169: Colin McIntosh — Developing Your Business Model for Your Startup

Are you thinking about how to grow your business with near and offshore staffing? But you're also wanting to make sure that it's reliable, cost effective and really well done? I think docsa talent is the way to go. Here's why. They don't just fill your jobs. They bring integrity, top talent, and a people first approach that's hard to find. I've known the people at Doxa talent for over 20 years now and I say that you can count on them. I have. Talk to Docs of Talent and you won't be disappointed. Go to docsatant.com Bill G. Again, that's doxataalent.com Bill G. One more time. Doxatalent.com Bill G. Check it out today. Well, I think if you're like many of our listeners, you've spent as much time, maybe much more time working on your product or service and that concept than working on your business model. We're talking today with the founder and CEO of an earlier stage company, Sheets Giggles, Colin McIntosh, a terrific speaker, but he is sharing with us all of the work that he has done on his business model. In whatever stage or size you're at right now. I think you'll hear some things for yourself. So listen in. Hello and welcome again to the Scaling Up Business podcast. I'm your host and scaling coach, Bill Gallagher. On the show with me today is Colin McIntosh. Colin is founder and CEO of a company called Sheets and Giggles and we're gonna talk about his story and what he's learned. Cause I think it's really cool and this is an earlier stage company. But he's got some interesting lessons for all of us at every stage, from our very big companies to the earlier stage listeners. So, Colin, welcome to the show.

Thanks for having me, Bill. I'm really happy to be here.

Yeah, I didn't ask where you are today.

I'm actually in Denver, Colorado, where the company is headquartered.

Nice.

In Denver.

But you're not originally from there.

No, no, I'm actually from South Florida and I've actually lived all over. I can give you the full, the full spiel if you like.

Yeah, Give us a little background. Yeah. Talk to us about.

Sure. So basically I was born in South Florida in Fort Lauderdale and then grew up there. Had great family. My mom and dad still together after 36 years. They both entrepreneurs. My mom is the doctor with her own office and then my father's a lawyer with his own law firm. My sister is also a doctor with her own office. So kind of a Family of entrepreneurs. I'm doing something a little different than they are, obviously. And ended up going to Emory University in Atlanta. Went to the Goyjoeta Business School there for my bba. Actually, a couple really good entrepreneurs came out of Emory recently. Mike Dubin, the founder of Dollar Shave Club, was an 04 grad. And then my buddy Will Hockey from 2012 is the founder of Plaid, which I think just got valued at like 2.7 billion in their last round.

Yeah.

And so Plaid is a financial services API company. So basically they allow consumer apps to hook directly into bank account via. When you log in with your bank credentials on a consumer app, that's. That pipeline is Duplad. Yeah, yeah. And so he's a good friend of mine, he founded that company and you know, it's great to see that. And so Emory's got some, some budding entrepreneurship coming out of there, which is great. They're mostly known as a banking and investment school, which is funny because I actually started my career off in Connecticut at the world's largest hedge fund, Bridgewater Associates. And that was an interesting experience. I ended up getting fired there in about five months. And you know, I hope it was.

For something good and you learned to teach.

I was. For just not being very good at my job. And so. And so, you know, Bridgewater is a tough place to work. Really great smart people there, Connecticut, really great city, state. You know, I lived in New Haven. Best pizza in the world. And then from there, from there I actually, funny enough, I became. I've had a weird career. I became a recruiter for the company that hired me at Bridgewater, which was ironic because I ended up recruiting for them and for others. And then I ended up going out to Seattle because I hired myself at a startup client out there. So one of my clients hired me for their biz dev team when I was 24. Moved my whole life to Seattle, got into startups, got into tech software, loved it. And then wound up moving to Denver in 2015 for an opportunity with Techstars with another company that I helped to co found and so did that for about three years and then I started SMG sheets and giggles about almost two years ago now.

So two questions. Are you not dying to get back to some warm.

Yeah, I'll tell you what, the nights in Denver, it's already late August and they're starting to get a little chilly out here and it's pretty terrifying because I feel like summer just got here in June. But yeah, luckily I've still got my folks and family down in South Florida. So I plan some holiday travel down there every year. But yeah, it's funny, I came to Denver for another company and now I've got, you know, full time team of five folks working for me here. Plus, you know, we're growing, we'll be 10 by end of year and then, you know, a bunch of part timers and we've, we've been, become really embedded in the Denver ecosystem. And it's kind of funny, I never, never really saw this coming, but.

Have you learned to ski or board or something?

Yeah, so I'm pretty terrible skier being from South Florida, but I do go out a couple times every year. I'm gonna have to Keystone, Breck, they all, they're all just an hour away. And yeah, I love Colorado. It's, it's, it's definitely not somewhere where I ever thought I'd wind up. But I'm actually about to buy my, my first home out here.

Yeah, there you go. So it's funny how it really is, it really is so many places and I, I once got recruited to another company from a guy that I hired who went on to become a recruiter. And like, like this is sort of perverse, but I fired him. Passion. I'm like, dude.

Yeah, no, I. Some of my former candidates and people that I worked with became my best friends. And it's just, you know, always treating people with kindness and giving first I think is a really important lesson that I've learned over the years. And it always comes back to you in spades.

So let's talk about this company. First of all, why sheets? What got you interested in that? Where did you think about that? I. We all care about it. We all have our preferences. Some people love the flannel, some love. So how'd you get interested in and why you?

