Exit Strategy S1:E2 // Andrew Dubum: Bold Strategies That Propelled Hims & Hers Into Unicorn Status

All right, Andrew, thanks so much for being on the second episode of Exit Strategy Podcast. Super excited to have a conversation with you. I feel like you and I are both in the e-commerce space and we've never met, although I've met Jack before. So excited to meet you.

Yeah, it's a pleasure. Thank you so much for having me on.

It's a little bit about your background. You were the co-founder and a partner at Atomic and the CEO of him and hers right now. Is that right? Right. Okay, looking forward to this conversation because I think that every, every company that I talked to today wants to be the new Atomic. And can you tell me first how you describe Atomic? Is it like, is it an accelerator? Is it like an incubator? How do you describe Atomic?

Yes, Atomic is something pretty special. It's neither a venture fund nor is it a studio model. Essentially Atomic is a company whose sole purpose is to build other companies. So we have a group of 20 or 30 individuals there that are all operators and entrepreneurs, and we diligence and vet between 20 and 30 businesses per year and end up spinning out and evaluating the ones that we see the highest potential in, and then going and funding and founding those companies with other co-founders that we bring into the fold. So it's really a— it's a team of operators that have phenomenal access to a pool of capital and great LPs like Peter Thiel and Marc Andreessen. And we use that capital to build the companies that we have seen have the best promise and the most signal from all of our tests internally.

Okay, so Atomic tries to test out 20 to 30 different business ideas per year. One of those business ideas was Hims Hers. Is that correct?

That's right.

And how much money does Atomic spend in order to test a business idea? So Atomic has raised money independently of Hims Hers, and Hims Hers has really raised money independently of Atomic.

That's right.

How much money does Atomic spend to test a business idea?

So traditionally, we'll start with something like $50,000 to $75,000 to get a little bit of signal, and then it might expand up into $100,000 or $200,000, but you're talking about relatively small seed checks. Necessary for 1 or 2 individuals to build prototypes, get data, call people, try to sell things, try to understand product-market fit, positioning, price points, offers, etc. And then, and then when we get that data, we're able to actually look at it relative to 10 or 15 other companies that are in that incubation process and look at metrics side by side to see where outliers exist. So So for example, with Hims Hers, you know, the, the crazy part about that company was we used about $50,000 to get that company started. And with $50,000, we built a prototype over the weekend. And this was in 2016, a prototype over the weekend that would let men download a mobile app, answer questions about their health, and then sign up for a package relating to different types of medical conditions that they were worried about. Um, and that prototype, it was, it was called Clubroom at the time. Uh, and that's because in my gym there was an old deodorant bottle called Clubroom. And I said, okay, that seems like a good test name. Let's run with that. So we, we, we literally got this thing up and running, 2 or 3 people on a weekend. Um, and in the first 5 weeks of that prototype, we did $1 million in sales, uh, signing up for, for the offer. Uh, and again, nothing was built yet. It was, signing up for a waitlist, they put in their credit card, and then I would manually email them and say, "Hey, you've been added to the list." Like, you know, total, total early testing, right? Kind of zero-to-one phase. But that cost just $50,000, and it was at that point that we were able to look back, look at the customers that had come in, look at their profiles, look at their willingness to pay, and decided that there was real demand to go and build that company.

And so how much— so you spent $50,000 to build a mobile app. How much, like, called Clubroom, how much of that is done internally versus externally? Like, are your operators sort of developing the apps and putting them on the App Store, or do you do that externally?

So all of that is internally.

So we, um, we spend money on Facebook ads to try and get people to download the app and, uh, try and sign up.

That's right. Depending on, on the company, whether it's a consumer app, you might try traditional distribution methods like an Instagram or Facebook or Google or direct mail or radio or whatever it is. If it's a B2B company, it might be sales tests, like sales calls, automated calls, understanding price points and offerings. But essentially that capital is used to build the prototype and find what I like to call some type of proprietary distribution channel that gives us confidence we can scale this business successfully. Not only that we know how to build something that's amazing, but we know how to get it in front of people in an efficient manner. That gives us confidence we can, we can grow this company in a unique way.

And so aside from Hims Hers, what are some of the other ideas that you guys have launched?

Yeah, there's quite a few. So a company, Bungalow, which is a co-living company based in the Presidio as well over there. They've raised quite a lot of capital from Khosla Founders Fund, a lot of big names. Homebound, which is a construction company, it's helping families during natural disasters around the country, rebuild and have that supply-demand model actually be much more efficient so that people can build homes much quicker, much easier, much more on time, much more capital efficient. And that company's raised maybe $40-50 million from Google Ventures and Thrive Capital. There's a company, Terminal, which is actually a remote education company that brings together recruiting and engineering into one hub. So you can imagine this company going around the world, building amazing hubs for engineers to come learn and work with Silicon Valley startups. Hims, for example, we've been a client of this company for many years. Most of our engineering team is scattered through Mexico and through Canada, and they all live in different terminal offices. So those are a few, a few of the most recent companies that have broken out and raised, you know, maybe $40 or $50 million in the last year.

And can you give us an idea of like 3 companies that you thought would break out and didn't? Like, you know, uh, what I really love about Bessemer Ventures is that they have this thing on their website where they have the anti-portfolio and they're like, you know, we missed the opportunity to invest in Airbnb and FedEx 7 times and Apple. I feel like all VC funds should do that. Like whenever I was trying to raise money, I was like, Bessemer should be the first company I go to because they're like humble about their origins and nobody else is. That's great. What are a few of the companies that you guys tried to incubate and didn't work out? Particularly the guys who got past phase 1, past the $50,000 and got into the $150,000.

