Exit Strategy S1E1: Thrive Market’s Unconventional Rise to Success

Well, Nick, super excited that you're able to join on. This is going to be the first episode of Exit Strategy Podcast. I'm super excited that you're here. Just a little bit of background about Nick. Nick is the co-founder and CEO of Thrive Market. Thrive Market is like a Costco meets Whole Foods online business. He was also an investor in the business that I had started, Native, I think. You know, you were one of the bedrocks of Native in terms of our investor base. I'd give you a call and tell you about all the problems I had all the time, and you were really calm about that.

You didn't have that many investors, so—

I didn't have that many investors, but there were even fewer that I felt like I could trust and give a call to, and you were certainly one of them. So I always appreciated that. Can you start out and tell everyone a little bit about Thrive Market in the off chance that they don't know about it already?

Yeah. So first, just honored to be here. Super excited to get to do something like this. I'm in my work-from-home office right now, so it's a convenient time as well. But yeah, honored to be here and excited to be jamming with you in a setting where we're not solving business problems, we're just getting to punch the cake.

Yeah, that's right.

So Thrive Market is, I mean, you described it well. I think the easiest way for people that don't know about the business to get it is to think Costco Membership Club meets Whole Foods catalog, all delivered online with increasingly, I'd say, a bit of Trader Joe's blended in. So when we launched, we were carrying basically the top 7,000 to 8,000 natural and organic products that you find in a health food store. And then through the membership, making them available at 25 to 50% off. So, mission is make healthy living affordable and accessible to anybody. Shipping anywhere in the country, fast and free. Now, we actually have not only all of those products, but also a lot of our own products. So, you know, fully a third of our sales are on the Thrive Market brand. So, you know, we started out very much a retailer online. I'd say now we're this strange hybrid beast between a retailer, a brand, and really a community platform online where our members are going to us not just to buy products, but to learn how to use them, and to participate in campaigns and initiatives that align around their values and their impact on issues like sustainability.

And can you talk a little bit about the history of the brand? Like, when did you guys start? When did you guys start? What size are you at today? What's the growth look like? How big is the team?

Yeah, so we, I mean, I could spend hours just answering that question. We started back in 2014. Unlike Native, we didn't have lean capital requirements, so we spent the better part of the first year self-funding the business, kind of getting up to the starting line. We tried to raise more capital and we got rejected by 150+ VCs. So, you know, first of many existential crises in the business. And launched, I guess, October of 2014 is when we finally got live. And the really fortunate thing that happened to us actually ended up being that we were rejected by so many VCs that we raised all of our initial money from health and wellness influencers who turned out to be the best promoters of the business as well. So we had this, you know, probably 100+ kind of coalition of the willing that was on our cap table, and then also promoting the business, and grew very, very fast pretty much from day one. You know, we have over 700,000 members today. We're doing hundreds of millions of dollars in sales, you know, 5 years in, and still growing, you know, mid-double digits per year.

And so can you talk about that first year? You said that, you know, you got rejected by dozens of VCs, It was you and 3 other co-founders and you were sort of bootstrapping the business early on. What was the cost of that? And was that model the sort of the same model that Thrive Market ultimately became, or were you guys bootstrapping something slightly different?

I mean, look, like, like so many businesses, we were iterating in real time all the time for the first, really for the first several years. And in that first year before we got live, it was almost like the business model morphed every day. The very, very initial model was going to be basically Groupon for healthy food. So when Gunnar pitched me back at the very, very beginning, you know, I was a— I'd sold my last company, was an entrepreneur residence at a startup accelerator, probably saw, you know, 15 pitches a day, had seen hundreds over the prior few months. And, you know, Gunnar came in and pitched me on an idea he was calling ShopTribe. And the idea was to literally build— this was like back in 2013. To build Groupon for healthy food. So, Groupon was like the big thing, buying events were gonna change the world, it was the way that everyone was gonna buy everything, why not do it with groceries? But what captivated me was the mission was exactly what it is today, which is let's make healthy living accessible to anybody. And the initial idea was, you know, let's pool people's funds, buy with a wholesale account from these brands directly, cut out all the middlemen, and cut the prices by 25 to 50% off so that organic and natural products are at or below the conventional equivalent.

So isn't it crazy? Sorry to interrupt you. Isn't it crazy how like e-commerce or like startups are fashionable? You know, in like 2012 and 2013, Groupon for X was fashionable. Like a few years ago, it was like Uber for X was fashionable.

But that's not that you guys were like, yeah, you know, we iterated, we iterated through every fashionable business model of the day, you know, like we like We were briefly gonna be a subscription box, right, for healthy food. So, you know, the challenge that we were trying to solve, or the problem we were trying to solve, was how do you make these natural organic products, which at retail tend to be 25 to 50% more expensive than conventional, accessible to anybody? And that first barrier was price. So Groupon was one way to solve that, but it involved getting your groceries on a, you know, 10 to 15 day delay or more as we tried to buy direct. And it involved getting your coconut oil one day and getting your chips the next day and getting your toilet paper the next day. It just didn't really work. So where we ultimately landed was an evergreen catalog and then the membership model. So really started studying Costco closely and realized that allows you to basically run your product business at zero margin because all the margin comes off of the membership. And then for us, it was especially positive, or powerful, because We use every paid membership to actually sponsor a free membership for a low-income family. So it sort of turbocharged the mission at the same time where it doesn't actually cost us anything to let those low-income families in. They actually, in fact, will drive product sales, which gives us more volume, but it baked in that ability to truly get margin from the people that can pay, but be accessible to anybody else.