Well, so it's my favorite question. And I get, trust me, I get it a lot. I mean, I'm a entrepreneur who started a bedsheets company. There's not a ton of those. And so basically what I did was I did things sort of the opposite of every other founder that I know. I started with building a business model that I felt extremely passionate about that I could be best in the world at. And then I backed my way into a product that fit perfectly into that business model. And what I mean by that is I literally sat down after my last company, you know, where I actually ended up getting. We all got laid off on at 1pm on a Monday. Took about a week off to sleep in and then I sat down and I literally wrote out my perfect business model. I wanted a massive commodities market so I could carve out a profitable niche. I wanted something that was a physical product with a low complexity supply chain so I didn't have to worry about sourcing components all over the world. I wanted something that was largely traditionally physical retail that I could help bring online with a direct to consumer model. And then I also wanted something that was in a very boring, flat space with zero brand differentiation or loyalty. And so I literally wrote these down on like a piece of paper and.

Very, very like strategic problem solved, right, with your business.

And it was. I appreciate that. And it was. There were things that I learned the hard way from my last company, which is a wearable technology company, you know, very difficult supply chain and product market fit and a bunch of other things that were in our distribution strategy that I learned from. And so basically I looked, and this is totally honest, I looked at all the domains that I owned. I own a lot of dot coms and I own sheetsgiggles.com because I thought it was a funny name for bed sheets company. And I thought to myself, does betting fit my criteria? And it fit it almost perfectly. It's a $12 billion US market alone, growing 10% year over year. Low complexity supply chain. You can get vertically integrated suppliers. When you ask people where they buy betting, everybody says Target, Amazon, Macy's, which are retail brands. It's a highly physical retail category. And then the space is so, so boring with zero brand differentiation. And so it was perfect. It couldn't have been a better bullseye. And so there were other products that I think fit into this category, into this model. And then I'm a big sustainability guy. I always wanted to start a sustainability company. Climate change is a hot button issue of mine. And so I realized that I could differentiate meaningfully on the eucalyptus fiber, which is highly sustainable and also softer than cotton, more breathable, shameless product plug. It's fantastic. And then I was off to the races when I realized that I really had a meaningfully differentiated product on my hands that I thought would resonate with folks. And so, yeah, that was kind of the genesis of it.

And had you ever tried or slept on the cliff?

Yeah, there was sampling involved and initially the idea revolved around bamboo. But I knew that I always wanted to do a crowdfunding campaign. I didn't want to raise venture capital right off the bat. And we have raised venture capital since then, once we've proven market traction and product, market fit. But Right off the bat, I knew I wanted to do a crowdfunding campaign to avoid having to go pitch VCs. I mean, I was starting a company based off a pun. I didn't know how excited VCs were going to be about it. And so we. We realized that the eucalyptus material, to a lot of people, you know, we did surveys, kind of sounded like magic, which, you know, frankly, turning wood into super soft breathable sheets is magic. And we did a $284,000 Indiegogo crowdfund in May 2018. That was when we launched the company. And that was the largest crowdfund ever in the betting category. And that's actually my proudest achievement, is convincing thousands of people to wait five months for bed sheets.

Well, I think more and more companies do this, and there's mixed feelings about it. A complex piece of technology. I'll never.

I totally agree with that because I'm.

Like, I don't know if you're going to ever produce that. I know I've funded a couple and I'm like, when am I going to get that damn keyboard? Like, there's a. There's. But in a category like that, also, there can be some great successes. And I know, like, former marketing director at my last company went off on her own and launched a new business, and she crowdfunded the whole thing and then created some great stunts. And she's got a terrific company today launching that way. So it can be one of a great mix of things. I think it's really cool. It's funny that, like, not two days ago, a group of my friends were having this online discussion about sheets, and somebody shopping for sheets and asking people for recommendations. And they went like I did first. The first recommendations were like, hotel drips, hotel brands. So we sleep in a hotel and we're like, oh, my God, I need sheets, and I need more like these at home. And I've actually done that. Although the way the hotels launder them and press the sheets to produces a.

Difference that I couldn't achieve at home.

With the same brand. So there are these hotel brands that people like, and then a lot of people chiming in about the bamboo, not so much anymore. And especially maybe this time of year, not a lot of discussion about the flannel or the satin, but hotel brands. And bamboo was the core of the discussion. And I'd never even heard of eucalyptus sheets till we booked you to. To talk about your business experience on the show.

Well, bamboo is a very known category, and it's actually, it's interesting. So it's. The bamboo is the first generation of what's called cellulosic rayon. So rayon from cellulose, from wood. And so bamboo is great and people love it. It's soft, it's breathable. It's, you know, a great product. I've slept on it. The trick is that you can't reuse the batch of solvents that's used to break down the bamboo into a pulp, so they have to dump them in each pulp batch. And when you're talking about mostly Chinese manufacturers, you're talking about a lot of wastewater going into waterways. And so that's the biggest sustainability issue with bamboo. And then also because the first generation of this process, it's not as durable as the second and third generation. The second generation is modal, which is usually made from beechwood and spruce and pine. Then the third generation is called lyocell, which is the eucalyptus fiber. And that's what we make. And so that's the latest and greatest. It reuses 99.6% of the chemicals in every single batch of solvents. When we, you know, are turning the wood into a pulp, it's considered the most sustainable fabric production in the world. And, you know, I always tell people, if you love bamboo, you're going to love eucalyptus more because it has a very similar drape and feel and coolness, but it's going to be more durable and more sustainable.

