Advice Line with Jon Stein of Betterment

0:06 Hello and welcome to the advice line on how I built this lab. I'm Guy Raz. This is the place where we help try to solve your business challenges. Each week, I'm joined by a legendary founder, a former guest on the show. Who will help me try to help you. And if you're building something and you need advice, give us a call and you just might be the next guest on the show. Our number is 1-800-433-1298. Leave us a one-minute message that tells us about your business and the issues or questions that you'd like help with. Alright, let's get to it. Joining me this week is Betterment Founder and Chair John Stein. John, welcome back to the show. Thanks, guy. Great to be here with you. It's great to have you. You were first on the show, we told the story bettermen in 2018.

0:47 It's an awesome story, and we will drop a link to that episode in the show notes. So check it out if you missed it. The story basically started in two thousand eight, after the financial crisis, when you had been working for a firm and you kinda got laid off and had to start again. And basically you pioneered this business model. You wanted to to give ordinary investors access to the kind of advice that they would get from a financial advisor, but for a fraction of the fee. And so for for people who don't know about Betterment, you guys kinda simplify things by using algorithms mixed with with robo and human advisors. And I Think John I just checked. I think today you guys Betterman manages something like Almost sixty billion dollars in asset. That's right. Even even more than that today. And we manage money for

1:33 Over a million Americans. Wow. Which is quite an honor. Uh it's been amazing to see how it's grown. it's a really, really great offering service and and congrats. And you're not, of course, should mention you're not the CEO. You left in in twenty twenty, but you are still the chairman. And you are on the board of of directors. Can you tell us a little bit about About this.

1:56 New business that you you've been working on? Yeah, I've always uh uh loved the early stage and and solving problems, and I feel like I've stumbled into another really challenging one. I've noticed that Investing advice has improved a lot over the past decades since BetterMet launched. But how we find those advisors Really hasn't changed. It hasn't kept up.

2:20 Yeah. Today financial advisor discovery. still runs on referrals, not data. So somebody somebody in your church or your like a group of friends like will say hey I've got this guy. You exactly right. And it naturally limits the options that people get to see.

2:37 And there are great advisor options out there, but they're really hard to find. And with Zoom, you can now see anybody in the country. You can find somebody who's really simpatico with you, who understands your s your specific needs and goals. And so we're building the definitive directory of financial advisors. It just it sounds so obvious. I can't believe it doesn't already exist. And our goal with all of this is to help consumers make really informed, thoughtful choices. And to reward advisors who are doing great work.

3:05 Yeah. I mean especially at this moment where I think so many people have anxiety about what's gonna happen with the markets because it's been kind of an insane year and a lot of people Are worried that the markets are overvalued and that you know unemployment is going up and that this proliferation of AI is gonna uh maybe increase productivity, but also increase unemployment. And so there's a lot of concern. You're hearing a lot of noise. And I hear fear. in a lot of different ways. There's fear of choosing the wrong advisor, there's fear of what that advisor will do once you hire them. There's fear of what's going on in the world, the kind of macro fears that you're talking about. But Over the long term, uh, just staying invested in a diversified portfolio is really the best thing that folks like like you and me can can generally do.

3:54 Yeah. A c question about starting a business in a in sort of 'Cause you started this. during a downturn, right? You started this dur in the financial crisis period when a lot of people would were like, what? You want to start an investment for what are you doing? But actually in in many ways it was the right time to start because it was sort of the bottom of the market. And I hear from young people that that and you know, I'm hearing it again and again that i the idea of starting business seems scary right now.

4:23 There's so much uncertainty. But I wonder how you How you sort of think about starting a business during you know, a moment like this where w we just don't know what we're where we're heading.

4:35 You're exactly right. I I felt Really lucky. And we talked a lot about this on on the two thousand eighteen episode. to have started when we did. It was a time when maybe other firms weren't entering financial services and when the conditions were right. Right now.

