Master DTC Marketing | Learn Organic vs. Paid Acquisition | with Nik Sharma, CEO Sharma Brands

Hey guys, today we're sitting down with Nick Sharma, one of the world's best startup growth marketers. He's helped build brands like Judy, Caraway, and Hint Water. The next Coca-Cola and the next Unilever will be built using the principles we talk about right here. This episode is really important if you wanna build an online brand and you don't wanna pay all your marketing budget to Facebook and Google. Let's get started. Nick, thank you so much for coming on the YouTube channel. You're a wealth of knowledge about direct-to-consumer, and you've launched many pretty amazing rocket ships, whether it's Judy, Houzz, Caraway. What I love to start off with is just how did you know that you wanted to do this and sort of work in media and tech? And you're quite young and you got started so early. Walk me through how you got started.

Yeah. Well, first of all, it's an honor to be on this YouTube channel with you considering everything you've done as well. When I was in high school, I was never the smart kid. My, however old you are, 15, 16-year-old immigrant mindset was like, all right, well, how am I going to pay for a house and a car and all this one day if I don't have good grades today? And so I started thinking, all right, well, I got to figure out how to get good at something. I'm not struggling later in life. This was probably like sophomore year of high school when I was in San Diego. And so I started thinking different things. I was DJing at the time. I was always hustling in some way. At that time it was DJing. I actually, one of my neighbors was this guy, Jesse Pujji, who runs a company called Ampush. And Ampush is now one of the largest advertising companies. But at the time he was just getting started. And so I'd hear him, his family and our family, We would get together all the time and he would always talk about like Facebook advertising or social media marketing. I started getting interested in that. One thing led to another. I started doing social media for different celebrities at the time, again, all through just cold emailing and trying to get into those networks. After that, I deferred college initially and I joined an ad tech company in San Francisco. And over there I got to learn the side of paid marketing. So what's advertising, basically. Everything from how algorithms work to how machine learning works to kind of all the complexities behind paid advertising. And also working with brands, whether they were publishers like Refinery29 or Complex, all the way to companies like Walmart and TripAdvisor and really large Fortune 100 companies and trying to learn and understand how they all use different, whether it's paid social or programmatic advertising or native advertising. In different ways. I got a good combination of knowledge through both the organic social side as well as the paid side. And I found myself at the ad tech company, one of the things I was doing as well was also sales. Naturally, I was also just chugging Red Bulls and Rockstars. And one day this brand Hint Water showed up in our kitchen. I pretty much shifted all of my Red Bull to drinking Hint. So I got addicted to drinking Hint and I started being really corny on Twitter and tweeting the founder and tweeting the company. And placing really big orders for our office kitchen. After I had left that company, the Hint founder and I were DMing about, you know, maybe there's something we can do for Hint. Fast forward a few months, I ended up joining Hint as the director of performance marketing.

Oh, interesting.

Not, yeah, so not really having any kind of like formal experience or again, no formal education either. But I basically joined and one thing I realized was the cost of a click from an ad platform to their site was really expensive, whereas for publishers we were getting clicks for pennies. And that was one of the greatest things we were doing for publishers. So I was like, all right, well, how do we create interesting stories here? And instead of selling the what or the product, how do we sell a reason or the why or story behind something that gets somebody on their own want to invest in the product? Right around that time, it was about early 2017, The Hustle, which is a newsletter, was picking up traction. I reached out to my friends at The Hustle and said, hey guys, I have this crazy idea. You guys are a newsletter, but I want to take advantage of your site and I want to put up an article that talks about one of the founding stories of Hint. And you can actually find it if you Google The Hustle and Sweetie, those 2 words, you'll actually be able to find that article. Kara, who's the founder of Hint, she was like, well, I'm not really sure what I should do with this now because I'm a tech executive, not a beverage executive. Should I Maybe call somebody at Coca-Cola and see if they just want to take it off my hands. And the response that she got was in a very demeaning way, sweetie, Americans love sweet. We decided, all right, let's take this story and talk about how she built the product. She got to that point with that phone call, and then she decided she was going to be one of the few pioneers in creating something that is unsweet but still enjoyable. That's what that article was. Every time that the brand Hint is mentioned, it goes to, I don't know if it still does, but at the time it was going to a landing page where there was a very clear offer to try the product and essentially sample what Hint is. We launched this campaign really on Facebook ads initially, leveraging the hustle, promoting the story, which then sells the product. And all of a sudden our acquisition cost dropped by probably 70%. We essentially, I would say, 5x'd our number of new customers per day within the first week. And I would say we probably 8 or 9x'd it within a month per day. It just led to this hockey stick growth. At the time as well, there was no, I mean, I don't think D2C was really a term. It was really, my job was, or at least this is what the CFO told me. He's like, look, nobody really lasts in this position of performance marketing. Your job is to just simply acquire customers efficiently. That's what it is. I was always focused on, all right, how do we test new tactics, test new channels? And we found this like storytelling angle to really be something that brands were not really doing. Brands were really promoting like Hint's example, try 2 cases of watermelon, one still, one sparkling, and get 20% off versus this is the story that led to the creation of this brand. And you almost internally feel like now I want to support this brand. Spent 2 years at Hint and basically that's kind of when DTC, I guess, got its name.

