POD: Mike Duda of Bullish: The Impact Proper Branding Will Make on Your eComm Business

The Profit Forecast: The eComm CEO's Podcast

Episode #4: Mike Duda of Bullish

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Ben Tregoe: [00:00:00] Mike. Great to see you again. Thanks for joining our podcast. Absolutely.

Mike Duda: Ben, good to see you.

Ben Tregoe: I'm really excited because you've had such a wealth of experience, the direct to consumer brands, both on the investing side and building them in the strategy. and I think it would be super helpful.

Ben Tregoe: If you just give a little bit more background about bullish because you, do operate in kind of both spheres of you know, investing and, strategy.

Mike Duda: Sure. So bullish is an early stage consumer us based consumer investor at the Pre seed and, now series a round since we're we're almost done raising a 60 million.

Mike Duda: We've been at it for 11 years before. It was cool. Lucky enough to be the first investors in said Birch box Peloton, Casper Harry's, Warby Parker function, beauty, huge chocolate, Sunday lawn, and a number of others. And probably what makes this unique is that this is the only investment job I've ever had.

Mike Duda: My career was spent as a marketer for 20 years and I love marketing and, brands and branding along those lines. The the incentive or the motivation to do this is I start to realize that wall street was looking at us, people in marketing as an expense, something that's easily cut. If they were going into a downturn or down times, or the business isn't doing well.

Mike Duda: And one of the last budget areas to be restored, I'm like, Ooh, I don't like that. But where wall street was kind of right, is like marketing agencies their economics for like a law firm, you charge an hourly rate to create outputs, but those outputs are not necessarily tied. Outcomes. So we said, okay.

Mike Duda: Point take in wall street. What if we created a, an investing company or investment firm that literally put its money behind its marketing. And so we will invest in the earliest stages behind great entrepreneurs that are better serving the consumer and DTC has been such a big part of that. And then we bring something else to the table.

Mike Duda: In fact, we think money is the least available thing we bring to the table, but we, bring brand management, consumer insight. And the number of things related to that, that you think when aligned is an asset and an accelerant versus what is an expense. It's, a lot of fun. It's, we've had our mistakes.

Mike Duda: We've had our great times and I, think the next few years are gonna be great, but now without its challenges,

Ben Tregoe: I love how well I love the putting your efforts behind your money. Right. I love that combination and I love how you're talking about market. as opposed to like customer acquisition or paid advertising.

Ben Tregoe: And, you know, in my experience, we, the world of D TOC got way too focused on, on paid acquisition, you know, running ads, you know, quick the, sort of quick hits and not enough focus on marketing. I think we're seeing brand, you know, brands kind of a bit of a reckoning. Now, when you say marketing, and it, you know, what does that mean to you?

Ben Tregoe: Cause it, it means a gazillion things to people.

Mike Duda: Yeah. It's and by the way, good for, like, let's go to the basics here. Like marketing is like an act of like trying to potential customers to your brand, your business, to get them to, buy or some sort of trial based on what the, nature of the business is.

Mike Duda: To your point to the early stage community for the past five or six years, marketing is overly equated to like Google and Facebook marketing. Right? Digital acquisi. And that is a part of the marketing funnel, but it's not the marketing funnel. As I will say to the cows, come home, no sane human being on earth spends all her time on Google or Facebook.

Mike Duda: There's different parts of the journey, whether you're no matter what category you're in. I mean, Amazon is an exception, you know, it's interesting. 74% of all consumer purchase searches start within Amazon. Not. And, as much as I love brand and marketing, I don't know if people are looking for the best brand in a shower curtain, but for so many different consumer categories of which there's well over 200, it just, there's different.

Mike Duda: There's different parts of the journey along the way. And, given that the average person in the us is exposed to something like 8,000 media messages a day and advertising, it's just like where you can intercept them or participate is so, so critical with, the right kind of message. but too much, it has been placed on a digital acquisition.

Mike Duda: And, while in many ways, iOS 14 plus is not a lot to celebrate for most people. It's like, I'm not gonna lie. There's a little bit of a hallelujah from me saying like, this is a, this will return to good old fashioned strategy. And the more, you know, who your customer is, the better you can serve her and keep her because CAC is something that's overrated with us.

Mike Duda: At least [00:05:00] we focus so much on the acquisition, but not in the retention. And so we have a lot of leaky buckets that have been kinda artificially plugged by just the raw amount of capital that's gone in. So this is for all the things going on in the economy in post I 14, it's actually gonna do it's gonna up the game and that you just can't do things as easy anymore.

Mike Duda: Oh,

Ben Tregoe: man. I, love the leaky bucket analogy and the

Mike Duda: emphasis old school. Right. It's like, I don't know if people use it anymore. I dunno if that's lost on the, on, on if you're under, 30, but it's like leaky bucket, which refers to like, if you get customers there's are they going out the side door or out the bucket?

Mike Duda: Yeah. Like it's like when you fill up a bucket of water, it's ideally you keep the water versus have it go out before, even like. Use it so

Ben Tregoe: right. And, paid advertising was, effectively super cheap water. And so people were like, well, it's pour more in, I don't care if it's leaking. And it's, I think people just don't spend enough time on like, you know, you've already acquired this customer.

