328. The AG1 Growth Strategy with Kat Cole, CEO of AG1

The problem is, this is a product that is engineered for daily foundational use. It's not a cup of coffee where you drink it and you go, 'Oh, I'm setting my world on fire.' It is like eating healthy, like working out. The more consistently you do it, the more the benefits.

Thanks for having me.

Yeah, I stepped in, I guess it was fall of 2021, after advising the company for over half a year and after having been a customer for two years. So I feel like it was a long on-ramp. And at the time that I joined, we had done 160 million in revenue, growing by multiples, not percent, in the years leading up to that, not profitable at that time with that amount of growth, single product, single channel. And in the four years since, we have evolved meaningfully and fairly quickly. One, continued growth to a shift to profitability. We've been profitable over the last few years, moving from single product, single channel to multi-product, multi-channel, continuing to upgrade the core hero product, AG1's formula, as we have many times over 15 years, kind of like Tesla, iPhone, just make that one thing that's very complex even better over time for the customer.

And really taking the time over those four years to hit critical milestones of investment and capability building needed to unlock the next milestone. So at first that was we were only blended in New Zealand and we were growing mostly in the US and we needed to bring blending to the US, which we did over three years ago. And then once we had that supply chain shored up, seeing where the consumer was going and building a much larger team three years ago of PhDs, relationships with universities and academic institutions and laboratories to do more human testing for the supplement industry, which is pretty rare. So we had to build the team for that. Then scoping those initial pilot studies and bodies of research to just bring more proof to the supplement space and certainly for a premium product. Once we did that, it was time to upgrade the formula because now that capability allowed us to blend with more redundancy, have less risk, have an increased bar and level of scientific rigor around the improvements we would make in the formula. So we did that in 2023 and '24, that we decided was the moment we would bring flavors for the first time. AG1's also been only one flavor for over a decade, which is pretty wild for a consumable product of this scale. And so we upgraded the team, upgraded the supply chain, upgraded the formula as a pattern of doing that, and then launched flavors. So now we have a variety of flavors on an upgraded formula, produced the results of four double-blind, randomized, placebo-controlled human trials. So now added clinical rigor, and then on that basis decided we had shored up the capabilities enough to bridge into other channels and compete on shelf and compete in other marketplaces. So we expanded to Amazon and direct to national with Costco and launched AGZ, our first ever true second hero product using the same philosophies and approach as we did with AG1.

AG1 was combining what people were doing already to make it simpler, more effective, higher quality, and really simpler to build a routine around. So people were already taking a multivitamin, already taking a probiotic, already taking, call it, a greens powder or a superfood powder, and we combined those. So the routine could be more simple. There would be higher adherence. Higher adherence equals better outcomes, of course, if people are more consistent. We did the same thing with AGZ. It was very clear over the last few years people were starting to stack magnesiums, different types of magnesium in particular, L-threonate and bisglycinate, herbal blends, whether it's ashwagandha, theanine, chamomile, apigenin, right, this type of thing, the sleepy girl tea and cocktail, and then certain amino acids, whether it's glycine or things like myo-inositol. So we saw the same pattern: huge health pillar, clear solutions that you can consume that are helpful. They're not all the answer, but they're helpful, and a real opportunity to consolidate, bundle, combine them into a simple, efficacious step. So now we have AG1, AG1 Next Gen, multiple flavors, AGZ in multiple flavors, and AG1 on our site, Amazon, Costco, and a couple of big ones to come this year.

At least for me, stepping into the company, I come from a background in industries where multi-channel — when I say multi, I mean thousands of SKUs, multiple brands — was the playbook. So certainly there was an understanding and a belief that I would be able to bring those capabilities to this company to some degree eventually. And so reaching customers with a few different evolutions of product was the plan all along. Even though we've been very rewarded for our focus, doing one thing incredibly well, moving beyond DTC exclusively into brick-and-mortar retail was always an eventual reality because still a majority of purchases in consumer and in this category happen in those locations. So if we didn't go there, we're giving up on many customers who might have the problems that our product solves. So it's one of these where you go, it was always the plan. We knew eventually at some point, but the question is when and why, and like, why now, and do we have as many of the capabilities as possible to make that next leap very successful? And many brands start out multi-channel. Many brands start out multi-product. So it's not that launching a second hero SKU or going into your first retailer is some unique thing, but waiting to do it until you're 14, 15 years into your business and you're already at hundreds of millions in annual profitable revenue — that's what's different, because you've got this big, beautiful, known, established, functioning machine and community and relationship, and now going into a new product or a new channel has a big thing that it could affect. So it does take a lot of thought and consideration. So it was always the plan, but it takes a lot of thought and consideration given we've gotten pretty big without it.

