Optimized Ecommerce EP 072 – Building a Long Term Sustainable Business
This week on The Optimized Ecommerce Podcast, Erik Huberman joins Tanner Larsson to talk about effective ways on how to build a long-term & sustainable business. Listen as Erik shares his insights and knowledge about a topic that's mostly missed in this space and that is, company sustainability and building a foundation for a
Welcome to Episode 072 of Optimized Ecommerce – Building a Long Term Sustainable Business. I’m your host, Tanner Larsson, CEO of BGS.
BGS means Build Grow Scale! It is a community that we founded where eCommerce entrepreneurs and physical product sellers come to learn how to take their businesses to the next level.
Erik Huberman is the Founder and CEO of Hawke Media—a full-service Outsourced CMO based in Santa Monica, CA, providing guidance, planning, and execution to grow brands of all sizes, industries, and business models.
Hawke Media was recognized by Inc. as the country’s fastest-growing marketing consultancy, and is proudly one of Glassdoor’s “Best Places to Work”, 2019 #893 on the Forbes 5000 list, UpCity Top Los Angeles Digital Marketing Agency.
Here’s just a taste of what we talked about today:
A Reader’s Digest Version of Hawke Media and why Erik chose to talk about company sustainability.
Erik built and sold e-commerce brands before he started Hawke Media. Now the company is seven and a half years old, completely bootstrapped. No outside capital, they’ve got about 250 full-time people managing marketing for about 600 brands, and they’ve worked with about 3500 brands at this point.
He chose to talk about company sustainability and building a foundation for a good organization because this topic is mostly missed in this space. And it is an important topic because he often sees posts on social media about how they’ve had 100x returns on their ads for two days, and skyrocketing. And then a week later, their company is gone.
A sustainable business is not just getting good returns on Facebook, it’s more about building a company with a great product and the right marketing channels that build a long-term sustainable business.
How to build a long-term sustainable business?
Number one: build a good product or service that has staying power. You have to base a product or service on something that people are going to want for a long time.
Number two: unit economics. Selling a product with enough margin, that you can market and can have a team built of it. As it scales, you end up with a lot of free cash flow that allows you to build the company.
Number three: build a relationship with your customers so that they come back and buy more. Building a brand is not all about Facebook ads with a cost per acquisition and a conversion rate. It’s about multiple offerings, word of mouth, and repeat purchases.
Number four: don’t be afraid of omni channel. If you’ve got a great product, sell into retail, sell everywhere you can. Focus on being the best at one thing. When you do that, you’re going to get repeat business, you’re going to get people talking positively about you. And what’s going to start to create that sustainability.
We also discussed a few other fun topics, including:
- The importance of growing your business sustainably.
- Connection of business sustainability to profitability.
- Discussion about the idea of selling a business after a certain amount of time.
But you’ll have to watch or listen to the episode to hear about those!
How To Stay Connected With Erik Huberman
Want to stay connected with Erik? Please check out their social profiles below.
- Website: HawkeMedia.com
- Facebook Profile: Facebook.com/erikhuberman
- LinkedIn Profile: Linkedin.com/in/erikhuberman
Also, Erik mentioned the following items on the show. You can find that on:
Tanner Larsson 0:07
What’s up everybody, Tanner Larsson here and welcome back to the Optimized Ecommerce Podcast super excited to be here with you guys. And I’ve got another fun and pretty interesting episode for you guys today I’m actually excited to see what we’re going to come up with, as Erik and I start talking. So my guest for today is Erik Huberman. He is the owner Hawke Media, Hawke is an outsourced CMO service. They work with some major companies, including Alibaba, Red Bull, Verizon, they also work with smaller stores and brands as well. And they kind of have a full scope of what’s going on in the e-commerce and business landscape from running the ads to the marketing side to the automation sides to how do you get profitability up and they see the whole gamut, and the companies that they work with, they do different things for different companies. But Erik’s got a really cool insight. The company’s done very, very well that, they won some crazy awards, Inc 500, all that kind of stuff. So he’s got the pedigree, but they’ve also got the knowledge, which is what I’m excited to talk about with him today and just extract what he knows on, how do you take a product and actually turn it into a company, something that lasts that has sustainability and if you guys know, this podcast—Build Grow Scale. We talk a lot about sustainability and long-term growth and actually having something that lasts. So having Erik talk into that today is going to be very exciting. So Erik, thanks for joining us.
Erik Huberman 1:30
Yeah, no, thank you for having me.
Tanner Larsson 1:32
So I know I kind of gave a little bit about you, but why don’t you give a little Reader’s Digest version on a bit that I missed that you think are important?
Erik Huberman 1:38
Yeah. Given the topic, I’ve built and sold to e-commerce brands before I started this, and then Hawke Media. Now we’re seven and a half years old, completely bootstrapped. No outside capital, no doubt, we got about 250, full-time people manage marketing for about 600 brands, we’ve worked with about 3500 brands at this point. And so when you asked me to come on and talk about what I thought was a good subject, I thought, sort of company sustainability and building a foundation for a good organization is something that’s missed a lot in this space. And I think it’s an important topic, because I see everybody loves to post on social media, how they’ve had 100x returns on their ads for two days, and they’re skyrocketing. And then you talk to them a week later, and their company is gone. So it’s about not just how do you get good returns on Facebook, which I think is becoming more and more boring subject, and, frankly, more of a fleeting subject. And it’s more about how do you build a company with a great product and the right marketing channels that build a long-term sustainable business? And I think that’s, it depends on what you want to do. If you want to be flash in the pan, make some cash and cash out and call it a day. It’s one thing but I will say from experience, it’s a lot better to have something that continues to give for a long time.