4:51 I think there are opportunities for people to get started, especially when other people are are fearful. And I've been reading about, say, the period of nineteen twenty nine and the great stock market. We've all read we're all reading the book by Andrew. I read the Andrew R Sargens book. Yes. Uh really enjoyed it. And uh it was a good reminder that for The decade after Things uh were were shaky, but business was still moving. Thing people were still starting things, people had to. I've also been watching old V I just I I got a bunch of old

5:22 uh reels that I found at my grandmother's house converted to digital. And I've been watching this footage from the nineteen thirties. Family footage? Family footage that my great grandfather and great great grandmother were taking on these old sixteen millimeter reels, and it's black and white without sound. And The incredible thing is life goes on. There they are at Clam Bake in nineteen thirty five. Here they are, you know, on vacation in their car. And it's a good reminder that despite the headlines, life goes on. And people people continue to to find things to do, and there's still markets for for great ideas and great products. Yeah, for sure. All right, we'll cross our fingers that we don't have a c market crash soon. Why don't we take our first call and maybe we can give some advice that will be helpful and um could avoid some

6:08 Some anxiety. What do you think? All right, let's go. Let's uh welcome our first caller to the advice line. You're on with John Stein, founder of Betterment. Tell us your name, where you're calling from, and just a little bit about your business, please. Hi Guy, hi John, my name is Dan Chris. I'm calling from Longview, Washington. I'm the co founder of Heritic Girba.

6:26 We focus on clean, natural caffeine using yourba mate and guyusa. Right now we sell loosely blends with energy drinks, bottled fresh brewed yerba mate, and coffee shop concentrates in development. All right, cool. Welcome to the show, Dan. Heretic Yerba. So Yerba Mate, we did we did Guayaquil on this show. It's a pr pretty big national brand. It is a A tea mainly grown like Brazil and Argentina, right? Yeah. Yep, and then Guayusa is a cousin to your Mante also caffeinated holly plant.

6:54 Um out of Ecuador. Got it. And mainly selling direct to consumer? Yeah, direct consumer wholesale we're starting to get into grocery stores as well. One of our biggest issues was getting enough inventory, but we've We've since secured that. And then through markets and Yeah.

7:10 Alright, had it's a particularly interesting product because and Gwaiaki did a lot of work to educate American consumers on what your babate is because they had to spend like twenty years explaining it. So people a lot of people know what it is, but um how did you get into it? Yeah, they're actually the ones who kinda led me into it. I was working a lot of graveyard shifts. And drinking a lot of coffee. Uh air traffic controller for about fourteen years. Thank you for keeping me safe. Now I get to drink your mate and hang out. This is much much less stressful. Right, I bet. So you were doing that and drinking Caffeine, caffeinated beverages to stay with. Lots and lots of coffee and the acid in coffee was really affecting my stomach, and it took a couple years and finally the doctor was like, You have to stop drinking this. So

7:54 I stumbled upon it through Gwaiu Ki, their yellow energy drink hands, but I wanted to get away from all the sugar. So kinda went down the rabbit hole and started drinking Like actual Yerba Mate. And When I started giving to friends and family, a lot of them still thought it was a little too bitter, too earthy, so I found this guyusa and I started blending it into the the mate and it really smoothed it out quite a bit. And that's when friends and family started drinking and that's kinda when the light bulb went off.

8:20 And it has more caffeine than Than black tea, right? But not as much as coffee. Yeah, that's correct. So just under coffee, but more than tea. We just tell people it's like tea with a kick. Got it. And you started this in twenty twenty three, you said, right? Yeah, about twenty twenty three, we really started pushing it around twenty twenty four, the spring of twenty twenty four. And how are you how's business doing? Give us a sense of what what you guys expect to do in sales this year. It's good. Uh this year we'll probably do about sixty thousand, about double what we did last year, and expected to double that again next year.

8:50 Like our biggest thing was getting enough inventory in. We we Everything we'd import we would just sell. So it was uh tough to push to a grocery store if we couldn't keep up with stocks. But now we've gotten that kinda figured out. All right, and before we dive in further, uh what's your question for us? Yeah, uh we're at the point now where we have several strong growth paths opening up at once if different channels are Blue sleep business, the energy drinks, the we're working on a coffee shop concentrate.

9:16 Each one have different potential. But also need different expertise, capital, and timing. How do founders decide What to focus on first and how much to invest in each path while losing focus, slowing momentum, or spreading ourselves too thin. Yeah, all right, great questions. Um Johnson, I wanna bring you in. Any thoughts or questions for Dan before we tackle his question? I wanna say first then that I spent a semester in college living in South America and most of that time I was in Uruguay and I took up mate drinking there myself.