Mm, interesting. Well, I'll have to. Have to try a set of, well.

You know, a guy. So, you know, again, I can hook you up with a. Maybe a. Maybe a 5% discount credit. I can hook you up.

Yeah. And so we'll come back to that. I'm sure you'll have a bunch of listeners now going, oh, it's all about. So let's talk about the evolution of this business model and some of the stuff. So talk to us a little bit about the launch of your business and how it evolved. We've got now, and let's talk about some of the friends. Companies as well. But first, let's dive into your story a little bit more. You got this business idea and take us through that.

Well, so you have the idea, right? And I think that a lot of your listeners are folks that at one point had an idea and now have a business that they're running. And I think that the hardest thing that I see a lot of founders do and spin themselves up around is people get really focused and really obsessed with a particular problem or solution or product. And a lot of Times, people will spend years of their lives building this thing, this product, and they'll perfect it. And I think that people do that because in that product development stage, no one can tell you that your baby's ugly. No one can tell you, no, you're not selling it. You're just, you're, you're full of dreams and hopes and, and you can see the vision. And then I, I see people all the time in Colorado. They, they spend 50 grand over five years building something, patenting something, or, or more, more money than that. I'm talking out of their own pocket. Sometimes people raise money and spend millions of dollars building something and they launch it and the market says, no, thanks, or, or sometimes more insidiously, the market will say, yes, we like this, but we want to pay a price that's too low for you to actually make a profitable business out of it. And that's really difficult because I think a lot of people will waste years of their life and a lot of money when they could have figured things out very, very quickly. So what we did was, and you have to be very dispassionate about this, I think, which is also really hard for people. I basically said, look, I'm going to build a brand, build a business model that I think is very powerful, do principal photography, write really good copy, build a Shopify website, spin it up, get a few landing pages set up, and then run some Facebook ad variants to people that I assume will be in my customer demographic. And I think that that's the process that really everyone should do when they're launching a company, is test the market reception to it. And the worst case scenario is that you burn maybe $1,000 or $2,000 getting photography, a website up, running maybe $1,000 worth of Facebook ads to a landing page where you're capturing emails for people who are interested and what you're looking for. There is a very data driven way of, of either moving forward or abandoning an idea, and you want to do that quickly so that way you're not spinning yourself up over something that never has any potential. And so I told myself in October 2017, I'm going to know by February if this is actually going to be a viable business. And what I did was I ran about a thousand bucks worth of Facebook ads to landing pages that I had set up with photography and with the copy that I had written, I had engaged with manufacturers and brief conversations at that point to learn as much as I could about the product and what my price points would be. And you Know what we were going to be looking at for the crowdfund. And then I basically said, what's my email capture rate? Because from there you can extrapolate out all of your core metrics. And so we ended up capturing emails that first week. I think we got like 2000 emails from people and we were capturing them at a 46% conversion rate, which is stupid. I mean, nobody that I know of has ever done email capture campaign at that high of a rate. Anything over 10 or 20% is fantastic. And we were doing double that. And so that's when I knew, you know, you can basically see, okay, our cost per lead was $0.89. If our email list converts at, you know, a reasonable number of 3% when we launch the crowdfund and we have 11,000 emails and we spend $10,000 to gather those 11,000 emails at an 89 cent cost per lead, then our cost of acquisition will be X dollars and we'll wind up with this many customers on day one of the crowdfund. So really it was, it was a very data driven path forward and it was also very goal driven because with a crowdfunding campaign a lot of people don't understand how the math works. We were talking about this earlier. You really need to think backwards from your goal. So our goal was $100,000. And you're generally going to want to get about 30, 30% of that within the first 24 to 48 hours. And your first 24 to 48 hours, everybody that you that buys from you basically comes from your email list. And so, you know, if our average customer order value was $100 and we needed 30% of $100,000, we needed $30,000 in the first 24 to 48 hours, which means that we needed 300 customers, which means at a 3% conversion rate on an email list, we needed 10,000 emails, period, if we were going to be successful. And so that's exactly what we did. We put our heads down. We got 11,000 emails in eight weeks ahead of the crowdfund, with a $10,000 marketing budget that I had set aside. And then day one, our list converted at four and a half percent. We got 450 customers and $45,000 and the rest was history.

That's a huge thing. And I think the thing that I mostly get in there is again, more problem solving on the business model. What do we need to make this right? And thinking through that? And it also references another one of our past guests in Scaling Success Stories, a guy who didn't invent his product at all, but invented the business model when an inventor came to him and then deployed a business that sailed through 200 million in revenue with four employees. That's really cool, right? So a lot of contractors, a lot of uses of things like our exponential growth stuff like exponential organization. Salima Smale's book and the show. And that guest is Tim Danley. So for our listeners, you might also go listen to that one. But again, it's like thinking about the business model which after you've done a couple companies and been overly enamored with a particular idea, then you start to think, okay, what are the characteristics I want? How do I do that? What do I put together? Can this product work or not?

