The Death Of Supplements & What Taylor Holiday What Do Instead transcript

Taylor, is the supplement industry gonna die at some point? I want your I want your take on the state of supplements. >> Did you see my back and forth with Bill yesterday? >> Uh, no. Was it his comment about like uh science? >> Yeah. Which is such a bizarre thing. This idea that now all of a sudden science is the thing that the culture cares about. Like we have 180. Like science was the antichrist like 20 minutes ago, you know, after the co era.

So, >> um, I think that it is it is incredibly difficult to build a durable supplement business. Um, and >> what do you mean by durable? >> That is going to last for a very long time. >> Yeah. >> And I think what ends up happening is it is just endless product expansion into the next trend that you have to be really good at. And it comes down to your capacity to build the next product category that someone cares a lot about um and to establish more distribution because it is not about science creating a defensible CAC.

There is no defensible CAC because there is no barrier to making claims. Yeah, this is the same thing I tell. >> But do so do you think so this actually one of my questions. Do you think the the no barrier to making claims will be the case for forever or do you think at some point the FDA is going to come and say like >> I think these these are so much money here >> you can't find them. The people making the claims >> the black hat affiliates are ghosts.

You can't you you'll never find them. um you'll find some that will get large enough that you'll get made an example of, but it is there is no barrier to entry and there's no value in the FTC chasing down some drop shipper making outrageous outlandish claims. Like as it gets concentrated and large enough, then you draft enough attention for it to be worth trying to stop you. But it's whack-a-ole. It's like trying to eliminate knockoffs on Amazon.

It's like one goes down, another one pops up. And so there is no barrier to making claims. This is the same thing I tell like agency owners about um the value proposition of their service can't be like uh a thing that somebody else can just write on their website too. That is like an unprovable, indefensible statement. And we can all say things like the greatest copywriter ever. Like you if it's something you can just write on an ad, that's not a defensible position.

Even if you spent $10 million researching your line to be true, if I can write the same line, the customer doesn't know the difference. But if your phrase is the greatest copyriter ever, I'm going to assume that's not true because it's not that good a copyright. >> What if it's the greatest weight ever? >> I'm just being an idiot. I'm kidding. Um, yeah. And like, look at the GOP. Like, if you go >> What about What about Go ahead. >> If you go on to TikTok right now, it is flooded with fake doctors, AI, saying fake things about drugs that are not real.

Like there's endless accounts that you can go find of fake AI doctors that are intended to look real to deceive people into believing there is a benefit in the thing that they are selling on the other end of it. >> Yeah. >> Like h I I don't know how a definitive claim. And also like did AG1 in all its science defend it from groans altering the form factor of the market? >> No. And >> like it just >> it just endlessly changes over and over and over again.

I'm I'm also very dubious about how much anybody cares about science. >> I think there's a question there too that just like like I don't know people Gatorade sold a lot of Gatorade for a really long time and it was it's basically a supplement, right? >> Still drink a lot of Coke. >> Uhhuh. Yeah. Yeah. I just the idea that like science Well, and even in the categories where health is a pursuit like there's a lot of supplement companies that exist in a space that I would say is more homeopathic or natural that is like their literal position is anti-science in some ways.

It's anti-farm phological like >> I I wouldn't have claimed I I mean >> I don't think that's how they would frame it. >> No no but I see what you mean. I see what you mean. You're saying we're going against the mainstream belief about this thing and that's the reason why we're good. Um, yeah. Is there >> like like Primal Queen is like the hottest supplement brand that everybody wants to reference and I would just I haven't it's not because I've seen their, you know, yeah, PubMD studies, web or PubMed studies, sorry. >> Like that's not the mechanism they're using, right?

Like just got through a billion dollars really fast. I have no idea if they did a study ever. >> Yeah, they have cute sticky bears though. Yeah, like little factors. It's delicious. Patrick's comment about those just never gets old to me. He said, "Never underestimate," and this actually is relevant to the conversation. never under my state underestimate the ability to sell um candy marketed as salad to American consumers. >> Exactly.

[laughter] Um but I do think that like I mean I don't know like the peptide GLP1 even Madna's stock doubling because they've solved cancer potentially like I do think we're actually experiencing these massive innovations on the healthcare side right now that I do think that the really interesting thing is less about supplements candidly. I find that world to be >> well let me let me ask you a different question about supplements. >> Yeah, >> that is part of my the reason I'm I wonder about its ability to last. >> One of the things I think is just still that there's this margin game.

There's like a there's an auction-based economic thing that I think of here which is that it is still at this stage uh like the customers are still too valuable relative to the cost um for some of the supplement brands basically that when you can run at like a >> I don't know I don't know how true that is. >> I mean it's true in the extreme well well let me let me make the case like this. One of the things that is noticeable to me is that some of the big supplement super win speed game things at least what they're supposed to be um recently have come with raising money, >> right?

You know, Mars man raised a bunch of money. Gruns, you know, came started with a raise like um and the thing that's striking about that to me is that it was like that that was like antithetical to the DDC mindset for a while, right? It was like everybody raised money in DDC 1.0, right? Bonobos and Warby and they never had to be profitable, you know, dollar shave. Um and then it was like okay well actually like this is not really how the economics of these businesses work and there's a new round of DTOC brands and now for a specific subset of there specific category you see brands raising money >> y >> and I don't know what Zach is doing with that money at Marsmen I don't know what exactly it might be to hire amazing people more but there it seems to me that part of what they're doing is fronting the CAC and if that is true then it is going to become less viable at some point without doing that because what is going to happen is that those brands will just outmuscle you on volume. >> And in an auction-based system, if they're just willing to pay more for the customer than other people are, >> then you are going you're it's going to be really hard to grow past some level or whatever.

And so so so for me, it's it's basically a question about the idea actually whether or not you're right that the customers are or are not valuable enough to s sustain this. >> Some subset of people are behaving as if they are. Y >> and therefore pushing the price the CS really high in this category. And if that keeps happening, it makes the value proposition of high gross margin plus uh extremely high uh retention which is which is the value proposition of the of these brands, right?

Like from an enterprise value level. >> Yep. >> Um it makes that less appealing because then then margin just gets eaten away in ter in CAC and the timeline to value creation becomes too difficult for too many brands. I don't know if we're there. >> I think you're just describing every market with limited barrier to entry experiences that effective. >> And that's part of what I'm saying. The supplements have have seen have have become the focal point of exactly that problem because it's such because the margin because the margin gap was so big like because I mean again if you just do the like the return on invested capital math on a lot of these customers. >> Yeah. >> It's like 70% in a year or something like that and whatever.

Don't hold me to that exact number right in three years is kind of the gold standard. that >> and and if you think about that though if you go run that same margin game against durable brands. >> Yeah. >> You know like they just are not achieving that kind of return on invested capital and therefore the implication to me is that at least at the DDC level and therefore the implication to me is more money will keep flowing there because markets especially auction based markets are pretty rational about this sort of thing.

So they'll just keep going. >> But I don't that's my theory >> right? But those aren't the choices for capital right like it's not uh hard goods or supplements. I think the category where actually all of the volume is right now that's is tellahalth is is actually where because the customer values are actually dis in the thousands of dollars disproportionately high there like that's what the GLP1 peptide thing is actually so much bigger than >> for sure >> any of the supplement thing and it's because there there are real thousands and thousands of dollar and the consumption is real and the efficacy is real the impact of people's lives if you take semiglutide like is real and so people are paying endless amounts of money and Again, it's a form factor evolution.

I think that some of the biggest changes like when you go from powder to gummy to now injectables, the idea of normalizing injecting yourself with something >> um >> it's really interesting. >> It's like yeah, it's a pretty crazy transformation. But those things Zen I think is another one that gets referenced, right? It's like form factor change of consuming caffeine or whatever it might be. Zen um yeah, nicotine, whatever. >> But those are um those are big moments where there tends to be high emergence of big winners.

