating a new format, right? So if it's a blunt, awesome. If it's these little Zyn pouches that people are doing now and making those like focus, so it's non-nicotine, great. Like new formats win.
Did you think that? Um, I mean, just it's maniacal. 32 months to a billion dollar exit is maniacal. Did you call your shot and you're like, that's where we're going to go, or were you like, who knows? I mean, what was your mindset when you started it?
This is a bit shocking to hear, but we've basically met the forecast that we've put in place since the very beginning. You have to appreciate I talked with like thousands of entrepreneurs when I was at Summit Partners. I looked at the proprietary data sets. I don't have them obviously anymore, but I have a very visual memory. So, I know the LTV, the CACs of hundreds of brands. Um, and so like for me it's weird like I could tell you, I won't, but I could tell you what like every big brand LTV to CAC and margin looks like, all the brands that we know of today. Now I didn't really forecast beyond 100 million of revenue because that would be pretty pointless. Like I'm not a sociopath.
Yeah. There's a fine line between ambition and being just absolutely batshit. So you're saying that now I want to ask you something about in between when you're like, oh, like I don't really enjoy this form factor. What if there was another? And you said you didn't have gummies, you know, right away as like a, it's not like you immediately had the fully baked idea, but I'm curious like what were the either companies or products you had like admired? Because I sort of have this thing which is like what you admire becomes a little bit of your destiny, right? Your admiration becomes your destination. And if you think about like a lot of great entrepreneurs, Steve Jobs famously, who did he admire? What products did he admire? And then you steal little elements of that, they sort of bleed out into your final products years later. Same thing with comedians and movie makers. What were the products and companies that you thought were kick-ass that you feel like inspired some of the result of AG1?
Yeah, look, I sat on the board or observed the boards of great brands like Ruggable, Dr. Squatch, Brooklinen, Chubbies, Solo Stove, Thuma, 12 different businesses. And so I learned a lot from the unique problems and frankly the recipes that worked for each of them. I would say that the brand that I think we most closely resemble in terms of execution is Dr. Squatch.
It's the cold processed soaps. So the bar soaps that, um, for men.
I've seen like the marketing, but I think I have the deodorant, but I don't know what's so special about it. Like is there something cool about it?
Yeah. So what's cool about it is they just sold to Unilever like last year for 1.5 billion. And in that business what's cool about it is one, cold processed soap is more natural, I would say, so you're not getting all the chemicals and stuff in it. It's a very clean product. But because of the branding, the approach, the partnerships they do, I mean they've done partnerships with like Harry Potter, Star Wars, SpongeBob, all sorts of really cool like fun partnerships. They've taken an approach where you as a consumer relate to the brand, right? And so, prior to Dr. Squatch, I don't even know what I was using. I was probably using whatever my wife was buying and stocking in the shower, but they were the inspiration for us. I think that what they've done within the personal care space, making it a joy for the consumer, is what we aspired to do within supplementation. Where I mean, we all spend time on social media. You get one ad and it's like, 'Oh my goodness, Sean, Sam, I don't know how old you guys are, but you're blank years old and you've never heard of creatine. What the hell are you doing with your life? Like, you're gonna die tomorrow.' And then you get a colostrum ad. 'What are you doing with your life? Like, you need to be taking colostrum right now. It does a blank percent increase in blank body metric.' And I just think that the way that we have approached and took inspiration from Dr. Squatch is to take that and make our supplementation a lifestyle, something that people look forward to. They feel like it resonates with who they are and how they live their lives.
All right, let's take a quick break. This podcast is called My First Million, and it's probably the question we get asked the most: how do I go from zero to making my first million? And so I did an episode a little while back where I broke down exactly the sort of philosophy and frameworks that I would use, things like finding your white belt business or identifying your bear on a unicycle advantage, the core way that your two skills can overlap, or why maybe starting a service business is better than starting a software business for your initial businesses to make that first million. And so the team at HubSpot has created a guide that took the stuff I said in that episode, they laid it all out for you. You can get it for free in the description below. Just click that link and it's all yours. All right, back to this episode. How much money did you raise to get to your first million in revenue and how fast did it come?
Yeah, month one we did like 30,000 of revenue and month two is already like 230,000. So I guess we like in month two, month into the business we had already crossed the 1 million run rate, probably two and a half, three million at that point.