Ben Tregoe: How do you get them to buy again from you? You know, it's not really, the focus is so much on like getting the next customer and all that, you know, kind of growth. And how do you think about that? Like how do you advise brands to think about.

Mike Duda: I think it's great. It's like not all companies are created equal, right?

Mike Duda: And, certainly taking a way step back. Capitalism really hasn't failed too many people over the past several years and yet certainly we have poverty and all those things. But when you look at like the venture capital game, the incentive for everybody is grow faster, fund faster fund, raise more and.

Mike Duda: and that's true with venture capitalists that are making, like going to market with like new and bigger funds quicker than ever on mostly mark to mark. And it's true of businesses that are like up and to the right, right. It happen as quick as possible and, keep getting money to, fuel it. So it's it's

Mike Duda: the craziest game of like musical chairs at like such an expeditious like rate, if you will. And then all of a sudden the music really. People couldn't find chairs. And that's why we're going through a tremendous reset now. So to, to more, pointly answer your question. Some entrepreneurs, I want a billion dollar comp company in five years, we're gonna do it.

Mike Duda: X, Y, and Z. Others realize the goal is not to raise capital it's to it's to build a sustainable or we call viable business. Yeah. And so while we have brands like Casper and others that are maybe anointed with the DTC. We're seeing entrepreneurs now slightly older, and I don't wanna say more pragmatic, but they're, more like the camels than the unicorns and unicorns.

Mike Duda: Like there's over a thousand unicorns now companies worth over a billion. Now we're seeing camels, like people like that are conserving the capital. They raise to build a strong company. And you know, we had four exits in 2021 as a fund and, one of the exits was. 50 about a 50 million company sold for not profitable sold for 410 million and us and our investors made 10 times our money in 48 months.

Mike Duda: Wow. And so what excites us one about the early stage, ask classes, power law, but two it's like great consumer propositions can like be thriving in of need and you don't need an IPO and in a world where like funds are raising an all time high or have been that musical music has stopped. It's all about business viability and, the direct consumer model is absolutely a viable portion of how to keep doing it.

Mike Duda: But I think like anything else we, like simple narratives, whether it's all DTC or screw DTC, and I think where we're learning, it's just like, it's not quite as simple as that. But we're seeing a sobering element of it. So to, go back to your question again, is we like certain companies that wanna be a billion dollar company.

Mike Duda: It might be a different element than to someone who wants to go just build something viable and isn't necessarily looking to build a unicorn. Yeah the, whole point is at the end of the game in this entrepreneur, BC game is, do we have a productive liquid. And there's, multiple ways to do that now, but it's we're to see more the, example I had with the 10 X as much as the IPO, especially in the DTC and consumer world.

Mike Duda: Mike,

Ben Tregoe: what's the, when you say a vibe, when you say you know, people are trying to build viable business, like I would think the asset tested of that is profitability. So if you're not profitable, like, can you be viable and not be profitable, I guess is my question.

Mike Duda: It's, a good pushback.

Mike Duda: So viable. Like again we, invest pre-launch and at the seed stage venture capital exists to give promising proposition in their founders. Like the economic means and maybe some other value added things beyond to make sure that you can actually show proof concept and get it. So [00:10:00] viability for us is usually high gross margin businesses.

Mike Duda: They have a. Customer satisfaction point or some something better than the consumer journey is offering a solution or benefit that category doesn't have, or is taking advantage in the internet or some way shape or form, and has a destination is destined to be profitable. You can get profitable outta the gate, people grow.

Mike Duda: And so for a lot of companies, it just we've over celebrated.

Ben Tregoe: Yeah, you, we that's. That's great. I appreciate that clarification. You talked about high margin and, you know, at Bainbridge, we we talk to a lot of companies also, and I'm struck, you know, sometimes you see great margin structures and sometimes you see margin structures, which are, you know, questionable, like how are you ever gonna get profitable?

Ben Tregoe: And I can, you know, I can understand, oh, with more scale, I can bring down cogs. , but I just, I suspect that sometimes founders don't put enough thought into the margin structure of their business, especially over time. And you, basically are then putting yourself in a situation of, you know, how are you ever gonna get there?

Ben Tregoe: Right. What, how do you see founders? Like, I mean, do you council founders on. you know, the right margin structure or by default, are those the only ones you ever work with? The ones that have already kind of figured this out. So by

Mike Duda: it's more the default, it's more the latter on that side equation that we tend to like, like higher margin businesses better.

Mike Duda: You can just do more within that. And that doesn't mean they have to be the highest margin category. They have to be like, you know, LensCrafters was a virtual monopoly before we saw wary Parker and their, gross margins were something like 70. And Warby Parker said, I wouldn 50% gross margins because they wanted to show how the internet, they wanted provide a better, service for customers and getting glasses at.

Mike Duda: And LensCrafters was like, oh my God, more an iPhone, which really Warby Parker IPO, their gross margins were 69 and a half, or sorry, 59 and a half. And Lux auto accounts was 60. So over time that's business that actually showed by, owning their supply chain and doing. They actually grew their gross margining base, but a 40 to 50% was that back then the category income seven.