But um I I think that the other category like I look at in our our business that I think is really wildly underappreciated is like uh Whoop and Aura where there's hardware plus software like >> and and so the general premise and those actually have moes because there's capex requirement, there's technology, there's innovation, there's things that actually aren't you can't there's not 9,000 aura rings despite Cao now having a one as an example of a knockoff, but it's actually like you can't fast follow that because there's real work to be done to build a moat around the technology and there's a network effect in the data and that like the more users of the product they are the better the product becomes because the more they can learn about what works for people and doesn't they can improve the software things like that so >> fi is a customer of ours this is an example of this for pets like that I think category is another example that's like more interesting to me because the supplement thing I and this is the argument I was having with Bill I think there's no defensibility against the CAC problem I think every one of these brands will just get the CAC will degrade endlessly over time. >> And part of my theory in that is that at the same time the retention rates will actually start to um suffer because there's so much competition.

So people will play this LTV to CAC game. >> Yes. >> And three years ago they would have been right. >> Right. And well this is the argument with IMA like I don't know how much you're following that. It's it's a fun debate on X about because they're they are running this playbook to the absolute max extreme. So you talked about financing. They got a billion dollar um uh financial tool from General Catalyst that's in exclusively exists to fund CAC with a specific interest rate relative to the payback period. >> Whoa.

I did not know that. It's really interesting. It's very interesting. >> Yeah. And and who funded this? >> General Catalyst. What are they? >> They're a venture fund. >> Venture fund. Um, and so it's a it's a debt vehicle specifically for CAC and the pay how far out they push the payback period alters the interest rate that they get charged which is just like them adjusting for the yield relative to the risk. Right? So it makes sense. >> That's really rational >> and there's some >> this is this is exactly my point that's so rational as a as a use of capital.

This is exactly my point that is a really rational use of capital relative to the value so far. >> Right. The problem I see with it is it there's there's two assumptions that underpin the model. Right? one is the stability of CAC as you go forward, right? But again, the the expectation of the dollars are only deployed through a lens of a return in some window. So like if the volume goes up or down, they don't really care.

It's just how much money gets lent. So for the lender, it's like the CAC isn't actually as much of the problem as is the idea that the business has only been around for 20 months. you're modeling off your earliest cohorts, which are your highest value customers with the assumption that next month's >> uh um >> value is going to be the same as the first month's cohorts. Now, you can look at the replication of month one versus month one.

It doesn't have to compare month 18, month 18. But what you don't know is if what Grunes did to AG1 as changing the form factor from powder to gummies exists 6 months from now such that all of the cohorts will suddenly be depressed because there's now this massive alternative competition factor. And so anytime you're modeling anything far out to the future, the unknown unknown risk become larger. And so I think there's there's some uh significant risk in that.

But but >> my my whole question is just like right now part of the reason supplements is so appealing as a subset like compared to whooper aura >> what you're saying there right is is >> the moat is the barrier to entry that's the thing about supplements is there's no barrier to entry and so I would say for the last few years it's been an incredible opportunity because the other thing too is you have to think like >> like you don't have to have a billion dollar outcome for it to be a really good opportunity right like not everybody has to be grunes here like you you could go build a really good business and sell it for 30 40 $50 million and be really happy with it.

You know what I mean? And that's still a good opportunity. My question is like how long will that opportunity hold up or is there going to be a spend ceiling that brands really struggle to sort to to push through without being great at everything they're doing operationally? You know, in a way that what yeah what it would do is like it would sort of >> sift out the truly good op the truly great operators from the bad ones because maybe the way you would win in that game is like next tier creative, right? there's no moat in terms of the things you're saying, but if your creative is better and your ability to build brand is better and your ability to build organic content is better, you know, all of those things, those can be really additive to to building a good brand.

Again, even if it's not a billion dollar scale and uh but that's actually all really really hard. All of that kind of marketing work is super difficult or whatever at the at the sort of supply chain level doing something, you know, whatever it is. So, >> yeah, I think there's going to be emerging new trends in health and fitness forever. Um, and that there will be products that get built in support of those movements that will have massive success and that any market where the the barrier to entry is low will suffer from long-term pricing power and defensibility. >> And my my whole question really is that happening now uh for for supplement it was not happening two years ago.

Is it happening broad? I think I would be narrower in the definition. So now this is an interesting question which is like as form factors change like cuz as you've said sell pills on subscription that's the whole game in DC right but what happens if that becomes no longer as appealing because actually everybody wants to drink their stuff you know like uh you know or if they want to eat gummies of their stuff or or whatever you know so um so yeah I yeah pills like pills >> what do you mean by supplement anymore is lollipop a supplement you know like >> yeah right yeah beverage is a whole >> it's a probiotic theoretically right yeah right so >> I think the gummy thing is is really interesting thing.

I think it's that is an example of a thing that I don't think is going to last. Um I don't know that that's going to be as durable uh long term or that the idea of launching a gummy supplement today is as powerful as it was when you were the first ones to do it when create gummies did it, you know, whoever. Um >> so I think that the novelty is part of what drives the intrigue and the adoption. Um, I I know like I I just think that building habitual consumption amongst everyday people for almost anything that isn't actually addictive is really really hard. >> Like I have toggled back and forth between 19 different creatine companies.

Like and I'm back to just doing the powder because it's like faster and chewing gummies just took too long. Like I just and I Yeah. Um >> that's funny. >> Uh I just got tired of chewing a lot of gummies every day. Like um that was just my personal feel. And again, >> yeah, I've been using the same bulk supplements Amazon brand for forever, >> right? >> So, I just think there's like people will cycle through these things um a lot. >> Yeah. >> But but but >> maybe they'll buy a lot before they >> Yeah.

They and they will. There's a lot of the Tellah Health thing I think is much more interesting >> because I think there's actual real quote unquote science here happening about the efficacy of these products and it's like >> the the impacts are incredible. Like I I just think it is massively under reportported because there's a social incentive not to talk about it that much. How many people are on GOP once? >> Oh yeah. >> Unbelievable. >> Oh yeah. >> Unbelievable. >> Oh yeah.

It's crazy. >> I just talked recently with a coaching client of mine who was seeing their business grow really quickly, really fast. They were doing all the things we talk about doing here. It was working. It was great. They're called Reformation Heritage Books. And at the time, at the same time, as they're growing really, really fast, they were really struggling with their supply chain in the back end of it. When you have massive growth in a business or even when there's just sort of regular growth, but into an area of business, in a stage of business you have not been in before, your supply chain can get really complicated really, really fast, especially if you're managing a reasonable size skew set.

And so what RHB did is they contacted my friends at Move Supply Chain that I've talked to a lot of talked about a lot of times on this show, and they got them involved with their supply chain. And the result is just this like amazing picture that I love. They found that they were able to source backup manufacturers so they had redundancies built into their supply chain. They totally retoolled their demand forecasting so that they were splitting their products into A, B, and C level products, sort of the fastest, most important movers versus slower movers.

They had various safety stock volumes for each of those different product velocity categories that I was talking about. They were looking at the mix of revenue contribution and order volume because they have a wide range of AOVs. So they were able to sort of sort out product velocity and uh product categorization relative to both of those things. Not just order order velocity and not just revenue volume but both. And at the same time they were able to contact a new manufacturer and get their cogs reduced.

They're also working on sourcing other manufacturers to do the same over more time particularly on one subset of their products. They saw a real reduction in COGS and they did all of that while not adding huge amounts of opex as they grew because move supply chain is based in the Philippines and could help them do all of those things providing a team of three for what would probably cost like uh for what you'd normally pay for like one person in the US to do the same job.

Uh moves team is uh experienced. They have a bunch of knowledge of how to work even in the specific industry that this client was in. just like a a real dream scenario for how great help can really impact cash efficiency, inventory management, and growth management in a business as you grow. If that is you, if you are not sourcing backup manufacturers, if you are not efforting your COGS, if you don't have serious demand planning in place, go to moveupplychain.com right now.

Moveupchain.com, links in the show notes, and get on a call and see if maybe they can be some help to you. So valuable to get people with deep supply chain experience based in the Philippines. They're an affordable, reasonable cost in your business who can come and really, really help you a lot. If you still think of the Philippines as like a way to hire just cheap assistant level talent and that's it, you're missing out on the opportunity.

Get people with deep experience in supply [music] chain to make your supply chain work better, make your business work better, make cash move through your business better, and all of those things. Move supplychain.com. This is a random show episode supposed to talk about whatever's going on. We did an episode not that long ago. This is like a this is a fast turnaround for our last recording. It would have been >> like when it was last time was like research.