Which is not that long ago. It was fairly recent.

No, probably like, yeah, 2 to 3 years ago.

And that's why there's not a university for this because you can start the university when the time is right.

Exactly. It's kind of how I got into it. It was really just, I was a huge fan of the brand. I was really young. So I was really, you know, I had nothing to fall back on, which meant I had to work 10 times harder.

That's awesome. I mean, necessity is the mother of invention. And then it sounds like there are a bunch of things that you can extract from that. First off, I guess, having a good product helps a lot. I guess that's the one thing.

Product is the foundation to anything that does well.

Yeah, you gotta get that right.

Whether you're a services business or a CPG business or a SaaS business, the product is not there, all the marketing in the world won't be able to do anything for you.

Yeah. And then after that, it's like, it sounds like recognizable, understandable brand helps a lot.

Yeah, totally. Creating some kind of foundation or almost like the best way to think of it is like, how do you create this like walkway between you, whether you're a brand or an influencer or a tech company and whoever you're trying to get to, whether it's your customers or users or followers. And what does that walkway in between look like where not only you can walk, but they can also walk and it's a very even playing field. There's no One side isn't higher than the other. It doesn't feel like a teacher/student relationship. It feels like you're kind of all on the same playing field. It's similar to when you think about the art of the sale, you always start with common ground, or when people talk about the weather, like talk about something that's common for everybody first, and then figure out a way that you become relatable to your consumer or your user.

Yeah, it's interesting. So when I was in college, I did some research with a professor named Cliff Nass. His whole thing at Stanford was People treat computers like people. And then now that media has been eaten by software, it's actually people treat brands like people.

Totally.

Oh, hello, great to meet you. This is where I'm from. Like, it's very human, which is easily lost. Like, the second you add digital to the front of any title, people think that it gets very technical and it's pure code and all of that. And couldn't be the furthest from the truth. It just goes back to Telling a good story, being identifiable, being relatable, feeling when you meet someone who's trying to do something different or noteworthy, then you want them to succeed and you actually have a relationship with that brand. I do think that that's a new thing that, especially in the face of what consumer looks like in 2020, in sort of under the thumb of some of the world's biggest technology monopolies, right? Whether it's Facebook or Google, it's, this is actually the reaction. Like this is what the rebels have to do. This is Tatooine, actually, which is interesting. So I guess going from there, a lot of people watching this will actually want to start their own DTC rocket ships, things like your experience with Hint or Judy or Houzz. What do you tell them? Like, how do they even, starting from nothing, what do you start with?

Yeah. I mean, I think one thing that has happened over the last year and a half in this world of consumer there has been a shift from, oh, let's launch the nth skincare brand, which is basically the same products from the same manufacturer with just a new label on it, to let's actually look for what are people asking for to be solved. So the real question is, is your brand solving a problem that wasn't already solved, or is it solving a problem in a more efficient way or a faster way, a better way, a more accessible way? And if it's not, then it's probably not something that is, first of all, that is relatable to a consumer.

Gotta be better fast than super.

Exactly. You end up spending almost just aimless marketing dollars trying to convince the world, but it also doesn't let you, when you're pushing something that doesn't really have a functional purpose for the end consumer, you can't really create a community around it because there's nothing to share about what it did for somebody. I think the biggest thing with a lot of the brands that I or my team has focused on in the last year or so is a lot of these brands help solve some kind of problem consumers are having, whether it's Houzz, where they're solving the issue of want to be hungover the next morning when a cocktail night—

You want to have a good time, but you don't want to have too good a time.

Exactly. Or with Judy, there's emergencies that are happening. 60% of the country is not prepared. But if you go to Judy and you buy a kit, all of a sudden you and your family of 4 are prepared for 72 hours with food, water supplies, etc. Basically, the real question is, what does your company or your brand do that functionally enhances a consumer's life? And if there's no real answer there, then there's really— it kind of like puts you on the back seat.

There's not even a reason to be, right?

Exactly.