I've never really looked at the business that way. Maybe you've heard me talk about LTV to CAC.
Yeah. Uh, I would say we probably burned through like $8 million of capital until we reached profitability. That could have been less if we slowed down growth a little bit, but just the way it worked out is I think we've burned through about $8 million of primary capital before we hit profitability.
You mentioned like focusing on LTV to CAC for you. What's good and what's great?
Yeah, I think table stakes for businesses that need to be acquired, you need to be at least three. The best I saw, obviously this goes where we're at, but during the COVID era I would see brands in the four to five range. You know, those brands are probably two and a half to three times right now.
But when you say LTV, are you referring to, so LTV, lifetime value, is for an e-com brand, does value mean your contribution margin?
Yeah, let me describe that. The way that I always look at it, I use a three-year period, so 36 months, and LTV is fully burdened gross profit. Meaning Sam orders our product. What are the total costs stripped out of that value to get it to Sam's door? So, you've got product COGS, you've got discounts, returns, you've got fulfillment, shipping, merchant processing fees. Like, you've got all of that that gets it to the door. That's your lifetime value over a three-year period. How much contribution gross profit are you getting from the consumer over a three-year period?
And you use three years not because that's how long someone subscribes to AG1. You just said three years for everyone should use three years.
I think it's like just a productive way of looking at it to optimize against. I mean we obviously look at three months, six months, 12 months and try to make adjustments based on that. Um, but yeah, I mean we've got consumers who are, you know, we're 32 months old. So we haven't hit that 36-month mark, but like there's very clearly going to be consumers who are around purchasing into I guess quote perpetuity.
And you picked a name that if you had told me I would have been like, 'Hey, brother, do you want to win or are you going to put a umlaut over one of the letters and nobody knows how to say it and then you won so I'm an idiot.' What gives?
So what I always say here is, and Sam botched AG1 at the start. He said Gruns, which is totally fine. What I tell people is I do not care how you pronounce our name as long as you're buying. So like you can call it Gruns if you want. You can call it Gruns, which is correct. It's Grüns.
But did you think it was a good name and you knew something none of us do, or did you just not care about the name? And how the hell did you arrive at that name?
Yeah. So the word Grüns with an S, I guess I can show you here, with an S at the end, actually doesn't mean anything in the German language. The word grün means green in German, but once you throw an S on it, there's actually no meaning to it. And so when I threw an S on it, it just seemed to be like kind of fun and playful. You've got this like natural smiley face. Um, it felt like something that we could brand over time really well. And it's simple, but you're right. Like at least in America, very uniquely in America, like 70% of consumers don't know how to pronounce it.
That'd be like your argument to the team, like, 'No, guys, it makes a ton of sense.' Now, it may not make sense in America, but like, you know, that's, uh, Sean, we had this guy David on who runs a company called Lexicon and his whole job is naming companies. He's named Swiffer, Febreze, Sonos, BlackBerry. Sean, what do you think David would say about that name? Well, it's hard to know, right? Because he's got this little AI computer brain where he's like, 'Yes, no.' And it's almost like a sommelier describing the taste of a wine and then you just have to nod along like an idiot. Be like, 'Yeah, I sense the notes that you're talking about there. I thought notes are for music, but I definitely sense it.' Um, and so, you know, I think it's hard to know, but I would have guessed low, right? You're talking about like doesn't make much sense in America, the market we're going after, but you did it anyways. What was the runner-up name? Or you know, in the brainstorming process sometimes you start with like here's what we're definitely not going to call it because it kind of guides you away from maybe some typical areas.
Honestly, like I hit it pretty quick. So I guess I didn't mention this. I grew up Mormon. Um, so I served a two-year mission in Germany, Switzerland, Austria. So like I am fluent in German. Uh, and so when I had the thought I...
Yeah. Yeah. Totally. It's literally called the Alpine German-speaking mission. So it's...
Yeah. Like, you know, someone else could have been assigned to like, you know, Reading, California or...
Yeah, totally. That wouldn't be too bad. That wouldn't be too bad. There's worse.
All right. So, you have the ideas. How long did it take you to go from idea in your head to I know what the product is going to be and I have my first batch and then I go for sale? Like, what was that timeline like?