Tanner Larsson 2:54
Yeah. And it takes a lot of work to build something from the ground up just to make some quick cash and then have to start over.
Erik Huberman 2:59
Yeah, it’s the same amount of work, either way, to be clear.
Tanner Larsson 3:03
I mean, when you have to continuously reinvent the wheel and start over a new product, new audience, new demographic, new avatar, everything and do that once. Not do that five or six times, like, I see guys all the time. They got six Shopify stores waiting for one to hit, and when that hits, they go launch six more.
Erik Huberman 3:20
Tanner Larsson 3:21
That makes no sense in my mind.
Erik Huberman 3:23
No, you’re not building up any momentum, you’re not building off yourself. You just said, it, you’re starting over every time, you don’t get that benefit of that progress. And so I’ve never liked that model. Again, there are people that make cash on it. But generally from experience see them. They’re a lot more outspoken about how they’re doing in these things. I don’t know whether it’s got a surprise or what it is. So I see them attract a lot of followers, where it’s like, yeah, I watch this product, and it made $10 million in the past six months, and it’s like, cool. And then you invested $10 million in inventory and couldn’t sell a single piece of the item after that and lost all your money and walked away with nothing, versus maybe taking it a little slower too is part of it sometimes. Maybe you only do a million in the first year, God forbid, and then you do too the second year, and then you do five, the third year, and then you do 25 the fourth year and you start to scale it that way. You build the foundation. And then I have thankfully, as my success has grown, I’ve been around a lot of successful people. And I was hanging out with a friend the other day that his company makes about $50 million in profit now, he still owns it, you raise no money. He’s trying to figure out what to do with the money. He’s like, Oh, well, I guess I could keep growing it, just to be frank, once you’re making $50 million a year and it’s your money. There’s nothing you need to buy. You’ve got it, like maybe a bigger jet or a bigger yacht?
Tanner Larsson 4:46
But you’ve already got the choice.
Erik Huberman 4:48
Yeah, and you could rent anything you want. So for some reason need to buy a half a billion dollar yacht, that’s a different conversation. But other than that, there’s no use for that capital. So, building something that does that, that can sustain that you can operate. Again, there are only 24 hours in a day and everybody needs sleep, different levels of sleep. I’m not one of those people that needs like two hours of sleep a night. But let’s just assume everyone needs a normal night’s sleep like, we’re all working just as hard as each other, the idea of hard work got me here, I think is the dumbest thing in the world. Because it’s a level set, you work hard, you’re putting in the time, then it’s just a function of focus, like what are you spending your time on? And are you looking at what you just said, the next Shopify site to spin up the sixth Shopify site that doesn’t build off of any of the momentum you’ve already put the work in, or you tweaking and changing and growing that first thing that you started because you see that there’s a need for the product or service you’re providing. And you’re reinvesting in ways that create long-term sustainability for you and the company because I think a part of this is also making it. So it’s something you want to do for a long time, not something that you want to get out of as quickly as possible.
Tanner Larsson 5:57
Yeah, absolutely. And that’s a big part of it with seeing what’s out there in the marketplace like you said, they attract a lot of interest in this, hype flash in the pan kind of money type stuff, but most of those guys are gone in a year or two years at the most. But the problem is, so many people are following that advice to try to duplicate what they’ve done. And they wind up in an even worse situation, because they didn’t have the winning product, or they jumped on the fidget spinner after it had already trended out, and now they’re stuck with inventory. And so let’s kind of jump into what it looks like to build something sustainable.
Erik Huberman 6:35
Yep. So it starts with number one, a good product or service that has staying power, you have to base this around something that people are going to want and want a lot of, and for a long time. A lot of people chase the next gadget out of China, like how many hoverboard sites were there?
Tanner Larsson 6:54
Erik Huberman 6:54
Yeah, and it’s like, again, can you make some quick cash? Yeah, but someone gets stuck holding the bag, someone is the last move or they didn’t quite market as well, etc. And you end up with this. So unless you’re coming in with an existing list, and listen, there is a way to build a sustainable model around launching different products, there are companies that do that even Guthy-Renker, has done a good job of that. They’re bootstrapped and they’re multi-billion dollars in revenue, they’re great.
Tanner Larsson 6:55
We’ve worked with them.
Erik Huberman 7:00
Yeah, same. And they’re great people, they’ve done a great job, but they have a methodology, they want it quick, they spend a little money, if it works, they keep going. If it doesn’t, they’re out. They also acquire a lot of brands once it already has traction. So they just can put their megaphone on it, so to speak. And they have so much infrastructure around DR Marketing, that they are able to replicate that. Now that being said, they’ve struggled in recent years, because it changes and digital happens so rapidly, they didn’t keep up now, they’ve adapted enough now, but it took them a while. And so there are scalable ways to do that. But that’s a whole infrastructure they built and what it started with was a few key products, it skyrocketed. Something like Proactive is one of them. Were Proactive, is still a multi-billion dollar company, Nestle owns it now. But there’s a whole new crop of teenagers with acne trying to solve it every year. And they continue to tap into that. And now they have all the models in place of exactly how to tap into that. And that’s why they got a little shaky was when that model changed, they had to shift, but that’s part of running a long-term business too. But with an individual, it really does start with that sort of core product or service. That is your bread and butter. And that’s what everyone will call it. And it’s an age old business idea of the rinse and repeat part of your business that continues to just bring in the cash to keep the business operating. And so you look at any major company, and that exists Google search. Google is a lot more than a search engine. But that search engine still funds everything else. Facebook and ads. Amazon at this point, I don’t even know what their bread and butter is.
