Exit Strategy S1:E7 //Chris Davi: Scaling to $170m in 4 Years and Then Going Bankrupt

Alright, welcome to the new episode of The Exit Strategy Podcast. We're here with Chris Davis from Lootcrate. Chris, super excited to meet you. You and I have never chatted before, which rarely happens to me in the e-commerce industry. Super excited to get to chat today.

Yeah, no, excited to be here and looking forward to it and just Super good to connect.

So Loot Crate is a subscription box to geeky products for $20 a month or around that price point. Is that a fair way to describe Loot Crate or is that completely wrong?

That's, I mean, that's kind of the origins of Loot Crate and one of our products now, but, you know, we've gotten into, you know, 25 different subscription lines, bunch of different price points and offerings. But the original concept was $20 Comic-Con in a box, all the best products across pop culture, getting $40 to $60 of value for that $20 and in this really curated experience. So that's the origin, but it's evolved quite a bit.

Yeah. Is this one of those instances where like the origin is still the bread and butter of the business? Like a Native deodorant is the bread and butter of the business, or is this the place where the origin is like ancient history like Amazon, like, okay, yeah, we sell books, but we sell everything else too.

No, it's still our big— it's our largest product line, um, and really has that holistic, uh, anything across gaming, film, entertainment, um, yeah, genre feel.

Yeah, gotcha. Um, and when did the business launch? When did you guys like actually start the business?

We launched it in 2012, uh, and actually launched it at a startup weekend in Los Angeles. And, uh, because I'd gone to a bunch for fun, and it was like, this is no better place to launch a new company than at a Startup Weekend.

What happened to the startup? Like, do you go on stage to like pitch the business, or like what does a Startup Weekend look like?

It's literally a 2-day hackathon. I met my co-founder there, so we, you know, had everything teed up, launched it, and business took off kind of from day one there, and we were shipping a product 30 days later.

Did you come up with a concept during the hackathon, or—

No, that was before.

Yeah, I came in, walked in.

Came in with the concept.

You knew which one to do. Okay, gotcha. Okay, you launch in 2012. I've done a bunch of research about Loot Crate. I'm a huge fan of the business. By 2016, you're doing $100 million in revenue.

Yeah, we were doing, you know, $100 million. We were doing like $170 million revenue in 2016.

Yeah. $170 million. You're number 1 on the fastest— on the list of fastest-growing e-commerce companies by Inc. I read that in 2014 you had 200,000 subscribers, 2016 you've tripled that, you have 600,000 subscribers. 100%. So tell me how the hell you built a business to do 100— You know, 2012 e-commerce is not what it is today. I was in e-commerce in 2012, you were trying to buy Facebook likes, which meant nothing. When you posted on your page on Facebook, there were still a bunch of people who were like actively engaged on that. Today if you do that, zero people respond. Like, how do you build a business With like, you know, we interviewed the Hubble Contacts guys and Jesse was like, I asked Jesse, how'd you spend your first, you know, $10,000? He's like, Facebook, Instagram. Of course it's Facebook and Instagram. What did you do in 2012?

So yeah, we primarily didn't do any of the kind of traditional paid Facebook until 2014, really on the ad side. We were, our largest channel was influencer and really like all the new YouTube celebrity folks coming up. My brother had been early at Maker Studio and had launched a channel doing video game sketch comedy. My co-founder Matt had worked and managed a bunch of those guys. So we immediately, even that first weekend, were already pulling in some of these large creators with big followings. And so worked closely there and then scaled up. We were originally, any paid spend on Facebook for the first 2 years was on building our pages, buying likes, and doing all that.

Yeah.

And then Facebook was like, no, no, no, no more of that. So yeah, we were, you know, but that was, yeah, Facebook and some of those other channels were really pretty small for us until a couple years in.

Yeah, yeah, you said you didn't find, like you didn't really get investing or you didn't start investing in Facebook until 2014. Facebook didn't have like an ad engine until 2014. So in 2012, you're buying YouTube influencer, you're getting YouTube influencers to speak about the product?

Yeah, exactly. You know, traditional kind of performance affiliate deals, integrating some of them, we integrated actually in is, gave equity to some of the larger ones that we wanted to be a part of the business for a long time. But yeah, it was, you know, the product was super compelling and shareable for them. And so integrated them into the business from day one. And so when we were, yeah, when we were distributing product, they were, you know, opening it each month and sharing it with all of our subscribers.

Yeah, yeah, yeah. And so like, you know, today, like when I was running Native, I had a really difficult time getting influencers to do any pay for performance or like affiliate. They were all like, no, no, no, no, you need to give us X amount of cash before we do this thing. And we don't care how many sales we get. Like some people would, that wasn't true for 100% of the cases, but it was true for 90% of the cases. Back in 2013, 2012, 2014, are people still doing pay for performance?

Totally. And I think obviously there was at that time too, all the MCNs were scaling up. So there was like, you know, it was a mix of like, there were now these professional ad sales teams coming out of big media companies managing these guys, trying to charge massive amounts of money that weren't economical. But a lot of, I think they also charged more for products that weren't on brand. So when you're doing like a big CPG integration, you're gonna pay brand dollars, but if you're a cool brand they like to work with, we were able to build a network directly that way.

Are you still doing a lot of like pay per performance type of deals, or is it now generally sort of shifted to, we're a brand as well, we have to pay you upfront?

We've done both. I mean, we've spent, uh, and I think it comes down to everything from, you know, PewDiePie, who's number one.

Yeah.

And so I think we've had flexible approaches. A lot of it comes back to just that CAC math of we were doing it. We had 500 or 600 active influencers, so we had really great data on view-through, click-through conversion rates. So you could almost— yeah, if people wanted flat fee payments, you could calculate what the equivalent would have been. And so Um, you know, just a disciplined approach there. But yeah, we weren't— it changed quite a bit into 2015, 2016, and I think the market's even shifting again now with a lot of the MCNs dialing back and, uh, and now the CPMs on YouTube coming down in the last couple months.

And so, um, I, I guess two questions. One is, uh, do you— how many people does it take on your team to manage 500 or 600, like, you know, influencers? That team, we had one per— yeah, yeah. How big is that team?

That team at that time when it was at kind of a peak spend for us, which was in, you know, 2016, 2017, was 5 folks.

5 folks managing 500 people?

Yeah, 'cause well, some of it's high touch, some of it's low touch. And so, you know, we use basic CRM to communicate and there's a lot of automation in getting product out and we try to make the deals simple enough and repeatable enough that it wasn't particularly high touch, but at the end of the day, these are folks that we wanna make sure we had people available to talk to.

Yeah, and what were the types of, like, did you guys test offers with the influencers? And if so, what were the offers that worked?

Yeah, I mean, it was really the pretty basic— they should be able to have a discount code for their audience for rewarding them there. And really, unboxing and showing the product was always the winning approach. You know, doing little pre-roll or mid-roll ads, it doesn't— it's not nearly as effective. Same thing with podcasts, which is, I think, a very similar marketing medium. Like, having somebody open, talk about the products, be genuinely excited, always worked the best for us.

Yeah, it's crazy how much authenticity still gets through with like, you know, paid influencers. It's like somehow you still can't fake it.