Mike Duda: So like when we see things like retailers, like in the Walmarts and the targets, the world, it's just like, if you look at their revenue and if you look at the profit market, it's like, look, so those are things that we aspire to invest in per se, even they can certainly viables part the overall someone decide to go beyond DTC.

Mike Duda: So, but it's like, yeah, gross margins have to come into it. And so it's not something we. Our, entrepreneurs are because it's gotta be baked in and, you know, listen, if the pandemic hasn't taught us much about anything, it just shows you if you have supply chain issues or scarcity issues along that those are things that you might have to borrow against those high growth markets.

Mike Duda: You'd rather have lower ones, which is economics like maybe 90, not even 1 0 1. We tend to, favor businesses that there's more room to play. And listen in the very beginning stages, there are things you can do early on that aren't maybe the most scalable, but that's okay too. I mean, not necessarily from the economic model, but it might be over servicing your first 1000 customers and getting the word out because you're still getting feedback.

Mike Duda: That's the great thing about TTC, the feedback loop that can help fuel the future of the company over the course of time. So it's there, there's probably loads we could talk about, DTC beyond the business model approach. It, offers advantages that. I think we've forgotten to talk about it over the past couple years.

Ben Tregoe: Yeah. Well, what let's talk about it. What, are some of those other advantages? There's the feedback loop? The ability to, make changes quickly and execute faster than the traditional wholesaling business. What, other advantages would you see or do you think good founders are taking advantage?

Mike Duda: tho those are two great ones. Customer service is another thing but we say like DTC, you know, taking a step back. We love founders that are super passionate about solving a problem and literally wanna burn the boats to do that. So to speak, go in. But they're paranoid as to why. Like, if we don't do it right, someone else is gonna take her dollar.

Mike Duda: And we, I don't mean paranoid in any negative mental health way, by any stretch, not at all, but paranoid in terms of like that obsessing over customer. Yeah. When you have a direct feedback loop, not only in the sales channel, but also you can go back like write us back if there's any issues or whatever, like some of our greatest multi-billion dollar brands, those founders were like in the customer service centers, cuz they were in the office, not outsourced to outside the us.

Mike Duda: They were in us listening to what the customers said. And when we see CU, when we see founders do that and founding teams do that, customer service [00:15:00] can be far more weaponized to have good than what digital acquisi. Because if you listen to your customers, you can provide her and him with what they need and like, Ooh, tweak that.

Mike Duda: Right. We think the direct consumer and the feedback model is certainly part of it just abiding by those principles and like going by it'll help you achieve product culture, fit quicker, not product market fit. Product market can be a science size or math thighs. Like when we talk to founders and we ask like, who's your target audience?

Mike Duda: And it's like, well, 26 to 49 year old female with an average household income of $78,000. It's like, well, I've never met a 26 to 49 year old female. So we wanna get more of a, who is that person or who are you for? And it's not just like a media target, like that sense. Yeah. But it's a psychographic. So for Birchbox, it was a 28 year old mother of two in Cleveland that subscribe to the new Yorker.

Mike Duda: And that was a sense of her. And where is she on her journey on that side? And so the great thing about DTC is like, it really helps you establish that product culture fit and. That if you wanna diversify one day and actually go into third party into a third party retail, which is not necessarily a bad thing, you know who your customer is, it's not based on Nielsen.

Mike Duda: Riggings all these things that the standard CPG company's done, you actually have real data on who your customer is when they buy, how often they buy, what more they come, all that. So that can actually help you go to where your customers need. You. Customer service. Historically, customer service has been a negative and been a cost.

Mike Duda: DTC companies realize customer service is a gift. You allow me to have a conversation my day in court. Like if I value in some way, shape or form, you have a chance to you gimme a chance to make it right. Or if you're celebrating and you wanna evangelize for it. Go ahead. Yeah. And we see that we study like Instagram, like people who follow, who on Instagram and even out TikTok and Twitter, just what kind of fandom that exists there.

Mike Duda: And that's why like early stage DTC, God, it's so much. Yeah. And what we, tend to obsess over CAC and we make up LTV numbers is really the purity of that, that direct to consumer relationship, which has to lead to sales and all those things. But the learnings along the way can actually be the best investment versus having spending a lot of money on wrongful marketing.

Mike Duda: That's going against a customer that's not there for you or what have you. So that's why we love paranoid founders because they use direct consumer as like ongoing data. Information that helps scope what products you might need, what products you should kill, or even like when we should market. So it's that's why DTC is just so good.

Ben Tregoe: I,

Ben Tregoe: think it's fast. This is great. And you're getting to the heart of something that I think is really interesting about DTC and brands. You, gave the example of Birch box 28 year old mother of two lives in Cleveland subscribes to the new Yorker. Now. How many of those women are there and, can brands do, are they limited, you know, to that sort of tribe or that affinity group?

Ben Tregoe: Or can they ever expand beyond that? And, you know, cuz I would argue that sometimes people try to expand beyond their natural affinity group. So they're their core culture, as you said. And that's when their CS go through the roof and they start spending gazillion dollars trying to convince people who really don't.