Tanner Larsson 9:15
I’d say maybe AWS at this point.
Erik Huberman 9:17
Probably Yeah. But for a long time, it was books. And that can shift obviously. But the point is you need to figure out what is that entry point that’s going to be the core business that can allow you to expand off of it over time. And for a while just focus on that and build that out. For Hawke Media. Marketing services will probably always be our core business. But already eight years in or seven half years in, we’ve got a venture fund, we’ve got a financing arm, we’ve got brands that we own pieces of we’ve got all sorts of other business units that were spinning up because we have this platform and cash flow to do so. So cash flow piece is super important for sustainability. And that kind of brings me to number two, so to speak, which is unit economics. Selling your product and with enough margin, that you can market it that you can have a team built off of it, that as it scales, you end up with a lot of free cash flow that allows you to build the company. Because if you’re always having to change fundraising, which a lot of companies do, you’re reliant on the market and the funding market, which when there’s a downturn, you’re screwed. So even our own fund because we invest, we look at unit economics, if there was no money on the market anymore, could this company survive? And that’s super important. So making sure you have the right margins in your business so that you can build this without funding really is key. And there’s a lot of great bootstrap companies. And my favorite example of this is I have a friend that sold his ecom company for a billion dollars, and another friend has sold his ecom company for 200 million. On the surface, you’re like, yeah, well, I’d rather build a billion dollar company than 200 million. Here’s the thing though, the billion dollar company, he only had 9% of it left in ownership, he had raised so much money, he was at nine. So he made 90, the other friend was completely bootstrapped, made 200. And, by the way, I know this surface level, I don’t know all the details, but I do know, the billion dollar company was not sustainable and was near the end, so to speak when they sold because they were so used to just burning cash, and the bootstrap company, there was very little risk, he was gonna sell for 200 million or 100 million or 50 million, but he was fine. And so having that company that can just run without outside capital, also a big part. And so that’s the foundation part of it, like build that foundation that you’ve got bread and butter, you’re investing in something that you could see long term traction with, if there’s a need for what you’re building because I do see a lot of people spin up the next tchotchke, it’s an urban thing that is gone in a month. And I guess you have to go through a few of these to realize that that’s just how the world works. My first business was in Beanie Babies, people spending 1000s of dollars on beanbag animals, and now, they’re just all stuck with them. It’s that kind of thing, where you have to be careful with these high products because I think TY is probably done fine. But nowhere near what they did I wonder how that business is doing?
Tanner Larsson 12:19
Yeah, I have not kept up with them. But yeah, I wonder the same thing.
Erik Huberman 12:22
Yeah, but in a lot of these drop shipping, or OEM companies, where you’re getting a product from China, it’s gonna be short lived, and you’ve got the same competition, like spend your time figuring out where there’s a need and tapping into it. Where do people actually want something like, even if it’s a niche like you’re gonna build the pots and pans for the ethnic community, there’s a company that did that, great, that’s a niche, you have to find something underserved and build it. And that’s building a real company, because the idea of chasing the next hot item, you’re always going to be behind unless you invented it. The successful for example is Popsockets. Those guys are amazing. They spent the majority of their money on lawyers to make sure no one rip them off. It’s basically like a little bit of family money that was put into it, and they took off. And it’s got to be a billion dollar revenue company now, it’s insane because they own the market. They did it, but they invented that. Again, I don’t know how many hoverboard companies did very well, but I doubt many. Then once you figure that out, which is hard, it takes time, don’t rush it, go work for someone, go do some consulting, do something else, while you figure it out. I think forcing the idea of starting a business is also an issue. And you’re gonna waste a lot of time you’re expected value, the actual money you’re going to make is going to be less than if you just got a job. And you’re not going to learn a lot, a lot of the time if you’re just chasing a BS product, I love how people say that you have to fail because you’ll learn a ton. It’s like you learned more from success than failure. Sorry, like it’s just the truth. You can pat yourself on the back when you fuck something up. But the truth is, you fucked up and maybe hopefully you learned something. But at times you don’t, a lot of times you blame it on timing, or maybe it was timing and situational or whatever. And I always say that there’s probably a 70% X factor in the success of a business 30% is having the right team idea product, everything 70% comes from just timing, luck, situation, serendipity, etc. So swinging the bat trying things is super important, but starting with a good bet is also super important.
Tanner Larsson 14:31
Absolutely. Putting your best foot forward and then guys with the product thing, what Erik is saying, if you are selling a Gizmo or a gadget or a tchotchke or whatever is trending, that’s okay. That market could very easily support a cash cow product that you can spin off later or you have a cash cow product that’s great. That doesn’t mean you can’t tap into a tchotchke style product that you sell to your audience for a quick cash boost.