And but what I didn't know — so that's what I knew even in advising the company. I knew that was the plan, and I knew I was coming to bring that plan to life eventually, but not immediately. What I didn't know until I got into the company is a good bit of that operating foundation that would need to be shored up just to keep up with the growth we had in the channel we had. So we were growing the year prior, I can't remember the exact amount, but it was well over 100% year-over-year growth. That year we did 160 million, and then the year after, very similar. And when you're growing that quickly on that kind of a base and you're only manufactured in one place in New Zealand, you got bigger problems than when you're going to launch a flavor. It's just a high risk profile, right? If something happened in that plant, I have no alternative readily available to supply my subscribers, much less keep growing with new customers. So once I got in, it was very clear that the growth alone that was showing no signs of stopping anytime soon, even that had some long overdue upgrades in the operating model. Again, the supply chain, blending, additional QA for that growth in blending, moving the blending facilities to the countries where the product is distributed. We were already in multiple countries, but the US was the dominant market, still is. So that was just like staring into the sun. You want to make a new thing, you want to go into a retailer, but you kind of have no business doing that when you are barely keeping up with the demand in your current channel. So that is the contrast I would give of what we wanted to do, what we always knew we would do, and why we needed to look one foot in front of us instead of so far out.

And so think of that as tier one operating capability: even stronger supply chain team, multiple nodes of production, redundancy, reducing risk. What that also did was dropped some of our risk around last-mile distribution. We were able to get product to customers faster and shorten our delivery times and improve our customer experience. If you blend in the US and you ship in the US, you know, it's all faster, it's all better. So that might not sound sexy or very brand-heavy or marketing, but it is absolutely required to keep up with just the growth that we had. So in my mind, I felt we had not earned the right, we had not built the right to go doing new and different things until we had shored up these capabilities. I also saw just some issues we had with the customer experience. We were growing so quickly, and growing so quickly coming out of COVID. Many people listening will remember there was a supply chain crisis during COVID, like the ports were all backed up, and so anything you had that was a physical good for us — that's shaker bottles, canisters, scoops, lids — you were having to find multiple alternate suppliers real time, multiple alternate suppliers just to supply your existing business. And when we did that, we had problems. Like we had to find a secondary lid supplier. And the lid they produced, we thought it was perfect, but turns out it was like the tiniest bit off in the threading. And then when I joined the company, we've got thousands of complaints a week from leaky shaker bottles. But we're growing so quickly, it wasn't one of those things that you would automatically notice. Like strong growth, strong revenue trends hide a lot of underlying problems. And as part of just how I jump into companies, spend a lot of time on the phone with customers, spend time with the customer happiness team, and all of a sudden you see this like shaker bottle replacement, shaker bottle replacement, what's going on? And you realize it's leaking, and it's not one, it's thousands, and yet no one was making it a fire that it actually was. And so that's a tiny example of just the little cracks that start to happen when you're growing that fast without shoring up the capabilities and just trying to meet demand. So those are the little signals that you need to breathe a little before you stack on complexity, even if it's not a lot of complexity, any complexity to a company.