Yeah, that makes sense. I recently learned a new term on Twitter today, which is, it's a Japanese term. I'm probably going to butcher it. I think it's called chindogu, which is basically inventions that basically if you buy it to solve a problem, they actually cause more problems than they solve. So, which is like the mass of like most inventions or that's the difficulty in working with a lot of founders is actually It's actually remarkably hard to look at your own creation or founders make a thing. The gatekeepers like investors, or for you when you decide to work with a brand or not, like it's the two of us who are often the people who have to say, your baby is ugly. Sorry. You have to say it in a really nice way, but it does sort of come back to like, is this actually better, faster, cheaper? Like, do people actually want this? And that was definitely the repeating. problem that we saw at Y Combinator with thousands of people trying to apply all the time. It was the number one reason that people didn't get in was it's not actually clear anyone actually wants this. And it's actually okay. Like, people starting companies will not know.

If your product truly is something that is great, then maybe your messaging is wrong. Maybe the way that you're approaching consumers is wrong. Maybe the distribution methods you're going after are not the right ones for you. It could be a thing that helps you almost re-understand what you're trying to do.

So it definitely starts with customer and what their problem is and it is solved. Are people happy at all that you exist? And hopefully the answer is yes. And then if so, then, then you can work on a brand, then you can get a website up and running. It feels like there are 2 big parts of getting customers. One is obviously the pure paid side. And then there's actually the organic. And if you were just starting out, what do you advise people? Do you start buying ads off the bat? Tim Ferriss is famous in his book, 4-Hour Workweek, right? That you can just put up a landing page, buy some ads, and actually see— you can validate before you build a single thing whether people want it, and you can use ads to do that. Do you advocate that kind of strategy? And are there things like that on the paid side that you've seen work?

Yeah. I mean, you definitely can, right? You can use unbounce.com. You can go sign up for a free trial. You can put up a landing page within an hour. You can throw your Facebook and your Google pixels on there so you can understand who's coming there. You can capture the data. And then you can have that. For example, if you're launching a skincare brand and you're selling a cream, let's say your cream is your flagship product. You can throw the cream up there. You talk about all the benefits, basically explain why somebody should buy it. Right from there, they can click add to cart. It'll drop them straight in the cart. On their Shopify site. And that's a very easy way to understand, is your messaging right? Is your positioning right? Is the way you're talking about it right? But what it doesn't do is it doesn't build a really strong foundation for the organic word of mouth, the organic referrals, the reviews that might come back, or even the love for the brand. It might functionally help somebody and create a solve for a problem they have, And maybe that's all they want. There's some customers that just don't care, right? They just want the product and that's it. I always definitely recommend, you know, you need some kind of organic traction initially. The best way to think about paid marketing is take an image that you put into Microsoft Word, right? Or Google Docs. When you start stretching it, it gets blurrier and blurrier. And essentially with paid marketing, what you're doing is basically taking your brand and just stretching it. So you're making it bigger and bigger. It has to be a very high-quality photo in the first place for you to stretch it. Otherwise, it's just going to get blurry and blurry. In my opinion, the best way to do it is— Houzz is a great example, right? They didn't run any paid initially. They reached out to a bunch of people. Helena obviously has a great community of people who she's worked with in the past who follow her on Twitter. And for them, even if they didn't have that, for them, what they did have was they had a very exceptional and expensive, but it was worth it, and a very exceptional unboxing experience for their product. And what that did was, I'm sure you've seen the investor deck too. The first post, I guess it was the raise after the seed, there was 2 or 3 slides on just photos being reposted of the unboxing, right? And that's what drove all the initial word of mouth was when people were unboxing it, they take a photo, they put it on Instagram, they tag the brand. And they post it to their stories. And not only did that give them a ton of content, but it gave them— like, if you posted it and I saw it, I'd be like, whoa, this is something I want to try. Now I'm going to the site organically without being paid to do it or without her paying somebody for me to get there. I firmly believe that brands that go and really conquer the organic route before really getting their hands or their feet wet and paid are the brands that not only are a lot more in touch with what their consumers want going forward, but they are brands that will definitely last a much longer time. Because if they were, for example, if Houzz were to cut all their paid marketing today, they would still have a fantastic business. But if a company that basically only launched on paid, and that's pretty much all they do, if they were to cut their entire paid marketing funnel, They would be hurting. And you kind of see it, especially through this year. There's been so many times this year when the paid media platforms have been so horrible to use, whether it was in the summertime.

I'm sure CAC is up a lot. Yeah.