No, we did. We did. We broke our usual. So, today we're talking about all the stuff that we just haven't gone to for a while cuz we don't get to see each other that much. What do you want to talk about next? That was one that I've been noodling. I was curious for your take on. >> It's like semi workrelated. Do you want to go totally nonwork next or do you want to go >> work? I'm curious cuz you are a staunch defender of the Dodgers as a franchise.

Yeah. >> If it turns out that they cheated to create the financial advantage that has allowed them to build championship teams, >> how would you respond to that and what do you think happened here? >> I don't know what I think happened. Um I think there's two qu there's two stories, right? There's like >> did Mark Walter just mismanage his cash availability is like one question, you know, with like sort of lending to himself >> to have more cash on hand than he should have.

Mhm. >> That's in some ways separate from did the Dodgers cheat. It's like more like did you commit fraud with your customers >> if that allowed him to make the financial >> but theoretically somebody else has enough cash on hand to make the same financial decisions >> to cheat. >> Not to cheat. That's that's my point is that it's not necessarily cheating a baseball perspective. Like Steve Cohen might have enough cash on hand with the Mets.

He's paying a very similar payroll to where you could fund a huge because there's a separate question to me of like is it good or bad that the Dodgers pay so much money in payroll? Now, they may have paid too much money in payroll, but even if you take out Kyle Tucker and Edward Diaz from us last year, they would have had a gigantic monster payroll with huge luxury luxury tax implications and giant deferrals and all that kind of stuff.

And maybe maybe it's the case, the non- baseball fans are going to be so so confused here. Whatever. Uh maybe it's the case that in that world people I mean people were mad at the Dodgers last year before that happened, right? This year you I'm asking about you because I >> No, but my point my point is just that there's two questions. One of them is like, did Mark Walter commit fraud with his with his um >> insurance >> with his insurance funds? >> Y >> um that I'm gonna I'm gonna go on a limb and say if he did, I think that's bad.

I think you shouldn't commit fraud financially at the risk of annuity holders, you know. Um so there's that. If the second question, if the Dodgers actually then used that money to cheat and to fund their cash allowance in a way that sort of like made it so they actually couldn't operate at this level or something like that, then I think that was bad. I think they shouldn't. I I wouldn't have a defense of that. I would say like >> the clearest thing I understand is the two the two things that seem obvious is that >> the issues were that he didn't when you take insurance float, so when you take money for people's premiums, >> you're you're allowed to invest it.

Totally legal. You have to disclose the entities and it can't be concentrated in any place. Like those are sort of some basic laws and you create >> and you can't and you can't lend to related entities because the idea is that like you're going to give really good you're if you're if I'm lending to myself across two businesses that I own, >> right? >> And and and the um the debtor uh uh can't pay back the debt, >> right? which puts at risk the people from the original company, especially if it's their insurance funds, right?

Like then that's actually a real potential harm for customers. And so you can't do that. You can do a little bit of it, but you can't do a lot of it because it creates too much risk for those the >> policy. And in this case, in theory, like he's made a lot of money with the investments. It's not that the money doesn't exist. So this is like different than like a Ponzi scheme where the money is not real. He actually made a ton of money investing in.

But he did it without disclosures and created all these like entities that were unnamed that didn't appear to be the same but might actually have been the same >> and covering it up and it was really risky even though it worked. >> Yes. And then the media rights deal with the Dodgers. He's on both sides of the transaction which also gives him the ability to write off the interest on the loan to create a tax advantage for himself.

And if it's all the same pool of cash then by being the lender and the lendee >> you create an advantage. And so that would give you then the ability to deploy more cash because you have less cash outflow as an obligation from a tax standpoint. >> So my answer to your question is yes, I would care if that if that created an unfair advantage. That would be bad. I think that would be bad. I don't think anybody should have an unfair advantage.

I think you want the market to work within some amount of regulation rationally and all of that kind of stuff. So I think that would be bad. It's also just not the most interesting question to me. The mo the actually the most interesting question to me is does is parody good? Um, >> what if what if the GM knew? >> Well, if Freeman knew that he was doing that. That would be >> because Did you see what happened with the uh the Clippers? >> Yeah.

Yeah. Yeah. >> Where the president of basketball operations actually was in these meetings recording the meetings with Bomber where they were discussing stuff and people are kind of like, hey, why was he doing that? And it appears that he was like, "This doesn't seem totally clear. If I ever get in trouble, this needs to be something that I can come out and whereability." >> Right. So, and now Magic Johnson is like very much sort of being put at the center of this as if Magic Johnson brokering these relationships was also a piece of this.

So, like would it matter if Andrew Freriedman knew? >> Yeah. It's all about Yeah. Yeah. You shouldn't cheat. I mean, I like of course like it's like a different kind of cheating than the onfield cheating of the Astros, but it's sort of the same if it like produces a super roster, you know? So, it's like >> Well, yeah. I think it's I think it's >> Do you say that because like that's just like a a moral position or is that like if it got you a championship? >> No, that would make me feel tainted with the championship.

I would feel I would feel like that that was less I don't I don't I've actually one of the things I've admired from a distance about the Dodgers theoretically Yeah. >> is how well they run their whole organization. There seemed to always be to me a commitment to excellence and I would always hold that up as a way of saying like >> like the other brands this is what markets do. they they they create theoretically this ability to go operate at this really high level across everything you do financially, player development, drafting, you know, signing for ages, like all these things, getting the best people in the right spots.

If you do all that stuff, you should win more. And I think like I think that's fun. That's the fun of sports. And as long as these things are businesses and somebody's going to make me care about their business dealings, then I'm going to do that. But I um I uh yeah, so that would definitely tank the whole thing for me. I wouldn't defend that if that was what happened. Um, I I also find myself incessantly annoyed at these kinds of at the like business side of conversations of sports.

I just want to like sports. Um, and it like annoys me when people like drag. >> It's like when the owners are trying to talk about like how important it is that they have a salary cap. I'm like I don't care you guys. I don't care who it rounds out those. Yeah. Yeah. Like >> I think if you guys are both really rich, there's no villain here. a fan of a team in a market that doesn't have funds. Yes. And you you want to believe you're playing in a free market system. >> Yes. >> But then you find out that there's actually a rigged game if you go to the definitely bad, >> right?

And so if I'm in the NBA and I'm like, "Wait a second. So, the richest owner also was totally willing to blatantly circumn the cap and pay a player more and got him in free agency, which is intended to be the most free market activity, which >> that's bad. >> In the thing designed for me to have an opportunity to get the player, I actually don't have an opportunity to get the player. Then it's like, well, oh crap. But >> what does that mean about this thing that we're doing?

So that's all an interesting question, but all of the anti-Dodgers conversation was existed well before anybody heard a whisper of any of this stuff. It was all of this like the Dodgers. >> I know my argument was always like they're just smarter business people. Like the deferrals for Otani are just smart business. But but maybe there's not that's not really true. >> Yeah. But my but there's it doesn't in some sense what I'm saying is it doesn't matter to the conversation that animated everybody a couple months ago.

What the conversation that animated people then was cuz like again just take the Mets. Mets is the easy comp here because they actually have almost as much payroll. In fact, I think dollar for dollar payroll. Y >> they have more than the Dodgers on the field today. It's just they don't have as much in luxury tax. Um and so the point is they're comparable. They are very deep pocketed owners playing against the Brewers and the Rays who are, you know, have much less money, right?

So the question is like that people have all said is and is like it's not fair that this the best teams win all the time or or the or it's not fair that some teams are out musling everybody else. we need a salary cap to solve them problem. >> And the the thing that I've been thinking about with all of this that I think is like interesting is the idea like I don't know why anybody cares about parody. I think it's like a bad goal. >> Well, because I think what you're describing is the feeling that we're participating in a rigged game nobody likes.

I actually think this is very similar to the movement of socialism in our country right now generally is that >> it's easy to say to everyone like everyone would agree that like if it were truly a meritocratic system >> that would be ideal and then therefore even within that if people won more than others we could all kind of be okay with that. But when you repeatedly find out that you're being you're being gaslit into being told that this is a free market and it's equal and everybody has the same opportunity.

And then time after time it turns out that the people winning were cheating. You go like, "Okay, you can't gaslight me anymore into telling me this is a free market. >> Just cap it." >> Yeah. >> But but but that you know why that doesn't work? Because the NBA has a salary cap and you just told me that somebody did that too. Like the cheating is sort of irrelevant to the system. >> Well, but so I think >> this is this is why I don't think socialism was a compelling solution, right?