Ben Tregoe: But I'd be interested in hearing it. Maybe I've led the witness. I'd be interested in hearing your thoughts on that.

Mike Duda: Yeah. I mean, the way we look at it's looking at some of the psychographics and, behaviors that index a little bit higher. So that take that Birch box example like 28 year old mother of two, that subscribes to new Yorker.

Mike Duda: And in Cleveland that sparks like someone who's more curious, someone who will try new things, someone who wants to, know what's going on, maybe before her neighbors on that side of it, you know, it's interesting with Birch box when it first launch. The cohort was really 18 to 24 year olds cuz in college it was 10 bucks a month.

Mike Duda: It was relatively cheap. And then women, girls were so excited to get this that they would do vlogs. Like, so video logs on YouTube at the time and like do the unboxing experience, what they had and what that led to is like one other 18 to 24 year old seeing it. But then two, their mother's seeing it when they went home from on college.

Mike Duda: And their mothers are like, Ooh, I wanna know what the latest skin care is or that stuff. So I subscribe too. So it's less about age and sometimes it's less about income, although matters. It's about, Ooh, I want to access the newest stuff first and be in the note. And so that 28 year old is kind of like a muse towards like curiosity.

Mike Duda: You know, Sony PlayStations target audience is like a 33 year old father of two that wants to romance like the college days when he was in his. And so you don't see too many ads teaching the 33 year old, but it's like it appeals the 18 year old. And that way trader Joe's has got the best muse we think trader Joe's they're they develop all their products and services inside the store and they're targeting one person.

Mike Duda: It is literally like a [00:20:00] substitute middle school teacher that drives a late model Volvo. And if you sit in that, what does that mean? I mean, late model Volvo's out there and it's like, so you describe someone that doesn't make a lot of money income. But as smart invest in research in a teacher, but really appreciates value, right?

Mike Duda: Like a, Volvo's not the cheapest car, but a late model Volvo that's like that car has been out there for 15 or 20 years. So they want quality, but they don't wanna pay a lot of money for it. Yeah. So it's just get a sense of that. Does this product and service do that. So it's as much as psychographics on things and that.

Mike Duda: You know what the great thing about digital media and what, happened with the onset of, we'll say Yahoo and Google and Facebook and things like that is before mass media was all based on a demo demographic, right? It was all about who got the most 18 to 49 year olds and the NBC wanted to win that 18 to 49 year old.

Mike Duda: Well now, because we can target more I think we've lost the plot, a. And so that's why we try to go by indices of certain elements of it. And those muse from those brands I mentioned are, kind of like plug ways towards it. So yes, media targets are helpful on there. And, you know, when we look outside of it, like if, we're selling, say a, lamb, like Peloton very early, you had to go against, you had to target people that had a little bit more household income, because it was a, it was $2,000 product and it was new.

Mike Duda: Right. That's why there was a heavy amount of CNBC. And then over the course of time, this Peloton was equating with like for instance, a 42 year old mom of three in grand rapids who literally cried because Peloton helped her lose 30 pounds and stay in better shape. So she could be a better mom. Right.

Mike Duda: And she did that at a homecoming event for Peloton. So like, numbers are so helpful. This is why I think data driven is one of the most overused terms out there. We prefer data inform. At the end of the day, great brands have human characteristics and brands have to have values and, certain behaviors on it.

Mike Duda: So it's like data informed is so key but, sometimes we can get two golden calf worshiping right. Of, of the numbers. Right.

Ben Tregoe: How do you, how does a brand know that they've nailed the muse.

Mike Duda: That's a great question in terms of nailing the muse, because it, can evolve over time, too. It just like center in and listen, if you're a scaling business, you might have multiple MUEs.

Mike Duda: Like there was a a vitamin and supplement store that had two MUEs. One was a 26 year old guy that worked out a lot who who, did a lot of self tanning and was always posing the mirror. And the other muse was literally a 53 year old grandma. Of two who wanted fish oil and just like stuff. So she could lift her grandkid.

Mike Duda: Yeah. Both from a vitamins and supplement store. So not, it doesn't have to be so singular depending on what the nature of, what you do and sell, but it's like you do need a center of gravity on terms of who's most perpetual. Now that said there are allegiance of stories, especially in vitamins and supplements.

Mike Duda: Talk about high gross margins, where the number of brands that have like launched and gone to a hundred million in three years is astronom. And quite often, if you look at their biggest, I'll say it in this case expense, it'll be marketing, they'll spend 60 or 65 million in marketing behind that a hundred million.

Mike Duda: Yeah, because that's the biggest cost because the ingredients are so cheap on that side of it. So they not anti digital acquisition. It just it's gotten way too celebrated. Right? It's like we don't send third graders of school to only learn social studies. You learn math, you learn all those things too.

Mike Duda: So due do a well rounded marketing is almost the same way to educate a third.

Ben Tregoe: Yeah, tangent to that, you know, what, how do you define a brand? What does brand mean to you?

Mike Duda: Yeah, a brand it's a set of values. It's what people say about you when you leave the room. And in many ways it's got human characteristics and that, and I think a lot of people in the early stage space will confuse it with.