That's absolutely. And I think that that's, I think a lot of people over index on building the product of their dreams instead of getting out there and validating the market. I mean, we sold a quarter million dollars worth of product before we had begun production. And that's, you know, that to me is still, I think the number one indicator that we ever brought to the investors that we ended up working with was look at, look at the demand for this, look at the conversion rates, look at the engagement levels. And I think that that's something that a lot of people who are thinking about raising capital can also think about a little bit more is a lot of people go to VCs and they say, hey, I had this great idea, here's my financial model, what I think it looks like, here's my pitch deck, please fund this idea. And that's a, that's a much worse pitch than I have X thousand customers or I have x dozen B2B customers, please give me money to finalize this product that they're interested in so I can go take their cash. And I think that that's a much more powerful pitch in general. And I'm obviously, I'm very clued into like the startup ecosystem out here in Colorado. So I do think I talk about those things in a, in a, that's always where I'm funneling my vision through is from the startup ecosystem. But I think it also applies to anybody raising any type of money.

But for our listeners with more mature companies and scale ups, the same thing can be applied to a new product, new service, launch of a new division or territory. The same kinds of thinking could go into that, the same approach. Share with us the friend who came to you with an idea. They spent some time, time and money developing it before the go to Market.

Share that story a little bit? Yeah, well, there's a dozen of those around me and it really breaks my heart every time I hear this. But I was just on a panel maybe two or three weeks ago and basically somebody came up to me after the panel and they had this product that I thought was really super interesting. And they showed it to me and I said, this is really cool, this is great. And they said, well, you know, I've got the patents, I've got my manufacturing partnership set up, I've got a thousand of these in inventory in my, in my apartment. And you know, I'm trying to raise money to actually go to market with it. And I said, well, how much have you, have you spent on this? And they said, well, I've spent about $60,000 over the last three years getting this to this point. And I just, you know, I kind of, it was one of those moments where I didn't want to visibly show them how upsetting that was to hear. But I did a crowdfund for my idea on a $10,000 budget and turned that into 300 grand of capital to then go to market with and then raise money based on that traction. I think that that's the really sad part for me is this person was an engineer and I see that all the time with my engineer friends, no offense to any engineers list. Like it's, it's just that I think that there's, you know, it's pretty cliche, but there's two types of people. There's sales guys and then there's product guys and women and people. And I think that, you know, a lot of folks that are product people will do what this woman did, which is spend a long time and a lot of money where she could have spent that 60 grand on making so much money for this idea because it's a great idea. But now she's out of capital and she's out of cash and she's got bills to pay. And even if she does end up taking a deal, it's probably going to be a bad deal on bad terms. And it's just one of those heartbreaking things that you hate to see. I got somebody else very similar story. A husband wife combo that I'm mentoring a little bit on their go to market strategy. They have a plastic based product that they have spent I think close to $100,000 on in the last seven years building and getting patented and then getting inventory state thousands of units of inventory. And they don't have a distribution channel. They don't have a dish, they don't have any viable go to market plan. And they're selling direct to consumer on their website. But it's a $10 product. And I'm grilling them on, you know, you guys have a $10 product, what's your shipping cost, your freight cost, your duties, your cogs, your marketing spend, your return rate, like all these variable cost structures that they haven't, they haven't thought of, they're losing money every unit they sell on their dot com. And I'm trying to get them to think about more like a retail centric distribution strategy, but that's a long sales cycle and something that they should have been doing, you know, the last year, trying to get into, into some stores to test market adoption and sell through per door in order to go pitch a bigger partner on a wider rollout. And so I think that this also plays into, you know, going from zero to a product or zero to your first sale is I think a very difficult thing. And people ask me all the time, you know, what's the hardest part about starting a business? I think a lot of your listeners probably get that question a lot too, right? What's the hardest part about starting a business? The answer is it's all freaking hard. And after you actually have something in your hand then, and this is I think, you know, relevant maybe to some of your listeners, scaling from that first sale to your next thousand to your next ten thousand to your next hundred thousand is they're all extremely challenging stages. And I think distribution strategy is probably the thing that most people really fall flat on because they haven't given it enough thought from a unit economics level.

Yeah, that distribution strategy is one of the key things that, well, we're going to sell stores or whatever. Well, that's what challenging, right?

Does your margin support that? Like, does your, you know what? And then if you do get a PO from a retailer, like what are the net net terms? Are they net 60? Like what if it doesn't sell in the first 50 days? Are they going to send it back to you? Can you use that cash? Do you have to keep it in escrow? You know, what's the return policy? And then there's all sorts of these little insidious terms. And I've worked in my last company that I've alluded to, I've worked with, with pretty much every major retailer in the US and we've, and we rolled out nationwide and you know, I, I know these, some of these contracts can be really, really, I don't want to say insidious, but I mean it's there. Some of the terms are really. Yeah. Onerous. There we go.

Yeah.

Some of these terms that they, that these, they have good lawyers at these retailers and you know you can, A lot of startups that go big into retail don't really appreciate that if they don't have the experience behind it. And so there's so many different failure points.

My last business, we did a lot of business through retail partners, hundreds and hundreds of doors across the country and some around the world. And I did find again and again that that distribution point, that working through the retailer was a very challenging thing. There's all of the interface stuff, using their distribution centers and packaging and labeling them and the EDI interfaces and all of those kinds of things. And then the chargebacks and then the line plans and the damage and return money and the advertising co op and the discount and the et cetera, et cetera, et cetera. It's a one way thing. Like, okay, if I give you all these things, what do you give me? Well, I don't know. It's going to depend on how your product is.