No, I mean, we know.

I don't know why that's the case.

We know it. I mean, as a marketer, you're like, you don't want it to, you know, as a consumer, you know, as a marketer, sometimes you're optimistic that this, you know, less authentic, more scalable approach is gonna work, but it never does.

Yeah, but you know, when I'm watching like Game of Thrones, I'm like, okay, all of these guys are like, oh my God, there's this epic battle and whoever wins is gonna like rule Westeros forever. And whoever dies is gonna die. Like, there, there's no auth— like, I know what's going on. There's no authenticity. And yet, I'm in, like, you know, so engaged. And when an influencer is like, hawking a product versus genuinely excited about it, it's so clear. I don't know, I'm not sure if they're not as good actors, or if it's just like, you know, human beings have sort of been, like, have their own lie detector. And for certain things, we can figure it out.

And that's, I think, the most interesting thing with the influencers, they are the ultimate entrepreneurs. These guys had no startup capital and built— an audience of millions. So their currency has always been being authentic and, yeah, that fan base. So what we found over time was they were never willing to sacrifice that authentic, genuine relationship with their viewers on behalf of some brand who's going to come and go.

Sure.

So I think it makes the integrations work really well when they do, because, you know, their, their main currency is, is being, you know, trusted by their fan base.

Yeah. And so are you still working with any of the influencers that you started working with in 2012? Like, has anyone lasted 8 years?

Yeah, some have, some, I mean, a lot of those folks have shifted their approach too. And people have moved now, you know, some people are Twitch exclusive, some people are, it's been really interesting to watch the evolution there, but yeah, we're still working with folks from back in that era.

And so like 2014, you have 200,000 subscribers, 2016, 600,000 subscribers. At what point do you fundraise?

So we had taken a really small seed check $25K right when we launched, and then we didn't raise again until we were at $150 million run rate. So we bootstrapped through, you know, that whole period until 2016.

Sorry, my internet cut off a little bit. You took a small seed check. Did you say it was $25,000?

Yeah, we did a $25K seed check right when we launched with a couple guys out of LA, Nick Ruff and Dave Waxman, and then didn't raise again until that Series A—

until the Series A in 2016.

Yeah, so yeah.

So you're profitable, you're profitable at 200,000 subscribers, or like, 'cause you're burning, there's no way you just burned $25,000 over 4 years. You must be profitable.

We were operating essentially at just, yeah, just below and at breakeven. So we were reinvesting everything.

Yeah. And how many people are the team before you raised that Series A?

We were at probably 60, 70 folks at that point.

Okay, and are you like, tell me what's going on in your head. Like, you know, when Native was doing well and like, I was like, this can't be fucking possible. Like, I can't believe that we didn't have to raise more money in order to build such a big business. And I also felt like everything was held together with duct tape, 'cause I was like, I don't know when like, you know, water is starting to, we're gonna start leaking on this ship. And I really don't know when like a torpedo is gonna hit the ship and just blow this whole thing apart. Never happened, but like I was constantly worried about that. What is going on in your head when, you know, you're doing $100 million in revenue, you've raised $25,000, and like at the time, like, you know, you were not Casper Mattresses, and then like not as— like Casper everybody knew about. It was like this DTC darling. Loot Crate wasn't. Why wasn't it, and what's going on in your head?

I mean, so we were— I mean, I think we were doing the right thing. We were marketing to our audience, which is a different segment. So we were very focused on our consumer. Um, and so that we were there. I think for us, as you know, it's a physical distribution business. There are crazy chaos every day. So we were used to that, like, that, that intensity level. Being 100% direct-to-consumer though, we did control the whole funnel. So as long as we had scaled up different leadership in other areas, so everything was working. We controlled fulfillment, uh, at that point we were working primarily with third-party manufacturers on product. And so the complexity scaled up month to month, and so you just got used to more and more of that craziness. But no, a lot of it was just, like you said, heads down. If there's a problem, solve it. And then, yeah, really just scaling up capabilities across all those areas.

Is there like— for me, I felt both terrified and invincible, which is a really weird dichotomy, right? You feel like nothing can ruin this, but you also feel like everything is gonna fucking ruin this. Did you have that feeling or were you just like, I'm in the weeds, I don't really have time to appreciate what's going on on a day to day, like, you know, on a month or a quarter over quarter basis?

No, both. I mean, like you said, that feeling is there depending on when things are going really well and when they're not. Yeah, that's right. 'Cause when you're in that rapid growth mode, there's a lot of things going really well, but behind that there's all the things that you're trying to keep moving forward. So we had, you know, port strikes and product recalls and like all kinds of crazy problems that come up that feel very existential in the moment. That you just, you know, try to have some like perspective on after the fact. But yeah, your cortisol levels spike.

Yeah, I love that. Like where you're just like, there's a port strike and like, you know, for a long time, like when you're growing up and you see something on the news where you're like, there's a port strike, you're just like, whatever, who gives a shit? And now all of a sudden you're like, you dumb port workers, get back to work. I need to ship this product.

You're like, who can we call at the port and just get our product? You're like, oh no, this is, yeah. Macro events got you.

Okay, Chris, we're talking about port strikes and existential threats. You're feeling invincible and fearful at the same time. Um, and then we were talking about like, uh, the boxes and like what you sort of had in the boxes. You had exclusive— you had like Star Wars boxes, Halo boxes. You were doing— you were licensing IP, is that correct?

So initially we were working primarily with, uh, third-party manufacturers, and then we scaled up our own internal product capabilities later. So we were basically going out and saying, what's the coolest product, uh, yeah, that no one knows about, finding it, and then working with, uh, you know, 200+ suppliers, uh, to create something each month. Uh, each box had 4 or 5 items, and really we said we could, you know, buy anything across the entire licensed product landscape. So we were buying books, apparel, collectibles, um, You know, early on I even shipped some DVDs when that was still a thing. So it was like, oh wow, any, anything that needed to be out there we would go and find and then partner with companies to produce.

And then you ultimately got to exclusive products, is that right? Like at some, at some point you were like making products that other people had, then you had exclusive products?

Uh, very early even we were working with, uh, third parties to produce exclusive products for us, and which is a big part of the, in the licensed product space You'll do an exclusive variant that shows up if it's, you know, think about a collectible, something like that. So we would produce, we work with other companies but produce exclusive product with them.

So did you have to go to like Lucasfilm to try and get that exclusivity or those licensing fees, or did you just go to this third-party manufacturer that sort of had those already?

So that was, that was kind of phase 2 for us where we actually started taking direct licenses ourselves. At the beginning, we'd go and find somebody that already had that license and work with them on a product. And then over time, we got to a big enough scale where we started to take more of that in-house directly.

Gotcha. Okay. All right. So let's like rewind or fast forward again to 2016. You raise a Series A, it's $18 million. It's led by Upfront, is that right?

Yeah.

And who's the partner on the deal? Is it Mark Stusser or is it somebody else?

Greg Bettinelli.

Okay. And then you've got like, I read that you also have like Robert Downey Jr. in the round as well, or like his venture arm.

Yeah, exactly. His venture arm came in and often co-invests with Upfront and those guys.

