The BottleKeeper Boom and Beyond: The Birth of Pentane with Adam Callinan (Ep.111)

This allows for guardrails to be put in place so that a company and their paid media agency, whether they're doing it internally or externally, can see exactly where the return on ad spend needs to be, at what rate of revenue driven by what amount of ad spend in order to operate in a way that's healthy for the business.

Hello and welcome to another episode of what's Working in E Commerce. I'm your host, Egan Heath. I'm a partner at Asymmetric Marketing and we help e commerce businesses with all kinds of things from websites to on site SEO to paid search and paid social and email marketing. Today I'm speaking with a successful e commerce founder and seller of his e commerce business. And now he's in the SaaS space. So I'm really excited to be speaking with Adam Callanen. Adam is the founder at Pentane. Welcome, Adam.

Thank you, Egan, for having me. Excited to be here.

Yeah. Right on. Tell us a bit about your journey with Bob, Bottle Keeper and the other brands of what you were doing before Pentane.

Yeah, Bottle Keeper was a, quite frankly, was a side project gone mad. I had been out of college, I went into an orthopedic device company and we spun up a technology thing that we sold in 2008. And I was trying to figure out. I'm sorry, we started that in 2008, sold it in 2013. 2013 comes along. My cousin Matt is sitting on the beach drinking a beer out of a red party cup. And he is a maniac in the best possible way in that he only wants to drink a Corona in a bot specific temperature. And that's just his jam. So he has this idea to be looking around, sees people using water bottles and has this idea to figure out how to get a beer bottle inside of one of those water bottles. And that quite literally, like buy bottle off shelf, vice grip it to a table, hacksaw it in half, jam it with neoprene, like koozie material. And he invented. Yeah, there you go. That's our website. Iteration number 59, way back when. Those are my hands.

Awesome. Yeah. Okay.

Hold office in El Segundo. Yeah, that was fun.

Oh, cool.

So, yeah, that is large iterations beyond the initial product. That video was probably taken in 2019, maybe 20. And then can keeper came out, I think in 19. And pine keeper and a bunch of different ended up making cooler products. Once we got acquired that whole product coming out of the. The very heavy business that had 80 people in multiple states in the medical world, I agreed with Matt, to come on this journey to do this thing that I thought was interesting, but I didn't. I wasn't overly convinced that it was. Had the capacity to be reasonably successful. But we let, we put a lot of structure in place to let data answer those questions. And that's. I'm a very scientifically minded person. My degree in at University of Arizona was molecular and cellular biology. So I'm very well versed in leveraging the scientific method, math, and all these things that are very data oriented. We let data answer the question and used crowdfunding and did a number of different things to prove that we could get people to swipe their credit cards that weren't our moms and dads and aunts and uncles, which is really important when you're early on trying to prove out a concept that you're not getting the yes, that's awesome. Exclusively from people that like you and will tell you it's awesome even if it's not. And then we suddenly had this company and we fumbled around with it. I had really strict guardrails that I didn't want to hire a. A person. I wanted to build a scalable business using technology and automation that would allow us to scale while my wife and I traveled out of the country. And by putting those guardrails in place early on, it forced us to solve problems in a very creative, technology focused way. And that worked, really. The easy, short sound bite is. It worked really well. The reality is it took months and years and was really difficult. But the outcome was that in the first three years, we went from 0 to 8 million in revenue with no employees, no investors, no debt. It was super profitable. And we built this scalable platform and then went from there into tens of millions and ended up on Shark Tank and all sorts of fun stuff.

Amazing. What a great story, Adam. Thank you for sharing that. And what speed too. And getting to that 8 million and beyond, it sounds like even 10 million or more. Tell us a bit about the marketing mix of how were people finding this. It sounds like it may have been a product people didn't even know that they needed or know how to search for for it. So I'm curious about how you got people finding out about it.