Right, right, right. Depends on the sell through. It depends on what our guests think, what our customers think.

They hold all the cards. Right. And then at the end of the day you come back and like we did business with one major department store for years and years and they were one of the friendlier ones. And we realized after 20 years that we didn't know who the customers were. I mean we met them from time to time at store events, but we didn't have a list of these people. So our customer was the retail partner. Our product was fuel for their business. And sometimes the fuel worked well, sometimes it didn't. Like all that kind of. And they had no loyalty or allegiance to us. And then one day we said, yeah, we're not going to do that in that way anymore. And that relationship ended. And now there's, I don't know, however many hundreds of thousands of customers out there. And we had no way of reaching out those loyal product fans because we didn't have that loop back. And retailers, whether brick and mortar or online are loathe to have you work around that. You know, they don't want. There are tricks to doing it. Right. Like Yeti's a good example of like product registration, getting, developing the loyal following and that sort of cult like following around their product. But it's really not easy to do.

No, it's brutal. Yeah, yeah. And I think That a lot of like if you. What I used to say is if you put me on with a pitch deck and a working product and flew me to Minneapolis, like we're going to sell into, you know, 500 doors. And it's just because I think anyone who's a good salesperson with a working product can, you know, get a, get at least a retail test. And I think the undervalued part is how like all the things that you mentioned, the difficulty with sell through training store associates, which have an extremely high turnover, dealing with retailers who have more and more concentrated supplier power because more people are closing every day. And then one thing I think that you didn't mention that I think is interesting is if you do have a multi channel distribution strategy or an omnichannel distribution strategy and you are on Amazon, for example, and your website as well as being in retail doors, if that inventory is not selling or you haven't put in the contract that they can't resell your inventory to other vendors, you might look up and have four or five people reselling your product at a lower price than what your MAP policy or MSRP is on Amazon. And that can really harm a brand.

Pricing control is totally tied to how diverse and abundant your distribution is. The more widespread it is, the harder it is to control pricing. And at the end of the day, people can resell your used stuff on ebay.

Right. And I think that one of the things that you mentioned that I Maybe not.

Sheets and underwear.

Yeah, so what? Actually, to be completely honest, one of the reasons I chose sheets is because one of my. I had like my big criteria that I mentioned earlier, I also had some smaller criteria and one of them was I wanted a product that was difficult to resell.

Yeah.

And I had a very low, low resale value. Because a lot of times with electronics and other items, if you sell 10,000 units to 10,000 distinct people in the world, whether from your website or retail store, they could just go ahead and turn around and put on Amazon if they no longer want it or if they just decided they don't like it and they'll put it as a buck less than whatever you're doing or whatever. And now you've lost the buy box, you've lost the customer experience, you've lost that engagement with the person. And so sheets and mattresses have very low resale value.

I think then so totally get that. And if you have a lot of partners, then the other thing that you can have is a partner leaves you, they go to liquidate their inventory online and they do exactly that. They mark all their stuff down to whatever they need to do to move it, depending on how motivated they are to dump your brand. And then you gotta do that. But the converse also then. So now you're like, okay, I'm gonna sell direct, I'm gonna sell online. And you're like, well, but maybe I should be on Amazon. Well, they're a little bit like. And their contracts are completely not negotiable.

Oh my gosh. Yeah, no, Amazon's a beast. I was actually so I was on a panel last week with PopSockets. You know, PopSockets, they're in Boulder. And we were literally just having this almost a similar conversation about physical retail and Amazon and all the, it was literally called the Future of Retail, was hosted by General assembly and we were just talking about retail trends that we're seeing. And one of the things that came up was Amazon and just how much of a double edged sword they are. Where, you know, we were Amazon's deal of the day in mid July and we, we sold an obscene amount of units compared to what our normal daily sales are. But in that at the same time they've, they've emailed us and just said, hey, we're delisting your ASIN today. Like contact us if you'd like to fix this. And there's really nothing that you can do when they do things like that aside from work within the system as well as you can. And so the bottom line for me, and I think a lot of startups have this philosophical debate internally where they'll say, or a lot of, not even startups, this is actually a bigger company issue where people will say, should we sell our products on Amazon? And I've advised companies on this before, in my view, and this is just a stat, 54% of Americans will start a product search on Amazon instead of Google. And so if you're not on Amazon, sure, you're gonna lose the customer data, you're not gonna own that experience, you're not gonna own, you know, you're not gonna be able to retarget them in the future or put them on your email list, you're gonna lose some type of margin to Amazon. There's, there's some, there's suboptimalities to it. But the bottom line is that if you're not on Amazon and you do all this legwork to get people to find out and to understand your product and your category and then they search for your brand name and the first Thing that pops up is your competitor. Yeah. And they have a five star review or four and a half star reviews.

Yeah.

You just, you just lost that sale because.

Or an offshore knockoff.