Yeah. That's great. And so ultimately, how many people like put in the money to get to $18 million?

Upfront was the largest check. I think there was 5 or 6 other investors alongside them.

Okay, gotcha. And then I read somewhere that you're still a 50, like you were the 51% shareholder or something to that effect after this round of capital. Between you, your co-founder, and all these guys, you still held a large chunk of the shares. Is that correct?

Yeah, between my co-founder, myself, and then like company equity. Yeah, because we didn't really— we hadn't raised before, so we, the, you know, common still had a large portion of the company.

Yeah, and so tell me a little bit about how, like, what made you raise. And, um, yeah, tell me what made you raise. Like, how do you go— you, you went from $0 to $160 million in revenue in 4 years, which is like, you know, which is insane, especially those 4 years when like targeting is what it is. But it's even— it's absolutely more insane, uh, the idea that you did it with $25,000. What ultimately makes you raise money?

So I think, you know, we spent a lot— we actually kept very disciplined and focused on that single Loot Crate product for the first 3 and a half years, um, and really refined the model. We did a ton of user testing, uh, and the actual like product experience got dramatically better over time. And so we got to a point where we thought it was, you know, we needed to start expanding out into essentially different fan verticals. And so, you know, also wanted to start taking licensing in-house, which comes with a lot of upfront commitments and guarantees and just a lot more upfront investment. And then we were working on a bunch of vertical expansions. So we had, you know, the Major League Baseball and NBA teed up to launch a sports vertical. And then really we had one software engineer to 200,000 subs and we were starting to get a lot more complex in the model and need to build out more of our own custom tech. So just investing in data science team, engineering team, and then a lot more in-house product development folks. We just were kind of going to go to this.

So when you have 600,000 subscribers, you have one engineer?

No, 600,000 subs, we had 5 or 6 engineers and we were having to take on more of the development internally. Up through $200,000, we were just leveraging a lot of the existing enterprise software. And I think it's a good lesson for a lot of D2C folks, especially where Shopify is today versus where it was then. You really can get to a pretty massive scale before you need to invest a lot in custom development. So, when we raised, it was to say, hey, we think there's, in the $260 billion licensed consumer product space globally, there's a lot of room to scale and grow. And if we're gonna do that, we need to raise more capital to invest in that and then really ramp up.

And you're not on Shopify back then, right? You're like, Shopify isn't what it is today. You're building out your own custom tech.

Exactly, yep. We were using Recurly and Chargify early on and a bunch of these like basically built for enterprise software companies that we were kind of hacking together.

Yeah, and then, uh, why $18 million? Like, how did you get to $18 million? You know, uh, $170 million a year business can get— can raise way more than that. Like, I can't imagine you were like— I can't imagine that it was hard to find investors, and I can't imagine that it was hard to, um, raise more money than that. Why did you choose $18 million?

Well, I actually was not— it was not an easy time to raise back. If you remember 2015, 2016, there was, you know, challenges with China. There was a bunch of large e-com companies that had had some challenges that raised big rounds. So it actually was not a particularly easy time to raise. And we raised actually on— we did $18.5 million of equity and $15 million of debt at the same time. So the total raised at that point was like $33 million in a combination of debt and equity. So, but— so we did bring in more capital, but it actually was not the easiest time for e-com raising just because I think a lot of, you know, Fab had had some challenges. There's like a bunch of—

Yeah, sure.

There had been a big, in 2013, 2014, a ton of investing into the space. And I think some folks had gotten burned there.

That's crazy how quickly people forgot, right? If it was, yeah, people forgot about Fab, 2015 is hard to raise. By 2018, you were back in it, right? Like, we're like, great, let's write huge checks to every single direct-to-consumer business. Overcapitalize then and we'll figure like, you know, hopefully we'll pay for this later or somebody else will pay for this. History repeats.

Yep.

Yeah, exactly. And like history—

And the venture cycles are like, yeah.

Yeah, it's almost like the 1917 Spanish flu that we're repeating with COVID This is like, oh yeah, I forgot what happened 24 months ago. Like I've got milk in my fridge that's that old, you know? Like, that's crazy. All right, so you've raised $30 million or around $30 million between equity and debt at that point. And then business gets much tougher. Yes.

Yeah, I think—

tell me, like, yeah, tell me what happened. Like, what happened? Like, ultimately, like, you know, the wheels start falling off. But tell me how things went from $170 million to the wheels starting to fall off.

So I think the— it comes out to— we were raising to launch and expand both the team internally and then the product offerings and a lot of our internal capabilities all at the same time. I think I think big lesson was just like execution risk at scale becomes much more real and we had a lot of concurrent bets out that were straining business. So I think we, when we raised, we definitely ramped up burn, ramped up marketing spend, ramped up all that. I think we went from, you know, just a couple product lines to a dozen different subscription lines very quickly. Um, and so had challenges around inventory and forecasting. So we were assuming like our core business could continue to grow exponentially at the same time as we're marketing other product lines. It didn't— that didn't work as well. Um, we then built out like these brand teams and we're trying to distribute purchasing and P&L responsibilities to folks that hadn't really had to do it at scale before. So we had some margin compression. Like there was all these little things that kind of chip away. And then on top of that, you know, I think the actual product offering itself and all that was doing very well. You just— we basically were scaling OpEx and team size more quickly than the business had been growing. And so, you know, burned through cash too quickly. And, and so then we, you know, kind of had to go into a pivot mode where we were, you know, then less of a growth orientation and more of a, you know, efficiency profitability orientation. Plus we had a large outstanding debt facility, which creates a whole other set of, you know, of complexity.

So let's start, uh, first with just like the shift from going from no burn to starting to burn money. From a mental perspective, is that difficult to do? Like at Native, you know, we didn't burn money, and then all of a sudden when we had— you know, I was constantly worried about running out of money we'd raised $500,000, we were sort of operating like you guys were. I was like, if there's a big, if something goes wrong, or if we make a big mistake, or if I make a big mistake myself, I'm not sure the business can afford it. And like, once we had P&G's backing, it was hard for me to mentally shift it to the phase where I was like, you know what, we can afford to make a big mistake now. And I think as a result of not being able to take advantage of that balance sheet, I made a mistake by not taking advantage of it. Was it difficult for you to make that shift for being like, cash flow neutral to burning money mentally, or were you just like, hey, I know how this works, and I know we need— we raise this money and we're gonna put it—

yeah, I think, you know, it's— there's like the basic operating metrics. So you're like, your CAC to LTV ratio, so you're tracking a lot of those operating metrics closely, um, so you can feel good about the investments you're making even when the burn's there. Um, I think just the complete reporting and complexity complexity of that large an org. We had 300 full-time employees and another 250 temp warehouse folks at that point. So just, there's a lot of scale and a lot of burn.

Wow, you're doing your own fulfillment?

Yeah, exactly, we had 100,000 square feet in LA where we were doing fulfillment. And so there was, and it's also a bigger ship to turn, so I think there was just a number of, you know, we, it just— it's difficult to be in multiple modes at once. I think we'll get into it more kind of as we talk through the challenges, but like growth, lean efficiency, cost cutting, it's hard to be in both mindsets at the same time. And I think as a leader, as you scale, your org gets bigger, you're in more markets, you're more channels, you have more product lines, you're really handing off responsibility in some of those areas and you're choosing where you're focusing. And so, yeah, there's just a lot more to manage.