Yeah. One example is we had the opportunity to go into direct-to-national retail much sooner than we did. And the fly-on-the-wall experience would be seeing us say, okay, we know we want to reach those customers. We're not sure how many people would prefer to buy from retail, which will often have a different pack architecture. So it might be a lower piece count, it might be more expensive per ounce. You have a lot more layers of cost and process in a retail relationship than in a direct relationship with the customer. So what does that mean for the pricing structure and then even portion size? We thought, okay, maybe a retailer might want a lower unit count at that point just so it's less sticker shock, lower ring, drive trial. The problem is this is a product that is engineered for daily foundational use. It's not a cup of coffee where you drink it and you go, 'Oh, I'm setting my world on fire.' It is like eating healthy, like working out. The more consistently you do it, the more the benefits. And all of the peer-reviewed research on our ingredients and on our product are done from consistent daily use. So if you just sell a single stick pack in a grab-and-go in a retailer, is that customer ever going to get that experience? So those are the conversations we have around what is best for someone to truly appreciate what this is and have the incentives to really have a consistent health habit of this daily health drink in a way that they will feel the benefits that the research reflects and says many should have and feel. And so those are the debates. Should we do that? It could bring exposure, it could give us scale, it could bring revenue. But it could also give customers an unimpressive experience of just having one vitamin one day, one multivitamin, one probiotic dose, and then thinking, ah, it didn't do anything for me. So it may seem silly, but those are serious considerations when you are committed, when you have the mission we do, which is empower health ownership, have daily foundational nutrition products that support nutrients and gut health, and they're engineered to complement food as a safe, effective daily product. And so just one-offing it has limited value. What it does, what it would offer is taste sampling, right? People can at least say, 'Well, what does it taste like?' Like, I know I can't just drink it once and, you know, grow a crown. Um, but I'm afraid of the taste, or it's green, or I'm not sure. So we knew there were opportunities to get in front of customers separate of community and activations, but in retail. And those were the debates. What is the customer experience? What is the customer value? And how does that reflect on what the customers who know AG1 already know, love, and appreciate? Then we had to build the capability of, well, we're DTC. We can communicate on Instagram and X and LinkedIn and through partners, and so people come to our site fairly warm, fairly informed. When you're on a shelf, that package has to do a very different job for first-time customers, first-time interaction. And our package is beautiful, but it was built for DTC. So packaging design, what we need to communicate, how we communicate that — we just recognized that was a body of work we had not nailed, and so we decided not to go in retail two years prior to when we actually did. The other piece was recognizing we were in the middle of upgrading our formula. We had been growing so fast that our regular cadence of upgrading the formula every two to four years had slowed down because we were just trying to keep up with demand for that version of the formula at that point, and it was long overdue. And so we were right in the middle of the human trials on the new formula, proving out covering nutrient gaps, proving out the gut health benefits. And so we didn't want to put something in retail before we knew what that next generation was going to look like, what it was going to be, how it was going to be tolerated. We do massive diary studies with customers whenever we upgrade the formula just to see how they tolerate it, how does it change, even if it's got a minimal shift in its profile. And so it's a long, expensive, sometimes painful process because you just want to get it out and talk about it and brag about it and have people know that you continue this commitment to continuous improvement. But we held up retail for it. We held up launching the product for that level of research. So those are the real operating activities and trade-offs. We're trading off revenue sooner. We're trading off channel expansion sooner for quality of experience and protecting what the brand stands for in the marketplace. We had an opportunity to launch AGZ much sooner into retail, but one of the ingredients we wanted to put in it that the research supports — it's incredible — we could not get NSF for Sport certified. And one of our commitments is our hero products will be NSF for Sport certified. Not made in an NSF facility. NSF-certified every batch, third-party tested. That's a super high bar of safety and quality, and so it delayed our launch because we had to reformulate because this one ingredient would not be certified for sport. And so those are the type of trade-offs we make, which is often time and money, in order to deliver something that is consistent with our brand quality and promise. It is painful sometimes.