Right, right, right, exactly. And it could be any competitor. It could be. And if you're not bidding on your brand name on Amazon's ad system, somebody else is. And that's another thing I think that people are not understanding is just how Amazon's back end advertising system works. And it's allowed us to get a lot of traction very quickly on Amazon. You know, we scaled up to six figures a month in sales there in less than 90 days. And it's partially because there's not a lot of people in this category that are super sophisticated that are on Amazon. You know, Boland Branch, which a lot of your listeners will probably be familiar with, not to say ill of anyone. They just raised, I think $100 million three days ago. And congratulations to them. Very, very happy for people, for anybody in the space that's successful. But they have in a year and a half on Amazon less reviews than we do in five months, which just by the way that reviews work means that we've outsold them on Amazon and a third of the time and they have a 4, I think a 4.0 or 4.1 star rating with something like 26% 1 and 2 star reviews. And we have a 4.5 star rating with only 8% 1 and 2 star reviews. And that to me is like a very strong metric of long term health is what that channel looks like and literally looks like. So anyways, probably off on a tangent there, but I think that the broader point is that I think that a lot of people look at Amazon either with a lot of skepticism or maybe even fear instead of the massive opportunity that it is if they approach it in a really strong way.

So my takeaway from that is the word suboptimalities.

Yeah, That's a Bridgewater term, by the way. That's something that stuck with me all these years from Bridgewater.

In my world, it would be things that suck.

Yeah, yeah. My team probably hates it when I use that word. Suboptimalities. Suboptimalities. Yeah, yeah, we had a suboptimality the other day. Funny story, and this is probably not something that I should talk about on air, but we had a packaging.

Go ahead, we're recording.

Well, great. So we had a packaging snafu where we had spent all this time and energy and redoing our packaging and there were really Good operational reasons behind it. Right. We had a white box when we first started out, which is just such amateur hour. I mean white boxes, direct to consumer, not a good idea for anyone listening. Starting direct to consumer business. Don't make your box white. FedEx and UPS will not treat it kindly. And so, so we had to put that box into a corrugated box and so on and so forth. So we took a bunch of time to redesign, do do a purple packaging. We did a bunch of cute doodles on it, koala bears, eucalyptus trees, Colorado, Rocky Mountains. Really beautiful packaging. And the best part about it was we're just going to be able to slap a label on it and purple and wax coating so it'll, it'll survive very well through. And we got the packaging run and I kid you not, the doodles were upside down so they were all reversed from where they actually should have been. And it's actually really funny and I think that we're going to be able to get away with it because the Sheets and Giggles brand is like mostly a jester brand first and foremost in terms of brand archetype. And so we're thinking about ways to message it properly because we've got to use it. But it was one of those things where when you see it you just kind of say how did this happen? And it's just a learning experience but there's always these like you said, sub optimalities and you gotta be creative enough to work around them.

So tell us about the cannabis brand. That was another interesting story in your world that is also packaging.

Oh yeah, speaking of packaging. So I've got these guys, I'll give them a shout out. They're called Sana Packaging S A N A. I think that they're a great example of people who know their demographic. Basically they are a renewable hemp plastic packaging company based in Boulder, started by CU Boulder grads and they took a lot of time to get their product just so their product folks. But they also had a really great distro strategy which is they were only going to sell to cannabis companies and differentiate their packaging for them in store because like we talked about and cannabis is an entirely retail channel. Right. And the only way that you're going to differentiate on the shelf in Colorado is what your packaging looks like and what your packaging is made of. And so they're a sustainable hemp based plastic packaging company that makes beautiful designs for their customers. Full service company. They launched in February of this year and I think that now they've already shipped over 1 million pieces of packaging. And I couldn't be prouder of these dudes. And you know, they're friends of mine. They were all competitors of mine in Denver Startup Week last year, which I won the pitch competition. First place, big $95,000 styrofoam check. Yeah, it was cool. And the buzz around town was did a betting company just win Denver Startup Week? Which is fun, but these guys were competition and they, they're from their pitch then to where they are now. I couldn't be more impressed with them. And they're a great example of they've gotten offers from a lot of other customers in other categories, including myself. I've said, hey, I would love to work with you on some packaging collab. And they said, no, you know, we're, we're a cannabis first brand where we want to focus on this vertical and really, absolutely crush this vertical. Even though they're getting offers from apparel brands and you know, furniture brands and other, you know, blankets and other stuff. And I think it's genius because they're, they're building a brand within this huge growing category that is great word of mouth. And they're building an expertise and a logistics specialty in this space. And I think that a lot of people bite off more than they can chew too quickly. And whether that's with product or especially distribution channel. And I hear this from founders a lot where I say, oh, what's your go to market strategy? And they say, oh, it's great. We've got a product that works in physical retail and it's direct to consumer and we're going to do some B2B sales and then we've got these insurance partnerships in the works. So we're going to do B2B2C distribution. And I'm just like, how big is your team? Like what resources do you have? And I think that a lot of people, their eyes just get too big for their stomach and they try to be all things for all people without realizing that 80% of your sales are going to come from probably one channel at least in the first few years. And then so find that channel and crush that channel and then on top.

But you know, I think that we like I was coaching a larger company and I $400 million public company, that kind of thing. And they decided to that the scaling up strategy work wasn't sophisticated enough for them. They were going to go to these blue chips tech strategy firms and they're going to develop this thing and the company comes back and they justify their fee. That was bigger than Mine with this hundred page strategy document which nobody read. Like two people on the leadership team read. The CEO maybe skimmed it, and certainly not the whole company and people picked and chose things. But at the end of the day, the problem was they're trying to be too many things to too many different people. Instead of having one core strategy and maybe a couple of experiments, they had four distinct things, only one of which might be considered an experiment. And they were all kind of getting a lot of equal weight in the conversation. I'm like, that's never going to win, dude. It's too complex. There's too many irons in the fire. We need to focus on something. And you now think just because you've hit this revenue level, we've got this many floors of people that you can go nuts like this and you can't, and you can't go up against the multi, multi billion dollar companies until you pick off something that's unique and different.