Yeah, you know, there's a lot of them, right? I think, and then that Bessemer page is I think one of my favorite pages on the internet, frankly. I think it's incredible. You know, there was a sleep apnea company. We have family members that suffer from sleep apnea. There's about 30 to 40 million people in the United States that have sleep apnea. And the process of getting diagnosed, tested and actually getting the equipment for CPAP machines is excruciatingly painful and expensive. And so the idea was, could we make that easier for people to do diagnosis and treatment and actually get the equipment? Couldn't make that business work. And that was a really unfortunate one that we tried. There was a business in pet insurance. This is years ago. I was really passionate about this. Everyone loves their dogs, willingness to pay for your animal is, is in many situations higher than willingness to pay for yourself or your partner. Uh, couldn't get the economics of the business to work.

So this was like pet life insurance or pet health insurance?

Uh, pet, uh, pet life— actually, it was pet, uh, health insurance. I'm sorry, not life insurance. Okay.

Yeah.

Um, so yeah, you know, there's been, there's been a lot of them, and, and most of the ideas at Hims Hers are really, uh, internal ideas, right? It's, it's things that, that us as partners are really passionate about and really want to exist in the world. And so Hims Hers was one that, that I was very passionate about wanting to exist. Terminal, which allows, you know, any company to hire dozens of incredibly talented engineers from anywhere in the world very quickly. That was something that us as founders has always— we've always wanted. And so we like building businesses that, that we, you know, can really resonate with. And I think that's where you know, we've had a lot of success. It's just there's that instinct in building something you're passionate about.

And then where, like, as these ideas sort of are born and grow up, how do you, how do you staff them? So, you know, for Hims Hers, it's easy. You're the co-founder and a partner at Atomic, so it's simple. With Bungalow, with Terminal, do you hire internally to find CEOs, or do you look externally?

Yeah, so we, what we do is something called a founder-in-residence program. So at any given time at Atomic, there might be 5 or 10 individuals that are internal founders that are working with the partners and working with the operating teams to prototype and test ideas. And they are really the leaders taking charge of bringing those tests to market. And so with Bungalow, for example, Andrew and Justin are the two co-founders of that company. They were founders in residence with us for many, many months looking into a vast range of ideas, and we prototyped many ideas as a group. We saw incredible signal around the co-living space, the desire to live in a city, the desire to have a more affordable life, the desire to live with people in a community, and they were really excited about it, and we were excited about it, and so we jointly decided to found that business together. And so in almost all circumstances, the founders of those companies started as, um, founder-in-residence operators internally helping us evaluate ideas, and then they choose a path once they get that passion and that conviction for an idea.

And so that happens, and that happened with you, with Hims and Hers. And then, and then what is the next step? So you've got conviction around it. Well, I guess first you do Clubroom. This is this app. Is Clubroom just available for— when you're pitching Clubroom and running ads for it, are you running ads for like certain types of of things? Are you saying, hey, we're gonna provide you with, you know, the generic version of Propecia, we're gonna provide you with the generic version of Viagra, or is it one or the other, or is it all of them at this point?

Yeah, when we were pitching Clubroom, it was a range of all of those. So when we were exploring what conditions for men really resonated most at an efficient, at an efficient CAC, worthy of building a business, right? And so at the end of the day, these companies really are successful when you can build a recurring engine, right? There's a willingness to pay, there's a margin structure, and there's a proprietary set of distribution channels that allows you to pour an amount of capital into that and grow the company. And so, you know, we, we looked at a range of different medical conditions that had different margin profiles, different medication offerings, and then went to market and tested those to get a good sense of what men would be willing to pay for each of them.

Uh, so you test price point right out of the gate as well?

Price point, offering, the whole thing.

And so after you've spent the $50,000 or $100,000 sort of proving the business model, uh, you raise— you got to raise money, right? You're going to need a team, you're going to need to build a much better app that like where you're not manually emailing customers. Uh, do you raise money from Atomic or do you go to VCs at that point?

Yes. So, so at that point, um, It's a mix of both. So Atomic has a large fund that's able to contribute into rounds. What I did, and I think what most of our founders have done, is they bring in other great partners into the round so that you get even smarter people that are experts in different areas depending on your business. And so for my company, when I decided to found this, we decided to partner with Kirsten Green at Forerunner and Josh Kushner at Thrive. The two of them are incredible human beings, some of the best investors I've ever worked with today, and still to this day are exceptionally valuable and involved in the business even on a week-to-week basis. But they were truly experts in how you revolutionize old industry with new behavior, new business models, new brands, right? And they've really, they've proven that from Harry's and Warby to Dollar Shave Club and Jet and Glossier and Bonobos, and the list goes on and on.

Sure.

And so at that point when we decided to build Him, we raised from those two funds, and Atomic also participated in that round. And that was really our seed financing.

And how much did you raise in that seed financing?

Um, you know, don't quote me on this, but it's somewhere, I want to say, between $5 and $6 million. I can't really remember.

And what's been the total fundraise to date? And can you talk about valuation? I've certainly seen that you're a unicorn. Certainly got to be 9 figures that you've raised. How much have you raised? What's that valuation?

Yeah, we've raised over $200 million to date. And yes, the last public valuation was over $1 billion. And so that's kind of where we're at today.

Gotcha. And then can you talk a little bit about structure? I'm curious because when you're building a business, generally, the founder controls the entire business until they start raising money and then VCs start owning a share of the business. And at some point, either the founder still has majority share or doesn't have majority share, but there was really like two parties, founders and VCs. Here there's a third party where there's Atomic. So who sits on the board? Who controls the board? Um, like what does that structure look like?