9:45 I brought home uh one of the Gourd Mate and So you're serious. You're like full on. I loved it. I loved it, you know, I I loved the The difference of it. I love the ritual of it. Exactly. There's some ritual around it. And what stands out to me, Dan, is that you're not just selling matta. You're really reframing the category for an American consumer, right? I'm checking out your site as as you're talking, and it looks like I like how you're talking about using a pour over or French press and things like this, like making it more accessible for this market. A hundred percent. That's exactly what we're trying to push into. We're trying to get the energy drink drinkers to drink more natural. And trying to mate drinkers to kinda think outside the box. If you had to

10:27 Pick one of these channels to be the engine and think about the others as just proof points. Which would you want to be the the real growth engine for you over the next twelve to eighteen months? I fully see the energy drink hands being the the big channel, but also the hardest to get into just given the drink industry. The coffee shop concentrates, we have a list of coffee shops that want Mate there. I think that'd probably be the easier of them. the actual physical leaf that we do now or loose leaf, like that's the core business, but that's the hardest out of all of them. So

10:59 Each one kinda has their own Pros and cons, if you will. Make sense. And do you feel like one of them is Teaching you more, maybe

11:09 Maybe some are faster to generate revenue and others you get faster learning. So do you do do they have differences in that way? Yeah, so that's the other thing, is like all of this pretty new to us, so we've been kinda like fumbling through this, but we've been learning a lot. I don't know how the the cans are gonna go. So we're still in the development of that been working with uh formulators. I don't know what the feedback from the customers is gonna be on that. And I feel like that's probably gonna be the least information that I could get,'cause it's gonna be sitting in a grocery store or a gas station. That's gonna be pretty Anonymous when people are buying it. The coffee shop.

11:42 I can really get a lot of feedback from baristas and copy people. And are loosely I'm there with them, I'm selling it to people. I get a lot of feedback on that. So I learn a lot from that. Yeah. You know, it strikes me that what you sell is a caffeine delivery beverage, right? It's a it's a it's like an alternative caffeine platform.

12:01 I mean you're calling it Yirba, not you don't even call it mate, right? I think because uh people who know about mate know that it requires like a gourd and there's a ritual and there's certain temperature, right? And and like A metal straw and I it seems like you're trying to make this really accessible, like just through it. Just make it an and exactly. We actually have like a saying on our side, your drink, your rules, just However you want to make it, we just tell people how you make tea or coffee. make your mate,'cause a lot of people come with that stigma of this like Oh, I have to do it this way. And it's like no, ninety percent of our customers don't do it that way. And i I'm looking at your bags and it says question your caffeine at the top, which I think is interesting, and I think you may want to lean into that just from a branding. I know your question's not all entirely about branding, but from a branding perspective, it seems like you can really lean into that harder. Like this is the

12:48 Go to non coffee. you know, alternative caffeine platform. Maybe it doesn't give you the same like jitteriness or acid. I love coffee, but you're right. I mean there's a lot of acidity. And so it seems like that's something you you want to lean into just from a branding perspective on your website, on your packaging, that it's a Let's say cleaner. I'm conflicted about this word cleaner, but if maybe that's the way you kind of frame it, a a sort of a cleaner way to get caffeine and a In a less aggressive way to get caffeine, something like that. I love hearing that'cause we've we've spent quite a bit of money to get that trademark. So that was another thing that we learned as well. So I go into that. Also the uh question your caffeine as well. Okay. Yeah.

13:29 Yeah. That's really what when people come to us, that's kinda what I'm Mm. It's like Get away from the energy drinks and all the sugar and start drinking those. This is so much better for you. Yeah.

13:39 I think to your question around channels, Dan, I've seen Firsthand at betterment. uh and and at other companies that I've advised over the years how can dilute focus, even if they're all promising and maybe are they're all things you want to do in the long run.

14:00 I think You can sequence things. You can pick a primary lane for this current next chapter or next six months. You you decide the the term. But as a rule of thumb I always advise founders to pick one thing and go deep on it personally for a while. So like you as the driving force behind this, like I want you to be hands on on the channel that you are most passionate about, either because you're growing the fastest or you're learning the most from that customer. And I heard a couple of interesting possible answers in there, and you're gonna know which one to really get your arms around. You don't have to try and be perfect at everything, right, on day one.

14:34 I I like the sequence idea. That's that's a good way to look at it. I think uh if we can have like trigger points when we can look into the next thing. Yeah, you know what's also interesting is your name is Heretic and it reminds me a little bit of Liquid Death, which w the one of the great successes of Liquid Death is the community that it built around the brand where you know you can you can sell your soul to the devil and in return you get a T shirt, right? So I you know if you're doing farmers markets, you really want to capture emails, right? You wanna get people to like like a if you have a club or something like that, to kind of create that community around the brand, which I think is Yeah.