Yeah. So, coming up with gummies took about a day. Um, I grew up, you're going to think this is crazy. You know those like big, um, like I guess they call them like single day servings of Sour Patch watermelon...
I would eat one of those every day in college. Like a full 450 calories every day. Um, I've always been a gummy fiend. And so now I get to obviously have like a productive health gummy every single day. And there's a ton of them that we sell. I have a ton of ideas always circulating in my head. And this notion doc I have, and typically I sit on those ideas for about a year. This one I was like, it's so obvious I got to do this. I'm the right person to do it. And so I started working on it immediately getting it to launch. Now to answer your question there, I immediately like within a week of having the gummy sort of connection said, okay, why hasn't somebody done this in gummy form? Right? Like you've got a ton of gummies. Why hasn't somebody put comprehensive nutrition in a gummy? And the big aha moment for me was the entire gummy industry is built around these 60 or 30 count bottles, transparent bottles with a cap on the top. That is as gummy exists. So I asked the question, what would need to change? What would it need to look like to have gummy be comprehensive nutrition? And then that's when I went down the path of like, okay, if it's a pack, how big is the pack? How many gummies are in it? What's the flavor of the gummy? What's the total important... Sam, Sam, you've never taken the product, right?
No, I'm going to buy it now, though.
So the way it works is this is a good point you just brought up, which is you don't like when we say it's a gummy, you think it's a gummy. No, a single serving, you eat eight of these things. So it's literally like having a pack of Sour Patch Kids, which I think was, you know, seems fine, whatever. But that's actually pretty non-obvious.
And if I'm reading between the lines of, or if I'm understanding what you're saying, you're saying one of the reasons nobody had done the comprehensive gummy was because the gummy would need to be like, you know, four inches large to contain everything. But what if we made it where it's not a gummy a day, it's a pack of eight. We package them as little pouches of eight. And that's how we can do this when other people may not have tried to do this.
Yeah. Yeah. It's, our packs are about eight. We go off of gram weight, which is about 20 grams. And some grams are smaller or bigger than others. But yeah, every gummy is identical in terms of nutrition. It's sort of the total of the eight in this case that make up the full dose.
I just think that it's insane that I asked you a question that I thought was going to be ridiculous about like you pointing like Babe Ruth and saying like, you know, we're going to get to this and you're like, yes, that was part of the plan. I mean, it's pretty audacious to say I'm going to get to 100 million in revenue in less than three years. For the people listening, what are the inputs necessary to get to 100 million in revenue for an e-com brand in three years?
So it doesn't have to be consumables. I think everybody points at consumables these days and they're like, ah, supplements. It's like it's a better business. It's not necessarily a better business because if you're selling a hard good like bed sheets or furniture, your margins are going to be worse. It's going to be more difficult to ship. Like there's a lot of things in there. But you theoretically make money on day one. In supplements, you don't. You got to make that money on the retention. So that's a new lever you got to pull to make the business work. So to answer it directly, Sam, I think first and foremost, you've got to have a good product. And good product doesn't mean like make a better version of Grüns. Like that's not going to work for people. What's going to work is finding that product category, that white space. Good product equals new white space. So you've seen, I'm sure you guys have seen these like nicotine pouches, the Zyns and like Ultras of the world. I would not encourage...
An energy. It basically looks like a Zyn, but it's not tobacco or nicotine. It's energy.
Yeah. It's like caffeine and other things that like the nicotine pouches. Um, amazing. Not because I'm a believer in the product, but amazing because now you're taking a new form factor that doesn't have competitors. And so I think anybody looking at it and be like, 'Oh, I'm going to do it too.' Like, you might find a little bit of success, but you're not going to sell your business. You're not going to be the winner here. Go find a new product format. Symbiotica came out with these little liposomals. Um, who else have I seen that's created new... Oh, you've got like, do you know the product Dose? It's like the liver health product. It's like these little shot glasses. Um, it's like a concentrated liquid. That's another one. I wouldn't...
A concentrated liquid of what? Liver.
Like their supplement is a concentrated liquid for the liver. So look up, I think it's dailydose.co is the website. That's another product that has like a unique format. Another one for you. You guys know Mary Ruth Organics or Row Nutrition, R-H-O.