Yeah, it. There was a. When you look back, it's almost impossible to look at timing as a function of luck while it's happening. It's generally a thing that you look back at. Ooh, that happened because of this. And there were some lucky things that happened with us that will continue to happen today. With companies around the world. We were at Facebook. This is the summer of 2014. The summer of 2014 is when Facebook launched their video ad platform, or at least they expanded it to the tiny companies around the world. And that product, as you just saw in that video, it just looks like a water bottle. So our brains are trained to think when you look at that product that it is a water bottle. So I was completely unsuccessful with all testing and paid media. And I frankly didn't really know what I was doing. I was learning as I went. And that was the. One of the realities of trying to build a business with no employees is that I had to learn how to do every single role. I took all the pictures, I built the website, I did all the copy, I made the videos, I did all the paid media. I created the campaigns and the structures and everything. So I had to learn how to do that iteratively. And in that summer, Facebook launched that video ad platform and it changed overnight. I mean, because we got to finally, I went out on a lifeguard tower close to my house in Manhattan beach and shot that video on that same, exact same style video that we just saw. It was just on a lifeguard like railing. Hands come in. Actually, the first one was in the sand. Hands come in. You see the product in action. And all I did in imovie was just overlaid. Yep, that just happened and it exploded. Like in Facebook, our revenue went from $2,000 a month to 10 to 50 to 100 to selling out a product, you know, eight times over the course of the next two years. We almost couldn't spend paid media fast enough because the level of returns that we were getting at that in those early versions of Facebook, it sounds like.

There'S really a lesser. Yeah, it's really showing the bottle itself of this is. You need to see the visual. It's not just a water bottle. This is going to keep your beer cold. And it sounds like that was. Your main channel was paid social kind of in those early days and really had. I assume it had positive roas and you just kept feeding it and it kept working.

Yeah, it got the roas at the beginning was insane. We were. We were. It was like $CPMs. And it was so cheap to advertise in that early on and it was returning well. So we just reinvested everything, didn't pay ourselves a nickel for the first two years of the business and reinvested everything in inventory and a little bit of infrastructure and paid media. But as you scale and as that world got More busy. The supply and demand economics of that changed dramatically over the subsequent five, six years. So even at the end of the company, when we were acquired 2021, we were still super dependent on paid social, namely Facebook and Instagram as our main revenue drivers.

Yeah. And were you guys after the iOS 14 update or did we able to sell by then?

We were right after it. So it didn't dramatically impact us because by, by that point we had a pretty decent retail wholesale business that really helped. Our business from a direct to consumer standpoint was extremely cyclical. We would hemorrhage money in Q1, we would crush Q2 because of father's Day and getting into summer, we'd lose money in Q3 and we would make 50, 60% of our revenue the entire year in the last six weeks of Q4. So we had these huge ups and down swings. And for us, when we decided to expand into retail in 2018 with the buying cycles and the way that worked helped to flatten that out a little bit. And then obviously Covid came and destroyed all that for some period of time.

But.

But we were always very dependent on paid media to drive revenue.

Yeah. Amazing how large you're able to grow it there. What I'm getting out of too is Facebook had had a new placement or a new ad type and you really, that placement really helped you. It's like meta may not be the opportunity now, but maybe it's TikTok while we still have it. Maybe it's something else of something about a new platform that the ad inventory isn't bid up yet that we can really scale to the moon. Is that how you think about it?

Absolutely. And even as we look, if I look back over the life cycle of Facebook, yes, the first massive inflection point was the capacity to advertise videos. But there were multiple. Maybe they weren't quite as impactful, but multiple inflection points like that that were. As Facebook continued to put out new products like offer ads. When they first launched offer ads for abandoned cart, it crushed. They did unbelievably well for probably a good year. So it's every single time they got into launching some new version of that, they would prioritize how those things got dealt with on the site and you would, as an advertiser would benefit from those things. So we would try everything that any of the systems would put out, at least for some period of time and sometimes it would work and obviously a lot of times it wouldn't.

But yeah. Was there a way that you kept in touch or kept your ear to the ground? Ground on what was the latest and greatest? How did you know to try the new things? And like you said, you were learning as you went. How. How did you find best practices and find what worked?