Yeah, Costco's business model is crazy. When you look at their 10-K, their net profit is basically the equivalent of the membership fee revenue that they generate. And they also limit the, the margin that they take on any given product. And I think for like, you know, Kirkland products, it's like 13%. For other types of products, it's something like 11%. Those numbers might be off by a little bit. And I remember I read this one story where the Kirkland CEO— I'm sorry, the Costco CEO was sitting on the board of directors of Starbucks. And Howard Schultz was like, guys, great news. Coffee prices are going down. We're not reducing prices, so our margins are going up. And so he goes to Howard Schultz after the meeting and he's like, when are you going to give us a break on coffee prices? And Howard Schultz is like, We're not intending to pass along any savings discounts to retailers like Costco. And he's like, great, we're going to eliminate Starbucks coffee from all Costcos pretty soon because you're not passing this along. And Howard Schultz is like, okay, we'll give you a price discount then. Right.

Which makes sense. Which speaks to Costco's, you know, scale and negotiating position with their, with their vendors. But also, I think your bigger, your bigger point is obviously they pass everything along and their value to the members is the savings on the membership. Right, and that was very much where we started. The interesting thing is today, the value's actually much more, right? It's the ability to vote with your dollars for brands whose values you align to. It's the ability to get all the highest quality products curated in one place. It's the ability to shop by your dietary needs and things like that. So it's interesting some of the ways the business has diverged from Costco, but fundamentally, that first thing we had to solve was, How do we make it affordable? That only happens if we can go without margin. That only happens if we have another source of margin. And that was membership.

And so it's 2014. All these VCs have said no to you. How much of your own capital, how much of like, how much do you put down in order to like start the business, in order to pivot from Shop Thrive to ultimately what becomes Thrive Market?

So it's low, low six figures. You know, we—

is that each person or is that all together? Each?

No, Gennar and me each individually. So I mean, I could go into the whole kind of like saga. We, We spent $100,000 alone on an agency to build the website, which we found out 2 weeks before we were thinking we were going to launch, it basically wasn't even started. It was like paperware. So much junk. Shows our level of sophistication. We brought in Sasha, our third co-founder, at that moment of crisis, and I remember going to Sam Teller, who is a good friend of mine and was running the startup, he's actually a venture investor now, but at the time was running the startup accelerator, Launchpad LA, and I'm like, who in LA is the best CTO for startups? Like, wherever they are, whatever they're doing, we need to hire them. We'll give them whatever percentage of the company they need right now. Like, we're at it, we're at our, you know, we're at an existential crisis. And he's like, Sasha Siddhartha. And fortunately, he just rolled off his last business and merged with another one. Unfortunately, he's talking to like 40 other companies right now.

Yeah, of course.

So We like, you know, we more or less locked him in a room and didn't let him leave till he came on as our fourth co-founder. And, you know, had we not done that, we literally wouldn't have gotten to launch. So, you know, we spent $100,000 there, we spent a bunch of money just on payroll ramping up thinking we were gonna launch before we did. We spent, you know, it was like every mistake you can think of making, we probably made. And we had no excuse to be doing it either, 'cause both Gunnar and I were serial entrepreneurs, we'd both started and sold businesses I've discussed this before, but it was this very humbling reminder that like starting something is hard. Sure. Learning takes time and usually you learn the same lesson at least twice before you really learn it. And like I said, in the end, a lot of those things ended up being the best things that ever happened to us, right? We failed to raise money, we ended up getting connected with all the influencers. We failed to build a site, we brought on the right co-founder who to this day is our CTO, head of product. And drives huge amounts of value in the business. So, you know, it was challenging, but yet, like, we wouldn't be here where we are had we not stumbled so much early on.

And were you worried early on when you sort of spent 6 figures? You're like, oh, hell yeah, what the fuck are we doing here?

Yes, yes.

And how old are you?

1,000 times yes.

How old are you at the time? You're like, what I told you, being calm, right? This is you being calm. You're like, yeah, we spent 6 figures and things weren't working out. If it happened to me, I'd be like, even today, I'd be like, I cannot believe this happened.

No, we weren't calm at all. We were, you know, it was like moments of real despair, uh, you know, sleepless nights, like all the, all the cliché things you would do if you're like pouring money into a black hole and not seeing anything come out. We were feeling, um, so no, and it wasn't, you know, you can look back on it now and it seems like the whole trajectory seems inevitable and this led to this and that led to that, but the only thing clearly was leading to at the time was more failure. So it was, um, they were some of the darkest, darkest times of my entrepreneurial life for sure. Probably my life in general. I mean, you question everything, right? Like you question the business model, you question your selection of partner, your selection, you question yourself, of course, right? Like, do I, was I, did I just get lucky the first time? Like, am I regressing to the mean here?

Yeah, absolutely. Yeah. And so, um, so you launched the site, it's on Magento, which I think that like, um, people don't talk about enough is their tech stack. Like, I remember talking to Christopher Gavigan once from Honest, and he's like, we're replatforming for the third time in our life at Honest. And I was like, that seems like a lot of work. You guys have been on Magento. You're doing hundreds of millions of dollars a year. Is Magento amazing? Is Magento better than Shopify? Like, why Magento, I guess?

So, I mean, that's a technical question you should spend some time with Sasha on more than me. Yeah, he would laugh if he heard you even asking me that question. But it is, you know, there's pros and cons, right? Every platform has its pros and cons. Magento is very scalable. It's also got a really robust set of kind of off-the-shelf applications that you can use. Shopify does too. And there's a large developer community, so the ability to scale up engineering resources to get going quickly was really imperative at the time. We obviously felt a lot of pressure to launch. Being 6 months after you initially intended to.

Yeah.

And so, you know, that was a call that Sasha made. I think there's definitely been some challenges with Magento too, not to say that there wouldn't have been other challenges with any platform we selected. So we've actually, some of the core e-commerce infrastructure is still on Magento, but a lot of the front-facing aspects, features of the site and applications, we've actually pulled off. And put into React and other platforms.