Yeah. So the way we think about it at Atomic, it is, it is essentially that you're co-founding your company with Atomic. Atomic is a group of operators that are highly incentivized to make sure that all of the companies we found are wildly successful. And so there are a number of partners at Atomic. Each of those partners will take lead with different companies and with different founders and be essentially the operational lead for Atomic with that company. And so the way you think about it is, as you join Atomic, you're going to be co-founding your business with a huge group of individuals. And this group of individuals from strategic finance, distribution, marketing, sales, strategy, accounting, legal, HR are all available to you and not on a kind of as-needed service basis, but truly as a part of your team. And so it's a pretty incredible advantage that allows me as a founder or anybody else as a founder to focus on the one or two things that actually matters for your business, right? And that might be building the brand, it might be finding the distribution channel, it might be sourcing the product. But it, but allows you to co-found the business at scale. And so structurally, that's what the business looks like. You're co-founding it and you're splitting equity depending on the situation. And then when you raise external capital, we are all equally diluted by that external capital.

And so who decides to raise external capital? Like, do you need to— like, let's say, you know, I was a member of— I was a, you know, a residence member, an entrepreneur in residence at Atomic, and I was like, okay, great, this business is working. We all sort of agreed to that. I go out and pitch funds. Am I making the call? Is Atomic making the call? Or like, what's happening there?

No, the CEO that gets put in place and is taking charge of that effort has complete autonomy to make the decision of who they want to work with, what partners, what VCs. You know, at this point, Atomic and us as partners have worked with, you know, the vast majority of GPs at the funds in the Valley. And so we can give guidance based on expertise or specialty or past experience with a certain fund or a certain set of individuals, but it is always that individual who finds that kind of personal connection with the board members and the new investors that they want to be bringing in.

Gotcha. Okay. So it sounds like the CEO has a lot more autonomy. Um, and can you talk about who sits on the board of, uh, of Hims Hers, or is that confidential?

Uh, the, the board is confidential at this point, but it's fairly reflective of the major investors in the company. So just like any other structured startup and board, your primary investors are the ones that are taking board seats for the company.

Gotcha. Okay. Okay. I want to dig into hims and hers a little bit more, and I think, look, maybe where I can start is where I can— I can start by explaining what it does, and you can correct me if I'm wrong since you're actually running the business.

Perfect.

You know, it's a men's wellness brand, and, well, hims is a men's wellness brand, hers is a women's wellness And basically you're trying to make medicine available that has been scientifically proven to do what it does without the headaches and inconvenience of having to walk into a doctor's office, get a prescription, and do a bunch of bullshit before you get your medicine.

I think that's a good way to put it. The way I'd put it is that Hims Hers is a healthcare company that makes it easier for you to get access to experts and the medicine and treatments you need for a range of dozens of different conditions you're worried about.

That's a great way. So, you know, like when I was doing research about Hims Hers, I saw, you know, I read a bunch of other interviews that you've done. You said you did $1 million in sales the first week that you launched the brand, that you launched Hims, and that was the worst week you've ever had.

That's right.

That's absolutely bananas. Like, you know, in 2013, like Casper, which at the time was certainly the DTC darling of the world, did $1 million their first month, and everyone was like, how is that humanly possible? And you've like moved the bar much, much higher to do $1 million in your first week.

I'm sure there's somebody out there somewhere that's gonna do $1 million in their first day in the next few years.

Yeah, yeah, I'm sure there is as well. And like, um, uh, you know, I hope it comes out of Atomic, and I hope I'm an investor in that company. I have no idea what it's going to be, but, uh, I'm sure the bar is moving up every day, sir. Um, can you tell— talk a little bit about how you achieved the million? Was the million dollars in sales the first week generally a result of you going to the guys who had signed up at Clubroom saying, hey, come buy this, or was it something else? And more importantly, week 2 you did another million dollars. Um, how did you get those customers in the door?

Yeah, it's a great question. So, um, you know, the, the way in which we did that, I think reflecting on it, was having a very solid understanding of the type of guy we were going to go after, the type of messaging that worked, the type of brand that resonated, and the type of offering that we knew they wanted to buy. And so, you know, while people say we did $1 million in our first week, they think, okay, well, we launched and all of a sudden when we started learning that first day, when we started learning, people just came and started running towards us. And I think that's where there's a big big education gap. In fact, there was probably 2 and a half years before that, um, when we were really understanding our person, right? We were getting customer insights. We were talking to men, we were asking them about how it made them feel to be losing their hair or to be struggling sexually or to be feeling like they didn't have energy or they had acne in their mid, mid-20s or late 30s. And that didn't seem right, but really understanding who our person was. And so there's, there's years of doing that research and in particular years of figuring out what is the brand that activates that customer, right? And some of the key insights were stigma is a huge problem, right? There was this concept of men being too tough to take care of themselves and brushing it off. And so there's this whole kind of toxic masculinity that we had to crush as a brand to, to encourage and empower people to go and take care of themselves. And so that was a set of insights. There was a whole telemedicine component. As you said, like, I'm the last person to want to go to the, like, the doctors, and I'll really only go unless I'm, like, bleeding from the head or I broke an arm or something. And so if I could make that easier from my phone— 90% of our orders take place on their mobile device— talk to, talk to a physician, click buttons, answer questions, take photos, and then And then I get access to the things I needed, like, let's make it simple, right? So there was these insights we knew needed to happen. And so, you know, while we had an incredible first week, and I think it's an amazing sign of the success, I don't want to undervalue the fact that it was probably 2 years of work to understand the customer in order to launch on that day and say, we have a high degree of confidence what we're launching, people are going to love because we've been talking to them for a really long time.