Yeah. All of this research that we do, there's two reasons to do it, right? One reason to do it is truly to drive how you formulate. What ingredients are researched to do what thing? And when you put them together, what does the research say they also do? And that drives formulation. The other reason to invest in research and clinical trials and a scientific advisory board and partnerships with UC Davis, partnerships with UPenn — you know, the list is very long for us. The other reason to do that is what you described, which is the growing challenge and confusion in the category, which is a reflection of how fast the demand is growing. Right? You get a lot of people wanting to claim territory — either territory of expertise, share of wallet — and that rush into the category creates all kinds of confusion. Add to it just the general lack of trust in institutions, the prevalence of misinformation, and it being very hard to know what to believe. That is the second reason we make these investments. And it was well over 10 million over the last few years, and we committed another 20 million into research over just the next three years into human trials, nutrition and gut health research, sleep research. And I'm not counting like headcount in that, right? This is like money put to work for the things, and we're nowhere near close to where we're going to be in a few years. I think if I look at any multi-ingredient supplement out there, I don't know any that have more completed human trials, double-blind, randomized, placebo-controlled human trials that prove benefit than we do. We have five on a single product. On a single product, we have five. That took years and millions, and we couldn't talk about it while it was happening. And then when it's done, you have to wait for it to be analyzed by a third party. One of our human trials was triple-blind, not double-blind. So even the analysts don't know, because we know there's such skepticism. So you take those extra layers. You're placebo-controlling it. Why? Because people think it's placebo. You're randomizing it. Why? Because people think it's biased. You're triple-blinding it. Why? Because people say, 'Well, the analyst knew it was AG1.' And that just adds cost. Then the way to keep raising the bar, which we have done, is growing numbers of participants in human trials. The way human trials work is you need a certain number based on what you are looking for. And you can't look for everything in a human trial. You're scoping a specific thing. We're looking for the increase in these beneficial bacteria in the gut. We are looking for these vitamins and blood serum levels. We take your blood before you drink AG1. We take it when you drink AG1. We take it after. You can't run the world when you're doing a proper randomized, placebo-controlled human trial. Right? The more you're looking for, the larger the number has to be and the more complex the infrastructure is. And while we are leading the industry in human trials in the supplement space, we're not pharma. So it's a different bar and it's a different risk profile of those products as well. So for us, it's how can we get larger studies even if it's not the number required for statistical significance, because often that number is quite low. You can have 30 people, 40 people, and get to an outcome that is statistically significant by scientific standards. But if you're an average customer, it's easy to go, 30 people, that's not a lot of people. So then we go, okay, even though you only need 30 for a statistically relevant outcome for a human clinical trial, we are going to do 100. Why 100 is better than 30? It gives us more diversity of population. It also allows us to ensure we have more types of people in our studies, and so we'll keep doing that. So we committed another 20 million, launched a partnership with UC Davis, launched a partnership with their institute and their tool, PIPA, an AI tool to understand all of the mapping of nutraceuticals and biology and opportunity.

And that's not going to go on a billboard, right? Like that's not going to get anyone excited in the world of marketing in the near term. That's money going in today for research, for understanding, for formulation, and yes, in some cases for proof that eventually, 18 to 24 months after studies are concluded and analyzed and making their way through conferences and abstracts are produced, then we can talk about it. And in some cases, I'm already on to the next iteration of the formula, which means I'm going to have to do completely new human trials anyway. That's why a lot of companies don't do it. This is why they don't do it. But we must, right? We're one of the largest in the space. As you said, there's a ton of criticism, and the only answer for that is a growing body of proof. Now, not everyone wants to read the long version of the proof, but that is the answer — is the real, like, heads-down scientific rigor. Use the confusion in the space to help us continually be better, push ourselves for more. We're okay to be the tip of the spear, right? It means you're the leader, but we hold ourselves to an incredibly high standard to keep raising the bar. And in the industry, as you said, the bar is pretty low. But if anyone takes the time to look at our site, look at our science page, they'll see we actually have more research and clinical rigor than almost any other multi-ingredient supplement out there. But it doesn't mean it's enough, right? We'll just keep going. The hard part for me as a leader is it's a lot of money, right? Tens of millions I've added up just on the research, commitments, trials. And you don't get as much credit for it as you would hope. And you could do a lot with that money. You could do a Super Bowl commercial with that money. You could go hire a gazillion people with that money. But we choose to put it there. I could market more with that money in any way. And we choose to put it there because it is required, because it's where I believe the consumer, including busy moms like me who are still confused by the space because I'm being marketed to so much, it is what is required to maintain a leadership position of a premium product in a growing category. And it's also required because we don't make a lot of things, but the few things we make combine many things people are already taking. And instead of just relying on the research of those individual inputs, we believe when you put multiple things together, it is responsible to add layers of research on consuming the whole thing and keep going, right? We'll just keep going.