That's a good question. And I think in reality, we got to enough scale pretty quickly that we ended up, in probably 2017, getting an internal Facebook account manager that we would have weekly meetings with that had. Was certainly very in the know on what they were doing and what they were launching. And then because we got. We were spending millions dollars a year on Facebook alone as an ad channel. So we were fortunate to have gotten to the scale that we were getting enough help and internal attention to. To help answer some of those questions. But the other is that it got to the point where. And this started to happen in 2016, where, you know, we had an $8 million business that I was running. My partner, Matt, was running all of our financial stuff and our manufacturing. I was running every single other position in the company, including customer service, where at the end of that year, the wheels on the wagon were wobbling pretty dramatically. So that was the. I literally took a dry erase board and drew out all the things that I was doing and started circling things that I should not be doing. And so we started hiring for those roles. So we hired our first person who was the director of customer service in January of 2017. And the next person that we hired after that was a true paid media master that had come from spending $100 million a year at some massive company and really understood the infrastructure. So he. He had the connections to probably be able to get a lot of that information as it came up Again, we tested everything and we did it with data.

That's amazing. What revenue did you say you were at when you brought the first employee on?

We did eight and a half million in 2016. The first. So the first employee was. Yeah. Was in January of 2017.

Yeah. Pretty amazing how large you guys were as a run that yourself. That's unbelievable. Anything you would do differently or anything you think is different now, if people are doing this in 2024 or beyond.

There are two big things that I would. Looking back at how we operated that business do differently. The first revolves around product. It took us far too long to put out our second product. And the reason for that is because, frankly, it was in our othis, our ethos to be extremely lean and in some cases, cheap. And the result of that is we did not invest in the right engineering infrastructure to get Our second product. Correct. So we went the inexpensive route with this, with the one man engineer shop who didn't have the expertise to do something incredible. Obviously we only knew this in hindsight. We didn't know when it was happening. The result of which is we spent a year creating a product that we finally got the product done and we looked at each other, Matt and I, and said, we can't release this product. It's not remotely good enough. We can't release this product. So we restarted, went back, spent the money with a real engineering firm to create a real product, which is what ultimately became Can Keeper, which was an amazing product. So that was one. It took us far too long to get that second product out, which was really challenging for the business as you go through like a product S curve, which is a normal thing that products go through. The second. As I mentioned earlier, we were really dependent on paid media even through the end of the business. And so what I'm doing differently with Pentane, which is not going to be built on paid media, is focusing a lot more on organic traffic and content, which is. That is not unique to what we're doing at Pentane. That is appears to be the way the market is moving as a whole as it just continues to get more and more difficult to get and attain predictable returns throughout the world of paid media. I think there's a really important, massive place for paid media. But I do, from my position, I want to go and work on building the foundation of a business that doesn't. That isn't 100% dependent on paid media, which Bottle Keeper very much was.

Yeah, it sounds like you guys worked on that product for a while right out of the gates. Probably invested a lot in that. You know how much money you guys had to put in up front. It sounds like it was a couple year wait really to even be able to pay yourselves. Any idea how much you put in in terms of bootstrap capital there at.

The very beginning of the company? Yeah, yeah, we each put in $10,000.

Okay. In the scheme of things, not bad when you think of what that ended up being. But it was that combination of lots of sweat equity, lots of fig and that money risked up front. So. What a great story. Thank you for sharing that, Adam.

Yeah, no, that's great. The reality is we understood how the, how to get the product profitable like we were profitable in year one. The business was built in a way that allowed for that to happen. So it didn't have big capital requirements, at least outside capital requirements.

Yeah, that's excellent. So it sounds like you guys are focusing on the kind of the revenue optimization, the customer acquisition side of things. Talk to us about Pente and just how you're applying what you learn there and what you guys do.