Okay, so you're— it's 2014, you've spent 6 figures, you've pivoted from ShopTribe and a bunch of different models to what ultimately becomes Thrive.

Yeah, we were still ShopTribe until 2 weeks before we launched, by the way.

Wow, that's crazy.

And I can show you— I can show you our color was magenta— was— I'm gonna screw it up because it sounds like magento, but it was magenta. As in like a cross between purple and pink. That was the color of the site. That was the color of the site. Like the whole branding was that. You know, our logo was essentially a gemstone, and the company was called Shoptribe. You know, it was not positioned the way it needed to, and that actually is a story behind our fourth co-founder, Kate Mulling, who is a brilliant writer and content content curator, editor, and brand mind. And she came in and basically was like, guys, this ain't gonna work. You know, this, this, this, and this. And probably took her 2 months to convince us to move off of Shoptribe. So, I mean, weeks before we were launching, I was spending time on the phone with some, you know, website squatter in Florida trying to buy tribemarket.com. Lest we be forced to launch a shop.

Wow.

Okay.

What did you pay for it?

We paid low. It was $5,000, like between $10,000 and $20,000.

Gotcha. You know, I'm not sure I told you this, but when Native was trying to sell, when we were trying to sell our business, we had all like, we hadn't, we didn't own our trademark. And I think I might have mentioned that, mentioned this to you while you were investing.

And I was like, I probably didn't want to. I probably didn't want to hear this.

You were actually— you were like, you need to go solve your trademark issues because we've had a lot of trademark issues. And so, you know, I was like, you know, sort of it was sort of on the back burner where I was like, okay, I need to solve these trademark issues. M&A is coming up like down the road and I'm like, okay, these trademark issues are becoming more important. And, you know, at one point we had signed like You know, we had signed not a term sheet, but like a letter of intent or something to that effect with, with P&G. And P&G is like, you need to go buy your trademark. Like, the only thing holding up the transaction was our trademark. And so we purchased the trademark from two people living in the middle of like North Dakota on a Friday. And then on like the next week on Wednesday, we sold the business 5 days later. But it was literally the only thing holding us up from our—

I'm guessing you paid more than $20,000. Or you're a much better negotiator than me.

No, no, substantial, like more than 10x that amount. That makes me feel better. But like, we had to do it. We're like, we never bought Native.com, but we had to do it. It was either that or we had to rechange, like change our name and sort of restart the business and prove that we could do it under a different name. And it was going to be impossible.

Yeah. Yeah. I mean, look, we've had, we've had different challenges with Thrive Market too, and probably some, some similar to Native, right? You've got a term that is already out in the zeitgeist and there's a lot of common use already of some of the marks. So it was one of the trade-offs, right, with Thrive of like, do we go with something that really evokes something powerful but is gonna be less ownable from a trademark standpoint, or do we try to create Nike, which is a totally new word and very ownable, but building brand equity around that's gonna take a lot of time. So trademark is underappreciated. It's one of those things that you don't think about until, you know, there's always already been a lot of value built in the business in most cases, but if you can solve it early, it saves a lot of headache down the road.

Yeah, and if someone else owns your trademark, they have monopsony power, right? Like you, they have the only asset that you need and you cannot go anywhere else for it. That's right. And it's a lot of trouble. Okay, so it's 2014, you've launched the site, you've rebranded to Thrive Market because you realize ShopTribe is a big mistake. The gemstone's out, the magenta color is out. How do you get your first, like, you know, $100,000 in sales?

I mean, it was just influencers. So this was another situation—

So out of the gate you had influencers?

It was 100%, right? So we raised, we ended up, because we couldn't raise money from anyone institutional because no investors would put in, we went to basically health and wellness influencers and asked them to invest in the company in addition to being affiliate partners. And what we found out is it not only brought in capital very slowly, like we're— it was like $10,000 to $25,000 investments, but we brought in whatever it was, 50 to 100 of these folks. They were totally aligned with the mission. They got what we were trying to do. They cared about it themselves. They— many of them became and have become good friends of ours, right, who are not just, you know, financial partners in the business, but true supporters of our cause. And all of those, the dynamics, caused them to also want to promote in a very different way than they would have if it was just a transactional relationship. So they were stakeholders, they were aligned with the vision, they got to know us as people, they understood what we were trying to do with the business, and when they started talking to their audiences about it, they saw just monster reactions. And so it was actually too much too soon. I can remember our original warehouse was in the center of our office. Our office is quite 6,000 square feet. Square feet. And to give you a sense, like, we have 800,000 square feet of fulfillment center space today. Sure. So the entire warehouse fit, along with all of us, into an office that was 6,000 square feet. You know, we ended up having— within 2 or 3 weeks, we had storage containers in our driveway that we had racked and binned that we were like fulfilling out of. You know, we like— our entire driveway was filled with boxes like stacked so high you couldn't see the sky kind of thing. So it was crazy. Like, there was no— once we actually got live and with these really value-aligned, authentic, and supportive influencers talking about us, it was like there was no turning back. So we blew through the first— yeah.

And so they agreed to invest prior to you having a dollar in sales?

Virtually, call it 80% of the influencers that ultimately were at, like, and many of whom still continue to be amazing partners, came in before we had a dollar of sales, which is, you know, it's very, it's a really interesting kind of window into the way VCs think versus the way, you know, kind of a value or values-driven, mission-oriented investor thinks. Every VC said no, right? None of them could see it.

Yeah.