Mike Duda: Which is like visual identity and color schemes and logos. So that's branding. Those are elements. A brand is a set of values. So if I were to describe someone using brands you could probably get a feel for that person. So if I say Sam Adams, beer Volkswagen, visa, Timberland Patagonia, then I describe another Levi's.

Mike Duda: I discover another person, Mercedes parer, Tommy Hilfiger. The first person, you're probably picturing like a, younger guy, like in Vermont with like stub and everything. That's outdoorsy, the other person you're picturing playing tennis and doing that. So that's what brands have the power to do. And, when I do some of these exercises with the wall street types who tend to be very left brained, very talented, very rich, but very left brain.

Mike Duda: I'll say, okay, what's brand. All right, I'm gonna give you a car. What car do you want? Do you want a BMW or a Kia? Well, BMW. Why? Well, it's the better. , I haven't even showed it to you yet. [00:25:00] I haven't even described it. Yeah. So brand is also a promise that it's like in a brand was invented back in like, like, well, like thousands of years ago and Mesopotamia when, beer was being sold, like, how do I know that beer is fresh versus others?

Mike Duda: And there was like a, branding, like you put on a cap in a cow, and that they're putting that on the side of these Oak barrels. So it was a promise of. McDonald's, which is a huge brand. When you see it on a highway, I trust 'em to stop that highway and I know what I'm gonna get right on the for.

Mike Duda: So it's a promise set of values. So very squishy. It's like everyone at home's thinking, oh, this guy's a liberal arts guy. Okay. Whatever. But that's what it really is a soul. Then there's the branding elements, which get into color schemes, visual identities and systems. Right. And, all that, we do that.

Mike Duda: But, brand is far more powerful than. Branding is one of many ways to kind of show what that brand stands for. But when you're in

Ben Tregoe: early stage, let's say, you know, somebody that you're getting involved with, it's not the, Nike, you know the, or even a Peloton at this stage, what, you know, how do people even know what you stand for?

Ben Tregoe: I mean, how do you communicate that promise to people. and that people then can identify like, yeah, I'm that type of person I buy and use that product.

Mike Duda: Like we, we have a phrase that we love, be it don't say it. And there's certain things you could advertise and say it, like if I were gonna advertise bull and me, I'm gonna say great things, cuz guess what?

Mike Duda: I have a house and everything that relies on the health of bull. Right. But in terms of like in, in terms of what it stands for, what's the actions. Like does bullish really invest in consumer disruptive startups? And it's like, okay, if I describe what bullish is and what we do functionally, it's like, okay.

Mike Duda: Then when I tell you, we're the first investor in Peloton and Casper and Harry's and Sunday lawn. And we're a top 5% fund from 2011 to 2015, top 15% from there on out like, oh, okay. Then it's validation along those lines too. So actions speak louder than words. and one of the things that we love about being early stage is if you do brand and operationalize it, well, you can spend less money on marketing and advertising because like when you have a strong brand positioning and brand strategy, it should be reflected in the products or services you sell the website, the partners, you have the customer service.

Mike Duda: If you really care for me as a customer, you better pick that up that phone and not put me on hold for two hours. CRM and loyalty, get feedback. The very last thing is marketing and advertising that is to propel and fan more planes and get more of this kind of of your core customers. Like let's go find more of them on there.

Mike Duda: So that's a great thing like brand when operationalize and where there's just such a big disconnect with big companies, which is why people hate advertising. People advertise like you sell me things I don't want. Well, if you're general motors or your Coca-Cola, it's hard just to change the formula. If something may not.

Mike Duda: Use advertising to find the good and celebrate a certain thing like that. Doesn't taste well. Well, it's sugar free. Oh, I don't really look it up. Well, it's got no calories in it. Well it doesn't really go faster. Get that good gas mileage. Well, look at that rear of your mirror. So you celebrate the good when you advertise it, but brand strategy when, brand strategy and business strategy like are in harmony.

Mike Duda: It's amazing. You see that in the form of like Tesla and apple and many other things. And it's sometimes hard to do. It's hard to put a spine inside the cheetah that's running. And so for early stage companies, they show signs of it. Our job is to help them commercialize it. So what's in a founder's gut and his, or her gut, like how do we make sure that when you hire 40 people, they're all saying here's what Peloton stands for.

Mike Duda: Or Sunday lawn stands for, or ha hair stands for. So. that's why we try and help them do but, the center of gravity of that brand comes from that passionate and paranoid founder. And our job is just to help bring it to life. Yeah. So when that founder can't be everywhere, hiring every single person, developing every product, it's still in the DNA of the company.

Mike Duda: So, so important. So important.

Ben Tregoe: Is there a, test of brand, is there a test to, know or metrics to understand. and D TOC has a good brand versus an exceptional brand.

Mike Duda: It's varies, probably the most popular one, which has been slightly pasteurized the past couple years is net promoter score.

Mike Duda: What is the likelihood that you would recommend this brand to a friend? So when you get those emails at home on a scale to zero to 10, what would you say? brand X or on, would you give one to five stars and you'll start seeing some leading the witness. Like, it'll start with the five star and like click here.