Erik Huberman 15:00
And if you have that audience that you’re building, and you’re building a brand, and I was going to be my next thing that I get into is the idea of building a brand. So it’s not about running Facebook ads with a cost per acquisition and a conversion rate. That is part of it. But it’s part of it, you have to build a relationship with your customers so that they come back and buy more, because if you’re competing with all my clients, which we’re coaching on Merchandising, and we’re coaching on having multiple product offerings, and you’re selling one product that they buy, once, we’ll beat you out all day on CPCs, because we can afford to, we can spend tons of money compared to you because we get a huge lifetime value of a customer compared to you. And that’s who you’re competing against. And so when you’re building these things, having multiple offerings, and building a brand that people come back because the other part of this is if you have to market, every customer you get you to have to advertise to it’s super expensive, you need word of mouth, you need repeat purchases, you need these things, especially in ecommerce. And then the other piece of that also is don’t be afraid of omni channel, if you’ve got a great product, sell into retail, sell everywhere you can. Focus on being the best at one thing. And I really mean that I always believe this, which is where our company comes in, if you’re a great marketer, then be a great marketer, if you do not hire great marketers don’t try to be everything in your own company. And so it’s the same thing. When we talk to ecom companies that are building their own software, it’s like you’re not a software company, you’re a fashion company, stop. And so, lots of ecom companies think they’re tech companies, they’re not, they’re building tech to sell. You’re not a tech company. And so be really careful. We’ve watched a really big ecom company build their own email service provider. They’ve spent probably $50 million on developing this stupid software that never fucking works, because every good ESB has spent much more than $50 million. And they’re never gonna compete. It’s like, why did you do this? Because they had a CTO that said, they can do it better his ego. And so it’s the same thing when you’re building is like, focus on building a great product, that’s your thing, you have to have the best product and best customer experience, and everything else, don’t worry about it. And if you do that, you’re going to get repeat business, you’re going to get people talking positively about you. And what’s going to start to create that sustainability. So it starts with that product that people can talk about, and you start to build your brand. And all that brand is, is consistency, good and bad. Whatever you’re consistent with is what builds your brand. If you’re consistently shittier customers, you’re going to be a brand known that’s shitty to their customers, what’s a good example of that?
Tanner Larsson 17:31
I always say that a brand is earned not built.
Erik Huberman 17:35
Right. Both good and bad, too.
Tanner Larsson 17:39
Erik Huberman 17:39
Comcast, which I think unanimously are called the devil, because of how bad they are customer service. They built that through consistently being terrible customer service. And then you’ve got, Starbucks, it’s just consistent. There are people that love Starbucks, but most people are like, either way, whatever, it’s Starbucks, but you know what you’re gonna get. And so when you’re traveling around the world, or you’re traveling around your town, you know you can get it, you know it’s quick, efficient, good, consistent, that’s the brand. And that’s what you build, whether it’s a luxury brand, etc. And there’s a lot of intent behind it. But that intent comes with what you consistently deliver. And so you hope there’s intent, if not, your brand can own you. And that can be a bummer. So thinking about those kind of things again, and then getting into, can I market this profitably? Can I run Facebook ads profitably? Can I run different advertising channels? Where can I find a vein that can grow this profitably and grow sustainably? Like as I mentioned earlier, is it better to do 10 million in your first year or one? Sometimes one, because 10 million. If you can’t, the most painful part of a business that I’ve seen is not growing, it’s shrinking. If you’re at $10 million in revenue, and then the next year you do six, you are fucked. You probably got 20 million in inventory. You probably got a whole staff to support at least 10 million or 20 million in sales, because you projected out because we’re all optimists as entrepreneurs.
Tanner Larsson 19:11
Yeah, you’re definitely bloated because you grew so fast. You’re overindulged in everything.
Erik Huberman 19:17
Exactly and generally you overcompensate for it because you grew underwater, you hire a bunch of people and that’s what ends up happening. And then you start to get systems in place. And so if you go too fast, it can go like that. And you see it all the time. That doesn’t mean slow down, like, go as fast as you can. Meaning if you can build a foundation and feel confident that it’s scaling in a way that’s going to sustain and you can build the infrastructure as you go, do it, but different companies can scale at different rates. Like we’ve all seen companies that have done 50 million in their second year and things like that like it happens. And they do succeed, but you don’t want to force it. And you don’t want to over invest in over grow which is frankly, what happens in a lot of the VC world where they raise these big rounds and then go, Oh shit, we can’t grow there’s nothing to do. So growing sustainably is super important. And as an entrepreneur, I understand the lack of patience. I hate it when we’re not growing fast, we’re having to reinvest in infrastructure. It’s painful. We’re doing it right now. Well, thankfully, over time, you do it enough that you realize, growth isn’t linear, it’s like a staircase, like grow really fast, and then stop for a while and grow really fast and stop for a while. And so when you start to look back, you realize the steps get bigger, as your company gets bigger, meaning the up goes faster, but then it flatlines for longer because it is hard to break through. So I have our financial report out earlier, and it literally looks like a staircase, it’s really funny. And so you learn these things. And what’s important about that is then when you know, that’s the case, it still means you push, because the only reason you get out of that staircase, that next step, so to speak, is you push really hard to find the ways to improve, but you don’t get over your skis in a sense. That’s why I keep going back to profitability. Because, again, I’m all about sustainability. And if you can keep profitable. And let me explain what I mean, by profit, you could be profitable if you’ve got cash, you made money last year, and you want to reinvest it, I get it, like, that’s fine. The point is, at any point, you’re not going to end up negative, you’re not gonna end up underwater, because you are keeping an eye on the financials. And I see a lot of companies just go for growth, and never keep an eye on it. And then they end up in debt. Like we do a lot of m&a and a lot of investing and the number of companies that are in debt when they shouldn’t be because they just did stupid things. It’s like, why you did a million in revenue last year, and you had a million and a half in payroll? Why? Why did you overhire? Was there something that someone was going to do? Theoretically, you should be hiring for growth, and if those people didn’t create growth, why the fuck were they there?