Yeah, and so you're starting to— you're like creating a bunch of new boxes and you must be scaling marketing spend at the same time in order to try and grow that, like, you know, continue that exponential growth. Where are you spending marketing dollars in 2016 to 2018 when you're sort of trying to grow? Is it— have you shifted from YouTube to Facebook or is it still primarily YouTube?

Yeah, so we, I mean, we had a big belief in a lot of these organic channels. So one, uh, and really driven by my co-founder Matt, we had a big social team and we had social channels for a lot of our different subscription lines. Um, we had a lot of our, you know, 30,000-40,000 pieces of organic content created by our community and really had a whole engine around, you know, working with the community and reinforcing that. We then had a big investment on the influencer side still. We were spending a large amount of money by then on paid Facebook, north of a million a month. And then we were doing direct response television, we had a big investment in podcasts, we've done probably 70 different conventions, which is a unique part of our industry. Wow, yeah. For the first couple years, we actually had a modified school bus that we would drive around and be our booth in these conventions. So that was, you know, the in-person piece of it.

Yeah.

Um, and then tons of co-marketing. So we were working, you know, we had Marvel in a Crate. We would be working with Marvel's social team to post. Um, any of our, you know, manufacturers and suppliers that were in the box that month, we'd be co-marketing with. So we, we had a whole co-marketing and partnership set of channels as well that we looked at. But really kind of thinking about, you know, What are the proprietary marketing opportunities we can own that we're not gonna be trying to bid against everybody on Facebook or Google? And then having those really be kind of scalable, predictable channels alongside those.

And so when you're starting to negotiate, like, well, let me start with another question. Does 2017, in 2017, do you grow beyond your 2016 numbers or is there a contraction?

No, that's when we started to pull back beginning of 2017. At that point, yeah.

Gotcha. And so 20— like sort of the peak is 2016, 2017-ish, IP from Marvel and sort of working on exclusive products. Does that— and you're like sort of working with Marvel and not the manufacturer for that licensing. Does that licensing make up a significant part of your cost of goods sold?

It varies a bit, but yeah, it ends up being, you know, the average licensing rates are, you know, 10 to 15% 15% on cost of goods. So it ends up being, yeah, it's material to margin.

Yeah.

But yeah.

Yeah, I think everyone's always curious when like a plushie doll comes out. Like I'm always like, how much of this money goes to George Lucas of Lucasfilm? And how much of it goes to, you know, Harry Potter, or versus like the actual person who manufactured it or sold it?

Yeah, it's always—

So 10 to 15% is the difference.

10 to 15% across, yeah. If you're— If you're Star Wars, you get up to like 18%, 20% sometimes. But yeah, that's all right, that range.

Yeah. And it sounds like there isn't one huge mistake that where like, there isn't one big thing that you point to and you're like, this is the mistake we made that sort of made us pull back on the business. It's sort of like a bunch of little nicks as you're expanding. You're expanding channels, you're expanding expanding the type you offer, you're distributing P&L responsibility from yourself to other managers, and all that chips away a little bit to ultimately like cost you the growth trajectory that you sort of want to be on.

Totally. I mean, I think the other big thing is once you, you know, once you have capital partners in the business, then, you know, there's a lot of alignment and, you know, getting everyone on the same page to get things done. And especially with debt, if you're, you know, if you're missing your covenants, you default on your loan, Lenders are, it's much more of a scaled D2C company problem, but debt has very different dynamics than equity. And so we were dealing with a lot of complexity on that side of the business that was definitely impacting focus on the other side of the business. And we really just decided we have to cut back costs to get to a sustainable level.

And so, was your cap going up a lot at this time? Was this more of an OpEx problem or was this a, we're spending a lot of money on marketing problem?

CAC had been fairly stable. I think there's definitely like increasing costs in some of the like, you know, the bigger channels like Facebook, things like that, that everyone was seeing around that time is more dollars moving there. But this was definitely, you know, more of a kind of a structural business issue.

Gotcha. And so ultimately, tell me a little bit about the dynamics with debt. Like what was I understand that equity is very different than debt. Equity is sort of along the ride and gets paid when you get paid. Debt, you've got not only to pay them on a monthly basis, but also covenants where they're like, you have to hit certain metrics, otherwise you're in default of our obligations. Was the debt tough to deal with? Were they constantly calling you and being like, hey, you're not meeting your obligations? Also, like you said, you had raised $15 million in debt. Did they think that there were $15 million in assets that they foreclosed upon the business, or if they took possession of the business, that they would get their money back?

You know, it didn't— it doesn't get to that level really quickly. Folks are trying to work through, um, just like, what's the plan, right? So, um, that lender, we worked through it for quite a while, um, and ended up refinancing them in 2018. Um, and a lot of it is just, you know, that trying to align, you know, we were looking at bringing in new, new capital at the same time as we were cutting costs. Yeah, try to achieve profitability. So we're out trying to raise equity with, you know, top line not growing the way it had been. So what it does, I think, you know, the more complexity in the capital structure, the, you know, more misalignment there could be just in like near-term and medium-term objectives, um, you know. And so, you know, there's a learning curve there to figure out, you know, how to manage those aspects.

And is this taking up a lot of your headspace? Like, it sounds like it did, because you sort of, you have to like, not only do you have to manage the equity guys, you got to manage the debt guys, you want to refinance, you want to fundraise again. It sounds like the debt guys, like, it just sounds like it would take up all your mental energy. Is that right? Or is this sort of like, is this a I'm focusing on this one day a quarter sort of type of thing, or is this, uh, actually this is bothering me every— like there's a little thing in the back of my head that I'm always thinking about, it's not going away, slash I'm thinking about it full time once a week.

No, it's— yes, you know, for, you know, probably 2 years it's about 75% of my time, right? And, uh, and really letting the kind of day-to-day—

managing like—

I'm sorry, yeah, managing all that, everything surrounding that all of the complexity generated by, you know, figuring out—

75% is an insane amount of time.

Insane. No, for sure. And that's why I think, yeah, it is an insane amount of time, but it is at that point, you know, the reality and the, you know, and the most important thing that I can do. We had a great team of operators in place too, but yeah, it was, you know, I think the lesson to a lot of folks is, you know, I think everyone's probably seeing it now with COVID and just strains on businesses is that like margin of safety and risk management, which a lot of those of us that like, you know, dive headfirst into these businesses are pro-risk. Um, I think, you know, the risk management side, something I become a lot more is advising folks and helping people out. It's like, just give yourself a lot of margin for error, um, because if you don't, you end up, you know, having to spend an enormous amount of time on things that aren't driving customer value. Aren't really like the core drivers of growth of the business in the long and medium term.