And our success rate with the influencers was probably 70 to 80% close rate. 3 out of 4 of them were coming in. And there was 2 things that contributed to that. One was they just got the value proposition. They understood that healthy living made easy, healthy living made affordable matters. And it matters to millions of people because those millions of people were also the people that were their audiences. And then the second side of it was, and this goes back to like what I was, kind of the ways that we got help early on from specific individuals, but we had one of my buddies from college, John Durant, who's basically a meta influencer, influencer to the influencers, if you will. And, you know, coming in through a trusted, a trusted person that, that they really look to and follow, it made a massive, massive difference. So he opened up the doors, and then as the dominoes started to fall, every influencer knew more influencers, and it just spiraled. So we have 400 people on our cap table today.

So was, was John Durant the first influencer that signed up? Who was the first influencer?

John Durant predated all the influencers. Yeah, the first, the first influencer that came on board was Mark Sisson of Primal Kitchen. At the time, this is pre-Primal Kitchen, mind you, right? So he was just Mark Sisson of Mark's Daily Apple.

Yeah.

But a mega influencer in paleo. And back in 2013, 2014, paleo was, was much bigger. Like keto wasn't even on the scene. So paleo was the biggest the biggest sort of lifestyle tribe that we were going after. And John introduced us to Mark, then he introduced us to Wellness Mama, who has been our biggest influencer of all total. And then it was just one after the other after that. So, you know, we got very, very lucky with, from a people side, right, just getting the right people coming into business at the right time. And then we got very, very fortunate to find people that actually, like I said, cared about the mission. Like, that was the thing that if we hadn't— if we didn't— we weren't doing it for the right reasons, those influencers wouldn't have come on board.

It's also spectacular to get people who are basically going to be your customers to become your advocates as well. Like, nothing more authentic than that. So it's year one. I think I've heard you say in the past that you didn't spend a dollar in paid media in the first year. And how much, like, what do sales look like the first year? And what is your, what is the first, like, you know, you've raised from, I don't know, 400 influencers or something to that effect, you know, within year one of them cutting you checks, because I imagine it wasn't like one round.

I imagine it was sort of, it was rolling, investing check at a time.

Yeah, it's rolling. How much have they invested?

So we raised $8.5 million before, before doing a Series A. We did the Series A 9 months after we launched, and we were probably at a $40 million run rate at that point. You know, we did over $30 million in the first year, so it was, it was crazy, right? So we stood up a 40,000 square foot fulfillment center, you know, over the course of like 6 days. I remember at one point, 4 or 5 months in, you know, it was just like doing whatever we could to meet the volume. And also in many cases, asking influencers not to talk about us, right? It was like this like crazy backward situation where there was so much demand, we didn't know what to do with it. So to be honest, we probably could have done more in sales in the first year than we did. And it was very vindicating or very validating of the core thesis of the model, right? Because what the VCs were always skeptical of is that normal middle-class, middle-American people wanna get healthy. It was like, no, no, no, no, they're out there. Like, this is my background. I grew up in Minnesota, so I know that people in the Midwest and the Southeast, many of whom don't live near a Whole Foods, want this. But, you know, VC who lives in San Francisco and doesn't do his own grocery shopping, you know, it's like, yeah, sure, not in touch with it. So it was, it was incredible to see that come in where it was like more demand than we knew what to do with. And, and coming from people that were, you know, everyday middle-class Middle Americans.

Is there anyone who, um, you know, initially told you no, we're not going to fund you, that came back and ultimately invested or tried to invest in the series?

A lot of them. A lot of them. And some of them, it was like, oh, come on, right? Like, when they— when you have— yeah, of course, they would tell you that you're gonna fail, right? Or you had the people that like listened and like, you know, nodded and stuff, and then just didn't respond to your emails. So, you know, those are not the people you're gonna let invest. But we also had a lot of people that gave really well-reasoned explanations for why they weren't investing. And like, the truth is, like, we were— it's a high-risk bet, right? It's an operationally intensive business. Neither Gunnar nor I had e-commerce experience. We're going ostensibly up against Amazon and Whole Foods at the time. We're not the same business, right?

Of course, yeah.

And, um, and so we had some, some, uh, some folks that were really, really thoughtful. One of them was, was Dana Settle at Greycroft. Who said no, but said, hey, I also love what you're doing. I love the mission. I align to the lifestyle myself as a mom. I see the value proposition and I believe in what you're doing. It's too early and the risk profile is not right for us right now. But let's talk, talk in a few months. And she continued to follow up and like, that's who we went with.

Yeah.

In the series.

And you didn't do any of those like Silicon Valley, I'm going to take the meeting and just shit on you for being assholes to me. Type of like rounds when you do your Series A or Series B?

I did those. No, but I did those all in my head. I— those were like fantasy moments, but no, never, never actually picked up the phone and made that call.

Gotcha. So this guy, Erlich Bachmann, goes into VC meetings and like, he's like, you know what? I'm sensing that you guys aren't the right fit in like the VC meetings. And he'll be like, you know, these pastries are shit. And one time he takes his balls out and he actually puts them on the conference room table to be like, "Fuck you." And, you know, there were a bunch of—

Not my style.

Not your style, yeah. Yeah, I don't think it's anyone's style.

Of course you think about that though. Not that specifically, but like, of course you think about, you know, like those rejections were so painful, right? Like if you're someone who's competitive, if you're someone who's succeeded at things that they've done in the past. To be, you know, to be told no is hard. To be ignored is even harder, right? Like, honestly, that was the worst, was like the people that don't even give you the time of day. Sure. So it was, it was super hard, but again, it was super formative. And like, at the end of the day, I have to be grateful to those people because we wouldn't have gone to the influencers had those guys said yes, and I don't think we would have built the kind of company that we have.

And so you launch. How big is your catalog in year 1, year 2?