15:13 Good idea. Dan, you have a strong DTC site from what I can see. It looks it looks great. The branding is strong. And you could think about your presence in stores, uh even if the economics aren't as what what you'd want them to be, is a little bit of a customer acquisition strategy and like getting it in front of people, and then think about the retention and the second order as coming through the the website. That's a good way to look at it. Right now the grocery store tastings. really help out too. I mean, a lot of people know of Yerba Mate, but they don't know what it is. So that's been nice, honestly. Like education, education, Gwai Key talked about it, and we're in the exact same boat still to this day. So it's been twenty plus years that they've been doing it.

15:54 There's still so many people have no idea what it is. So it's very interesting. And then down the road you want to think about about I I love this idea of a concentrate because I'm imagining you would just like uh pour a few drops or you know, a tablespoon into a cup of hot water. Is that is that how it's gonna work? Yeah. We've been working with a couple of different coffee shops to have Yerba Mate, but for somebody to brew it like a barista just takes too long. So we have a formulator working on uh uh Yerba Mate concentrate that would be treated just like a chai. So it'd be in a thirty two ounce cardboard. thing and if a brisa's making a mate latte or an ice mate or a hot mate, they can do it within seconds rather than four minutes. Really, really interesting idea.

16:35 John, final thoughts? I think you're right to to be excited long term about the energy drinks. I just I get excited thinking about that and how you could really define a category, but I wanna I wanna see you Funding that sounds expensive too to get that out there and distribute a a a packaged product like that. And I think you're being smart by finding near end ways to fund that through current sales. Yeah, for sure.

17:00 hit a hundred thousand in sales and then two hundred thousand sales and then um I love it. That's that's probably a good way to look at it and the energy drink. Category is definitely probably the hardest out of all of them. Yeah. But the Mate category, you've got I mean, you got something really interesting here and you got a great brand. So good luck, man. Good luck, Dan. Thanks so much for calling in Heritic Yerba is the brand. Keep us posted.

17:23 Thanks, guys. Thanks, John. Thank you. Look at you, I didn't know you you lived in Uruguay and like did the whole mate thing. Yeah. Yeah. Did you brush a gourd back? Richard Gord back with you to uh

17:34 I didn't use it as much as I thought it would you know, because it's such a part of the culture there. Uh it's something people do every day. Uh and here, you know. Uh the challenge is making it kinda fit in or adapting it for the our culture in America, right? But he seems to be on a good path. Yeah, for sure. Alright, we're gonna take a quick break, but we'll be right back with another collar and another round of advice. Stay with us, I'm Guy Roz, and you're listening to the advice line right here on how I built this lab. Welcome back to the advice line on how I built this lab. I'm Guy Raz and my guest today is John Stein, he's the founder of Betterment, and we are taking your calls and John, you ready for our next caller? Let's do it.

18:24 Alright, let's bring our next caller. Welcome to the advice line. You're on with John Stein. Tell us your name, where you're calling from, and just a line or two about your business, please. Hi Guy, hi John. Uh my name is Mike Smith. I own MTS woodworking in Salem, New Hampshire. I build custom handcrafted furniture. Working directly with homeowners.

18:42 Businesses and designers to turn their ideas into one of a kind pieces. If you can think it, we can make it. Awesome, Mike. Thanks for calling in. All right, so you have got a woodworking, you do like custom furniture and these are like tables and cabinets and desks and things like that. And you do everything yourself. Absolutely everything from buying material. to delivering it and designing it and building it and taking calls and

19:08 Emails from customers the whole bit. And you make this in like a w workshop that you rent? No, in my basement. Like in my In your basement. room in my basement. There's also a washer and dryer in the same room.

19:25 And I It's ridiculous some of the things that I've done. that I have no business doing in that space, but I'm doing what I can. with what I have. You get a lot of sawdust on your clothes that way. Yeah, I bet. I bet. And you have you been doing this like your whole adult life? Is this like would you were you a carpenter?

19:42 No, so I've had I like to say that I've had all the jobs. Um, right out of high school I joined the Air Force. I was a mechanic. After that I went Biblical studies, a youth ministry and music.