Is that like it's like trying to f find the pro to make the rules fair, but then somebody just breaks that one too, you know? Uh, >> and I think I think then the the the question there is sort of just like well then there's no the to the cheater go the spoils. >> I mean maybe unless you get caught, right? >> Yeah. And I think I think there's this like there's you know that what's >> and I think the NBA did the right thing here by the way by like dropping the hammer on that comp on on the Clippers, right? >> Have you Yeah.

Well, the hammer what's $30 million to a guy who has notion five first round picks and is like it's like it's going to be really hard for that organization to build again >> for a while without first round picks. Like it's going to be really hard. Those are really valuable trade chips in the NBA even if you don't draft development yourself. >> Yeah. There's like this guy on uh he's like a professor on social that does like strategy and predictions.

Have you seen him? Asian guy from China. >> God, I'll find his name. he like he's blown up on on on social and he's always like sort of predicting global conflicts and different things and he kind of talks about this as the general idea that like um that like cheating is the is the most powerful mechanism for winning and so any game where the incentives are strong enough for winning that there will be cheating that is like that that is should be a default assumption when the stakes get high enough especially if people's lives are on the line so like in cases of you know global conflict or global power or you should just assume >> that that's the case and and therefore you have to make a choice if you're going to enter into that arena whether or not you're willing to do that because otherwise you shouldn't participate in the game. >> Okay.

But I want you to put all that aside for a second. I'm annoyed that this all happened in between the time that I was going to talk to you about this because I love this hot take. So I I really want your take on this. All right. So So we've handled your part of the question. Let's do my part. Okay. Here's my here's my idea. When people say they want the Brewers or the Rays or the Reds to have as good of a chance to win as the Dodgers and the Yankees, okay, >> what they are saying is that's what parody is because every fan base should feel like they have a chance.

But I don't understand why people measure this at the level of regional fan bases. Like there are 20 million people in New York City or whatever it is, right? So why do if if what you want is the most people to enjoy baseball the most, shouldn't the Yankees win more than the Brewers where nobody where nobody lives? my team. >> No, but they they do. They do. But like, shouldn't we all shouldn't isn't the ideal state of baseball isn't the ideal state of baseball that And really any sport that the biggest markets win the most?

Not all the time. >> Well, for the sake of the the value of the system. Yes. >> Not not even for that. For the sake. >> No. No. For the sake of for the sake of the for the sake of Let's just take take aside the money for a second. Definitely that's true. I mean, yeah, you could look at this like the Rangers versus Diamondbacks World Series was like 8 million viewers a game. the Dodgers versus Blue Jays, two very big markets, was like 16.

And also, by the way, when MLB says they really want parody, it's like they definitely do not like if you look at the World Series, they they want the Dodgers and the Yankees to win and be in the World Series every year. >> That's that's just a sales pitch. But the point that I'm saying is like even for the for the maximum enjoyment of people in baseball, >> why do I care about the maximum enjoyment of people in baseball? >> No, not people in baseball.

Baseball fans. >> Yeah, but why do I care about that? >> You don't have to. I'm just saying though like but when people talk about parody like it's a moral good though. That's the way fans talk about it. They talk about it like >> see everything. >> No, no, no. I think that's what fans do this. It's so bad. It's such a bad system if nobody can do this. >> I think that's true too. But my point is the ideal set all I'm saying is the >> it's like the exper It's funny because like what is the ideal sports experience?

I I So one of the coaches we coach together our kids teams and he's from Chicago >> and he says that this White Sock season is his favorite season of baseball that he's ever been a fan. And I think >> that's because they were so bad two years ago. >> And like when you're when the team is like homegrown, young, scrappy, overachieving, that personality sometimes that's like the most fun experience. >> It's more fun than if the Dodgers signed Kyle Tucker and he was awesome. >> My my and this is true in life is that joy is often the delta between expectation reality. >> You're going to talk about joy, >> whatever.

Come on, let's go. whatever the is >> um or a positive experience is like and so sometimes the problem with being a fan of the Dodgers is that the expectation is World Series or nothing. >> Um and so if you >> I've gone to one game this year, I'm pretty bored by them because they won too much. >> Exactly. And so there's not a lot of value or joy to be extracted out of the experience. Whereas if you started as a White Sox fan this year, they were atrocious and all of a sudden they're one of the best offensive in baseball.

There's exciting young player. got this new Japanese and he's awesome and he's awesome. He's so good. >> So So now you're like, "Whoa, this is amazing because your expectations were basically nothing." >> Yeah, that is that is interesting. I mean, yeah. Yeah, it is. It is. It is totally true. Like I I am at a point where the Dodgers where it's like they're so good that like I'm sort I'm bored by the regular season. I'll I'll be excited by the playoffs, but I'm like whatever.

They're going to win the division. like hopefully they get so much joy out of the characters already even like what could Freddy do to really bring us a novel new like it's like and so in some ways you need a new character to assign a new experience to because it's like yeah we've Freddy's already won us world series what's he going to do win us another world series it's like his story >> that's great he and Mukie bets are standup guys who are easy to root for >> that story's played out tell it again you know like are we going to watch Mookie bowl for the 400 spine like >> what what's we need the Dalton rush ing uh we need the Dolan rushing monster like FU game or something like that you know to have a new because >> yeah that was like the most interesting thing that happened and he was like oh he's going to show up show it was like oh this is a new story line >> okay um influencer marketing that's my next thing for you >> so that people don't have to listen to us yell about baseball anymore I'm sorry that I was eating some on this by the way we're going to go work out soon and I didn't have enough calories because of what >> better than foil packs anything we set the bar speaking of setting ice >> I specifically tried to open and keep the food as much off there but I was gonna I felt like I was gonna you're gonna we're you the workout you invited me to is going to be hard and I'm going to I needed some calories.

I thought I was going to suffer if I >> carbs in >> I don't I don't care really. I just wanted some calories. Um okay, but I'm done with that now. I promise. Um influencer marketing. Um okay, you I remember early days working with you at KO. There was a there's a there's a there's an old Taylor Holiday who's probably dead now [laughter] who loved the game of brands. He wasn't on the internet talking about how bad e-commerce was all the time and and how everybody's business sucks and all that stuff. >> He was a he was a brighteyed bushy tailed VP of marketing at a at a brand that he owned part of. >> Y >> and that Taylor Holiday talked about the importance in fact in the early days of Common Thread Collective, the Arch Network. >> Yep. >> You guys talked about >> influencers >> influencers so much. >> Yes. >> And what we meant by that at the time was like sports stars and um and people like that.

And now when people talk about influencers, they basically mean in a lot of cases creators. >> So the word has shifted in its meaning. And I'm just curious if you would reflect at all or if you have any reflections at all on the sort of present state of influencer and the future state of influencer relative to like creator ecosystem versus like athlete versus and how that plays out. And the and the the thing that prompted this for me um is is that I've got a a brand right now that is doing really cool stuff with influencers, I think.

And some of the content, it is not it is not like super viral. It is not completely smashing the ad account. It's doing decent in the ad account. They're making some money from it, but I bet you net net what they're paying to people. Like they're about to do um I don't think I should say that out publicly. I don't uh Yeah. Okay. I won't say that. They're gonna do one with somebody who's cool who's not like an online creator.

Okay. Um, and I don't think it will go nuts. Um, but I think it's a great brand thing for them. I think they'll email it to their brand. I think it'll be on their organic social. I think for a subset of people who care about their brand, they're going to do pretty well on it and it will be hard to measure it. It will not work on a direct response level probably. Exactly. And I love it. I think it's awesome. I think the brand is becoming a global brand is be is on their way to going to do really big things because they think this way about their brand.

Now they're in a category that lends to this to some degree. So like I might think about that separately, but I I've just been thinking more about like basically here's the question. Okay, I'm rambling a little bit. Should brands go sign traditional influencers more and work with them more and do that? >> So I don't think I don't think my opinion on influencer has actually >> I actually don't think it has either. >> I don't I just don't think creators are influencers. >> Yeah.

So, um, I'm gonna give you like an an influencer example. >> They can become that. Mr. Beast is an influencer. >> No, he's not. >> You don't think so? Okay. All right. >> I mean, I think Well, I I think I think he is an influencer. Yes. He is not uh like that he is a famous person. He's not a creator in the way that we use that language. >> Yeah. But there's people >> he's a creator because he makes videos, but when we say this, what we really mean is that the human's identity is irrelevant.