Definitely. I absolutely think that's certainly worthy of being said. You know, One of the other things I saw when I was doing research for this was that multiple branding agencies have taken credit for building, for building Hims.

That's right.

Can you set the record straight? Who was the branding agency that you guys actually worked with?

So we worked with a lot of branding agencies, to be totally honest. And what we did was, and this was, I think, some of the secret sauce, because some of the insights coming out of this were you could build dozens of different types of brands What we knew we wanted to do was build a brand that, um, could cross gender. We knew hims and hers or men and women together was going to be critical because we had this idea of a future healthcare brand and that wasn't only men and it wasn't only women. And so we didn't want to build a brand that only segmented to men. We wanted to build a brand that was accepting of where you felt you were as a man. You could be young, old, straight, gay, black, white, doesn't matter. but it needed to be as modern and fresh and leaning into that, that flexibility that modern masculinity has. Sure. And so what we did was we actually put out a lot of agencies and they came back with concepts. And then from there, we filter down to a couple agencies. And in particular, we worked with Partners in Spade out in New York, which I think is one of the best branding agencies in the world. And what we did with them was actually designed multiple brands. So we identified them as a great creative eye talent and strategic talent, and we actually designed 5 or 6 brands and saw how they felt. And we sat on them for weeks, literally weeks, different names. Some of the names were Triple Point, McCoy. We almost named the company McCoy. There's Admiral was one of them. And so this process of finding out who we were really happened with Partners in Spade. And then what we did is we took a lot of that work and we brought in some expert teams like Gin Lane out of New York. Our VP of design is a guy named Daniel Kanger, who ran the creative team at Gin Lane for a decade. He joined us recently a few months ago, and he's been working with us from the beginning. and we took that brand understanding from Partners in Spade and we said, how do we now visualize this? How do we art direct it? How do we put it on sites, on mobile devices? And went from there. And so, you know, the reality is, is that we had a lot of people giving us input. Gotcha. And we had a lot of people designing different concepts. And then what we did internally at the end of the day is we art directed every single photo shoot. By we, I mean me and Hillary, our, you know, co-founder of mine and head of product right now. We were on the shoot, we were writing the copy, we were owning that spirit of the brand so that it really was as pure to what we wanted it to be as possible.

Gotcha. Okay. So you've got branding coming from multiple agencies with sort of your curation and your vision being executed. You've got all this feedback that you've received from customers and 2.5 years of studying who you think is gonna buy the product and what you think the barriers are to buying these products already. You launch and you have $1 million in sales the first week. You know, one of the things I've heard you talk a lot about, and you mentioned this earlier during our conversation as well, is a proprietary marketing strategy, which is you don't want to be subject to the whims of auction-based marketing platforms like Facebook and Instagram. So first, I want to understand, are you able to advertise on Facebook and Instagram, or are you not able to? I'm always curious. Like, you know, you are able to. Yes. Gotcha. And then, you know, those, you know, I built an e-commerce business that was largely based off of auction-based advertising and found it to be successful, but certainly, you know, a roller coaster ride. What are the— tell me some of the marketing, like marketing things that you do that, like, you know, certainly everyone has seen your, you know, your television ads and everyone has seen your out-of-home ads. Everyone knows that you advertise on top of urinals and, you know, in the train station at New York. What are some more unique things that you guys do? And tell me how this sort of— tell me how you're buying this type of advertising. Like, you know, advertising in trains in New York, anyone can do. Advertising in urinals and stadiums, a lot of people haven't done. Are you calling up these stadiums, or is there a third party that you are working with?

Right. So the way we think about this is we want to create inventory, not buy inventory. And so our entire marketing team and our entire marketing strategy goes into every room they walk into, in every store, in every gym, and every locker room, and every restaurant. And their eyes are looking— every bar— and their eyes are looking around for literally things we could own, right, that we could have a relationship with. And, and the criteria is Where is your target customer, man or woman? And it's different for different medical conditions, right? Maybe ED is something you want to talk about when you're in a urinal, but hair loss is something you want to talk about when you're in the gym locker room and you're looking in the mirror and you're realizing that, you know, you're kind of thinning at top. Um, but something like birth control maybe is appropriate in a completely different setting for women. And acne for women is appropriate in a completely other environment. And so this is how our marketing team thinks about it. And, and the reason we think about this is because for better or worse, the auction-based marketing channels are effective and they're efficient. And for that reason, companies become dependent on them. And in building companies in the last decade at Atomic, I've seen a lot of companies that become too dependent on—

for sure, of course—

what happens is, is the saturation rates as you want to continue to grow and pump more dollars into those channels The costs go up, the curves get worse, the retention of the customer gets worse, and all of a sudden you're really stuck in this limbo. And so the strategy for us is we want to have as little of our capital being deployed in free market auction-based platforms, and we want to be owning proprietary relationships with other partners. And so there is no third-party agency, right? There's no like black market for buying a urinal. You have to go to the SF Giants and say, hey, I love the walls and the urinals, and I don't think you're making any money off of it. What if we paid you X?

So have you gone to like the guys who own Equinox, like related properties, and been like, hey, we want to advertise in the locker room at Equinox? I mean, I would imagine they'd say no, but is that something that you guys have done in the past?