Mike Duda: So there's, versions of that. There's other versions in night tests, especially with DTC. If you're a, say a clothing company and you sell products that are $40, and all of a sudden you raise prices by [00:30:00] $5 and your conversion goes down uhoh you may not have a strong enough. You are price center.

Mike Duda: And that is the scariest place to be is like, if you're really at the mercy of price, a brand, again, a brand is something that when done well and is strong enough, it loyals it, loyals customers that no matter what, like, you know what I'm gonna stay brand loyal. Right? So in the case, we're recession, which at the time of this taping, Lord knows if we're going to that or inflationary thing, it is amazing what consumers will change out, but they will absolutely stay absolutely loyal to.

Mike Duda: people go to more private label food in stores, right? Like Turkey behind the deli. Like I'll do the store Turkey, not the Boar's head. Right. I'll do this kind of refreshment versus that. I'll go to, oh, that I'll go to that yogurt. Cause it's 10 for 10 this week. Not the one I usually go to, but things relates to pets and kids unmistakable and toilet paper.

Mike Duda: People will maybe go for like, like they're, not gonna skip on their Charmen if you will. And yeah, I'll leave it at that. Maybe why, but. People are brand loyal to a point, but it's, interesting cuz it's not just an economic element. You know, we see people in like who have a lot of wealth.

Mike Duda: They'll go to like the fancy department stores to day and get like custom and expensive like clothing. But they'll go shopping at Costco. Right. Because they know they want that. Charmon just to keep that Charmon up the Charmon toilet paper, but they'll get a better value there. Yeah. And they work hard to get that money.

Mike Duda: So you can't always judge consumer behavior, just probably the amount of money they make. Sorry, sorry for the coffee. No, you can't always judge consumer behavior by the money they make.

Ben Tregoe: So it, it does ha I mean, so there's net promoter score, but there's like, it sounds like an interesting test that founders could run.

Ben Tregoe: Price sensitivity, look at their data or test price sensitivity to, to see how strong their brand is. It sounds also like repeat purchase rate could be a test of brand. You know, if you have in this economy in particular, if you really start seeing your repeat purchase rates falling off, like, geez, maybe I don't have the brand that I thought I did.

Ben Tregoe: Whereas if you are seeing it. Stable. Like that could be a huge selling point for you down the road, you know, with investors or, and acquire.

Mike Duda: Yeah. And it's, and listen, there's rules of thumb along the way, too. Like in the case of the $40 apparel, like, you know what you might be serving like a certain kind of portion of the market and that's okay.

Mike Duda: Right. But it is easier to go from a higher price to a lower price. The other way around, like if BMW or Audi launched in the us with a $30,000. They wouldn't have permission to sell you a $90,000 car. Right? So when they've done over time is they, might have like the gateway drug aversion of the three series, but it's like, ultimately you one day wanna get the five series on that side.

Mike Duda: So it, it all depends where you are in someone's life, but it's, more and more, and it's like it's, sacrilegious on one part to me is because the abundance of choice that we now have brand loyalty, the atrophy is happening on a quicker scale And when you have things like inflation, go up, it just, yeah.

Mike Duda: Loyalty only goes so far as like, my wallet will allow it to, to, right. So there's so many factors that can win, but the more, you know, who your customer is, the more you can really make sure that you are, you keep that meaningful. I hate to say relationship. I don't know if I wanna have a relationship with my charm and toilet paper, for instance, like right.

Mike Duda: There is an exchange value there, but in terms of like different categories, it's just like, if you do right by the consumer, Didn't just like lure that consumer in by like some sort of cheap deal or digital acquisition thing, and really look for that LTV mindset and to keep customers you'll, probably be healthier outside of just the leaky bucket that we talked about earlier, but you also have like a more stable sound base that can weather moments in time, whether it's the economy or, cold weather or what have you.

Mike Duda: But so many different things as we learned the past couple years can, affect that stuff. Right? Yeah. So

Ben Tregoe: do. Can the brand lose the affinity of its core group, as it ex tries to expand the size of its addressable audience?

Mike Duda: Absolutely. I mean it's, scale is a wonderful thing until it's not.

Mike Duda: And so in some cases like like we invest in B to C businesses and a lot of D two C business, we like paying customer. You've seen maybe communities that just like, let's just get as many people as possible and then figure out how to make money later. Yeah. And then when you figure out how to make money, like we're going public, it's like, oh, all of a sudden the service or the proposition is not as good.

Mike Duda: Right. You might lose users along those lines. Or it's like, if you get someone in like six months for a dollar, are you keeping that customer after it goes to like $10 a month, right on that side of it. And, listen, you sometimes have strong brands that all of a sudden, like reach its. Netflix.

Mike Duda: Netflix [00:35:00] has been a pretty strong proposition. Right. But then at, a time where they reach either market saturation, coupled with inflation and people making choices, it's like, are you indispensable? And that's, at a time. I think we're living through now. Are you indispensable to me? Or can I cancel you?

Mike Duda: And all of a sudden you're seeing maybe change some business model. Ooh, maybe we can't go out and just do all the Adam Sandler, Jennifer Aniston, like content series anymore. And on that side, so. Or you just flat out do wrong by, the customer. You know, in some cases, customers catch when like, Hey, I'm a loyal paying customer.