Yeah, absolutely. Look, when Native first raised capital, we raised $50,000 within like the first 3 or 4 months of launching the business. And I talked to my brother about it. He actually ran a mobile gaming company that licensed a lot of IPs. So they created like a Harry Potter game, a Marvel game, a Star Wars game, Family Guy game. And so I was like, you know, we've raised this $50,000. He's like, I would never write you that check. And And I was like, why wouldn't you write that check? He's like, $50,000, you get one swing at the bat. And if you like miss that swing, you're out of money and your business is over. And so like, nobody wants to put in $50,000 and you only have $50,000 in your bank account. You're gonna make a mistake and that $50,000 is gone quickly. If you've got $300,000, you can like learn from that mistake and swing again and maybe one more time before you're sort of out of money. Totally, Mike.

Well, I think I feel like, and you probably dealt with this quite a bit, but I see it all the time is, Especially when you have inventory too and you're launching something new, a lot of people get overly optimistic about the first run and you're like, why'd you just put $40K of your $50K into inventory you haven't sold yet? I think if you're like, that cash might be the last cash I ever get till I prove something out, you would think very differently about where you put the money.

Yeah, that's a great point. For us, we were just-in-time inventory. So if you bought your deodorant on a Thursday, we would actually make it probably the next day on Friday and ship it to you Monday or Tuesday. So we were like, the number one need we had for a really long time was customer service. 'Cause people would be like, I ordered a week ago, you haven't even shipped my package. What the fuck is wrong with you? Which is completely fair on their part. For us, we were just like, this is the only way we can afford to grow the business. Because if we start like putting $40K of that $50K into inventory, you know, that $10K is barely gonna last like 3 days. But like, you know, we're running ads, some random expense comes up, there's this other thing that we didn't realize that we had to pay for, and now we're broke.

I think at some point though—

yeah, sorry.

No, no, I was gonna say, yeah, as a D2C company, not having inventory become something that you're— that kind of controls your decision-making lets you be a better, you know, D2C business where you can really be customer-centric, work on the product, do all this. If you have, you know, 3 times the amount you sell in a month sitting at a— you start having to discount it, ship it out, sell it in ways you don't wanna. So I think really tight inventory management lets you stay customer-centric in a really healthy way.

Definitely, and to be honest, as soon as we expanded into brick-and-mortar stores, it was a revolutionary change in the amount of inventory we had to hold. We went from holding small, we went from holding 6 to 7 figures to all of a sudden 8 figures of inventory. And the first PO from a company might be $3 million, and so you better have $3 million of inventory sitting in your warehouse ready to ship to them. And that was like, I mean, that's a great problem to have, don't get me wrong, when you get into every Walmart, but like at a much smaller scale, you're just like, how am I supposed to have this much inventory? That just doesn't seem possible.

And I think when you're— That side of the business too, right? For Walmart, we did a big retail rollout. All the forecasting and demand planning is even, you know, shot, it's just so different and so far behind what, you know, we can do in the DSC side that it surprised me at first. But yeah, just like there's so many ways to get caught with your pants down.

It's complete garbage.

100%.

Yeah, yeah. At first, like, we were sort of relying on the retailers to give us forecasts of like how much they needed, or building our own forecasts. Like, you know, retailer would be like, we think you're gonna go, we're gonna need this. And we're like, we don't believe, we don't know, we don't believe that you know what is going on in your own store. We've got this, don't worry about it.

Yeah, 100%.

So what did you do with extra inventory? It sounds like, you know, you're creating these boxes back in 2016, 2017. I'm sure you had overly optimistic, you know, at least once you were overly optimistic. When you're DT-only, how do you discount it?

So that product, so the thing that every product and every month, every box is essentially exclusive, right? So we weren't able to resell that. So we spun up a much bigger e-com business for customers and so we'd wait 90, 120 days and give customers access to products. Things like that. But in general, the better experience is just for the product to be gone when it's gone and to be exclusive. And so, we found ways to work through it, but yeah, you gotta be creative. Yeah.

And so then like in 2016, 2017, when you're burning the, what is like the peak burn and then what happens at the end? It sounds like the creditors at some point are like, look, we need to recap this.

Yeah, no, I think we, everybody kind of realized we needed to get the business where it needed to get and that it was gonna be a more challenging, raising like a Series B, things like that were gonna be challenging given kind of the changes we had to make to the business to get to profitability. And so, you know, we cut, you know, if you think about from peak, we were kind of at, you know, $6 million a month of monthly OpEx. By the time we ended up having to file in 2019, we had cut down to $1.5 million. So we did massive cost restructuring and brought in some really great restructuring advisors and stuff like that to help really think about, you know, hard decisions. But I think it's gonna be really relevant for folks now. And something I learned through this was like, you can do a lot more than you think you can and giving yourself that flexibility. If we had done that earlier, again, we would have had a lot more flexibility. So went through a very long process of just kind of rationalizing the cost structure.

Gotcha, okay. Uh, if you would— if you thought if you would like cut, you should have cut OpEx earlier, is basically like, if you had to redo it, you'd be like, in 2016, you'd be like, let me start cutting OpEx significantly right away.

Well, I think, yeah, it's, you know, I think it's very, you know, when you're in a growth mindset as a company, that's important. But when you're— it's hard to be in a growth mindset and in a cost rationalization mindset at the same time. Yeah. And so we were trying to do that dance for a long time, um, where we were where I think, you know, a healthy dose of pain up front gets you back so you can get back to that growth mindset and keep everybody in line. Because I think it's difficult to be in two different modes as an organization at once. And, you know, you kind of— you always want to be growth-oriented, I think, as a company. But sometimes, you know, it's— you just got to make bigger, harder choices faster.

Sure. And so tell me, like, Tell us some of the like OPEX things that you were able to cut to go from $6 million in OPEX to $1.5 million. I mean, $4.5 million in OPEX is a lot. I'm sure there's like, I'm sure there's a lot of things, right? I'm sure some is personnel. I'm sure some is like, you know, like your office space, or maybe you need a 100,000 square foot shipping facility. Some is maybe reducing the number of boxes you have. What are some of the things that you focus on when you're cutting OPEX?

Yeah, so, you know, we looked at areas where we could, you know, cut— where areas of our ship. So we moved to a 3PL in 2019. We built out a much bigger team in the Philippines on the customer support side because we were getting, you know, 40,000-50,000 tickets a month. And so we kept our core team here in the US and then had a team there just to augment. Going back and just, you know, talking to all of our enterprise software vendors and really squeezing those prices down, 'cause those can inflate quickly. You realize you have, you know, 150 users of something that actually only 20 people are using. So I think we, you know, kind of across the board, we had a great head of finance who helped lead all that, just like, you know, down to the line item, everything was, you know, everything was an option and we pushed and cut and you kind of go, through the whole business and you look for opportunities like that.

And how long does it take to go from 6 to 1.5? Is that like a 1-year process?

That was like 2, 2 and a half years.

2 years. Yeah. Okay. Gotcha. Yeah. And then ultimately you file for bank— you file for like reorganization through bankruptcy. Is that correct?

Yes.

Yeah. And that happens in 2019. So that happened last year.

Exactly. Yep. In August of last year.