Right, Exactly. I mean I literally, I thought the same thing. I think the same thing all the time. Especially with web based companies like DTC companies. You know, there's, there's examples of people who really do it super well. And I think that like Bombas, for example, they're on like a massive run rate this year from revenue. They're a SOX company and they just sell socks and that's it. They sell, they sell socks and they sell a massive amount of socks. And I was listening to, I went to a panel that I was in the audience and the CEO of Bombas was on the panel and it was great Fireside chat with him and it was very inspiring to hear him just talk about how they're focused on this one thing and that's, and that's what they do and that's why their brand's so powerful. And yeah, you know what you're saying.

Though is like we're seeing again, so your company further along is away, away luggage, away travel. Right. I see those damn suitcases everywhere. My daughter has one. People love those things and they launch. Now I have total like luggage fetish and forever buying a new briefcase or suitcase. And I spent a lot of time researching my latest one and then I got it. Now I've been using it and while I like it a lot of the last one, the wheels at the base are too narrow so it tends to be a little tippy. And of course they swivel so they turn in so the tippiness is increased. And now I'm looking again at the ones that I didn't consider and looking. But all that's irrelevant. People care about these things and a brand like that launches onto the scene and kicks ass on a global basis. Direct to Consumer breaks in because they see that the rules are changing that you can go direct to Consumer and they launch a whole new brand. And meanwhile Tumi's got expensive luggage in stores, in malls. So old school. And how much is actually sold that way? And I see all these Away bags rolling through the thing, but they're not in the, they're not in the, any of the stores in, in the airport. Right, right around. I don't know, they might have a couple showcase brand stores now, but for the most part that's a, it's a direct to consumer.

I'm a big fan, big fan of away. We're in the same portfolio as Quip, which is the big toothbrush. Direct consumer.

Yeah. I have two clips, one for my, one for my travel bag and then one in, in my bag.

You know, we, we share investors with Imperfect Produce, which is like subscription based service for, for produce every month. That's, you know, it's like imperfect. So it's like, you know, different shapes and stuff. And these companies are so impressive and so incredible to me. Not because they are these large umbrella brands like. And I think that you can do that eventually. Like we talked about Mike Dubin and Dollar Shave Club earlier. They started with one thing, right? This, this guy, his, his buddy's dad had a factory with like a quarter million razors like sitting there. And Mike was like, well, let me just shoot a YouTube video. Maybe we can sell these on the Internet. And now they've got all their, you know, big line of bathroom products and they're acquired by Unilever for $1.6 billion. You know, native deodorant. All they do is sell deodorant acquired for $400 million. And you know, there's all these examples of people that have done this and that's what really attracted me to the space is, you know, you don't need to have thousands of SKUs or products, you just need to really crush one specific category. And so I think that we've done things slightly differently in the sense of, you know, the joke is if you want to start a successful direct to consumer brand like Casper Allbirds, you know, just pick a commodities market, go hire Red Antler, which is a, you know, a firm in New York that does media stuff and then just sit back and you know, let them do everything for you from a brand perspective and We've taken a slightly different approach where we're. I think that I'm more interested in like a slow and steady wins the race type of growth. So we're doing 4x this year from last year in our second year of business, not, you know, 50x. And I think that's the way that I like it because it makes us have a very rigorous focus on our unit economics and our profitability first and scalability second. And that's the business that I want to build. And I think too few startups do that. And so you hear the success stories, but there's also plenty of failures that take the wrong path.

Well, if you're going to do the 10x, 50x or whatever in a year, we also did a show on that with Chris Yeh on blitzscaling. That's another topic. We tend to be very happy with doing anywhere from 25, 30% a year to doubling every year. I kind of love clients who are doing 50% or better every year and want to sustain that kind of thing. But it's transformative and it's challenging and it's definitely not for everyone. Let's wrap up a couple of things I think that are useful and then we've spent a lot of time talking here, giving people a lot to think about. But I think that we see a lot of folks with existing companies start to go online and then lose a lot of money, fail badly, blow tons of money with vendors and adword marketing and bad campaigns and Facebook campaigns that produce nothing. It's very easy to scream into the void. But the thing I heard in the beginning with your story was that you did what we talk about all the time, bullets before bombshells. So you did some experimentation, you tested some assumptions. I was at a workshop a couple weeks ago and we had people talking about hijacking search engine traffic and how to be really smart about that using some of the latest tools. And then somebody else talking about how creative is king now in Facebook advertising and how to develop your creative from a different set than some of us learned in more traditional marketing stuff years ago. We would start first with copy and then we would move into the visuals and things like that. And they in fact start with the visual side of things and the concepts and then they iterate down and the copy is very late in the stage where they're actually throwing lights on stuff. Fascinating, right? But they're talking about interrupting people's flipping through their timeline and whether it's their Instagram. The rules are different. So I think the big thing that I heard and that we've talked about before is bullets before bombshells. Test some stuff, move in it.