Mike Duda: Why is that new person at the gym paying like $10 a month? And I'm paying 30 and I've been here for five years. So there, there is something inherent in the model. Like when we acquire customers, like we, we treat them disproportionately better from a price standpoint than someone who's got loyal members.

Mike Duda: Right. And it's just interesting when you look at. Loyalty programs or lack thereof. Is this really a loyalty program or is it a discount program? For instance, I'm a big fan of dunking donuts. I am too good of a fan of dunking donuts. Their app is phenomenal and there's a loyalty program that every time I get 200 points, I get a free beverage and yeah.

Mike Duda: And I, haven't seen their latest earnings, but there's something like people like me are like 32% more valuable to dunk donuts than people who don't have. So loyalty could be that. And I feel like, Ooh, they give me stuff and specials when need it, or is it five, five lobes of bread? Get the next one free.

Mike Duda: It's a discount program, right? You might see at your local coffee store and everything, which your local staff coffee store, technically D two C doesn't have to be just an internet. It's direct sales. So it's a lot of things come into equation. Like in a lot of times it could be to economics, or if you just flat out, start not serve your customer.

Mike Duda: Right. Lulu lemon did this pretty infamously twice in their history where all of a sudden what became the, almost unofficial the unofficial outfit of moms picking up their children in grade school, all a sudden, they literally came across with quality issues. Yeah. And they had recalls. And so there was a number of people that abandoned the brand, which gave others like Jim shark and others permission to come to the category.

Mike Duda: So. but yeah. Consumers now with, in, in a DTC world, in a social media world will evangelize and like will preach to the heavens if they're wrong. Not as much as they're. Right. But they will do it if they're right. They'll recommend other, people. Yeah. But that's, you have to be careful of so brands if you take your customer, granted, you can lose her.

Mike Duda: Yeah. You can lose her.

Ben Tregoe: Yeah, absolutely. We're, entering an incredibly difficult, you know, period. I think for a lot of founders, particularly younger founders who haven't lived through anything remotely similar to this, what are you telling your founders now?

Mike Duda: Well, it's you know, the great thing about it investing as early as we do is.

Mike Duda: you know, companies are coming outta the womb in a post COVID post iOS 14 world. Yes, there's inflation. So there's not a lot of bone to chip or change and everything there's cartilage. And so it, I'm gonna go on a rant here, so I'm gonna apologize and feel free to edit this out. It's amazing. How many venture capitalists have come outta the woodwork saying have 30 months of runway do all these things where six months ago, they weren't saying that they're like, take my money.

Mike Duda: Let's have an up round. Let's keep going. So there's been a lot of quote, unquote, sober wisdom from venture capitalists that like, thanks buddy. Where was this? Like six months ago before this all started? Yeah. Where, where am I

Ben Tregoe: getting the 24 months of runway now?

Mike Duda: so exactly. It's so, so I, I. I it, what kills me is there's a lot of wisdom being bespoken.

Mike Duda: We don't try to overly help or get in the way of, one of our entrepreneurs. Our job is to be that personal trainer. Our job is make sure you're in shape. Our job is to make sure like you keep you under plan and everything like that. But ultimately you're the athlete and we're betting on you. And we put money into it because we believe in you and we wanna be supportive in some way, shape or form, but, you know, on one hand, as much as I mentioned, all the great companies, the peans, the war parkers and Harrys.

Mike Duda: You know, we don't wanna be like LeBron James's second grade teacher saying like, yeah, we're the ones that made LeBron a great super superstar. Like we're in the presence there. You know when, you meet some of the founders that we have, whether it's like a culture Lewis at a Sunday, or was Katy at Birchbox or Cola, Claire and many others it's, really amazing how the entrepreneurs make us really, smart.

Mike Duda: And if they really are as passionate about serving the cus customer and para. That paranoia. Isn't just a nice marketing thing outta my mouth. They're acting that way. Right. We had businesses when the pandemic was starting, which is the late, the best comp that, you know, one business said like, you know what, we might lay off.

Mike Duda: 15% of our staff wanted laying off 22% because they wanted to cut once and cut a little bit deeper versus multiple cuts. Cause they didn't wanna lose the culture. Right. And that it was a good thing that they did it. It was probably a little [00:40:00] bit harsh than they needed to. They loyal and kept the people that were there and didn't lose anybody else from a voluntary basis.

Mike Duda: And then they went back to growth, something like four months later. Wow. And that side of it. So we, advise in certain things, but it just like what it keeps coming down to some of the fundamentals you keep and take care of your current customers. That can be a thing that pays back. And so many times as VCs and even entrepreneurs, we love subscription businesses.

Mike Duda: Cause it's reoccurring. every career revenue is coming from the pockets of people. Right. And what you gotta make sure, especially in a world that there's not only with what's going on with inflation, but fraud is an all time high a lot of people have to get new credit cards and they have to go reenter it.

Mike Duda: So it's like, there's even new, like new degrees of I'll say invisible friction that can come to the equation that if you're not serving someone at the right time and they happen to have to cancel the, credit cards in her or his wallet, are you gonna get that call back? Are you gonna get that?