Look, honestly, I think there's going to be a lot of companies that are facing that this year as a result of COVID as a result of DTC financing drying up, as a result of more people focusing on profitability. Tell me what that process, one, in part entails, like how hard is it to go through that and what happens at the other side? From my perspective, what I would imagine is the equity shareholders are wiped out, the debt holders now become the equity holders. They've got to put in more cash to recapitalize the business. I think that's what happens, but tell me what happened with you guys and sort of how you went through that process.

Totally. So, I mean, I think your high-level overview is pretty accurate. There's Chapter 11, Chapter 7. We went through a Chapter 11 process, which is where you're restructuring and really trying to figure out the best way to— you have creditors like trade creditors, you have your actual senior lenders and subordinate lenders, all that stuff. So, you're really trying to go through a process that maximizes the value to creditors when you're going through that. And so, for us, we're just at the point where we had, you know, in 2018 spent more money on kind of legal and professional fees than we had on sales and marketing. And you just get to a point where you can't grow and muscle your way through it. And so, you know, a Chapter 11 restructuring is the best approach there. And so with that, went through that in August, and, you know, as part of that went through essentially an auction for the business at that point where the largest creditor, you know, bid and acquired, you know, acquired the business through that process. It was fairly quick. In October is when the acquisition happened. Were there other bidders at the table? A lot of other folks looked at it, but yeah, the way the credit bidding and all that stuff works, you know, it's primarily the large creditors that have the best shot at the deals. Yeah. And then, but the actual process itself, like, you know, the Delaware court, it was actually, you know, they're supportive of employees and of keeping the business up and running. Their goal is really to like try to facilitate a fair process and keep the business operating. So it was, you know, I think from my kind of my, my, my expectations of the process to kind of how it's all played out, it's been really smooth and the business is growing again. And it wasn't— it's obviously disruptive, but it definitely is set up in a way that, you keeps things from falling apart while you're going through the restructuring itself.

Okay, I want to ask more questions about the restructuring, but before I get there, do you still spend 75% of your time focusing on like your cap table and your lenders, or is it now like you're spending more of your time in the business?

No, I mean, I think now, you know, no, that's all done. You know, that was done when essentially as the business is coming out of that acquisition process in October. So a lot of it's just been getting rebuilding customer trust, getting products out. You know, the last year as we were really getting constrained financially, started to have some delays. We the whole time through the whole process, we had made sure that there wasn't a big impact on the customer experience. But that last like 6 months where we're straining to get product out, there were delays, things like that, that we have been focused really on since then, turning the customer experience piece, which for every— you know, which gets lost in all of the company building, running pieces has always been the goal. So the team's really been focused there.

Gotcha. So like during bankruptcy, basically it was just hard to meet not only the financial obligations of your debt holders, but also just like customer expectations as you're running the business of getting a product out on time. And so you're trying to sort of turn that ship around and say, hey consumers, we're out of this now, we're gonna ship our stuff on time, we're back.

Yeah, that's really even more so the pre-bankruptcy piece. Once you're in bankruptcy and you have the DIP financing, Then you can operate much more normal course, your vendors have protection, everything else. So that was really when we filed in August is when we turned kind of all the operating teams focus on, let's get all these products that are late in and out and try to get back to some kind of normal operating cadence.

And just so people understand, DIP financing is like debtor in possession financing, which means that like a lender is gonna fund you to continue running your business through bankruptcy. And as that happens, they get like a— they have the first lien position because they're basically like, this is post-bankruptcy and we're giving you money in order to continue your business. Yep. And so how much debtor-in-possession financing do you get to continue running the business?

So we had— it was— we, I think, publicly talked about a $10 million facility that came in when we were doing that. And so that came in and allowed us to do, you know, handle a ton of this stuff, like kind of the backlog of things we needed to handle.

And so what does the cap look like? What does the cap table— I want to talk about the business as well, sort of post-bankruptcy and what you're seeing in 2020. But what does the cap table look like post-bankruptcy? So you had Upfront and Robert Downey Jr. and $15 million in debt. I imagine Upfront and Robert Downey Jr. are now sort of wiped off the cap table, and the guy who is your largest lender and sort of put in more money in the debtor-in-possession financing is now your largest cap— is like the largest equity holder on the cap table?

Yeah, the group that did the acquisition, it's basically a reset of the entity and all that, right? So that group Essentially, there's the old company and the new company, and then that whole new company, everything transitions there.

And then how do you remain incentivized? Because like, you know, there's that old company and you were like this, you know, you're the CEO of that old company, the CEO of the new company, and like, do they negotiate with you to give you an equity stake and incentives as well?

It happened, I mean, in a lot of these cases that, you know, they want some continuity and leadership and, um, you know, so You know, most of the folks at the company today are folks that were at the company prior to the bankruptcy. Yeah. And we're, you know, hiring the team back now. You know, my goal has really been to make the transition as effective as possible. Yeah. Uh, and work with the team on that. I care a lot about the brand and want it to, to, to survive and be strong. And so I think, you know, I think that's really been the focus is can we get, get like, let everybody get back to like a normal operating environment, which is all I think most of the team is really, you know, we have a big chunk of the company is in design and product development, and people want to see just have like a positive story tied to the products we're putting out in the world.

Yeah, well, one, I certainly think like, you've been working on the business for 8 years. I can imagine there's an incredible amount of like your own personal sweat, blood, and tears built into it. And I think a lot of times people get lost on that. Like, I don't even work at Native today, and I still think about it on a daily basis. I'm like, this is how I did it. Like, whenever people like tweet about it, tweet at me and they're like, I'm trying it. I'm like, okay, if you don't have a good experience, let me know. I'm like, I actually, I have no financial interest in this. And if you tell me you hate it, there's not anything I can do about it either. But there is a certain, there's a lot of like personal loyalty to the brand that you sort of built, especially if you've been doing it for 8 years.

Totally. And I think the customers that are still with us from there, I mean, there's just a lot of, you want to see it do well and you want to see it, you know, be something that people love.

Yeah. And so what is working for the brand today? Like, what, you know, you must have changed, you've cut down on OpEx significantly. You know, you've probably retooled marketing where you're like, hey, I mean, some of the influencers that you were using 8 years ago, you're still using, but I bet Facebook ad spend isn't $1 million a month any longer. What is working today in order to grow the brand again?

So I mean, a lot of the same traditional D2C channels are still working well. I think the dynamics shift depending on what's going on. I think we've seen like on Facebook, for example, the last 60 days cost come down. But in general, it's manageable, right? I think all of the same best practice for us, it's kinda like, if you're, for our product, it's not something that is a consumable that you need, it's something that you want. And so having trusted brands and partners tell you that this is something that you should have, which is through influencer, things like that is still a great channel that works. And I think a lot of it's just figuring out the unit economics. But we're seeing, you know, all the same channels that work before work well. We're not really on some of our like higher-cost channels like remnant television, things like that. We're not, we're not doing anything there, but we're looking at our most efficient channels and our best channels, Facebook included, and leaning into those and being disciplined. And, you know, I think again the The actual underlying market dynamics that made this work well, which is, you know, there's a million different Marvel tees on amazon.com, and our demo is not going into Target to buy a Marvel t-shirt. That curated collectible consumer product experience hasn't really shifted throughout the 8 years we've been running the business. And so, you know, once it was kind of liberated from a lot of the, you know, the corporate issues, you know, it's there. And I think we're looking at, you know, new experiments. We have a thing called Loot Launcher we're doing, which is like a crowdfunding approach so we can take more, you know, do a larger number of partnerships, try more things out, be more experimental. And so we're using that crowdfunding model. So I think we're just—

Tell me about that. Is that like, is that like sort of almost not Groupon because it's not discounted, but is that like if we sell 7,000 of these, we'll go make all this stuff?