Their identity in the asset creation is irrelevant. That's that's what you mean by creator. >> That's a creator. >> See? Okay. I think that's right. I think that's right. And I think that but I think what happens is some creators are so good that they end up becoming relevant. >> Like so essentially Mr. Beast didn't have anything >> because of their identity but because of the content that they make. >> Yes. And the content then then creates identity for them.

So they they sort of move from creator to influencer at some point >> like like uh like a uh this is true I think for like let's say um the Ridge Guy wallet Marcus Brownley. Yes. Okay. Marquez Brownley. Like I would contend he never started like when we say creator in our universe we mean people making ads. >> Yeah. Or I sometimes think of people making organic social content first. People who >> to me that's different.

That's like you and me. Like I don't I don't think we're trying to be creators in the way that our industry uses the language. >> Okay. That's fine. That might be a definition. Go back to the influencer thing because I'm interested to hear you say more. >> I I actually think this is is a wildly important part of every business is actually figure out who holds influence. Who is the person who influences people? Right.

Like that's the idea. So, I'll give you an example. Right now, you and I, you mentioned we're going to do um >> workout, >> a workout, and it's a it's a high rocks based workout, which is running. So, I'm trying to like running is not my favorite thing in the world, but I'm trying to learn more about running, running culture, running shoes, running gear. And there, have you heard of the Lassoul Ultra? >> Uhuh. >> Okay.

So, there's this world of races. >> Yeah. So, I I know this world exists, but I don't play in it. >> Okay. But this and these aren't just like run f who can run 100 miles fastest. This is you run you start with a bunch of people and you all run in a loop until no one can do anything. >> Okay. Yes, I've seen this. Yes. >> So, this guy Mark Dowel is like the best at this. You'd love this guy. He's uh um super strong Christian guy.

Um but this race >> That doesn't mean I'd like him this. >> Yeah. This it means you guys have a shared kindred. >> That's true. Yeah. >> But I I uh I I think he's a fascinating dude. And >> so um the race is so he ran in this race 391 miles in 4 days with no sleep. >> 391 >> 391 miles in 4 days no sleep. >> That's a that's good. >> So the the the rule is you have to finish the lap and if you don't finish the lap you're out and you have a certain time max to finish the lap. >> Okay. >> Okay.

And you just go again and go again and go again until you don't make it across the finish line. Um, and it is like the most it is. So, in the final lap what he did, it was him and one other person and it was that night and there's this video of it of them like it's like this like you know heat sensor cams and he started the guy would run and he would stand right behind him because what happens psychologically is if someone's behind you it introduces like a hunted fight or flight.

It actually raises your cortisol and it forces you to exert more energy. And so he literally stalked this guy. The guy would go run and he'd run right behind him. And then he'd run right. >> What's your What's your influencer's name again? >> This guy's Mark Dow. >> Okay. So Dowel ran behind the guy. >> They're just like imagine we're both trying to run and we're exhausted. We're about to die. And he stands right here behind you.

Every time you move, I move. Every time you move, I move. Every time you move, I move. And so because I'm right behind you, it actually introduces this additional energy exertion in your body. And eventually like the guy collapses, >> right? Because So you're saying he He introduced psychological warfare on him. >> Forget his name. Yeah. Da da. So Dowel forced the guy's psycho. >> Yes. And there was this became a big critique.

Like was this fair? Is that reasonable? Like whatever. But >> but you watch this thing. It's just it's so incredible. So anyways, >> that's crazy. >> This hat that he's wearing is this brand called Rapid. >> Uhhuh. >> And I was like, "Oh, that's cool." >> Yeah. [laughter] >> I went to try and buy a Rapid hat. They're all sold out. >> Of course. Yeah. And so to me, that's what influencer marketing is. Yes. Is that his identity >> made me want you?

I want to be a part of it. >> And I went and obviously a lot of other people did too. >> And so I think those examples are what brands >> they want to trade and align their identity with the identity of the person. >> That's different than I need a creator to make me an ad talking about nonsense. And >> I think in some ways that's really direct response advertising. >> Yeah. Exactly. That is just it's just creative. It's not it has nothing to do with influence actually at all I don't think. >> No, that's the point.

The point what I always say about creators is they distinguish themselves on their ability to make engaging content. It's not influence. It it is about is about as like they're they're algo wizards. Yes. You know what I mean? >> Exactly. >> Like that's that's their core skill. And it may or may not be because I >> and I bet this dude uh this dude your runner guy he probably has a bunch of followers >> even though he's probably not an algo wizard.

Yeah. >> So the point is like people are following him not because he makes good content per se. >> Yes. right >> now. I think he is evolving that skill to your other point which is like these things do sort of meet each other but but it's his identity and who he is is really important to the story. Whereas for creators it's like oh it may be like oh that guy's like me and so there's a connection that has something to do with identity but it's not that I want to be like them that necessarily that is what is drawing me to it.

And so this goes back to I have a video about this that's like the pyramid strategy where you want both things. >> Yes. >> Yeah. Yeah. Yeah. Um and in some cases those influencers might also be great admakers. Yeah, that that happens too sometimes. But I go back to like when we launched the, you know, the Kalo collection and there was some people we asked to post organically and there was some people that we bought rights their ads.

There's some people we did a photo shoot with and there's a tier like they're not all >> for different things. >> That's right. Yeah. Uh, and so I think that is a piece where people are have just become obsessed with the like the just the like I want >> tribe affiliate like >> and it's like this it's a very exploitive version in both directions which is all the creator wants is your money. >> Yes. >> All you want from them is the asset to make money. >> The customer's money >> and none of you actually give a about each other at all. >> Yeah.

Or maybe even the product >> or the Exactly. And so it's this giant sort of extraction mechanism. >> And anytime you find yourself there, >> you can just be sure that there's going to be some short duration of that. Um exploitation is not a system that generally produces long-standing health. No. >> Um and so anytime you're operating in that kind of relationship with somebody, >> it's just likely that one of you is going to get tired of being exploited. >> This is the the Mark Bomb speech in the big short at the end when he says, "The problem with fraud is that in the history of the world, it's never worked." basically and what he mean you know what he means like eventually it gets found out always right >> and creators just move on to who will pay them more money that's the other problem is like I'm here for your brand until somebody else pays me more money >> and then I'll just go sell the next widget >> if you are growing an e-commerce business and you are trying to think carefully about how to actually generate profit in your business how to generate more profit per user in your business intelligence is just one of those core SAS tools that you should be investing in on your website allows you to test all the things that really move the needle in your business at the level of conversion rate, the level of AOV, and most importantly, at the level of [music] profit.

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And I bet a lot of them are wrong. And the only way to find the answer is to actually run those tests yourself. Go to intelliggeems.io. io. Use the code ferris 20 f a r i s20 to get 20% off your first three months. They've also got all kinds of other awesome stuff built into the tool, including post-purchase and pre-purchase upsell, checkout customization, cart customization, like just a whole whole bunch of really really cool stuff.

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Just >> just just I want your b basic thinking. Okay. Your brand is at zero dollars. You started a new brand. Y >> what's your approach to influencer? >> I think it's to find the community that I can become a part of. >> Okay. So, an existing community is another thing a lot of brands think about building a community. Don't build. >> Terrible idea. go find a place where you can trade and ideally it's one that's like very interconnected such that you'll gain word of mouth and some variety within it but I would go to the events I would go to the blogs I would go to the groups I would go to the places the creators the podcasts and I would try to become endemic to that community and hopefully my product has a benefit to that community in some way >> but the charities like all the things like how do I yeah how do I go become a >> so in that in that world do you think generally speaking good idea bad idea bring an influence are on board from day one given an equity stake in the brand. >> I think that equity is a life force that points into your business.

You've heard me say this. So the question the question will just be >> do they actually provide commensurate life force to the business >> on and on. >> So that means that does this and a lot of times like especially if your business >> doesn't grow as fast as you want it becomes uninteresting to the influencer over time. So it sounds really great in year one but then over time now if your brand starts doing well then they'll then you have Gordon Ram then you have Gordon Ramsey. >> I look at the wild on earth guys.