Mike Duda: Right. And that's why you have to just keep doing it. So you can't ski and you cannot take loyalty for granted. But a lot of times we look at these things like subscriptions, we look at business models are, great, but they don't exist without customers that are getting some sort of value.

Mike Duda: And that's, one of those things that's dare I say timeless, but you know, any of the things that we're saying now, it's just. don't expect to be able to raise capital as easily. As before I think alternative means of capital are gonna come and, Vogue, and certainly credit and debt have become much cooler since 2019, because there's a lot more viable ways of doing that.

Mike Duda: With interest rates going up. That'll, be interesting how that maintains serve, but it's just, if you have a strong and viable business, you will have options, but you have to stay paranoid and do it and growth at every option. that has been celebrated. That is not being celebrated right now.

Mike Duda: Yeah, I suspect we don't learn from history like post midterm elections or a presidential election, 2024, who knows promises But like for, the time being like the more paranoid you act on the health of, for the healthier business the, better shot you have to, thrive while others do not.

Ben Tregoe: What, my last question sort of dovetails to that, like, You know, the paranoia as I'm hearing it in my mind. And this is obviously, cuz I'm very influenced by this, but like it it, manifests itself in some form of like financial discipline or understanding of the business, right? Like the example you just gave where that founder was like, you know, we could cut 15, but we're gonna cut 22.

Ben Tregoe: like, you know, that part of that was emotional, but also it was really driven by like, geez, I think we'd be better off, you know, by saving that extra money. So I guess my question is like how, what do you think founders are good enough in their finance, financial acumen or, management, or is is that a tend to be a weak spot for them?

Ben Tregoe: And if, so, what can they do about.

Mike Duda: yeah, it's either too strong, a too strong of a, spot for some that rely on like digital acquisition for marketing that can be too strong or, naive even don't know enough about it. And that's okay because like great business leaders and CEOs can come in all shapes and sizes, you know, what's great about what's going on.

Mike Duda: And, you know, since when we start investing like a Bainbridge didn't. So now there's different things like before a series B or even should I raise a series B you can go to Banbridge and in your own way, and I'm not trying to be nice to you there, Ben, but it's like a Banbridge can help be that personal trainer to pressure test.

Mike Duda: Am I running my business as soundly as possible? Let me get a pressure test on that. And there was, there's a number of solutions that have, come up and, you know, Bainbridge is certainly like leading that pack on that side of it. So in terms of really saying, are we doing everything as efficiently as possible?

Mike Duda: How can we get. So those have come. So, and that could be for someone who is hypersensitive, ands, got the CFO mindset or for somebody else that maybe can't spell CFO, but relies on somebody else to do that for em, or in most cases, quite frankly, they don't have a CFO. Yeah. And it's like a CFO will come like post series a or series B.

Mike Duda: And so something like a Bainbridge can be super useful in terms of. Okay. Providing the rigor of like a personal training CFO to kind of come in and look at what we're doing. Well, I like that and what we're not doing well, and to expose certain things. So that's the great thing. There's more tools because clearly for all the mockery that direct consumers gotten is done pretty well because there's a number of new providers that didn't exist four or five years ago that are doing pretty well as result yourself included.

Mike Duda: So that's, one of the things that's out there, but listen, if a CFO can better serve a customer in some sort of consumer area, sign us. But it it doesn't have to be a must have. Yeah. It's it's, not deficiency certainly, but there's, it's good to see that this period of time, like there's other [00:45:00] ways of doing it just besides a human capital.

Mike Duda: And it's like, if you get that CFO higher, wrong, or COO higher wrong, uhoh now there's like other parties that, that, that can come in and right. Kind of what we do in marketing, you certainly do on the, eCommerce diligence side. That, that's why I think it's a good time and there's more guardrails in a good way.

Mike Duda: Paranoid minded founders that wanna make sure they're on the path. Be great. Oh, I love

Ben Tregoe: that. Thank you for that, those nice words. But I also love like this, image of the paranoid, you know, in the right way, the good way I found her. Yeah. Mike we're at time. Was there anything I missed or that you wanna make sure.

Ben Tregoe: And we can cut it in later,

Mike Duda: long lived consumer. And I'm guessing if you're listening to this podcast, you must like consumer DTC. What, fascinates us? If you look at the us GDP 70, just under 70% of it is consumer spending discretionary otherwise. And so for all the talk of SAS multiples and all this stuff, we tend to like, we tend to like salivate over, like the multiples and everything like that.

Mike Duda: Consumer brand loyalty is eroding. There's more stuff coming to play. So DTC Uber are, I'll say it very viable and there's a lot of play here. And we certainly know that 70% OFC, money's not going towards consumer propositions. So there's a lot of room for future innovation. It's happening now. There's too many damn smart people that during the pandemic said, why is this done a certain way?

Mike Duda: Or should I stay at my big corporate job? So I think we're on the doorstep of a golden era of new type of DTC and consumer solutions. Buckle up Ben and listeners. There's some fun ahead. Not gonna be easy, but you know, there's some fun ahead.

Ben Tregoe: Hallelujah. All right. Thanks Mike. That was awesome.

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