Tanner Larsson 22:05
Yeah, why were they there a long time ago?
Erik Huberman 22:08
I’m talking Ecom, but you shouldn’t need infrastructure and staff. Too many companies have bootstrapped or done it scrappy. I don’t buy that you need that much waste, to grow an ecom brand. Marketing? Sure. If you find a vein, like, hey, we know now that we can spend $1 and make 10 through this advertising and we know we can scale it. Yeah, sure, throw more money than you’re making at it. If you can grab that cash somewhere. That makes sense to me like that scale, you can do it faster, fine. But a lot of times people spend the money in the wrong place, it should be spent on growth not spent on sustaining, because that’s where again, you can create a sustainable brand. And then it just allows a lot. And so that’s kind of the basis of it. But then it gets into focusing on the way you do marketing, like make sure customers coming in are coming in profitably. But also keep an eye on how do you get that word of mouth on that evergreen side. Like you don’t want to have to advertise to your customers only. So what are the other things you can do that continue to drive in customers when you’re not doing anything? Partnerships, PR, SEO, organic, word of mouth. How do you drive these things that you don’t always have to be just throwing money at another digital channel to get more customers? Those are the kind of things you start to think about. Like, it shouldn’t just be about a CAC to LTV, it should actually be like, how do we create something sustainable, cuz I can tell you, no brand over 200 million in revenue, looks at CAC to LTV, they’re looking at marketing spend and revenue. Like it’s just how do we grow this thing. And so when you think about it a little more that way, having different channels of distribution and channels of sales that come through, that aren’t just about spending money will actually allow you to again, be more sustainable. In COVID, thankfully, we’ve built such a great channel partnership, and ecosystem, we all got hit when COVID started. But we all looked down and said, well, these companies are still going and we started sending each other business and looking out for each other and got each other through it in a very positive way. And we grew a lot and so did our partners because we’re all looking out for well, who’s still active, let’s focus on that. Cuz a lot of people froze up. The same thing goes with your own customers, like go align with other companies, share lists, that’s one partnership way of doing it. Again, content partnerships, influencer partnerships, these are all things that don’t necessarily have to just be throwing money at it. It happens and a lot of companies will but you can probably put some time in and find some relationships that it isn’t just about that.
Tanner Larsson 24:43
Absolutely. And everything you’re touching on right now. It’s so timely for where we’re at right now after iOS rolling out and everything else. I mean, I’m so sick and tired of hearing about iOS 14 is the killer of all these businesses, but the reality is as you skipped the build phase of your business and tried to jump in from like in our company Build Grow Scale you went from build skipped grow. And now you think you’re scaling and it works well, the advertising channel was perfect. But the first time something changed all of a sudden basically the tide went out and you weren’t wearing shorts.
Erik Huberman 25:19
And that’s my favorite thing to point to because people didn’t stop spending money because of iOS 14.
Tanner Larsson 25:24
Erik Huberman 25:25
Same consumer spending. Well, it’s declined slightly, but it’s q2 q3 at always does.
Tanner Larsson 25:30
Yeah and we’re prepping for q4.
Erik Huberman 25:31
Yeah exactly. But people in general, like, people didn’t stop spending money. So if you’re seeing a decline in your business, you’re just doing it wrong. Like you’re not marketing, right?
Tanner Larsson 25:44
Your economics aren’t set up right to be able to support it.
Erik Huberman 25:47
Right. And tracking on Facebook is part of it, too. Like when people look at these tracking numbers like Facebook has a seven-day tracking window now. The average purchase cycle for a $50 product is three weeks for 100 bucks, it’s five weeks for 200 bucks, six weeks, a week is nothing. And if you got a product under 50 bucks, it’s already difficult, anything under 35 is almost impossible online unless you have some other unique way of selling it. Like it’s not going to work that well anyway. So like, you want to be 50 over and the higher frankly, the better a lot of the time as long as the product can command it. And so, you end up looking at these tracking shifts and going like okay, so it’s now tracking wrong. So it doesn’t tell you the right numbers anyways. And if you’re seeing actual revenue, tracking declines is one thing, and there are declines in terms of the actual performance of Facebook because you can’t track as well. So there are declines. But marketing is kind of like an investment portfolio too if you’re all in on Facebook to run your entire business, that was a bad move. It’s like investing your entire life savings in Facebook as a company, both are bad moves. And that’s pretty much what you’re doing. If you go all in on Facebook as an advertising channel, like you got to look at Google, you got to look at podcasts, you got to look at TV, radio, you got to look at influencers, you have to look at organic, content, whatever you can do to drive word of mouth, you have to look at distribution channels, like retail, and even other online retailers. Like if you’re truly building the best product, and that is what you’re focused on where it’s sold shouldn’t matter. And a lot of these companies are now looking at ecom and your DTC as a marketing and community engine, not as the best revenue stream. Because even during COVID, where everyone was shut down or locked at home, consumer purchases went from 13% online to 30. But it’s still 30. And it dropped back down to like 25. I don’t know where it is right now. But it was down to like 25. And so a quarter of sales are online. And that’s Amazon is 60% of that. Walmart’s 5% of that. And then there are a few others that make up so you end up with like, let’s say 20% is actually direct to consumer of the 25%, you’re talking about 5% of consumer purchases are actually done directly from the company. And that’s where you’re going to sell your product? You’ve got 95% of the revenue you’re missing, or I guess opportunity, do both because owning the customer there and having your own ecom is also valuable. But the idea of direct to consumer and staying only direct to consumer. It’s the margins are bullshit in terms of the idea that like, oh, we’re cutting out the middleman. Yeah, and you’re exchanging it for marketing expenses. So like that everlane argument doesn’t actually work.