Yeah. So if we look back at Bottle Keeper, part of one of the big ways that we were able to scale like that so efficiently again into tens of millions in revenue and an acquisition is we really understood how to pull the levers inside the business to impact profitability. And we built really complicated spreadsheets that grew and got insane over the course. We ran the. For the entirety of the business, we ran on these very complex spreadsheets. But the outputs from those spreadsheets were that they allowed us to understand what was happening in the business in real time with respect to some really important metrics that dictate how the company is or is not profitable. So it was the clarity that we had that really drove a lot of that outcome. And after that acquisition, I agreed to stay on through the end of the year to oversee the transition into our new parent company, which was a great experience overall. And spent part, the early part of 2022 intentionally being bored, which is very difficult, but really important in hindsight. And started doing a little bit of consulting to get my brain back functioning again with companies that we had invested in. And quickly realized that the first two companies that I worked with, one was very profitable already. It was a $20 million year business, but they still, they had no idea how they actually made money. And I don't mean like they. They knew they had expenses and they knew they had revenue. And revenue minus expenses equals your net profit. That is true. But if they had no idea how Paid Media could impact the outcome to drive more contribution margin, which would directly contribute to net profit. Like they didn't understand that math or those levers at all. So I built a system inside of their company based on what I learned at Bottle Keeper and it completely changed that outcome. The next cycle they increased their net profit by 50%. It was a beautiful thing. And then I went and got paid as an advisor to help turn around a $2 million year struggling E commerce business. It was a great product, but it was the same kind of thing. Like they didn't really understand how the business, financially speaking, needed to operate to make money. So I did the same thing, rebuilt some systems inside their company and it completely changed the business. They went from losing $100,000 the first month to losing 10,000 the second month and making 40,000 the third month. And now they're profitable and they're up 240% year over year. Crushing. But it's just because they were able to get the information and the direction on how to pull levers in the business to change the outcome. So that was the long version of. That was the aha. There's something here that's not just spreadsheets. And so we started development on Pentane, which is the software application that provides those answers, in January of last year and launched earlier this year.

I love that path and I'm really. You've got my ears perked up here, Adam, because I love how you went in then it sounds like you're doing some consulting, saw the need. You knew that there's a way to solve this with very intense spreadsheets. That's often, I think, a way for people to say, hey, maybe this could be a SaaS app. Maybe we could do this with software instead and automate some of this. Just love that whole story. That's amazing. And the results are just wow. So I think people will be very interested in that. I wonder if you could talk about what are those metrics you talked a bit about? Contribution margin. What are those numbers that you need to be watching to be able to drive profit or turn around a company like that?

There are. So from my standpoint, and the way that we built Pentain, is that there are two sides to that are important to the system. One side that is really difficult to get to. And again, to be clear, I built this specifically to help early stage businesses. So yes, the math is the same whether It's a billion dollar a year company or $100,000 a year company. But there are plenty of systems that do all sorts of complex things that require teams of people to operate for big companies. So this is for small companies. I'll classify that as like sub 20 million in revenue. But all the way from startup with a projected P and L, we need to be able to create guardrails for marketing that define how we spend ad dollars to create positive outcomes for the company. And actually, if it's okay, I'll share a screen with you that will show you exactly what I am referring to. This is one of the two parts to Pentane. This is a profitability tool and we have a number of additional iterations of this tool coming out. But this is step one. So this system takes in expense, revenue and advertising data from a company and it applies a bunch of math to answer questions. Now, in this case, let's assume this company is losing money. They're trying to just get to break even. So we set their margin at zero. What this tells us is that in a single day, this business needs to generate $3,574 per day to get to break even. And that's if they're spending $0 on advertising. So this just sets the basis for how much revenue then business needs to drive based on the expenses in the business, their fixed expenses, their variable expenses, things like cost of goods, shipping and fulfillment, credit card fees, et cetera. But we know that most consumer businesses are not spending $0 on advertising. What happens in the business as we start to spend ad dollars? This shows, based on this company as we know it today, that as they spend ad dollars and as the revenue starts to respond, it increases. And these are just 10% increases. We're not saying that you need to 27x the company to create some positive outcome. We see that as the revenue increases, the return on ad spend decreases quite dramatically. So the relationship between return on ad spend and revenue is inversely correlated. So at $3,900 per day, they need to be at a 21x return on ad spend. We all know that's pretty unrealistic. But if as we start spending ad dollars and we start driving more revenue, we get down into this realistic return on ad spend range pretty quickly. So this allows for guardrails to be put in place so that a company and their paid media agency, whether they're doing it internally or externally, can see exactly where the return on ad spend needs to be, at what rate of revenue driven by what amount of ad spend in order to accomplish, to operate in a way that's healthy for the business. And obviously we can change their goal depending on what they're working to accomplish. We can change the expense structure in the business. If they need to go and hire a new person and that person's going to cost $10,000, what do they need to do in changing the business to pay for that? That is a really big, important piece is, historically speaking, most early stage businesses that are going to start spending advertising dollars, they completely make up their budgets and it's okay, like they don't know how to do it any other way. So we create a budget that we're comfortable with, and oftentimes that has nothing to do with the mathematical reality of what the business needs in order to be healthy. So this just applies the necessary math to that specific business to answer the question of how much do we need to spend and at what return on ad spend do we need to achieve in order to get to breakeven or in order to generate a 5% net margin? Does that make sense?