19:57 It was a youth pastor. I still am a youth pastor part time. Oh nice. But When

20:04 My second son was born. You get A big baby shower, all these gifts and all kind of stuff. So number two was born And

20:14 We're on our own, so we're at Babies R Us shopping for furniture and I see some of the stuff that's available and I was just You know, I I could make something better than this. For less. Built my sun addresser. And from there

20:30 just kinda did stuff for friends and family and they kept encouraging me and saying, Oh, you're really good at this and I I eventually started listening. And then in uh So in twenty twenty We found out that my third son was gonna be born. And we're like, Oh man, what are we gonna do? I'm like, I'm not paying for childcare, so I'm just gonna I just quit my job and started doing this full time.

20:51 Nice. So now you can you run the business out of your house and that's really start it out to save money on childcare. Okay. And and so what's your question for us? Well my question is is um right now uh my biggest constraint is space. If I had more space I'd be able to do things more efficiently and also Hire some employees. But

21:12 I need to Try to figure out if right now is the best time for me to take on debt. um in the form of expanding our home or buying a bigger home or maybe even taking out a commercial lease. Or if I should just wait a little bit. And focus on paying down our personal debt.

21:28 Got it. Okay, before I bring John in, give me a sense of what your sales were last year. Um, so last year it was a little lower. It was about sixty eight thousand dollars. But the year before that I was closer to eighty. It kinda varies from year to year, but that's that's including your cost suit. Okay, okay. John bring you in here. So basically Mike is looking to try to figure out whether to expand, right? Get a bigger sp si space to do more work. But of course there's a lot to consider there. So um Just thoughts, yeah, for for Mike.

22:00 Make my Family has a long history of making furniture in upstate New York. I had Great, great grandparents who are making chairs who started out just like you, uh making chairs in their basement or spare bedroom. Uh you know, back back Hundred and fifty years ago, and that became this company Harden Furniture, which at a time was the largest family owned uh furniture company in America. So I know it's a great category. It feels like you've already

22:26 Proven. Product market fit. You've got people who want to buy your your furniture But you're you're throughput constrained. So my questions for you, uh and I know you want to scale out of that that phase, my questions for you around

22:40 One, you know. Which parts of your work Truly require your hands. Your touch. versus what's just requires somebody competent.

22:51 Right. So I think one of the things that I definitely need to be a part of is the design and working with the customers. That's something that's essential for me to be able to continue doing. And then maybe some of the more

23:03 detail oriented things, but a lot of the larger processes like That take a lot of time, like sanding. Or Driving around to pick materials up. Or delivering um or even assembly.

23:17 Um can be I could train people to do that. I would say probably twenty to thirty percent of my time. Has to be me. That's that's great.

23:28 And if you had Let's say thirty percent more capacity tomorrow. You got a a slightly bigger workshop, you got somebody working for you part half time, right? And you increased your your capacity a bit. Would you have demand to fill that capacity immediately, or would it take some time to ramp into the demand? I don't think I'd have any trouble because I don't have any inventory.

23:51 And I don't advertise. So everything I sell. is already sold before I start making it. So like it's already paid for. So if I had someone working for me Along with

24:03 helping me with these tasks. I could make products That I could advertise. For example, like Adirondack chairs and outdoor libraries. I know they sell really well, but I don't have time to make them because I'm too busy with the custom stuff. So I would definitely have ability to grow.

24:19 If I had people working for me. And so the the the Adirondack chairs are th those your best sellers? Um they were at one time. I I sold a lot of outdoor li libraries, like people might know them as little free library, but I can't use that name. Oh I just call them. I know those little boxes, yeah. Yes, and I was selling them on Etsy.

24:39 And I actually was I sold like thirty thousand dollars in a year of those. And it just kept growing. But the problem I had with those was um Shipping them. because I sell completed ready to go products. So they're these huge boxes. And they and the shipping companies kept smashing them.

24:56 And then I have to make them again and it's just me, so I would get like way behind. So I kinda transitioned into the custom furniture market and That's been pretty good. I bet. I mean the challenge is is it's very hard to scale custom work, right? I mean you can scale repeatable work. So as you mentioned, the Adirondack chairs or the the free libraries or, you know, a a specific like table that people seem to be reordering and then you could kind of you could kinda lock in the the material and the dimensions and then you make like slight customizations, right? Like a a color or something like that. I I think that

25:30 To me and and John, you might have a different perspective, but I think you've got two options here, right? Which is You keep doing what you're doing and how you're doing it as a as a solo craftsman But you dramatically raise prices and you create

25:44 a longer waiting list. So You you're essentially like limiting the volume. You're increasing your margins. and your overall sales but you're doing less work and you're you're more in demand or

25:58 You do Fewer custom projects. And then you hire somebody or part time to h do the sanding and And they're more sort of standardized pieces with maybe some minor

26:11 customization like a stain or something like that. Uh and there you get you you know, you increase your revenue, but also you are building a more complex business. I think that those are your two best options f to especially to do it safely. I agree. The only reason I can't do anything like that right now is because I have no place to store anything.