Exactly, capped, and exactly, a lot. Yep, so we're doing, we're doing more of those, and I think the pre-order model works really well. And so we're— I think there's, there's still a ton of demand in the category, and I think, uh, direct-to-consumer is such a great way. It's where we're all consuming the content. Um, building out kind of new, new, uh, economic models around those opportunities. There's a ton of, ton, ton we can do there.

So if you really shifted— it sounds like the mindset has shifted from like, um to doing a better job understanding demand over the last like 2 years, or maybe 3 years, where you're like, you know, we're really optimistic about this new box, let's launch this new box. Oh shit, didn't go as well as we wanted, we have all this excess inventory too. Let's pre-sell this box, let's make sure at least 7,000 people want it before we make it. Let's make a max of 10,000 so we don't have a ton of excess inventory. Is that something that's— is that accurate or is that not accurate?

100%, right? I think, yeah, I mean, churn curves are all fairly predictable. But they're all different by product lines. Also, so when you're getting into 25, 30 different subscription lines, um, like even with models that work well, yeah, with the buying, the demand planning and things moving, it's just a lot, you know, asking yourself to execute on that dance perfectly every month is challenging. So building in some, some flexibility and some predictability has been super helpful.

That is, you know, that's so mind-blowing, uh, because It's almost the exact opposite of what you'd expect. You went from having no discipline basically early on, or not no discipline, of course, but basically saying, look, we're operating on a gut perspective and we think that'll work and there's money here. You scale the business and you think, okay, now I actually trust my gut more. I've been in this for 4 or 5 years. We're at a $100 million run rate. We have hundreds of thousands of subscribers. We've been around. We've only raised $25,000. To actually— you have to trust your gut even less when you get that big because the decisions you make are so monumental, the ship is so large that when you're making those decisions, they can be not mortal blows but significant blows to the business.

Yeah, and I think we have a lot more data today than we did as we were scaling, so to not use that data would be foolish, right? And, um, you know, I think we— in our growth model is, you know, Paul Graham had put out that essay on growth and I had a good friend in Y Combinator at the time. And so our, you know, our whole growth model was let's, you know, we started at 20% a month and that really essentially worked for 3.5 years. And so we had some kind of a north star growth metric that then we all could focus on around a single product. It's just such a different, when you have products in different stages of their life cycle, totally different offerings, price points, we saw, you know, just a very different approach to managing those different stages of the product lifecycle.

Yeah, that makes a ton of sense. I guess it blows my mind that you trust your gut less when— or I think it's accurate because I think at Native I should have done more of that. I should have trusted my gut less when we reached scale. Instead, I was just like, I can make no mistake. I'm obviously invincible. I know how to do everything. Of course I do. I've generated all this revenue and EBITDA. And in reality, I should have been like, Well, if I make a decision and it goes wrong, now we've ordered an extra 250,000 products, it cost us $500,000. It's a much larger mistake today than it was, you know, 3 years ago.

And did you guys— how was your gut? Yeah, just ask questions. How did you— like, when you guys expanded outside of deodorant, like, were there areas where your gut was just totally wrong?

Uh, everywhere. Yeah, like, my gut— I don't trust my gut any longer, actually. Absolutely. I mean, the reality is that like once we expanded outside of deodorant, we were a part of P&G, and so there were a lot of like different interests playing alongside of where we could expand and where we wouldn't expand. Like, you know, we have to sit within a P&G division, and that P&G division really owns the P&L, and so as a result, there's more limitations. Like, you know, I was like, okay, great, we're now part of P&G, we can make whatever we want. P&G makes paper towels, we could make Native paper towels. Very much was not the case. We had more independence in terms of making those decisions pre-P&G than we did post-P&G.

So your gut was managed well by the—

Yeah, yeah, my gut was straight. But the reality is that even then, like, I had gut feelings about a lot of other things. And, you know, where I'd like, you know, even inventory on seasonal sense, things to that effect. And when I made wrong decisions, they were a lot more consequential. And I think overall, I was trying to, you know, you try and maximize revenues. You're almost like, I want to I'd rather have too much of this product instead of too little until your business is large enough where you're like, ah, I see how many things are on my balance. Like all of this excess inventory that I ordered too much of is getting to be a huge, like, you know, huge asset on my balance sheet. And it's not a good asset. It's not going anywhere. And moving forward, I shifted my mindset to being like, I'd rather sell out of this scent rather than have too much of this scent.

And now I think that was— as we brought in a bunch of CPG finance execs, that was, I think, the number one thing. Scaling up D2C brands can do is expense your excess inventory as cost of goods in month. Because I think I've seen a lot of folks that, if the inventory is here on your balance sheet, your P&L looks great. But the reality is that's excess inventory and you start to realize maybe 10% of gross margin should just be written down inventory costs. And so there's a bunch of things you can do to not convince yourself that the model's working as well as it is that I think can help companies do just a better, more discipline around forecasting, demand planning, inventory.

Yeah, great advice. I guess I have two more questions. One is, what do you wish you had done differently? Do you wish you had never taken a debt? Do you wish you were more focused on OPEX early on? Do you wish you hadn't expanded into as many boxes? Or do you say, hey, you know what, like, learned a ton and this— we did what was right?

I think you have— you learn a lot, right? And so I think during the learnings, you have to make sure that's a positive piece of it because, yeah, the pain and agony is, is gonna come in those moments and you gotta find some healthy way to reframe it. I think there's a ton of things I would have done differently. There was, you know, we had gotten so used to hypergrowth that the risk-taking and the kind of confidence to solve hard problems on the fly, we just didn't need to think that way. And I think I've become a much better communicator with boards, lenders, equity, you know, that, that like really important structure that sits on top of the business that really, if you're gonna— that really needs to be managed the right way. Um, you know, a lot of great mentors and through a lot of experiences, uh, I think, um, could have done better there. And I think, like I said, it just goes back to, I think, risk management and, uh, you know, making hard decisions earlier, faster, and bigger than, uh, than you'd like to. Um, yeah, and we had a, uh, you know, this CEO who's done like 20 turnarounds come into the company and advise, and we're talking about cuts. It's like, have you ever cut too deep when you're doing a cut? And he's like, I always cut too deep and I never regret it. And I think that was like, wow. I didn't internalize at the time. I think part of the point is because you can always build back up, but then you eliminate existential risk. And so I think, um I think there's a lot of lessons there that a lot of companies are gonna go through during this period of time, which is the world has changed, know that, and make big decisive action more so than you think you need to right now because it gives you the flexibility when, you know, there's gonna be a lot of incumbents that are super distracted and debt-laden right now that a lot of these upstart B2C brands capitalize on, but you need to be in a position to capitalize. You know, make hard, big decisions fast.