And they're spending so much. And so there's brands that I know of that are multi-billion dollar brands that said, you know what, we can't even afford this. We need to turn off all advertising. But for a brand like Houzz, that doesn't matter because they have so much going for them. on the organic side, on the content side, they have great social reach. And it's also a product that people just genuinely love.

So it sounds like paid maybe for validation and as like sort of a way to put more capital into growth, but without the organic, you're just not going to make it.

Yeah. And I mean, another great example for paid, when we started running paid ads for Judy, one of the things we learned was actually how people wanted to be communicated about the Judy product itself, we decided we wanted to start running national TV commercials. And so we said, all right, well, let's take 6 of our concepts of what we want to run on national TV. TV is not that cheap or quick to test. Let's figure out using paid media digitally what we can do to test all these concepts. So let's go produce these videos. And test them all. And then once we understood which one had the best reaction, engagement, shares, conversion, that's what we then took as our North Star for what we needed our TV commercial to be. And we produced our TV commercial using results we already had from there, but it wasn't necessarily because basically we did that exercise using paid media digitally so that we were a lot more on point when it came to our national TV buy, which is a much bigger investment.

So shifting gears over to organic, the house example is great, but that was probably Helena's, a lot of Helena's connects. What do you say to someone who doesn't have, who hasn't been around and doesn't have the connects? How do you access that hustle and cold emails and have a good product or have you seen that work?

Yeah, definitely. I mean, Helena has a great example she had tweeted a while back of how to reach out to reporters and editors and ask them to try your product. And see if they would write about it if they liked it. So that's one way. The other way is, yeah, you just start DMing. You post it on your organic social media. You go to sites like Reddit. You go to sites like Product Hunt. You create compelling reasons for why somebody should try it in the first place, and you start essentially putting it out there. It doesn't have to be that— you don't have to start with a big following. You don't have to start with a $100,000 in paid media, you can start playing in all these different niches. You know, you could go to search.twitter.com and type in keywords for— if you're a cream, you can type in a keyword for mask acne, for example. And anybody who's complaining about that, you start replying to them with, hey, by the way, this is how you can get rid of it, or you can also check out our cream which helps you kind of get rid of this product or this issue. There's so many ways you can do it, and again, it only takes One customer to try it, think it's great, and start spreading the news like wildfire.

I mean, that sounds like the pattern for online marketing period, and especially in the past 10 years, like the pattern that repeats over and over again. Doesn't matter if it's pure social, even SEO is sort of fundamentally built on this.

SEO is huge and very underrated. Yeah, SEO is extremely underrated, whether it's creating really good content That is, that lives on your own site and thoroughly answers questions for people, whether or not they become your customers or whether you have a really smart backlinking strategy, is consistently linking back to your

site. Tracking down people who are willing to link is like one of the big—

Exactly.

I mean, it's, it's kind of spammy, but the ideal version is not that spammy.

Yeah. The ideal version is you're, you might be co-producing really high quality content. Or seeding really high quality content to other websites.

I guess this is a hard question to ask, but I wanted to ask anyway. Are there best channels? Like, is it TikTok? Is it YouTube? The real answer is probably depends on what you're selling, but what are you seeing in the marketplace right now?

If you look at the real answer is like, it depends on 2 things. One is what your product is and who you're going after. The second is how good you are at creating content that's native to that platform. For example, if we go back to the cream example, if you're really good at just making landing pages and really simple direct response videos, you might be better off on Facebook and Instagram. If you're good at making funny content or content that does well on TikTok, then maybe you can shift gears and focus on TikTok where you rely on the organic reach that comes from the content you put out and the cream is somehow integrated within what you're doing on TikTok. If you're good at creating long-form videos about solving for skincare needs, maybe YouTube is the best place to do it. You answer questions and you basically, you answer the questions that people come to YouTube and search for. If you're really good at writing and you love writing, then maybe your best channel of marketing is SEO. So it kind of really depends on what you're, you're really good at. Obviously, once your company or your brand or whatever it is gets really large, You're gonna wanna be on all these platforms. But initially I always say try to focus on 1 or 2 channels and really go deep on those channels because you wanna master 1 or 2 channels so that you can get that traction efficiently before you just start blowing money on everything.

Yeah, that's right. Yeah. I, the other interesting thing I find is there are actually these giant communities of behavior on YouTube or TikTok or elsewhere. That depending on what you're doing, ideally you might just be able to tap that. YouTube is basically, it's not one YouTube, it's probably maybe tens of thousands of different incredibly niche long tail things. And then the algorithm has already clustered that content. And that's why collabs are so valuable for YouTube, which is interesting. Being able to leverage what is already built into the network, that seems to be one of the most important. Things to know. It's, uh, I've seen— Totally.