Do you know that brandable? >> Gordon Ramsey, everybody knows. But the the the reason I think is is an interesting example is because like he clearly has stayed very involved with Hexclad for a very long time. And I don't know what their equity deal was when. I don't know how much they still pay him. But it seems to me that if he owns part of that business, it's really valuable to him. >> It may be the most valuable thing of his life.

I don't know. Yeah. And that's really the key. And and people are rationally self-interested. And so they'll they'll they will work with you in so much that they see a reason to continue to do so because it's valuable to them. >> Okay. Your business is at 10 million in revenue. >> Yep. uh and has a reasonable amount of profit. >> Yeah. >> 10 to 20%. >> Yep. >> Depending on how fast you're growing and all those kind of things in the category, blah blah blah. >> Um now tell me how you think about influencer. >> Yeah.

I would give nobody equity in that business. >> Okay. No equity. >> I would pay people. Um uh unless again the caveat being >> what if you want a superstar influencer who's going to be who's going to be >> I don't think I need >> $100,000. I don't I well that's not a superstar but that's >> but that's a bit relative to that's >> like what you charge Omnisent to work with you you know that's like that's not that's hardly superstar status you know >> not a sponsor of mine first of all secondly >> love omniscent >> secondly yeah okay but uh but I am a superstar so >> that's like what it cost that's like what >> you know what's actually funny about this example relative to the reach of my podcast the amount of money I charge is kind of crazy >> is really high >> yes it's extremely it's insanely high Like there's a reason I don't have any consumer goods sponsors of my podcast.

Yeah. >> You know, [snorts] it's because there's no way they could afford it relative to the reach. And the reason why >> is that whatever influence I have, >> okay, which is some >> Yep. >> Uh I'm not trying to to my own horn here, but just there just is some. >> Yep. >> It's in a really narrow community, but it matters. But the thing that I have influence in matters so much to those people. It's actually a nice >> and the value that they they can capture off of >> but it's a nice illustration of the point here which is like which is what you're saying which is like with some kind of community if you find the people who who actually influence that community they're really valuable.

This is why like podcast advertising generally I think can be we're we're working on this thing actually with a bunch of conservative radio SiriusXM hosts and it's like one of the things that's interesting is like they when they do the reads that's like a subset of influencer marketing that's like combination influencer creator where it's like they don't really necessarily >> care about it but for the sake of their audience they're assuming some filter that says like um I've qualified this I'm willing to say it with whatever brand equity I'm willing to put at risk over this brand.

So, there's some trust there. I think about this. Um, this is a good sort of parlay here. Uh, Lex Freriedman. Um, do you ever listen to his podcast? >> I don't. Uh, I find him his demeanor weird, but very long. You have to have a lot of time. They're four and an hour podcast. Um, >> his reads in the beginning are like he does two podcast, two ad reads, and they're like five minutes each. They're very long, but he does them all and he tells stories like he's very intimately engaged in it.

Um, and so it's like while I fast forward through all of them, they're it's obviously uh they're trading on his identity in that case as being >> we're we're we're dabbling in the podcast ad space a little bit too over at AF Growth and and uh with some interesting things that we'll talk about some more someday. But um but yes, you can pay a premium with the in the way that we're doing it for the uh for the host to read it.

And my contacts, the people who are doing this with say it's generally worth it. >> Yep. >> Even though you pay a lot more and it's because of exactly the thing you said, which is influence. Okay, go back to my 10 million thing. Like I forget how. So I'm just saying at that stage of business is it do you think it's worth shelling out because I the way I think about this thing is like personally I think like you have to get out of the direct response budget kind of thinking and get into like a brand marketing budget where you sort of allocate some amount of the P&L and decide like we're going to take these bets if you're going to do an influencer deal like this because it typically doesn't have the same direct response kind of payoff in the way that it works.

Now that's not always true but sometimes. So how do you think about budget allocation towards influencer in a business like that? You know again this is assuming this business is not on the edge of profitability. This business is growing. It's profitable. It can see the path of 20 million to 30 million whatever. >> Yeah. I would reject the first premise about I would do everything I could to design the deal structure to offset the cost via direct response. >> Okay great. >> Um and that could be through a common one is like using that person as a mechanism to sell into retail. um using so but otherwise I would make part of the photo shoot or video shoot what I do directly related to ads and and even emails and things that where I am going okay I'm going to I need this person to get me recoup back some of the investment and then the halo brand effect of them being part of what I'm going to do yeah >> um beneficial longterm like we used to and and then I would try and embed them in as many places as possible like we used to talk about like at Kao there was a while where like Jason Kipo was the customer service message and like like how many cases can you >> that's such a good example >> make little serendipitous ways to >> if anybody had calls for customer service anymore then that would be great >> I I I love the ideas of influencers as your product photography models like things like that where like how can you make it so that their presence is persistent >> um and so that that like diminishes the need for like ads to like solve the problem right away because maybe they won't cuz even even famous people make bad ads sometimes or they don't necessarily convert but I would definitely example I don't think we were ever running a lot of ads with him that worked well but I still think it was important that he was part of the brand.

People associated him with Kao in some ways, you know, like and that's Yeah, it's like Yeah, it's just this is re there's I remember I asked Gary Vee a long time ago when he came to CTC for something. I said like you have the choice between >> I forget how I said it, but like >> getting uh like a small group of people to watch a lot of video or a lot of people to watch a small amount of video. So you can extend your reach or your depth, but and it's cost the same amount either way.

And I forget what the numbers I gave were, but something like that. And he's like, oh, he's like, I would take the small amount of people watching a lot of video. His basic point was like finding ways to go deeper with fewer doesn't look great always. Like it's not very top of funnel, quote unquote, but actually it's like the most important thing you can do if you actually want to resonate with people. >> Well, and I think get their attention.

And this is where I think influencer can play this unique role. I I think that there one of the strategies again that we used to deploy that I I miss doing is that I think that for your existing customers in particular um in this the reason you do organic social and you want followers is because it forces continued engagement and they see you all the time right like you're 100 and I think in the same way >> the numbers always look so low it's the reason people don't do it right keep going >> but that you should be running on a small percentage of budget because video views are very cheap to your existing customer base cool brand So like that would be like the story of Jason Kipa.

What we do that video is not try and turn his long story about his life into an ad, but to take it and go, "Okay, Kao lovers, here's a cool thing." >> Yeah. >> And it's a super native to this community. >> Yeah. For $1,000 a month, you feel great to get everybody to see it. >> You should feel really great about wearing this ring >> that you're a part of this. And it gives you something to say about the thing >> or to frame it the way you said, "We're part of your thing." >> That's right.

Exactly. And so I think that kind of stuff as a perpetual rhythm that exists for a business is really important to always want your thing to be cool. Like you have to make it so that people feel proud of it. Like they like it. They want to that wearing it makes them cool to the people around them. Like there's just this work to be done about that constantly. That's different than the work of getting them to buy it once.

Yeah. Like those are different problems. >> The thing I'll say about this is I do think it's it is somewhat category dependent in terms of how much this matters. like the more you're in like apparel, the more you're in >> accessories, the more you're in um some other durable goods, but especially those like those are those are probably where it matters a lot. It's interesting to think about >> words at all. Um doesn't matter at all.

Um unless you're trying to sell on premium, then you got to go get the audio influencers. You know, that's fair. >> The people who are like known as the people who have the coolest uh home audio setups or engineers or whatever it there's probably a subset of people who care about that a lot. um you know uh there's um there's uh so yeah anyway I think I think there's a category dependence here to some degree particularly though with things like apparel and accessories it really really matters a lot because >> that's where like the the thing you're wearing is essentially a commodity >> um and it's the brand is the whole value so you have to do that your rapid example is actually good earlier too because you said you wanted to go buy a rapid hat but it was sold out >> it's funny you didn't want to be part of the rapid community >> I wanted Mark dattle >> you wanted to be you wanted to be part of the runner community the inner the inner ring of runner community you know like you know one of the cool runners or whatever it is who knows the cool ones yeah >> and that's that community exists and brands play in it and influencers are are lead it probably y >> but uh but yeah um okay um I won't go any higher on revenue we can move on to the next topic the only thing I'll say is that I think brands think of this >> um as something you do when you get to 50 million plus and you know because then that's when you get big influencers or whatever I I agree.