We probably launched with 4,500 SKUs and scaled it up to 6,500 pretty quickly. So it's been more or less stable. I mean, we— I alluded to this earlier, but that first barrier we wanted to break down was affordability. But there's all sorts of other barriers to getting healthy. One of them is actually just the intimidation factor of like, where the hell do I start, right? And if you walk into a Whole Foods and you haven't been in a Whole Foods before, choosing between 50 almond butters, is like totally overwhelming, right? If you search for almond butter on Amazon, you're gonna see 40,000 results. So we actually, part of our value is to be hyper-curated, to be that place that is your trusted resource where you don't have to think about whether this is the right quality. Everything reaches our high quality bar and we're gonna recommend the best products in each category for you. And that stayed the same. So we're still, we're, you know, our catalog has probably grown less than 500 SKUs in the last 2 to 3 years. Wow.

And so, is there a lot of recycling among the SKUs? Like, are you pushing? Yeah, okay, gotcha.

Net. So, we're, yeah, I mean, the trends are always changing, as you can imagine, and we're, you know, we mix shift. We're always, always, always looking to go deeper with the brands that really align with our values, with the brands that really are authentic, that have amazing stories, that are doing real innovation. What we don't want on is the brand that's become commoditized, become lazy, just sort of turning the crank. If that's the case, we'll go into private label and we'll do it ourselves and we'll do it better. That's been actually one of the most exciting things is to see we can reward these amazing innovative brands. We will invest and go deep with them. Then in the areas of the catalog where there's not as much happening that's innovative on the third-party side, we can go do the innovation ourselves. We work with 40 co-packers now on our own brand. We're sourcing from supply chains literally all over the world. So our product innovators, notwithstanding our current period, but normally they're traveling all over the world all the time. Sure, sure. And we're now getting to a scale where we can actually build supply chains ourselves. So we're working with a farmer's collective in Patagonia that didn't exist before Thrive Market. We're standing up this collective that is helping to convert from farmers down there to traditional grass-fed beef practices. That's, you know, cool stuff like that that's been just amazing and rewarding.

And so when you have a catalog of 4,500 products or 6,500 products later on, how do you like, or, you know, Facebook had this amazing realization early on that if you were able to get 7 friends in 10 days, you'd get addicted to Facebook. Slack says that once a team has sent out 2,000 messages, internally in Slack, or has, you know, has had 2,000 Slack. People are addicted to Slack and will not churn. Is there, is there some sort of North Star that you were looking for there? Were you like, if we can get you to make 5 purchases in the first month, or if we can get you to purchase Kettle Fire Bone Broth in the first year, you know, you're going to get hooked to our brand?

Yeah, there's a, there's a bunch of those. There's a, there's a big question in my mind always of how much of those is like how much of that is correlation versus causation, right? And as soon as you start to do things to drive the behavior, the correlation and the causation can start to break down.

Yeah.

But I mean, the most obvious thing is if people order, they will stay, period. Like the most important proxy for value, and it's not even really a proxy, it is the source of value, is people getting products that they love and coming back to buy those products again. You know, we will, like the first order is sacrosanct for us. Like we wanna drive as many people the moment they join the membership to be placing a first order within 30 days. That's, you know, day 0, we look at day 0, day 7, day 30, day 30 order rates. We also have a concept we call core members. So those are members that have placed 4 or more lifetime orders. And what's interesting is regardless of the rate that it takes you to the rate that those orders are placed in, or how long it takes you to get there. Once you have placed 4 orders, there's a really significant inflection in stick rate. And we're pretty lucky in that the upfront membership fee also acts as a filter to get people who truly are invested in the lifecycle. I think one of the biggest mistakes we made early on the marketing side was trying to convert people. That's not actually what we can do today. As we get to bigger scale and go more mainstream, maybe that'll be something for the future, but today what we wanna do is capture the people that already want this lifestyle, that are working really hard to achieve it, but don't have the best option. And as soon as we start, we call that the wellness champion, and you know, if we can go after those people, bring them in, and get them the first order, that is, you know, those people are gonna renew at a very high rate. And today our renewal rates annually are over 70%. So, it's not as high as Costco, but I think if you looked at— part of the reason Costco's are over 90 is they've titrated the membership base over so many years. If you look at apples to apples, our first year, second year, third year renewal rates, I bet we're on par, would be my hypothesis. And they obviously don't publish their cohort data.

Sure, sure.

Yeah.

And so, what does that mean in terms of people? So, people who buy memberships, what percentage are buying an actual product and in the first 30 days?

So it depends on the source of the traffic, but half of people will order in the first 30 days.

Purchase in the first 30 days.

Yeah, almost a third of them will place an order in the first day. And you know, we used to actually have, it used to be 100%, because literally the way you would start your trial membership was by placing the first order. Oh, that's something. We actually decoupled those two steps, I call it, it's really two problems in one. There's, I call it the basket building problem, and then the membership problem. And neither one is really a problem, but it's like, it's a task that we have to do. So we have to convince someone that it's worth spending $60 a year on a membership, and then we have to get them to place an order, which is not trivial for us because the average unit value is only $6. The average order size is over $70. So we're getting them to put 10 to 15 or even 20 items into a cart. That's a 40 to 50 minute exercise for most people on their first order. So our CPAs are, I'm sure, higher than the native CPAs, but the value of that customer, if you can get them to place that order, is quite high.

Oh, absolutely. Well, you know, at Native, our average order value is about $20 to $21, and we also saw the same inflection point, which is if you purchase Native 4 times, you were never going to use another deodorant. We had you, and we were really excited about that. So, you know, we were talking about like how categories change and how we went from like the world has gone from paleo to keto. You know, for Native, like deodorant also went from deodorant to charcoal deodorant became a much bigger thing and never existed a few years ago. What are some of the categories that you've seen sort of grow at Thrive and what are the categories that are like the largest? If you could talk about that today.