Gotcha. Yeah, that's great. I love it. So you could set a target. Here's the net profit we want to go for, here's how we get there, and this is how much revenue we need to be hitting. And this is basically what we need to be seeing in terms of return on our advertising. Is that right?

Exactly, yeah. And then knowing that math, if we can increase the revenue a little bit beyond that, our return on ad spend requirement comes down. There are situations where you can, generally at real scale, you can get the roas down to two and a half and it be profitable for the business. So it's just. But you have to be spending real advertising dollars in order to accomplish that.

I love it. And if some of these numbers aren't hitting, say we're not hitting that roas target or the revenue's not where it needs to be. I think the question is then one, is it, do you dial back the spend because it's not profitable yet? Do we need to find a different place where the sticks cross? Based on that data that you guys pull out with Pentaner that used to do with the Google sheet, what are the actions you take based on these KPIs?

Yeah, I'd say there are two big things that we consistently see. The number one item that absolutely destroys an early stage company's capacity to be profitable is fixed expenses. We see it happens all the time. I've been guilty of it. I'm not immune to this. We start having generating some revenue and we start having some success relative for startup terms like that's great, you're generating revenue, the revenue's going up into the right, it's going in the right direction and we need to hire some people and we need to open an office and we're going to open an office that we're going to grow into and we're going to hire a team that we're going to grow into. And then suddenly this thing that was generating $1,000 a day or $10,000 a day or whatever that number is, has so much weight on the business that you can't possibly generate enough revenue at your current ad spend to pay for those expenses. The number one thing, and again, like there's a second part to the pentane system that probably more directly answers these questions is getting control of the fixed expenses and understanding how much revenue and that's the point of that profitability, too. This tells you how much revenue you have to drive at minimum to create enough contribution margin dollars to pay for your fixed expenses. Like the math. The simple math in profitability is your net profit is equal to your contribution margin minus your fixed expenses, and your contribution margin is your revenue minus your variable expenses, which includes advertising. So we can either, in order to positively impact our net profit, we can either increase contribution margin, which we can do by driving more revenue. It's more difficult. Or we can decrease our fixed expenses. Ideally, we're constantly doing both. But fixed expenses is the one area of a business that we, as the operators have complete control over. It is the only thing that we. We can literally tweak up and down as we feel necessary. The other ones have a lot more we can do, but there, there's more complexity to, to how those things work.

Yeah, I love it. Thank you for talking through that, Adam. This is very helpful. If people are watching this and they feel like they could use some of these insights, what's a good next step for them if they, if they were to try to do this on their own with a Google sheet? Maybe say a little bit about that and then talk also about who is Pentane a good fit for?

Yeah, the spreadsheet version, the early spreadsheet versions of this, there, there have to be multiple parts to it. And so at the base level, you need to be able to look at your P and L or sit down with a CFO for hire or a really good accountant and break out the different expense types inside your P and L. So you have, you create a fixed expense basis and you have a variable expense basis. And that variable expense becomes a margin because it's effectively for every dollar that you earn.