I've talked to the executive team at Equinox many times. Um, you know, there, there are a lot of different opportunities when you start opening your mind. And so, yeah, you know, for example, for I mean, there's all types of stuff. We were sitting in a bar one night talking about it, and I was like tearing— I've got this nervous habit of tearing the bar coasters, right, into like pieces. And I look and it's like a Budweiser bar coaster. Like, well, somebody on our team goes, why don't we just buy it? Why don't we do that? You know, we're sitting there right there. So now if you're in a New York bar or San Francisco bar, in a good chunk of the bars, the coasters are hymns. right, with hilarious statements and branded. And the amount of text messages I get from friends and family saying, hey, this is incredible, I would have never imagined you'd do that. It just came from the creativity that we've empowered our team to have of, hey, go find opportunities.

Sure. And do you have to work with bars individually to do that, or can you do that at scale with a certain, like, coaster manufacturer?

Yeah, you know, you try to do both and you end up having to do both. Yeah. At a certain point you get efficiencies and you find individuals that own multiple bars or have a network of bars, or maybe it's the alcohol distributor or something, right? But it is coming from this first place, just kind of like open creativity of finding opportunities.

Yeah. You know what's crazy is during this conversation, I've realized that you're the first startup that is not subject to the immediate needs of driving revenue today. Like in order to build marketing channels like urinals at SF Giants, are you having multiple conversations the executive team at Related Properties. You need to be able to be— you have to be comfortable with the idea that the revenue you generate from conversations you have today will not come from us. And at most startups, they don't have that type of like timeline. You know, you have to be like, hey, I'm gonna have a conversation about generating revenue in the next few days. And how is that possible? Is it because your investors are more long-term focused? Is it because you already have such a large moat in terms of in terms of capital, or like, where, like, why is it that you're singularly not focused on revenue in the next 30 days?

I think it's a great question. You know, when I started the company, and I think in part because I've built a number of companies before, the opportunity for, for him and hers, in my mind, is to build a multi-generational public company. Like, this is a large opportunity. You're talking about probably 80% of healthcare moving to digital telemedicine in the next 5 years or so. That's a huge, huge opportunity. Maybe one of the biggest left in, in that I'm aware of, right? You've got retail, you've got commerce, you've got real estate, transportation, and then you've got healthcare. Um, and it hasn't been touched yet. And so, you know, from the beginning, that was the vision. And when I went and pitched this to Kirsten and Josh, I made it very clear that's what I'm going for. I have no desire for this company to be acquired, you know, at a couple hundred million and that's a great exit and then boom, I'm sitting on a beach. No desire. Like, this is one of those ones you really just put your head down and go for it. And in order to do that, you have to invest in the brand. And investing in the brand, what that actually means is losing money. You have to lose a certain amount of money for the purpose of building equity-based value and relationships and communications with your customers. It is always cheaper to buy an advertisement on Facebook, right? Or to buy a Google ad at low volume. But you can only build so much from a true depth of relationship with customers and the variation of customers by doing those types of channels. And so what I made very clear to the investors was we're going to allocate a certain amount of capital to these types of initiatives where every single month we're going to be testing, we're going to be learning, we're going to be making brand investments. And then for the other chunk of capital, which is still the majority chunk of capital, it's going to be exceptionally efficient and we're going to hold ourselves accountable to real numbers and making money back. And they signed up for that. And to this day, we still have those parameters in place where there's an efficient—

Have the percentages changed? Have the percentages changed or are they pretty similar?

You know, the percentages have been roughly the same.

The majority goes to non-brand or more like— I don't want to call it direct response, but more like I'm looking for revenue in the short term versus building brand.

That's right. The larger bucket—

First, I'm impressed by your marketing budget then because I see— I know how much ads in the New York City subway cost, and those are brand advertisements, right? And that is a lot of money already. And so really impressed by the marketing budget. How do you work on attribution when it comes to like the idea that you have these chunks that are happening today and chunks that are brand value? Like, you know, your test, you know, I think that's really hard. Like, I'll give you an example. At Native, we were constantly trying to drive people into stores at Target, at Walmart. And so we tried digital ads and we're like, you know, do we see a lift in this certain zip code if we bombard these people people with ads. And so we ran those types of, those types of tests. How do you know if, like, you know, if you're owning coasters and you're owning the San Francisco Giants urinals, what's working and what's not?

Yeah, so the only way you do this is through a set of control tests, right? So depending on the brand campaign, maybe you're talking about TV, you identify the zip codes that those TV commercials went live, you look at spike attribution analysis, of the minute it went live and the historical trends before that minute and the 6 minutes after that. And then look at the zip code, you know, 2 blocks away and see if you got that same, that same delta, right?

So it makes sense, but SF Giants is much harder. Are you looking at, is there a spike during games?

SF Giants is the same thing, right? So again, 90% of purchases are taking place on mobile. Look at the day games, look at the times of those games, look at the traffic during those games. And understand, right? And so you can do spike-based analysis based on zip in that type of world. And then the other thing you can do is more traditional, and this is never accurate to a perfect degree, but at least it's directionally helpful, is post-purchase and pre-purchase surveys, right? Like, how did you hear about us? I heard about you from seeing it on an advertisement somewhere. Which advertisement? Boom. And then you can get an idea, at least proportionally, where that uncategorized traffic is coming from, right? Because traffic that's coming directly to your homepage, everyone will say, "Hey, that's free traffic, that's organic." The vast majority of it's not organic, you paid for it somewhere, you just have to figure out where you bought it from.

Yeah, and can you tell me a little bit about the marketing channels that you spend money on today? So a big bucket is still sort of direct response and a big bucket is brand. What are the top 3?