It's not I think a lot of brands think about it that way because they think they can't they can't allocate the budget until they get there. Yeah. >> Um but I think they should think about ways I like your ideas of finding creative ways to integrate more deeply earlier and to get get money back from it so it's not just like $100,000 loss or whatever, you know, that somebody calls brand like that's obviously bad too, you know.

Um but but I think that's uh that's good. The the other little thing I'll just note about this is I'm just watching some brands I work with right now have a whole bunch of success by um by just really caring so much about their customer and about their product and about how they show up in their community. It matters like it just matters a lot. You it is it is really valuable to the business. Customers can feel it. We can feel it as a team.

Their internal team can feel it, right? um you know they're willing to work hard for it because they feel like they're part of something. Um you know if the if if the relationship with the customer and the brand just feels like a transaction um yeah it just doesn't it just actually doesn't work very well even though you're trying to get a transaction. And so this is part of that I think is brands should think about like how much can I really care about my customer and my product and my community you know the community that you're part of not the community you're building. >> Yep. >> Etc.

And this is just part of it. Okay. You you got something or you want me to pepper you with my question about your kids little league? >> I don't know where you're at on like I know you guys are deep on the AI thing. I don't know where your sort of uh experience of the product is right now and the influence on humanity but so David Henson Helmire who was >> DHH um base camp 37 signals. >> Yep. um he was on the Lex Free podcast and um if you are an AI um like if you experience AI negatively um or have had bad experiences or or not optimistic about the future or some of the doomsday scenarios are uh terrifying.

I would listen to this podcast. It was one of the most optimistic uh descriptions of the experience with AI that I've ever heard. >> I'm tell right now half hour with Lex Freedman. >> So yeah, but I find it weird >> and I don't I've never listened to a ton of DHH. It's funny the story I had in my head about him versus listening to him was very different. Um, >> but one of the things he said that I thought is a is a worthwhile discussion point because >> five hours and 22 minutes. >> I know.

I know. Play it on play it on 2x. Uh, you got a long drive home. You're fine. Um, >> five hours. >> So, they're talking about what role um AI plays in his coding now. And is it this thing where >> like is creativity or ideation still a human thing? And so Lex asked him this question. He says, "Do you think the good ideas ultimately the kernel of the good ideas are originated in the human mind so individual contributors like it can be done by agents um or is but the the poll requests they're talking about building open source ultimately requires a human idea like how to improve it?

Are those incoming or can it all just be a pool of agents?" Um, and his answer I think was like very definitive in a way that I'm curious because I think this is sort of sits in a similar thing that I hear people talk about all the time which is like that AI can't do creative strategy and like this root origination idea but he says he's like that was the mode and the way I was thinking about agents in the first agentic age from November 24th to February 28th and he has these like specific bounds in his mind.

I thought all the ideas would originate with humans. They would tell their agents what to build and off they went. I don't think that's true anymore at all. I have seen things you people wouldn't believe. Ideas coming out of models so great that it makes me humble as a person who would otherwise prides himself on having good ideas. The agents are incredibly capable of creative thought and folks who are still stuck in the analysis that agents are parrots just regurgitating the ideas that are already there are delusional about the progress that has been made in the last 6 to9 months. >> Interesting. >> Um and so and and it's funny because Lex is sort of reflecting back.

He's saying that uh very positively. It sounds like Yes. And well, he goes on to talk about how much fun he's having and how the experience that he's had as a programmer with that reality has been so positive. And that that's what and and it's funny because Lex is sort of responding to him of like, wait a second, you're like the metaphor he keeps using. He's like, you're a master painter >> who is like now saying I'm using Photoshop like like and he goes, yeah, but I don't feel any of that loss.

Like I and so it was really interesting because I find that creatives in particular >> really struggle. >> Yeah. They feel very threatened by this idea and I understand that like I I think about that as a whatever discipline I'm good at forecast whatever it might be like but I I feel very clear that it's not that I'm going to be you that this thing is going to be way better than that but um >> but I thought that his interaction with it both his confidence that the creative thought was definitively a part of what these models are going to do and his positive interaction with it were really interesting but you I think selfidentify more as a creative than I do and you guys are in the process of building a creative thing.

Um I'm curious where you're at on the idea of original ideiation >> from models and its potential for that. >> Well, um it's a good question. I think I think it's nice to do these conversations every once in a while because they're all conversations about what I feel today. Yeah, it's definitely different than what I felt a year ago and two years ago or whatever the timeline was of all this stuff. I can't really keep it straight.

Um I'll say a couple things. The first is that somebody pointed out to me with AI at some point um that one of the things that's is amazing at this is only semi-related to what you're saying but I'll just express my experience here is that um one of the things AI reveals to you but is is basically like how much moving of numbers from column A to column B you were actually doing >> um even if you were automating stuff right >> essentially like the moment you can have AI do more of these things for you.

It's it starts to spotlight, wait a minute, that would have taken me 20 minutes before. And I would have thought of it as human work, but it actually wasn't. It was actually a limitation of the software is what it was. And and for me, I've had this experience fairly viscerally recently where like we're updating an ad format template that we use in our creative and we use a lot of ad format templates to try to do that as as mechanisms for good ideas.

So, uh, then I realized, wait, I don't have to copy and paste these things, you know? Wait a minute. I actually, not only that, I don't have to do the work once I've identified the ad format, and I want to use it as an inspiration for a format template. I don't even have to describe what I'm seeing. I can just tell the agent, hey, I like this ad. Here's three things I like about it. Turn that into a format template. and it actually writes up all of it and then puts it into our software for us.

Olympus we call it like uh no longer called AJFOS which is good. Um Olympus uh puts it into Olympus and it does a lot for and it what has made me realize like oh I was doing a bunch of stuff that was actually like total like assistant level grunt work and I did not realize it you know so I'll say that that's not exactly creative capacity but I'll say that. Um that has been awesome. Uh I think you expressed this with Adrianne a while back on Twitter or something like that talking about like the way you felt free um by using AI to do a lot of work really fast.

Um and how good that felt. So there's that. Um secondly, what I will say is that in the actual creative work itself, I think it's getting better all the time, first of all. Um, and and secondly, I'm I'm what I'm not sure of is like we haven't seen a lot of like amazing idea and message generation work from from our AI tools, but the the thing I want to caveat that with is that um that doesn't it doesn't mean they can't do it.

It mean it might mean we're doing it wrong, you know. Um so it might be a user error basically as opposed to something else. And um and so yeah, so I think I'm in a couple places with it. I do feel much less anxiety about the whole thing than I used to. Generally speaking, I now feel like it's just more part of the work world that I've done. >> Yeah. One of the things I think about how we inter interact with it is based on the underlying assumption about what it's good at or bad at.

Um, and so one of the things about ideation, so I even I was listening to the operators talk about their uses of AI and at the bottom of the list was product design and I thought to myself, oh that like at the top of the list was like uh you know all the wrote things you'd imagine like customer service and reporting or whatever and I just go oh that >> that's a mistake. >> It's a total mistake. It's the actual inverse that all the value thing you think or the original idea. >> It's actually both.

It is really helpful to have it do a bunch of grunt work for you. >> Yeah. Exactly. But but that but that the highest leverage action like like if you thought about >> Yeah. Yeah. Apply the best tool to the highest level. If if you actually thought this was the smartest person in >> opportunity selection. Yeah. If you actually thought this was the smartest person in your company, >> you'd put them on the hardest problem. >> That's right.

That's right. >> And so I I think about that. >> That's that's a really good framing, I think. >> Yeah. And so it was like, oh, you you actually don't what you think it is is like >> you think it's a coordinator level position. You think it's an assistant. It's it's a just out of college person, >> right? And so so and or that there are these like elements of it that are that are challenging. Um and some of it is just like even the most recent model Astra and its capacity to do things like 3D modeling and rendering is advancing so much already.

Um but so so there was like a limitation in like CAD files and things like that that are very real but but that's not like about whether or not it can uh come up with an idea for a wallet design or something. It it so I think there's this sense by which when I hear someone with that intellectual >> capability that is so deeply ingrained in it. It does make me want to >> kind of go back and challenge my own interaction to say like okay because I I turn it into a secretary all the I'm like, read my emails and book calendar things for me, you know, all the time.