Yeah, I mean, we could spend a while talking just about charcoal if you want. That's, that's been one of the most bizarre trends. And it's sort of like across all categories. Charcoal in your beverage, charcoal in your deodorant.

Is it holding?

It's like faded a bit. Right. And like all these, all of these, all of these trends, right. The faster they rise, the faster they fall. Typically, you know, 2019 was all about CBD. CBD, hemp extract, and we were seeing growth rates that we had never seen in any category, period, to the point that CBD was becoming one of our top 5 subcategories on the entire site. And it's still doing really well, but it's stabilized, and then dropped off, I think, for some of the more commoditized SKUs. Keto continues to be huge, and it has been for now a year and a half to 2 years. You know, I've looked at some of the Google search trends and it's definitely ebbed a little bit, but that hasn't been the case for us. We're still seeing that as a diet search term dwarf all other dietary search terms combined. So it's that big. And, you know, plant-based is, as you'd imagine, is also really, really significant. I think one of the most heartening trends that we've seen on site in general has been more interest in environmental responsibility and sustainability. So, you know, just an anecdote there, we're carbon neutral on all our shipping. We actually buy offsets to completely neutralize our shipping footprint, our carbon footprint. Nobody cared about that 4 years ago, right? Even our most like hardcore members was like, do you have free shipping? We actually get, we get as many inquiries today about carbon neutral shipping as we do about free shipping. So people really are starting to care about that, you know, reusable vessels, We were 98% virgin-free, virgin plastic-free in all of our packaging. You know, we went fully recyclable in our packaging, zero-waste fulfillment. Like, these are topics that were not in the zeitgeist 5 years ago for most consumers, even natural organic consumers. Today they absolutely are. So I would say if I were to pick the top 3, I'd say environmental responsibility, Keto and plant-based are probably the three, the three big ones. And then within there, there's all sorts of flavors.

And so if you had to— let's break down the— what was the largest one that you said? Keto. Let's break that down a little bit. Like, is it, um, you know, is it keto snack bars? Is it keto, uh, you know, like, like, you know, a Soylent version of keto? Can you break it down?

It's keto everything. It's keto, keto beverages, keto, keto, uh, Keto strips, right, for the actual testing for your ketone levels. It's exogenous ketones, which are like, you can actually like ingest ketones to go ketogenic. It is a bunch of different products that aren't keto per se, but map to the keto diet, whether it's nuts and seeds or it's MCT oil or it's collagen peptides. You know, it's incredible. It's been absolutely amazing. It's our number one acquisition strategy as well. Historically, like, again, notwithstanding this moment, which is very different with COVID-19, but historically, you know, it's very interesting, by the way, in a crisis, people stop thinking about their diet, right? They just want to get healthy food. But in a normal time, people are absolutely obsessed with keto and it's the number one acquisition strategy we have.

That's interesting. I definitely want to come back to COVID-19, but let me talk a little bit more about, like, you know, you said Keto is your number one acquisition strategy. You've grown from, you know, $30 million year one on the backs of influencers to hundreds of millions of dollars in revenue today. You know, you went from $0 in paid marketing spend with a bunch of affiliates to what I imagine is a much more robust marketing budget. Like, I think I've seen you guys run TV ads, out-of-home ads. I'm sure you're doing Facebook ads. Um, you know, where, where are you spending money today, uh, when you're, when you're trying to do paid acquisition?

Yeah, I mean, we're still overwhelmingly digital. We've definitely doubled, uh, in some of the more traditional, uh, channels. But, um, you know, paid social works for us. Paid social in combination with influencer works really well for us.

Influencer— what does that mean? Does that mean that like an influencer sort of posting something and you promoting that Facebook post?

We've done that. We've had actually done advertiser access with influencers that we have really great partnerships with, and obviously they control the message and the content, but we pay for the media. We've also just seen that if we run Facebook ads with our influencers like this, and again, in partnership with them on all the content, they can perform extremely well. We also see that if somebody, you know, when we're spending on it's an ecosystem, right? So people, most people, even if you're doing last-click attribution, there's multiple touches that are contributing to that conversion. And so, you know, we will see that Facebook has something top of funnel, builds awareness, and then when it partnered with, you know, you do a partnership promotion, even if they have nothing to do with each other, those two sources of spend contribute to both channels being more efficient. So influencers actually had a real renaissance for us since we split out that funnel. So it's interesting on Instagram, as you'd imagine, it's overwhelmingly mobile traffic. Same thing actually on Facebook, but Instagram especially, and especially with so many of our influencers being Instagram influencers, we were seeing that when you try to get somebody to start a trial while placing that first order, the chance you were gonna get that conversion in that moment on the phone when someone's going through their Instagram feed, given that it takes 40 to 50 minutes, is just super, super low.

Super low.

Yeah, so you had one, an attribution issue where people were finding us through Instagram but were then converting later and not being attributed, but two, you just had a lot of fall-off, right, in the, in the funnel. So as we switched to a simpler funnel, let people sign up directly for membership, gave them monthly and annual options, all of a sudden our influencer channel just started performing dramatically better, like 50% better in terms of in terms of last-click attributed CPA, which has allowed us now to go to a lot more influencers to promote more heavily with our top influencers. And so that's now, it was overwhelmingly our largest channel for a long time, then it wasn't, now it is again, which has been super exciting.

And so what was your overwhelming, was it Facebook or Instagram, or are you sort of linking them?