You know, there really are no top 3 channels. It's buckets. And then within the buckets are dozens of little buckets. So you've got the traditional digital channels that you can think of, right? That traditional digital is one bucket, right? That's like all the Facebooks and Googles and Instagrams and TikToks and Snapchats and dating apps and affiliate partnerships and all that kind of stuff. There's an audio bucket. You've got all types of audio. People hear podcast ads, they hear streaming ads, they hear radio talk hosts, things of that sort, podcasts. There's TV buckets, right? And then there's very non-traditional buckets that like urinals or planes flying over Coachella or coasters sitting at bars or things like that.

Is that the order of buckets where you spend money? Digital, Then audio, then TV. No. Okay, what— look, in audio, is podcast the number one bucket?

Um, there are— the word podcast, there's like 5.

Let me change the question then. In digital, is Facebook slash Instagram the number one bucket?

Uh, it's the largest within digital.

Okay. Um, what, what's another one that's larger within digital?

Well, within digital you also have dating apps, you have affiliate networks, You've got partnerships with education sites, right? I mean, there's— I mean, there are again the traditional things like Facebook, and I'm not going to tell you all the things we do because your listeners need to literally think about what their product does and what their customers need and then think, okay, where are they and how do I talk to them? And so we do that for our customers all the time. That doesn't mean that Facebook and Instagram and Twitter and all those are not tested, but they're, they're not really the majority.

They're not the majority for you. Uh, the traditional digital spend is not the majority of spend for you. Okay, gotcha. Yeah, I couldn't agree more with the idea that like, um, you know, uh, you have to speak to your customers where they are, and what works for one business won't work for another business.

I wish there was a silver bullet. I wish somebody had told me this list of silver bullets, but unfortunately you just have to really understand who your person is and then go think about where they're spending their time.

Couldn't agree more with that. Okay, so you did $1 million in sales the first week. Can you talk about like revenue or growth year over year? Where are you at? And from a perspective of understanding that you're spending a good portion of your marketing dollars on non-direct response ads, but on more brand equity ads, are you profitable or are you not?

Today we are not profitable. We are relatively close. So I would say, you know, in the coming years when we want to pull that switch, we are definitely capable of pulling that switch, which is a great position to be in. Currently, we reinvest essentially all of those profits back into the engine and grow into new conditions. And so we recently launched a behavioral health— or I'm sorry, a primary care category that has everything from like, you know, asthma and allergies and sinus infections and UTIs, etc. And so continue to expand on that front. From a kind of public numbers, I think what's public is we've done— we did over $100 million in sales last year. We did about over a million telemedicine visits in the last year or year and a half on the platform. So that's actually a patient talking with a physician and getting a treatment evaluation.

Is that like an asynchronous or synchronous communication?

It totally depends on the condition and the state. So it's both. And it also depends on what the patient prefers. And then the company's only been live for 2 years, right? And so you can think of growth rates. If we did $100 million in sales last year, it was a pretty fast growth rate from the year before.

Yeah, certainly was incredible growth. I don't think anyone is questioning growth. At Hims Hers. I think it's pretty phenomenal. What— can you talk a little bit about categories that are leading that growth and also whether it's Hims or Hers that are leading that growth?

Yeah, so the historical categories, which are Hims, which have been around, you know, a year to a year and a half longer than Hers, are still the majority of the business, right, given the time. The majority of things that we are launching today and that we plan to be launching this year, there's maybe, I think, 50 launches in 2020 that we're rolling out, each launch is a different medical condition that a patient can get evaluated for on the platform. The vast majority of those are hims and hers together. So they're non-gender-specific treatments. And these are things like, you know, the majority of things we care about, right? People worry about sleep, they worry about anxiety, they worry about their health, their immunity, cholesterol, like normal human stuff. And so they're non-gender-specific. And so there's a pretty big investment for from our side to bring those offerings essentially out to market together with Hims and Hers in a unified way.

Got it. And so Hims is the majority of the business. Can you talk a little bit about categories as it goes? Like I've looked at some of your categories, I think it's ED, hair loss, and then I think it's also cold sores. Is that right?

Those are a few of them. Some of the big ones, you've got acne and anti-aging. You then have supplements for sleep, immunity, heart health. Um, uh, and then you've got, uh, the sexual health stuff, which is, you know, STDs and, uh, erectile dysfunction as well.

And for the anti-aging stuff, is it like retinoid— like, is it retinols that you guys are prescribing, or is it over-the-counter stuff?

Uh, it's all— so all those categories are prescription categories. So we are actually compounding, uh, prescription tretinoin in high concentrations that are custom formulas for your skin type, your age, the type of acne you're experiencing, or the type of anti-aging that you're struggling with. And getting those shipped to you overnight.

And so do you guys own a pharmacy at this point? Like, I imagine there's a lot of regulatory tailwinds that are going in your direction. Patents are expiring, like Viagra. States are opening up their telemedicine laws. Do you guys own a pharmacy or are you working with a third-party pharmacy?

Both, both. So we work with a number of pharmacy partners in the provider network, and then we also have publicly announced a very large, I think it's a 400,000-square-foot pharmacy operation fulfillment center in Ohio that will be going live in the next few months.

And how did you— like, I guess, were there any, you know, obstacles when you guys were growing the regulatory side of things? You know, like, let me give you an example. With Uber and Airbnb, those guys were like, look, we're gonna do this, we're gonna run into a bunch of regulatory hurdles, and when we run into those regulatory hurdles, we're gonna jump— we're gonna figure out ways around them or over them. Sometimes that's right and sometimes that's not. Certainly a little bit harder with medicine, and I don't mean to like say that you— I think what you guys are doing is phenomenal and genuinely providing a real service to consumers who are either too embarrassed or can't afford to go to the doctor.

Yeah.