Tanner Larsson 28:28
Yeah, you’re still spending that same amount, if not more.
Erik Huberman 28:30
Yeah, correct. With more risk, because you hope it works out that way. And I believe in both omni channel all the way. But these are things that you think about when you’re building a more long term, what am I going to do for the next 30 years? And I really like that mindset of what can I do, that doesn’t mean it’s actually going to be what comes true, but at least set yourself up that way. Like, there’s an old line that if you don’t build your company like you’re gonna keep it forever, you will. So it’s always a confusing thing to say. But the idea is, you want to build it like you’re going to keep it forever. And then you’ll you can sell whatever you want. I get offered to sell my company probably weekly now for the past couple of years and before that regularly as well. And then you can make that decision if you ever want to get out.
Tanner Larsson 29:17
And also, you didn’t build a company to sell you build a company that you would be happy keeping if it never sold.
Erik Huberman 29:23
Tanner Larsson 29:24
Because that’s the other thing I get people all the time I’m building this brand to sell like, well, if you don’t even want it, why is somebody else gonna want it later on?
Erik Huberman 29:30
Yep, we know we’re dealing with an acquisition right now like that, where the guys like, yeah, I’ve been building this to sell and I want out and then he’s asking for multiples that he would get if you wanted to stick with it for five years, but we already know he doesn’t. We’ve bought a lot of agencies and we deal with what we’ve been offered. We know what the market is. We’ve seen this story. He’s like, I’m talking to multiple parties and I’m like, great and you’re either gonna find an idiot, which is very rare. Most of the time, you’re just going to get a lot of people that waste a bunch of your time and you’re going to come back to us in a couple of months and be like, yeah, I got nothing. It’s the age old story of people read headlines thinking that. Again, my friend’s e-commerce company sold for a billion dollars. The untrained eye thinks he just made a billion dollars, he made 90 million, nothing to complain about made plenty of money. But he did it in such a risky way, he was binary, he was making 90 million or zero, there was no middle ground on the way he did that, versus my other friend that made 200 million, would have made 50 would have made 20 would have made 100 depending on whatever target he hit when he decided to sell. And if he didn’t sell at this point, he would have kept running it profitably until the deal came along that he wanted.
Tanner Larsson 30:48
And he’s fine with it.
Erik Huberman 30:49
Yeah, correct, totally fine. In fact, this is actually public. I had a guy named Barry Turner on my podcast that created Lenny and Larry’s. It’s like, protein muffins and cookies and stuff. Any ended that with he’s like, yeah, I got he’s of origin story. And he’s like, my company we’re doing about 30 million in EBITDA profit. And he had bootstrapped and it was him and a partner, making $20 million a year. And I’m like, how was that day? And he’s like, worst fucking day in my life, okay, well explain that. He’s like, well, I already had all the cars I wanted in the house in the vacation house and went anywhere I want like 20 million a year. I’ve done a lot of analysis about this with friends that are successful, you’ll spend one to 2 million a year on a very nice lifestyle. And that’s it. Again, we go back to borrowing a yacht or a jet. That’s all you’re gonna spend. You want your own jet, it’s expensive. You want your own yacht, it can get expensive. And I mean, big yacht, small boat, whatever 50, 60 footers, you’re fine, but you start to get really pricey, but 1 to 2 million. Your lifestyle is done there’s no more money to spend. If you’re making 20, you’re set. After that, he’s like, so I sold and he made, my guess would be like 400 million because he made $400 million. He’s like, yeah, and I invested in commercial real estate and became a real estate developer, like, so how is it? He’s like, it fucking sucks. He’s like, I was running a cookie company. And now I’m a real estate developer, I’d rather run a cookie company, I don’t know why I did it. And so you hear this a lot. And again, that goes back to that sustainable kind of approach to business where it was how people did it till let’s say 20 years ago. And the idea of selling your business was usually I’m retiring and don’t have the successor or I am done or I’m burnt out or whatever it is, it wasn’t an event, they call it like an event, you had an event you’re on exit now, I’d say 30 years ago, it used to be more of a bow out of like it’s a landing, I need someone to take this, I’m gonna take some money, I’m done. And it wasn’t life-changing, usually, it was just a way to get out. That changed, private equity got bigger, the multiples started happening, etc. That changed. And it makes sense why it changed. But still, I always remember that if someone’s going to buy my company that’s smart, which by the way, I mean, like doing deals with smart people, when you deal with idiots that are trying to buy it, then you end up with a lot of unpredictable parts of it, which suck. So when a smart person wants to bind my company, it’s inherently because they know or they’re confident that they’re gonna make more money than they’re giving me. If that’s the case, and it’s not because they’re strategic. It’s because they like what I’m building. That means that I’m better off keeping it. Unless I need that money or unless back to the point, you’re burnt out, you’re done, you know something they don’t, you’re retiring, those are reasons. But it’s become this sexy thing to sell a company, it’s kind of like I have enough friends that have done it. their lifestyle is no different than mine. Except for I still have something to do on a daily basis,
Tanner Larsson 33:54
That and then you’ve got the people who sold and either regretted it or did a bad sale, there’s been a lot of those on both sides like the person buys something that they think is sustainable, that turns out to be something that’s not and it’s obviously the buyer’s issue at that point. But I know people who’ve sold and who’ve bought the sale was so sexy, it’s like you’re clearing a million dollars a year. It’s a small company, but you’re making a million dollars a year free in your pocket, and you’re gonna sell for 3 million, 4 million. Why would that number make sense?