Influencer. Influencer was large. Facebook's had its moments, I would say we, I could spend a lot of time talking about Facebook. I'd probably say a lot of dumb stuff since you're the Facebook master, but we have struggled, honestly, with Facebook, and I think only in recent months started to understand its role in the funnel, and if you're lucky enough to have native on your hands where you can actually make last click work with Facebook, and then back out on that, like, on an actual attributed CPA, CPA basis, you're very lucky. We can't, but yet what we found is it does serve a really important role in the funnel. And when you start to, when you get away from just like the myopic last-click way of looking at things and you start to think about what is the true CPA, and I'm not even talking about multi-touch attribution, I'm just talking about intuitively putting your human hat on and thinking more broadly about what it's doing in your marketing ecosystem. And we've done some tests to just actually try to quantify that. It's really significant. So we've actually, interestingly, been leaning into Facebook a lot more over the last 6 to 9 months. And a lot of that also has to do with the, with the simpler.

And so if influencers is your number one channel, what is your number two channel? What is your number three channel?

Number one channel by spend is influencers. Number two would be would be Facebook.

And what is number 3?

We've had paid search. And we've had periods where paid search and paid shopping have actually been our biggest channels. And that is, to me, an artifact of us like over-focusing on the bottom of the funnel, right? Because last click will tell you those channels convert really, really well.

Sure.

But they're also stealing a lot of conversion.

Definitely. Google used to tell me, they'd be like, we're your cheapest CPA. And I'm like, take out all branded search terms and branded ads from this, and then what is the CPA? And they're like, why would you ever do that? And I'm like, somebody just found our product on Facebook, Googled this product, clicked the ad, and you're trying to claim all the credit for this. Yeah.

I mean, the biggest breakthrough we ever— I don't know if this is— I know this podcast isn't just about marketing, but the biggest breakthrough we ever had on paid search was to split out branded and non-branded paid search. Like, they're two totally different animals, right?

Like, you don't even—

I will literally, like, scream if I'm in a meeting where people talk about our CPA on paid search as a whole. It's like, and it's like—

I couldn't agree more.

Yeah, if you have a $60 CPA, but your CPA on branded is $10 and your CPA on non-branded is $200, you're peanut butter.

You have a $200 CPA.

You have a $200 CPA.

Yeah, absolutely. Yeah, I'm like, branded search is a tax that Google forces you to pay so that you don't lose the search, you know, the search box or something. Somebody else. And, you know, Google, whenever I'd explain that to my Google rep, Google would be like, oh, I guess I get what you mean. And I'm like, you must have heard this from everybody else. Like, nobody thinks of Google's branded search as like a real acquisition. It's bullshit acquisition. It's somebody finding your product somewhere else and sort of paying Google for— you have to— you having to pay Google for it. We only have a few minutes left. I want to ask a few fun questions. What is your favorite product on Thrive Market?

Oh, I mean, that's like asking who's your favorite child, right? Um, I love them all. They all have—

right now you have one kid, so you have an answer to that. It's—

yeah, it's super easy. Uh, and then I guess I would probably go with, with the first product, right, which was our extra virgin, uh, uh, organic fair trade coconut oil. I mean, that's the one that started it all. Uh, on— it was both our acquisition— it was our acquisition hook, and it's an amazing product. Now we're doing it fully regenerative, which is also super exciting.

Can you talk about the best-selling product on Thrive? Like, I don't know if you say most popular.

I already mentioned it. It's collagen peptides. So it's, um— Collagen peptides.

Okay, gotcha.

Yeah, so 2 years ago or 5 years ago, collagen was basically a beauty product. Now it's become a health supplement. So just, like, amazing the industry that has emerged that is now taking— Yeah. Bovine collagen and converting it into a high-quality source of protein.

What is like, um, you know, I, I, we, you and I have hung out a few times. You're generally an incredibly healthy person. What's an indulgence product that you still buy off of Thrive Market?

Like, do you get Häagen-Dazs ice cream on Thrive Market or from like from somewhere else beside Thrive Market?

Actually both. Now I want to know both.

Oh, interesting. Um, I mean, on Thrive Market it's definitely chocolate. So, you know, I—

Milk or dark?

Dark, dark, dark, dark, dark, dark. But there's, you now have, and this is also a huge trend we didn't talk about that kind of ties into keto, but you know, the sort of sugar-free sweets are blowing up for us. And whether it's brands like SmartSweets or Lily's Chocolate, you know, monk fruit sweetened chocolate has been incredible. Incredibly popular, Lakanto. I love Lily's. I can eat a whole one of those bars. So that would be my indulgence on Thrive.

Gotcha.

Off Thrive, I don't buy a lot of junk food, but I'll tell you the like one candy I cannot resist is Skittles.

Skittles?

Yeah, like I'll buy one of those like giant bags at the movie theater and finish it halfway through the movie.

Wow, that's crazy. Okay, will Thrive Market ever sell its branded products in brick-and-mortar stores?

Yes, 100%. Whether that's in someone else's brick-and-mortar stores or ours is the decision we'll have to make.

Okay, gotcha. This is not a fun question. Has COVID-19 been good for you or bad for you?

I mean, it's a national and obviously international crisis. It has been a huge opportunity and we feel like a responsibility for us to step in and obviously provide at a level that we've never had to. So, you know, it's gone from like finding healthy groceries is something that a lot of American families were thinking about to getting access to any groceries is something every American family is thinking about. So, you know, I would never say it's been good for us. It has definitely created volume for our business. It's created an insane number of challenges on the back end, but it's, you know, it is the ultimate moment for our mission. Like, this is our opportunity to go truly make it accessible at a time when people don't have a lot of options.

Yeah. And I don't mean— I certainly don't mean like COVID-19 being like everyone's throwing parties because there's COVID-19. I really mean like, right. Has it— is it like from a business perspective, from a business standpoint?