So those are like, I'm not sure if they're liposomal, but they're like liquid vitamins, right? Like their approach was liquid vitamins. I'm shocked there's not more competition doing that. Like these are big businesses. Every single one of the ones I just mentioned is a big business doing really well.
So the framework of this is taking a thing that everyone knows or many people know and just slightly changing the form, the way you consume. But everything that you've named so far has been a consumable.
Correct. Because that's the space that I'm like most familiar with and people typically are looking at right now. But like it would be the same thing, like do you know how big Cozy Earth is? Their whole thing was bamboo sheets, right? And if you ask me, I'm sure other businesses sell bamboo sheets, but like that's their thing. Um, and like they're a big business as well. And so I could give you examples across all sorts of categories. Obviously, supplementation is the easiest for people to visualize.
Wow.
So the step one you're saying is good product, but let's say that less generically, what you're saying is the right product. And the right product is a category that's not already super saturated and you either take an existing category, you change the form factor to make it new or you find a new pain point, new problem, new supplement, new whatever and you're going to do it. You need some point of key differentiation. Your vitamins but your liquid, your sheets but your bamboo, your greens but your gummies, and you find that key point of differentiation which gives you a new category. All right, that's step one. And to be clear, a couple that I've just seen recently and then I'll tell you the step two. I've seen jelly beans as a form factor. I've seen lollipops, right? Like people are... Do I think that those businesses are going to be huge? Probably not. Like it's a little bit niche, but like they're probably going to be more successful than somebody making a gummy like us.
Hey, stupid question. You started this by saying Sour Patch Kids.
Um, how come none of the gummies are sour? Why doesn't anybody be like, 'It's sour vitamins. I would eat that.' TBD. We might give you something like that, Sean. I'm a sour fiend as well. I'm going to hit that. Don't worry.
Sometimes I want to start the business and then sometimes I realize, oh, I know I'm just hungry and I just want to eat that thing and I don't need to start and this might be the category or maybe I'm just hungry.
Wait, you actually said something interesting. You said it's too niche. Is there a... what's your to getting to 100 million in revenue? Is there... Okay, so you said take the form factor. Um, and then the second, or I don't know if it's the second thing, but there is a TAM related thing here. Is there like a threshold where you're like this has legs?
Look, like I'm a bit psycho, right? Like all I've seen around me is businesses getting to hundreds of millions of revenue quickly. So like my gauge for success is in the business I started, the first business I started, I literally sunset six months in. It was at 100,000 of revenue and 90% EBITDA margins. And I sunset it because I said this isn't big enough. Like this isn't... But that's how I'm wired, right? Like if somebody wanted to get to a $5 million cash flow business and run that, like that's massive success. So I'm not going to like deter people from...
But I want to know your threshold.
Yeah, my threshold. Well, I mean my sights are even bigger now, right? Like I'm still working on Grüns and Neutropes and Juiced and these products you see behind me. We have more than just Grüns now. Happy to talk about that. But I mean at this point I'm looking only at stuff that can be one to ten billion dollar outcomes somewhere around there.
So let's keep going in your formula. What's... did we do step two or...
Number two, and this is the end of it, is LTV to CAC. So if your business has an LTV to CAC of three times plus, you are golden. Anytime people talk about profitability, anytime people talk about MER, I'm not sure if you're familiar with that. It's like marketing efficiency ratio. The way that you think about it is like if you spend 20% of your revenue on marketing, then the inverse of that is a 5x MER, right? So one divided by...
All you're saying is I want a machine where I can buy a customer for a dollar and I know that in 36 months that customer will pay me back $3 and I'm going to dump as much dollars as I can into the front of that funnel as long as that's possible. And I'd say the key here is most people, I don't know, maybe I'm just wrong. But I think a lot of people think lifetime value as just revenue. And what you're saying importantly here is it's the, you know, totally fully loaded gross profit. So to get to three, you're probably actually doing $6 of revenue on that customer. Uh, close to it. Five to six to get three bucks of gross profit off that customer.
Correct. Whatever your margin is. But yeah, that's correct. But if you hit that three times fully burdened gross profit LTV divided by your CAC and that equals three or more, you've got a business.
How did you know that Grüns was going to be one to three?