Erik Huberman 34:28
And taxes come into play, and 4 million turns into two.
Tanner Larsson 34:32
Yeah, so you’ve sold for two years of your earnings. And then now what? Now you’re gonna have to start all over and build another company. I mean, the cash flow is more beneficial than the sale but people get so locked up.
Erik Huberman 34:42
Well, that’s the other thing. If you spend that money, you’re screwed, you got to go to work. So you invest that money to try to do something with it. And then what do you invest in? Actually, I’ve watched this happen with my dad’s business, they sold one of their businesses, put it into real estate, but real estate’s a great asset but earns about a quarter of what you would earn if you just kept the business. So all of a sudden, their cash flow dropped to a quarter of what it was just keeping their business, which at that point was actually operating itself pretty well on these waste. So huge contracts with cities. It was like, cool, you have a bunch of assets that, frankly, once you get into real estate, you never sell it. So you’re never gonna touch that cash. You’re just touching the cash flow. And now you make less money than you did. So what the fuck was the point other than sold the company. Get a headline. So that’s the exit side. And again, it goes to the cash flow side, too, if you can build something that you can rely on. It takes time, it really takes time. The first few years of a startup are exactly what everyone knows they are they’re volatile, they’re uneasy, etc. But if you can build something that you can build towards sustainability, you get to the point like we are now where it’s like, God forbid, there’s a recession, we have everything so dialed in that like, and we have no debt we have no investors we have to report to. The worst thing that happens to this company is if it makes less money. It’s not going away, there’s nothing to go away. We have no real overhead as it will just shrinking. And it will have to ebb and flow if we screw up. And that’s why I definitely pushed my team not to screw up. But that is the worst case scenario we’re at now. And this is where the almost undue stress comes in. If you’re trying to sell and you shrink, you’re fucked because your multiples just got shot, nobody’s gonna give you the same multiples, you have to have over 40% growth to get good multiples on your business. And if you don’t have that, that’s where you start to get hit by private equity, and they’re gonna screw with you, etc. And like, it sucks. So you have this undue stress, if you plan on keeping it for 30 years, then again, it’s not like I’ve had it happen where someone comes and goes and want to you, and then they try to play a game of like, well, like us, we’re month to month, everything we do is month to month in our cart. Our whole mission is accessibility to great marketing, we want to be super flexible and nimble, and easy to get access to great marketing. When we talk to PE’s sometimes they’re like, well, it’s all month to month, like that means no assured revenue, we’re gonna have to discount for that. And like, I mean, I guess there’s no deal then. And they’re like, wait, no, we’re not playing games here. I like my business. If you don’t like my business and move on. It becomes that conversation when you can make it sustainable. And that’s, again, we’re talking a little too much about an exit. The other side of it is the truth of that, which is, it’s sustainable. Like when the sun shines, you make hay, if it gets a little dark sometimes because recessions come you batten down the hatches and stay careful. And then you open up again. And you just keep that process going until one day you decide whether it’s you want to retire, maybe you work until you die, and then name a successor when that happens, whatever that is, that is an option. And if you keep that as your mindset, again, I can sell my company I’ve been offered many times even this year for more than I ever need. And I just like doing this, so I keep doing it. And we set it up that way. My partner and I, one year in got an offer to sell it was a lot of money at the time. And we decided to keep it but set it up. We were like let’s make this a marathon, not a sprint. Let’s make it so that we’re here for the long term, which also means hiring people to do the shit you don’t want to do. Like self retention is the most important part, if you find yourself dealing with shit you don’t want to deal with if you can’t afford to hire for it in a reasonable amount of time, and you’re the most expensive employee as the founder. So if you can’t afford to hire someone to do a part of the business that you want to step, then you’re doing something wrong, your unit economics are off whatever it is, something’s wrong if you can’t slowly get people to do parts of the business. Again, when you’re starting out, there’s nuance to this, you have to get enough money going in. But there has to be a path to hiring away all the jobs you don’t want to do so that you can focus on what you’re good at, which usually is in line with what you like to do.
Tanner Larsson 38:56
Absolutely. This was great. And it went all over the place I enjoyed us chatting, it’s a lot more fun than a structured topic, I always like to see where it goes. And guys, if you are listening to this, I highly recommend you listen to it again. There is a lot of stuff that was discussed here that may not be right for you right now. But in a few weeks, a few months, a year or so you can come back to this and go oh my god, I get what they’re talking about now. But also take a look at this and then start taking a look at it from your business and go hey, am I exhibiting any of these traits that I maybe shouldn’t be? Or am I getting my opinions or my thought processes are getting soaked up by what the flash in the pan the highest pipe in the marketplace is versus my building something real and sustainable. Like the whole reason, you’re building this business is not to work yourself to death to not make any money. You’re trying to build a business to give yourself lifestyle and freedom and time with your family and all of that stuff. But if you’re not doing it right, which Erik talked about a lot today, then really doing it for nothing. There’s no point to it. And it cannot just be for the money. Because I can tell you, Erik can tell you the money gets old after a certain point. It’s not enough to keep it going and make it worth your time.