Yeah. No, we're on the opposite spectrum for sure. Yeah, exactly. Yeah.

Yeah. OK, finally, this is going to be my last question because we're almost out of time. You know, you guys have raised hundreds of millions of dollars in revenue. Hundreds of millions of dollars in VC funding. You guys— there, there's 4 co-founders, a team of what must be a couple hundred people, I think, the last time I visited the office. Um, hundreds of million dollars in revenue. What is the exit strategy with this business? Will you be working here 10 years? You know, Jeff Bezos is never going to quit Amazon. Mark Zuckerberg is never going to leave Facebook. Will you ever leave Thrive Market? Is that happening in the next 24 months, 5 years, 5 to 10 years? Like, where, when does this happen?

Yeah, I guess the way I would answer that question is every time that I have tried to predict the future, even 1 year out in the past, I've ended up being so wildly wrong that I don't do it anymore. You know, we're building this business for the long term. Whether I'm the right person to be the CEO 10 years from now, I don't know. Would I like to be the leader of where I think this business is going? Absolutely. Do I think we have the opportunity to build a business that is doing billions, if not tens of billions of dollars in sales? I absolutely do. Do I think that this mission has to be achieved? I think that it's ludicrous that it's easier and cheaper to buy highly processed, denatured foods than healthy and organic ones, and I think it's bad for people's health and it's destroying the planet. Whether it's Thrive Market or something else, like, this has to happen in the world. And, um, and so I believe that we are well more, well better positioned than anyone else to do it. And, uh, I would be very, very happy if we were sitting here 10 years from now and I was still plugging away on Thrive Market and we were having the impact that I believe we could.

And are your investors, uh, clamoring? Like, you know, um, at Native, we didn't really have, like, we didn't have a lot of investors, and so we didn't have anyone clamoring for returns. Like you were an investor. You weren't calling.

I didn't want you to sell. I would have loved you to. I wanted you to keep going.

Yeah, fair enough. In fact, you weren't the only one. When I called a couple of people and told them we were selling the business, they're like, fuck you. And I was like, holy shit, we're returning, you know, significant returns on capital invested.

But yeah, by the way, I understand where you're coming from, but I should have said this at the very beginning. Part of the reason I'm honored to be on this call is I think Native is the best investment in the shortest timeline that I've ever had, and it has made me look smarter to so many people. Than I really am as an investor, so thank you for that. No, our investors are patient. That was one of the really advantageous things of bringing in people that align with the values and the mission is they want to get to the same place we want to get to, and it doesn't mean that the right strategic thing for the business may not be to find a partner at some point. It doesn't mean that we may not choose to go public and create liquidity for our investors, but when we go public, that's not the end of the business, that's the beginning of the business, surely, right? If we choose a partner, it's not because we're trying to wash our hands and walk away, it's because we think that's going to accelerate our path to scale. So, you know, I think that for us, the greatest asset in our business is that long-term vision and the willingness to plan for that and act, uh, act in that direction versus optimizing for a short-term outcome. And I think if we continue to do that, wherever we're wherever the outcome lands, like, it's gonna be, you know, we're gonna have a tremendous impact.

Okay, fine. You know, if you're, you guys are based in LA. I tweeted yesterday that I was gonna interview you for this podcast, and a bunch of people said, hey, we want to sell our small, like, we want to sell our small businesses product to Thrive Market. What's the best way to get in touch with your buyers? Is it LinkedIn? Is it a bad idea because you guys have a limited SKU set? Or are you still looking for new products?

We're always looking for new products, right? Like, we want to find that, like, that innovative product that's on the bleeding edge of the trend curve, that's doing something really unique, that has really strong values, that has a great founder. That is what we live for. And so, yes, like, email our buyers, ping them on LinkedIn. You can go online and actually submit, like, literally, like, submit a form that will go into our buyers. We read every single one of those. A lot of our best products products have come in straight through the front door. So no, we're always looking. We are incredibly discerning. We reject, you know, 30 to 50 brands for every one that we bring in, but we are always looking.

Yeah, and just as a note, you guys rejected Native, which I loved as a story, by the way.

I know, I know. I don't hold the cards.

No, no, you don't control it. No, no, no, no.

Believe me, I pushed.

No, I love the independence of your buyers to be like, "This isn't the right product for our consumers." Even though you as an investor and the CEO of the company were pushing in one direction, your buyers were saying no. I love the ability that you have, like, of buyers to be able to sort of stand up to you. That's right. And sort of say, "This isn't the right product for us." That's right. OK, fantastic, Nick. This was great. I want to sign off by thanking you for 3 things. One is doing this podcast. Two is certainly investing in native and sort of being this fantastic resource that I had for years. I remember I'd call you up, we'd chat on the weekends because both of us worked on the weekends, and you were like this calming rational force. You were the only person telling me not to expand into 15 other categories, and I really appreciated that. And finally, like, when we sold the business and I sort of emailed all of our investors asking them to sign the docs, you congratulated me and you said, "You built this business the way you wanted to." And I really appreciated that. I was trying to build Native the way that I thought was right for me as a CEO and as an operator and not for anyone else. And I think that may— that caused, you know, there were a lot of mistakes that we made as a result of that. And, you know, possibly selling was one of them. Certainly the business is a lot bigger today than it was 2 years ago. But that note meant a lot to me. And like, I still read it from time to time and I really appreciate you saying that to me. So thanks for all 3 of those things. Really appreciate your presence in my life.

That, that means so much, and I appreciate you saying that. And, and that note reflected one of the things that I learned from you, which just was that maniacal focus and that willingness to do it exactly the way you wanted to. Um, so it's, it's been a two-way street, and, uh, uh, much more to come.

Nick, thanks so much for your time. Really appreciate this.