26:34 So if I had more space I could like have inventory. I I get worried when I hear you talking about wanting to take on debt. To fund that growth. And I'll tell you the the story of hardened furniture doesn't end end happily, right? The the company doesn't exist anymore. My my family furniture company. Partly because they took on debt.

26:54 Partly it was due to foreign competition, um, but ultimately, you know, went went under. Uh they couldn't service the the debt payments. What I want for you is to find ways To expand Thoughtfully. So I'm thinking like what's the smallest expansion you could make that would meaningfully change your income? Because you want to grow this thing, that passion to grow it is clear. But how can you do that without increasing your risk profile too much? So guys write on with those those couple of ideas of like raise prices. I mean I would if you can raise prices, raise prices. That's the easiest change you can make. Uh and if you can build more standardized things, I like that. The challenge with standardized things is they're often

27:33 commoditized by others or copied by others if if they get good and if if you get big. So I understand wanting to keep it custom. Um And then can you rent space without a long term commitment. Can you just get a little can you use the corner of somebody else's shop to expand? Can you get people part time or or without a long term commitment to actually hire somebody and take on that burden? So how can you

27:55 Are there ways for you to grow? In the smallest way possible. Yeah. Yeah, that makes complete sense. The smallest way I can grow would be just to put uh an addition on our house. And um just have it.

28:07 be part of that. But doesn't require some debt, but um if it's done in a smart way it wouldn't be a huge impact, I don't think. Well is there another altern I mean, uh obviously you could save money because you can do the building that yourself. But is there a is there a sort of an alternative way? I I so I mean I rent office space. I've got uh a studio up in Sonoma County and I rent office space there very cheaply. It's a it's basically a corner of an existing office and I rent a sublease uh a corner of it, you know. I am sure in New Hampshire you could find an existing shop where you might be able to rent space from them. Or maybe there's like a shared maker space. Or

28:47 Maybe there's a short term commercial lease that you can find. Have you looked into something like that? I have looked at the maker spaces. Okay. Their biggest draw is all the tools that they have, but at this point I have everything that they have. And they're they don't Offer any

29:04 storage capacity. So if I take more than a single day to get a project done then it doesn't work, but I have not looked at Like subletting from an existing shop. So that's something I could pursue. Yeah. And I wouldn't be afraid to raise your prices, Mike. I mean th you know, we're living in a time where a skilled craftsperson is in high demand. And it's not you know, to get off the shelf stuff is one thing.

29:30 But to get somebody to build something custom That's different. And and I think that you you don't want to undersell your products. I mean if your margin w you you you mentioned you did about s uh sixty, seventy grand a year in sales. What are the m what's your net income after that? About half of that is profit. So I think you've gotta raise your prices because you're g uh building materials are getting more expensive, but also your time is expensive.

29:55 Mm-hmm. A general rule of thumb I that I'd I'd love to see is is Eighty percent. uh might be profit. Twenty percent might be cost of goods. Right. So if you think about

30:07 what you'd have to do to your prices to to get there. then you would have room to rent space and hire people and expand confidently. Thank you so much for your I always feel like I try to do it. Best by everyone, but I have to do what's right for our family as well.

30:23 You gotta do it, Mike. You gotta do it. Raise those prices. Mike Smith, MTS Woodworking. Good luck, man. Thanks for calling in. Thank you, Mike. Uh yeah, I mean well, you know, the other thing, John, is I'm in the Bay Area and if Mike's business was here in the Bay Area А міман.

30:42 For somebody who's skilled out here is so high, the wait lists are so long. This was the category that kept harden furniture going for a long time was the contract custom work. It's hard to compete on the commodity stuff, the Adirondack chairs and whatnot, because those are so cheap at you know, name your your retailer coming from abroad. Yeah. But with you know, the things are changing, right? Uh prices of goods from abroad are going up. So I'm optimistic that that Mike's gonna be able to raise his prices and find a path. Yeah. Alright, we're gonna take another quick break, but we'll be right back with another collar. Stay with us. I'm Guy Raz, and you're listening to the advice line right here on how I built this lab. Welcome back to the advice line on how I built this lab. I'm Guy Raz, and today I'm taking calls with Betterment Founder John Stein.