So I'm really like, I'm genuinely thankful that you guys exist in the world. Thank you. You know, were there regulatory hurdles, or were you like, were you on the Uber, Airbnb side of the spectrum, or were you on the Procter Gamble side of the spectrum?

Probably neither, right? We're somewhere in the middle. We have a, you know, a very veteran executive team in these areas in particular. You know, our Chief Legal Officer ran the telemedicine practice at Jones Day for a decade. Our head of regulatory— our SVP of Regulatory Affairs and Legislation and Public Policy ran these initiatives at Lyft. And it's Square and it's Zenefits, right? And has been doing it for over a decade. And so our comms executives ran it at Lyft as well. And so when you look at maybe Lyft versus Uber and PG&E, or P&G, they were kind of in the middle. And I think that's maybe where we fall from a risk tolerance standpoint, meaning we are always pushing on behalf of our customers, but we are going to the regulators and we're going to the medical boards in, in sit-down conversations explaining why we think this is right, as opposed to breaking the law and then having the conversation afterwards. So I think we have been very careful, um, you know, to, to be as, um, as safe as possible to make sure that we are the gold standard for telemedicine, because this market of telemedicine is growing and changing and, and adapting so quickly. And so we've kind of put it on ourselves. And I feel like that's been a really important part of our strategy to be the talking point to these medical boards and explaining the benefits of all of the things you said. And so in order to do that, you have to keep the credibility of following the rules and following the laws and, and actually help change the laws. And we've done that in a number of states. We've actually had laws changed in the last few months and in the last couple of years. And I would expect that continue to happen as these legislators understand the benefits of of telemedicine.

And how, to that effect, you're talking about being a gold standard of telemedicine. How do you think about your competitors? Some of your competitors are well-funded, some of them less funded. Is it, if people are all prescribing generic Viagra or generic Propecia, it's sort of a race to the bottom to that effect. Is your thought process, hey, I want to create proprietary medicines, sort of like the anti-aging, which are customized to people to build a moat? Or how do you think about separating yourself from your competitors?

Yeah, I think it's really interesting. At Hims Hers, the vast majority of what people buy are treatment solutions that are fairly comprehensive. And so they might include, like you said, a generic pharmaceutical, like a finasteride or like a sildenafil or like a Valtrex type medication. But what they also include are shampoos and conditioners and moisturizers and custom topical solutions and vitamins and that offering. And we see that across the board when customers come to us. They don't come to us because they're looking for cheap drugs. Those options have always existed. You've had online pharmacies, Canadian pharmacies exist for years. What we see from our customers is they're in their teens and 20s and 30s. And they're learning about these conditions for the first time, and they're coming because they want to get educated by a physician and they want a comprehensive treatment that's custom and tailored to them. And so, you know, I, I think the, um, the commoditization of the pharmaceuticals should happen, right? Because they are generics and should be affordable and they should be cheap. And the more that companies exist in the space, the better for all customers. And I think we will continue to be able to differentiate by offering real solutions. And a lot of times the solutions are flexibility and options and customized care. And as part of that might include one of these medicines.

Does that push back against like the scientific background of the, you know, of the proven medicines? So like if you're using Propecia, which, you know, the FDA has said helps you keep your hair and you're also selling, you know, if you're selling like Rogaine, I understand it, you know, they're also FDA regulated, but like, are there like FDA approved shampoos for instance? That, uh, you know, keep— they'll allow you to keep your hair.

Yeah, you know, there's always that spectrum, right? And I think one of the things that, that I believe is that— and this is— this comes from a kind of a deep understanding of our customer. Our customer, when they think about their health, it includes pharmaceutical medicines on one side, and it could include meditation on the other side. And they're both healthcare. Like, they truly are both healthcare, right? And so What I believe we need to offer as a modern platform is flexibility, saying, hey, if you're worried about sleep, there's a lot of things we could do. There's cognitive behavioral therapy. If you haven't tried that, it's incredibly effective. There's things that are over-the-counter and safe that you can use on occasion, like melatonin, chamomile, L-theanine blend. Um, there's Chinese medicine that has been proven to be effective. And then there's also pharmaceuticals. Right? There are, there are, there are side effects. There are pros and cons to all of these. And I think what we've seen is that customers in our demographic that are coming into their 20s and 30s and 40s, they want that flexibility. And depending on the severity of what they're experiencing and what they've tried in the past, they might have different spectrums for different conditions. And so we as a platform want to make sure we are always standing by the statement that everything on the platform has the best medical clinical experience it can have. That doesn't necessarily mean it's always FDA approved.

Sure.

Um, but when you talk to a doctor about supplements, 9 out of 10 are going to say, if you're going to try something, that's the one to try.

Yeah.

Um, and that's really what we're going to always lean on.

That's fair. I appreciate that sort of clarity. Um, really quick questions about, uh, understanding your team size, cause I know we're running up against some time. How large is the team of doctors and nurses that you have on your staff that sort of prescribe medication?

Well, we have over 300 physicians and providers on the platform.

And how quickly are they writing prescriptions? Is there like a metric where you're like, uh, on average a doctor can write a prescription— like, on average doctors are writing prescriptions every 7 minutes?

It's not, it's not a metric we, we choose at all. The provider networks essentially have complete independence for how they treat patients. We are the platform that's connecting the patient to that external provider network. And so they get paid essentially on an hourly basis just to see as many patients as they're able to see.

What's the rate of people that they prescribe medicines to?