And I wonder like what are the bigger questions of my life that I could actually maybe instead of trying to get it to like >> book the vendors for my wife's party, which is like it's not to say that that isn't useful. >> Yeah. >> But that that maybe there's a better opportunity. >> Yeah. >> On the original ideation side. >> Yeah. >> Um I've also found though that like what I what I experienced is a little bit of like it's scary how much to your point earlier, how much of my time actually isn't there myself.

And so then my own skill isn't very trained at going there. Um. >> Huh. >> So it's like, >> oh, interesting. You're saying you're saying there's these highcapacity, hard to do things that you haven't been training enough to do because you've been stuck doing low capacity things. >> Well, or I'm choosing to because I they're easier or whatever. So actually, I'm >> It's more like me, which is doing w tasks. >> Yeah. It's like it's like it's like you've been doing easy workouts because you can get a good score on them for a long time.

I like pushing your capacity >> and completing your checklist is good. And so I do that kind of work more often. >> Yeah. Um, okay. We have like five minutes left before we probably need to be done. So, um, I could see a couple things here. One of you have a cool announcement. Uh, or you can yell at me for being bad at business, which we haven't done for a little while. Um, and sometimes it's fun for you to do that. So, >> I need you and Patrick to to trigger me again with some some episode that I can listen to.

What's the next one? Do you have one coming? >> We're going to record next week. So, >> um, yeah. >> So, we'll have to put another random show on the books. >> Well, yeah. Uh, so my announcement, we just >> I have a question for you, too. I want to make sure we get to it. Go ahead. You go do your rapid fire. No, no. Do your announcement and then I have a rapid fire really quick agency service business question for you.

Go ahead. >> Um, so we completed our first acquisition yesterday. Closed. >> Oh, >> yep. So, we'll get to announce. >> Congratulations. That's really awesome. You've been working hard on that. Good job. >> Yeah. Well, we finished second in like three or four processes and that's got to feel good. >> So, it's been Yeah, it's been a lot of work. Uh, it's a fascinating >> thing. I think at some point we'll get to talk a lot more about it and why we ended where we ended and what the what the opportunity is and what it means and um so I think that >> on the books for a longer conversation after you can announce it but maybe for now let's just tell people subscribe to your content you'll probably announce it soon right >> yeah come to commerce round table would be another thing I'd say we're going to be um on stage there I'm going to share some things that if you don't come to that event it's awesome down in San Diego >> can I get a free ticket >> um yeah we could work that out we could figure out a way >> um you are an influencer after all you know So um >> that influence >> you can tell people I'm coming if that helps. >> Yeah.

Tell Andrew will be there. You can >> I don't know if I'll actually be there. I might be traveling >> September 21st. So the announcement will probably follow that um to be honest. So >> So keep an eye on your content though because you guys you guys completed an acquisition. You've been working hard on it. And then let's let's just put this on the books for a random show for you to just go deep dive like what is what is finishing second four times feel like?

Like >> what is it? What does the a what does this look like? >> Is there anybody are you trying to do more acquisitions? Should anybody reach out to you with their businesses that you want to buy or do you not want that? Uh yeah, I I think it's always worthwhile. At the very least, I can provide you context of how the space is and what the opportunities are and who to talk to if you're interested in being acquired. I have lived in this world now for the last two years really deeply.

So, if you're an agency owner that wants to talk about it, whether it's us or someone else, I can I can definitely be helpful uh to help you navigate the landscape. >> Last question about this rapid fire answer. >> Yeah. >> Acquiring businesses as a major part of what your job is is different than what your old job was at CTC. fun and interesting work or excruciating work. >> I hate it. >> Okay, great. >> It's just so hum. >> Okay, just leave it.

Just leave it. Future future random. Our next one. Let's I'm going to move it up the list right now on our list for on our ongoing Google doc. Okay, here's my rapid fire question because we got to be out of time. I think this is a three-minute question. We have about three minutes. Ready? Um, as we grow, this is just me asking for your this is free consulting. as AF growth grows as a service business. Okay. How much cash should we keep in the bank as a percentage of like how do I think about that question and how much should we should like uh our partners distribute >> as we go? >> Is there a third option? >> Uh yeah, I mean we can >> redeploy into growth.

Can we do that? >> Yeah, >> that's one of my choices. >> Yeah. Yeah. Yeah. Yeah. I mean yeah I'm asking you to tell me how you think about that question. So first so first of all let's do the really specific one. How much cash on hand should we have in an agency business all the time? How should we think about So, I could give you a calculation for working capital requirements that like is what they would use if they acquired your business to determine how much cash they would leave in the business.

And it usually has to do with the amount of receivables you have, the total value of your payroll. But what I'll tell you is in most cases the answer is like zero. >> Yeah, that's what that so that's what I that's what I have thought >> likely your receivables are larger than your payables. >> Yes, for sure. >> And so like the turn of cash you are constantly producing net positive cash gain. >> Yeah, I agree. There's almost no moment in an agency business >> where you go cash negative. >> Yeah. >> Now, with the exception like you guys are an LLC or a COP. >> ESCORP LLC.

Yeah. >> Oh, S Corp. >> Yeah. >> Okay. So, then you have tax obligation at the corporate level. >> Yes. >> So, you do have to like keep enough cash to prepay your tax obligation and things like that. >> Set aside money for bonuses and stuff. >> Yeah. And all of this is just like especially because the two of you could always put cash back in if you needed to. This is one of the things I thought about is like should we just be distributing super aggressively because if we got in a tight spot and as long as Patrick and I are managing our finances reasonably which we are like then we could just say like no problem we'll just put cash back. >> The other thing I would do is do you have a credit facility? >> Uh no. >> So I would go get a credit line. >> Yeah. >> Because if you >> that's a good idea.

That way it's just >> that way like if you have a million dollar credit line let's say then you don't need to keep cash at all because in the event that there's a moment for whatever reason you just use that. >> Um >> yeah. So just like a revolver basically. Yeah. Okay. Um Okay, that's Thanks. Great. Other question is like um Okay, so let's say I start not keeping much cash in the business. Redeploy it into growth you think is a really good idea. >> Well, I yeah, for your business, I would I I can't imagine that there's a place for you to put money that's a better return than the growth rate of your business.

Now, the question is, can you use that money to replicate that growth rate? >> Yeah. >> Um I think that you absolutely could. >> Yeah. And by the way, you said this on on a random show podcast with me a while ago. I heard that and we I would say we have managed the business so far. >> I would say like if we were just trying to maximize the amount of cash that we were taking out of the business, we would have grown slower this year.

Okay. >> And we would have we would have done some things differently at the level of margin and some of that. But what we're trying to do instead is capture the moment, redeploy into growth, redeploy and worry a little bit less about being like extremely margin efficient at this stage of business. >> Um and instead it's like how do we make our service incredible? How do we you know it's like all for the sake of the longer term outcomes that we look at.

So I think >> you're but like you guys both I'm making an assumption about your lifestyles. You guys all have pretty low cash needs >> 100%. >> So then like take it out and subject it to tax for what reason? Like >> I I don't >> don't know what the benefit for you is to do that. Um >> unless there's something that you guys are both after in your personal lives or you're going to go buy a new house or whatever. I don't know.

But um otherwise it's like >> now I think you should do that with a very clear intention to create liquidity at scale at some point. not to do >> 100% 100%. Yeah. >> So, the endgame matters in the timeline. >> Okay, that's it. That's all. That's that's exactly what I wanted to get your opinion on. We are out of time. We got to go get super jacked. >> Let's do it. >> Thank you. Good job, everybody. >> Thanks. [music] >> Big thanks to Taylor for taking the time today.

And of course, if you would like to work with me, as usual, you can go to ajfgrowth.com, fill out the intake form. I'll get back to you about whether or not your business is a good fit to be working with AJF Growth. uh or just email me podcastgrowth.com. Tell me a little about your business and we'll see if it's a fit for you. Big thanks to my sponsors for this episode. Intelligence and Move Supply Chain, both great companies.

Links for both those are in the show notes. Don't forget to subscribe wherever you're watching or listening. If you like this episode, I do these with Taylor every month or two. And uh and so yeah, you you don't want to miss them. I I uh love doing these episodes with Taylor. They're really fun. I drive pretty far out of my way to do it or he drives far out of his way to do it. And uh yeah, so don't miss them. Subscribe wherever you're watching or listening.

Send this to a friend if you like it. That would be the most helpful way you could say thanks to me. Thanks so much.