There are. There's two. There's two things there that I would. I would agree with and build on. One is the bullets before bombshells, we did 50 different AD variants with I think, something like 12 different landing pages. We tested H1s, H2s, different CTAs, button placement. I always love the A B test of like, have you tried a different color button? It's a button, like, you know, make it blue. And so we narrowed it down to, you know, I think three ad sets with four landing pages that captured emails. And we got our capture rate up from like the 30s in the beginning to that 46% number that I, that I mentioned earlier over the course of, you know, a few months capturing emails ahead of launch. So definitely being willing and able to just test a ton of different stuff. And the second thing is that stuff has to be, frankly, it has to be jarring. And this is tough for a lot of established brands to do because they worry about their parent brand and about their larger umbrella corporation, and so they take a safe route. And the problem with that is that when you're scrolling through Facebook, everything looks the same. And so you really have to zig where everybody else is zagging. And that's what I loved about this, this betting industry, is that it's a totally blank canvas because everybody is very undeservedly serious. I mean, we're making betting, you know, we're not curing diseases. And so we. Our number one performing ad set has been three men in a bed with beards, with avocado, face masks on with. With red wine, and they're just talking in bed. And when pia, you know, 80% of our customers are women. And women love that for some reason I can't, you know, and a lot of men love that too.

And yeah, my. My dude friends don't have that.

Well, so when you're scrolling through your Facebook feed and you see three men in a bed together, it's comedic, it's representative, you know, it's non heteronor. It makes you stop and pause and say, what the hell is this? Then you see the brand name. You see we've got comments and likes and all, and the other pieces, and this is a lesson for anyone listening, or I hope it is, is that I see so many brands with Facebook ads and people are commenting on the ads and they're saying they're asking questions and they're engaging and they're curious and they're getting. They've got to the point where they're leaving a comment on a Facebook ad, that person's about to buy your product. And there are companies that don't even respond to their Facebook comments. And it blows my mind because you spend all this time and money and energy with the content creation and the spend and the click through and then somebody comments and you're not going to respond to that person and engage them. And then guess what? Your comments count in terms of the total comment count on Facebook. And so when people are scrolling through and they see 3000 comments, maybe only 1500 of those are from actual humans and 1500 are responses from you. And that social proof is extremely powerful with click through. And so that's one of my biggest pet peeves with companies, actually is.

But you know, I think you're taking for granted something that a lot of our listeners need to pay attention to, and that's that funny and different and weird works in the online ads. And being standing out some way, being a little more playful and original is different than the be simply aspirational.

Yeah, aspirational stuff is very tired. And I think a lot, especially when you're talking to millennials, which is now I'm a millennial. And it goes all the way up through, I think 37 now are millennials. So it's not kids out of college. I mean, that's Gen Z. Now when you're talking to millennials, you're talking about people with real buying power and spending power. And I think that the aspirational stuff, you know, the like for my category, the white sheets with the white walls, there's always like a French pressed coffee placed ever so precariously on a white comforter. It's like, it's very, it's tired. Yeah. And so we, we love that because it's kind of just a huge open space for us to, to take a sledgehammer to. And it's also hard to replicate funny. Funny is one of the hardest things to do. Right. It's why there's so few big name comedians that you actually recognize is funny. Funny is extremely difficult to replicate. So. But not every brand can do it because they built these brands over decades sometimes on aspiration and a sage brand voice. And I see a lot of companies actually spinning up secondary brands to sell their products white labeled under with different brand voices.

All right, well, we've given folks a lot to think about and I think a lot of good takeaways here if you want to find out more about his company. Colin McIntosh company is sheets and giggles. You'll find it@sheetsgiggles.com of course we'll put that in the show notes. As always, we bring an entrepreneur, a guru, a thought leader, another coach, something every week in the world of Scaling up with with practical takeaway lessons that you can do. And you'll find over 160 of these episodes along with free downloads of the tools and worksheets and the ideas that we talk about. Special offers from our guests@scalingcoach.com and as well@scalingcoach.com, if you'd like a free copy of the book Scaling Up, I'll give it to you for free if you just pay the shipping and handling. So all that scalingcoach.com thanks again Colin.

Thanks so much Bill.

We'll talk to everybody again next week. Oh big thanks to the original growth guru, founder and creator of all things Rockefeller Habits and Scaling Up, Vern Harnish. This show is produced by Lucy Summers. The audio production is done at Podfly Productions. The audio editing by Albert Burge. The show notes are compiled by Ayan Kudina and proofread by Tim McGowan. If you loved it, please share it Pass along to somebody else. Like it subscribe it get them every week give us a review so we can grow the show. You can let us know the parts that you love. Drop us a line Drop us an email to info scalingcoach.com or just ask for more of what you want. Info scalingcoach.com thanks again for listening. Keep Scaling Up. Are you ready to turn your goals into daily wins? You should check out our Scoreboard software. Powered by Align, it's the official software for Scaling Up. With Scoreboard, you'll get an AI driven coach for priorities and KPIs and it'll help keep your team focused on what matters most. With Align, you can track your goals in real time and you'll even see results on the go. With their mobile app you can rest easy knowing that Align has world class onboarding and support to set your team up for success. This is really more than just software, it's what I actually use to manage growth in our scaling up client teams. Unlock clarity and results with Scoreboard via line. To try it now, go to aligntoday.com Bill G One more time aligntoday.com Bill G that's aligntoday.com Bill G Check it out and try it now.