And so do you think he's right? You can't— like, you should cut deep, like, you should cut too deep and you don't regret it? Or did you cut too deep and you don't regret it? Was he right?

I think, uh, in the phase which was much earlier in our life cycle, it was the right advice. Um, I think there's obviously a point you need to— like, customer experience in all these companies is number one. So this has to be in a way that is maximizes customer experience. So you can't, like, if you have 20,000 customer support tickets, you need enough folks to respond to those tickets. If you're delivering a product, you're competing with everybody else. It's got to be the best product. Like, if you had to start making trade-offs and your product quality is ever affected, that's not really a business anymore. So I think outside of the, like, but really know what those core areas are, and then everything else has to be fair game.

Yeah. Uh, that is fantastic advice. And like, uh, I feel First, this is my favorite interview that I've done ever in my entire life because not only did you— you grew this brand like to $170 million on $25,000 in like money, $25,000 capital invested, which is literally nothing compared to the, you know, Dollar Shave Clubs of the world and Harry's of the world and Allbirds and Outdoor Voices. Two, you went through like genuine— like, I feel like a lot of people, and myself included, never had, you know, I had a hard day at work, but I never, like my hard day at work was a good day for you. I never went through a recession. And like in many ways, I was a real coward about the business. You said, I'm gonna raise money, I'm gonna go to the mattresses, this is a $260 billion business, and I'm gonna fucking take advantage of it. Me, I was a real bitch, and I was just like, we're gonna hire very slowly because I think I'm gonna run out of money every day. I don't know what the fuck I'm doing over here. This, like, you know, everything is going wrong. There's gonna be a torpedo that hits the side of his boat at any given time. And so for us, we didn't face those problems, but it was intense, but I knew that we wouldn't face those problems because I was being a real bitch instead of having a lot of courage to build the business.

There's no, that's what I said, there's nothing wrong with that. I think everyone's got a real life.

Yeah, there's nothing wrong with that.

Yeah, yeah, yeah.

But I guess you got through that. Like very few people, like, you know, very few people go through those hard days, come out the other end, and they're like, we're gonna build another sustainable business. That requires an incredible amount of tenacity and courage. Look, it's not easy to go to a bunch of employees or to go to your fulfillment center and be like, look, we're not going to keep this fulfillment center anymore, we're going to outsource this, we're going to outsource some of our customer service, we have a core team here, but we're going to outsource some of the— It's not easy to get up day after day and sort of make those decisions and rationalize your opex for 2 years, come through it and be like, now we're going to start building again. That requires more tenacity than I've ever seen. That's like a fucking GE, like General Electric, type of restructuring. It's really spectacular, um, and like I'm in awe of the— more in awe of the business as a result of that today than I would have been in 2017 or 2016. And I would have been all back in as well.

No, I really appreciate that. I think, you know, the one— the thing for me has been the benefit too of scaling was we got to bring in a lot of seasoned folks. So when I was having a hard time making hard decisions, folks that have seen this a few times, yeah, like these decisions aren't— don't— you're overthinking these things. Like these, we have to do, we have to do. And so I think The great leadership team, especially as companies get to scale, folks need to start removing themselves from decision-making because we're so emotionally tied to the brands, the products. It's hard to make hard trade-offs when it's your baby. And so, I think getting better at finding great advisors, making yourself less the ultimate decision-maker and having people that know certain parts of the business better than you help you make the really hard choices is, is been, you know, huge for me in terms of growing those advisors. Um, you know, asking people I trust, you know, I think in any of these areas, uh, you know, there's a whole— on the restructuring and debt side, there's a whole separate universe that most of us never interact with, uh, that does this. And, um, you know, but same way we, you know, on the growth and marketing side, we were scaling up and I was trying to figure out who are the best DSC marketers. You're just hitting everybody up and learning as much as you can. So I think it's the same same kind of general principles. They're out there, they're ready to help.

Okay, two final questions. One, what is your favorite video game, assuming you play video games? And two, what is your favorite box spin in the last 8 years?

Okay, so I think everybody— I think this is the moment for VR to really take off. So there's this game called Pistol Whip on Oculus that's amazing, that's so fun. You like literally— your arms are dead within 10 minutes because you're just literally running around like in this— it's amazing. Are you like pistol whipping people? You're pistol whipping, shooting, first-person first-person shooter. Like, if you don't have a VR, this is the time. And then have you used Oculus VR headsets? Yeah, Oculus is the one.

Um, how long have you had an Oculus?

Uh, like a year.

Okay. Yeah, well, I'm still playing.

Like, we had one, we had one at the office. We, like, we've had them for a long time. We had an interaction for— but yeah, we've had them for a while. But yeah, no, like, it will change. It's some— there's Beat Saber, there's some amazing games that, like, more casual gamers can get really into. So yeah, but yeah, Pistol Whip is amazing.

And, uh, great. I'm gonna go buy an Oculus and Pistol Whip today.

Yeah, it's sold out obviously because everybody had the same, but yeah, get on the waiting list. But yeah, yeah, no, it's, it's, uh, but they'll be back soon. Um, and then what was your second question?

Uh, what, what has been your favorite box that, uh, Loot Crate has ever sent out over the last 8 years?

Um, We, you know, one of my favorites is we had, uh, I'm trying to actually remember the— we have theme names for everyone, so they're like curated, but it had a replica of like a 1/5 scale replica hoverboard, uh, like a Doc Brown when he's holding the two, uh, Jumpstarters together as like a collectible figure. Um, we had— it had a Back to the Future "Be excellent to each other, sure," which is like the best message of all time. And it was just like, yeah, I had all my favorite gear in there.

When did that box come out?

That was in the end of 2015.

Okay. A ways back. Yeah. Yeah. Chris, this is amazing. Thanks so much for sharing your journey. I feel like you've got a lot more experience than most people in direct-to-consumer. You've seen a lot more things when it comes to direct-to-consumer and like very few people would be as honest and upfront and as open as you've been. So I really appreciate that as a founder, and I really like realize, you know, the amount of tenacity and courage you've had to go through this and build a successful business on the other end of all this is superhuman and like heroic. And so like, I hope people in your company— if I worked at your company, I would think of you as the superhero that would go in a box. You're one of those people in the direct-to-consumer industry Uh, and thanks so much for being here. Really appreciate that.

No, this was great. Really enjoyed it. And, uh, yeah, no, I, uh, I think this is an awesome platform, man. So I'm loving all the, uh, the podcasts so far. And awesome.

Great. Yeah, thanks so much.

Thanks.

Uh, this was really great. I really appreciate this. I can't believe that— I remember the first time, Chris, that I heard about your brand was, uh, yeah, at Packable when we were talking about custom boxes. And my friends at Japan Crate were also based in LA.

Oh yeah, we talked to those guys a bunch.

Oh yeah, they were like, "Do you have you heard of Loot Crate?" I was like, "No, I'm like new in the industry." They're like, "Loot Crate is doing 80,000 packages a month. Fuck you, boys." And here I am, I get the opportunity to talk to you, so really appreciate that.

No, this is awesome.

Thanks so much, Chris.

I really appreciate it. Yeah, talk soon.