Erik Huberman 40:12
When you realize as your personal expenses can only go so far. And then once it’s covered, it’s covered. You’ve made enough money to pay for the things you want to pay for. And it isn’t as far away as people think it is like, you hear people making billions of dollars, whatever. It’s like they don’t spend that.
Tanner Larsson 40:25
They don’t spend it, they just sit there and make more.
Erik Huberman 40:27
Tanner Larsson 40:29
We’ve got a couple of friends. One particular is worth about, four or 500 million right now. And he tells everybody, dude, it doesn’t matter, it’s hard to spend a million dollars a year, it’s hard to spend that money. And then he goes, when you get good at spending a million, you maybe can spend, like you said another half a million to another million. Because beyond that, you’re not spending it. And he’s like even people who do spend the million, they’re trying to spend that million. The average person who’s a millionaire is not living that kind of crazy life and tries to spend that money.
Erik Huberman 41:05
One to 2 million I said are my friends in New York and LA, the most expensive places to live. If you have anywhere else, there’s no fucking way you can spend that money. Most of that goes to a starter house in LA now it’s like 2 million bucks. That’s why you can spend it but like, I’m talking starter house, these people aren’t living in starter house. That’s why you can spend that but most people can and I’m thankfully never got into it. But a lot of people, they’ll buy the Ferrari or buy the Lamborghini. You do that once you drive it a little bit. Unless you’re selling products to try to tell other people how to get rich. It seems like most people fall off that unless you love cars. I have a couple of friends that just love racing. I used to race and a couple of buddies that both bought McLaren’s and they love it. They didn’t do it for flash, they did it because I love that car. But they bought it. They’re done. That was a few years ago. And they’ve continued to make money. They’re not buying a third one and a fourth one and a fifth one. It’s like once you cover those kinds of basics, basics, it’s the most obnoxious way to put that. But once you cover your early desires, the new money desires, so to speak, and you’re like, Okay, I got my house, I got my car, I got whatever that thing was that I couldn’t afford as a kid. And now I can and I’m excited. And then it’s back to work.
Tanner Larsson 42:23
Yeah. So got to have another reason for doing it. Like, we are a car family like my kids love cars. My wife does. We do have all the toys, but nobody knows for the most part. It’s not like, I’m not buying a new one every day or anything like that. Once you get it like when I bought my first supercar. I was like, This is so awesome. And now it’s like, I love it. So I’m with the money stops, guys. So the reason for building the business has to be beyond the money. And I know the money’s exciting at first, but you want to build something sustainable. You got to look beyond the money.
Erik Huberman 42:59
Yeah. And the money will come.
Tanner Larsson 43:04
Absolutely. Well, Erik, I had a great time with you today. Really enjoyed everything you had to share. Guys. What I want you to do right now is make sure you’re subscribed to the podcast at BuildGrowScale.com/podcast. Erik, tell him about your podcast real quick.
Erik Huberman 43:18
Yeah, just Hawke Talk. We’re on Spotify, we’re on iTunes, etc. We basically interview people that are top of their game in their industries, their origin story, like how the hell you become Gary Vaynerchuk was on at Chris Burch, Rachel Zoe. We’ve done 50 something now. So tons of amazing people that have just basically, frankly, over the past seven years of meeting tons of incredible people, it’s finally like, okay, I’m gonna like sit down actually interview these people. So it’s all different fields. We have a couple of Olympians. We’ve had. Aaron Davis, Shawn Merriman, all sorts of different athletes as well, musicians. And it’s always been fascinating to me, like business aside from entrepreneurship. I think there’s a lot of great interviews around that. But just in general, how do people become these high achievers in their own field? My line at the beginning of every one of them is like, what do you just come out of the womb and like, start playing guitar or start throwing a football? Most of the time, the answer is no, once in a while, you get that person’s like, yeah, two years old, I pick up a basketball, whatever it is, but most of the time, it’s some crazy set of circumstances that end up in this thing, and it’s never consistent. That’s the cool thing about success in general. I have not seen anything consistently other than just going for it. Which is not really consistent at all, obviously, we have stories. So it’s been really fun because, for me, it’s selfish. It’s just like these people are incredible. I want to talk to them, why not record it.
Tanner Larsson 44:46
Why not record it? Yeah. So this is HawkeTalk.com, right?
Erik Huberman 44:50
Yeah, we have HawkeTalk.com, but you can just go to Spotify or iTunes and just type in Hawke Talk.
Tanner Larsson 44:56
And then if they want to find out about your main business online, Hawke Media we’re gonna go for that?
Erik Huberman 45:01
Tanner Larsson 45:03
That’s easy. That’s the.com guys. Awesome.
Erik Huberman 45:06
I think it’s HawkeTalkPodcast.com. I just realized I don’t think we got HawkeTalk.com but yeah.
Tanner Larsson 45:10
Hawke Talk Podcast, you could Google it or just look it up on your iTunes or Spotify or Stitcher or wherever you’re on. And then HawkeMedia.com is where you can find Erik and everything that they do with their outsourced CMO services and all of that I highly recommend you guys check them out. And again, if you’re not subscribed to the podcast yet make sure you do that. It’s at BuildGrowScale.com/podcast and with that, guys, we will see you in the next episode. See ya.
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