It totally depends on the medical condition, you know. So there are safe medications when you're talking about like a tretinoin for acne, where you might see, you know, 90% of those patients coming through the door qualify for that medication, and maybe 10% based on other medications they're on do not. And then there's more serious medications like, let's say, a birth control that has blood clot potential. Depending on the patient, you might have a 50 or 60% prescribe rate. And so it really depends on the physician's understanding of that patient, and the patient, before they get to that point, goes through a full consultation with that physician. So they're talking about their medical history, the drugs they're on, any side effects they've experienced in the past, in the past, et cetera. So the range is quite large depending on the medicine.

Gotcha. Very real. Makes a lot of sense. Two questions actually, two more questions actually. One is, how has COVID-19 sort of affected the business? Has it been great because no one wants to go to the doctor? And I mean great with the understanding that this is a catastrophe for the world. Or has it been tough? Like, how is COVID— certainly it affects team morale by virtue of the fact that all of you guys aren't able to go to the same office every day. How is it affecting business?

Sure. You know, I think what I've experienced most from the COVID-19 tragedy is that our team is energized like I've never seen it before. It is a full-on wartime mentality within the digital office at the moment, within Slack, like I've never seen anybody on our team act. And so, you know, we are in a position, I think, like many, to actually change our priorities to help the situation. You've got a whole population of people staying at home. Those people at home are still struggling with asthma and bug bites and UTIs and yeast infections and acne and sinus infections, etc., right? But it is more important than ever for them to stay at home, both for the safety of themselves, their family, and their community, but also to give as much relief as we possibly can to the healthcare system. right? And not going in for non-life-critical illnesses. And so what I've seen is our team be energized to think about first principles. What can we use our assets for? We have physicians that are experts, we have telemedicine platforms, we have a pharmacy fulfillment brand. How do we get things to customers that can help them and help the health providers that are on the front lines? And so you saw that we launched the primary care offering a week or two ago that opens up a huge telemedicine platform. And I hope in the coming weeks and months we'll be able to continue to expand that to more things because I think from a business standpoint, that's what I've seen more than anything is our team is trying to reprioritize in order to help the current situation.

And so has there been an acceleration in people's adoption of telemedicine in the last month?

I think across the board there has been an acceleration, right? When you have people at home and unable to go into a physician's office, telemedicine is, is the perfect solution. And so I think across the board, people that are working in digital environments, whether that's tele-education, telemedicine, tele-video conferencing, right, like this, those businesses are absolutely seeing customers come to them in exchange for the in-person opportunities.

Gotcha. Okay, my final question is about the state of the direct-to-consumer industry. You know, I read this quote by Gary Vaynerchuk where he said 98% of direct-to-consumer businesses are out of business right now and just don't know it. Basically meaning that they're addicted to the Facebooks and Pinterests of the world, their unit economics will never work. There's been a come-to-Jesus moment with the failure of Brandless and with the headwinds around Outdoor Voices. Where is the industry 5 years from now? Or one, is Gary Vaynerchuk right? And where is the industry 5 years from now?

Now? You know, I think there are, there are aspects of what Gary said that are right. There have been a number of companies and a large swell of companies in the last couple of years that have been deploying capital into open auction-based platforms like we talked about that have completely upside-down economics. And it's not because they're building their brand and investing strategically, but because literally the economics don't make sense, right? But they're trying to figure them out, and every founder is always working working their butt off to try to make them work. And so, you know, in an environment of the last few years when you've had the capital and the investors willing to fund that experimentation, it's beautiful. In an environment like today where I think it's going to be exceptionally hard to raise capital, I think flat rounds will be the next 2 to 3x rounds, you know, because it'll be so hard to get. I think, I think he's right in that a lot of those companies are going to struggle to get profitable. And they're going to struggle to raise capital. And so I do think that is a reality. I think the market has been able to finance the exploration for a number of years, and we're now getting to a point where that willingness to finance the R&D is no longer there. And so companies need to be exceptionally efficient at finding their profitable cohorts, finding their profitable customers and channels, and focusing on those. Because in a situation like we have right now with the markets and with COVID-19, survival is growth. Like, if you survive the next year or two, you have grown substantially. And I think as a founder, that's the only thing I'm thinking about and the thing that I would recommend all other founders to be thinking about.

And what are the things that you've done in order to, like, in order to focus on that? So if you're focused on survival or maintaining, or like ensuring that you get through this crisis, have you pulled back on marketing? Have you— has there been hiring freezes? Or are you like, look, Full steam ahead, damn the torpedoes.

You know, so we're in a very privileged position in that we have, you know, a material balance sheet of capital in the bank that gives us flexibility to get to a point where we're profitable. And so, you know, we're not dependent on raising outside capital, which is phenomenal, but we did immediately institute hiring freezes, comp freezes, and then we communicated this to the team saying, hey, We need to evaluate the impact of what's happening to the business. We have no idea what it'll be. It might be positive, it might be terrible, it might be completely trivial. But until then, let's all just stay calm and let's stay as we are and learn and look at the data to make decisions. And so we're in that process right now of evaluating data in real time as it's coming in day over day and week over week. And until then, we're not making any big strategic moves until we can get a good sense of what's going to happen. Got it.

Fantastic. Really appreciate the time, Andrew. Like, love chatting with you. Love being able to see a direct-to-consumer business that has a long-term focus instead of a short-term one. Not sure I've ever seen that in the history of my life before. And, you know, congratulations, a lot of props to you, not only for all the success at Atomic, but really, hims and hers is the gold standard of direct-to-consumer businesses today. I hope you're incredibly proud of what you've accomplished. Like, you know, 20 years from now, you might be looking back on your life and being like, this is gonna be the first line of my obituary. And, you know, I hope you feel that pride today and don't only feel it 20 years from now.

Thank you, thank you. Appreciate that.

Great, thanks for the time. Really appreciate it. Awesome.