I think another big thing too is being really consistent with the actual branding, right? So for example, if you were to search, if you go to Google and search DTC Guy, the entire page is just me. And that's, uh, it was by mistake. It wasn't something I planned for. But one thing I learned from that was my friend David Perel just made a joke that, oh, this is the DTC Guy. He made me put it in my bio. That's just what I went by for a little while. And now if you search DTC guy in Google, that's all you'll see is me. So I think being consistent with brand helps because the more places you put it out, the more places it helps almost consolidate it back.

Yeah. And so I, in the end, like compound interest works well for investing. It worked well for brands as well over the course of years, really. And it takes years to actually build these things. The crazy thing is when it pays off, it pays off so well. I mean, if you spend any time looking at See's Candy, for instance, I didn't know this until recently, but apparently a good chunk of Berkshire Hathaway is off of the profits of See's Candy being reinvested year after year. Something like it threw off something like $5 billion worth of free cash over 20 years. And then you add that to the compounding of being in great companies over time and continuing to reinvest. It's like you can't lose with that kind of strategy. So

I forget the quote exactly, but it's something about like compounding interest is a lot of nothing and then a lot of something really big.

Yeah. First a little, then a lot, which is nuts. In terms of economics, real quick, I mean, how do you think about it? Does it matter? Is it repeating versus not? How do you think about payback period? Is that like the gold standard to measure all of these different channels?

The idea of payback period was a huge belief among investors for the longest time, some really smart founders who convinced investors that it would work. But the reality is that you can't spend an insane amount of cash acquiring a customer only in the hopes that they would one day pay off the cost of the acquisition, plus all the time in between to keep the lights on. Now, the way at least I think about acquiring customers or even economics in general is that You have to put margin first and profitability first, and any other way is like driving on the highway backward. It doesn't make any sense. You know, obviously if you're selling cookware set from Caraway, you need to focus on being profitable on the first purchase because you might not have another purchase for the next 2 or 3 years from that same customer. Now, obviously it's on the business to try to figure out from a product expansion standpoint how they can make that happen. But if you're someone like me, maybe I just want a cookware set from Caraway. And I don't care for anything else that they come out with. And there are customers like that. But if you're a food or bev company or a cream or something that's replenishable, then maybe you're okay with taking breakeven on the first purchase or losing just a tiny bit on the first purchase because you have proven economics that this person will probably come back and your average purchases or purchase frequency per year might be 6 purchases. You know that by the time they get to the third one, you're now profitable and generating money back on that user. But it's almost stupid to just blindly assume that your product is so good that you can wait to make the money back on the third purchase unless it's truly proven. Any other way to go about that is not very wise in my opinion.

That's probably the most dangerous thing about working on DTC consumer brands, period, is you can look at your spreadsheet and feel like you're fine, but you might actually all along have been selling $20 bills for $19. Or sometimes $2. Right.

Yeah,

it's tricky.

Yeah, exactly.

You know, you're onto such a great career in a very important space that's brand new. Uh, you know, there's no university for this. What do you wish you knew when you were 15, like just starting off? Do you have any super hard lessons from that time that you're just like, don't step in this one? Or what was the most surprising?

2 easy ones. One is probably focus on getting 8 hours of sleep a night. Focus on getting proper sleep and focus on taking a proper weekend off and not have to work every minute of every day in order to quote unquote compete with others. But I think also another one is be extremely open about everything you're doing. I think one thing I've learned since probably 2018 Is the more I talk about the stuff that I do, the more I tweet about walking out of a meeting and thinking, wow, that was a really good campaign, or that was a success. Let me put it out on Twitter, or let me let me talk to other people about it. The more I've found myself surrounded with smarter and smarter people, and so I wish I had done that earlier. Whereas I used to think, oh, I can't give my best secrets away. But the truth is, is that one nothing is really a secret because somebody's probably already done it or doing it if you've done it. But secondly, it allows you to create stronger relationships with people when you can talk about the things that work really well or that they can do, or it can be very helpful to them. And it just pays off in dividends.

Awesome, Nick. Thank you so much for hanging out, man. So I guess for the audience, if they want to connect with you online, what's the best way? Twitter?

Twitter's probably the easiest. I'm just Mr. Sharma on Twitter, @mrsharma.

So everyone go on twitter.com and @mrsharma, go click the follow button right now. Do you have a YouTube channel yet?

Not yet.

I highly recommend it. It's, it's been really cool for me to experience this. So thanks again.

Yeah, no, I definitely want to at some point.

It's all a part of the plan. Well, thanks again, Nick. Really appreciate you spending time with us.