31:47 And let's bring in our next collar. I'm excited. Let's go. Alright, let's bring our next caller. Welcome to the advice line. You're on with John Stein, founder betterment. Tell us your name, where you're calling from, and just a line or two about your business, please. Hey guy, hey John, my name is Maggie McDonald. I'm calling from Atlanta, and I'm the founder of Floofball. We design soccer theme dog toys and accessories inspired by famous teams that fans know and love, but with a unique dog twist on all of our designs. Okay, cool. Welcome to the show, Maggie. So these are Dog.

32:18 Toys and accessories. So like T shirts and stuff like that. Yeah, so we we basically call them like soccer kits for dogs. So what they typically include is a plush soccer ball dog toy. and a matching bandana. So if if you are a fan of a a team that you love and you have your own jersey, well we think a dog should have their own kit as well. And so okay, alright. So these are like if you like a specific team. You can get

32:47 the logo and the brand like on the dog. Whatever accessory that you buy. Kind of. So we put a a unique dog twist on all of the designs. So one example that is one of our newest collections is inspired by Liverpool, but We actually make it called Liverpooch. So instead of their classic logo, we have a dog with wings. Yes, I see. So it's like and so'cause it's a Pegasus, I think, for Liverpool, but it's a dog. Yes. Uh like with a choo choice. And I guess you can do that because legally that's a it's like uh parody that's all protected. You don't you're not You're inspired by the designs, but you don't need their permission to do that.

33:27 Correct, which which is very popular in in the pet space, especially with toys. You go to a pet shop, you'll see you'll see that concept everywhere. I love it. How did this tell me about how this idea came about? Yeah, so my husband is from Argentina, and when Argentina won the world cup back in twenty twenty two, we were Of course, very excited, very special time for our family. And we were looking for something for our dog to celebrate with us. And We couldn't find anything on the market that existed quite like what we had in mind. And so my entrepreneurial spirit really started to kick in, and I spent about six to seven months trying to figure out how to build a dog toy, and I just brought it to life.

34:10 Myself. Nice. Okay, cool. I mean the pet category is j it's crazy. It just grows year over year. I've got two dogs, two cats. We spend a lot of money on our pets and and I have children too. I probably spend more of my Dogs. Um and so I totally get this. And tell me a little bit about w where you're selling right now and you know what you expect to do in sales this year. Yeah, yeah. So right now we're in um four different channels. We're in direct to consumer We're in wholesale, we're on chewy, and we're starting to explore some professional club partnerships as well. So this year we're expecting to end the year at seventy five K.

34:47 Awesome. And before we dive in further, what's your question for us? So as I just mentioned, we're in four different uh revenue channels, and I'm struggling as a young founder looking to scale this business, really where to put my focus for scaling. I initially thought that I really had to put most of my focus into our direct to consumer channel to really kind of build our brand and connect with our target persona. But Uh, direct to consumer marketing is becoming very expensive, and therefore it's become a lot slower to scale than I had originally uh anticipated. So with that in mind, I'm wondering if it's worth considering shifting my focus if I'm really looking to scale. All right, John Stein, uh really interesting idea. I love it. She's got liver pooch and uh Barkzill for Brazil and but with the same colors and a c uh Chelsea, not Chelsea but Chul C it's cool.

35:41 Uh cool really cool idea. Maggie, the the challenge that you're facing is uh is a familiar one uh in in consumer categories, this idea of D to C. You you built an amazing product. And I really do think this is great. I can already think of people I want to buy this for. I also think that being picked up by Chewy is real validation. Um that's that you know, that's not just a channel for you. I mean that says

36:04 That you're meeting a high bar. You're operationally sophisticated. It's it's a real trust builder. Um It is familiar this idea that you build this awesome thing and then you kinda cap out uh when people, you know, like the the early word of mouth sort of like has has a max. And I've I experienced this um at at Betterment where we were

36:25 You know, we just it we maybe hit a ceiling on retail. And we started going B to B. We started the four O and K product, we started started the advisory solutions product because we realized In the long term, over the long run, those B to B businesses are the way to get scale and then they feed you more retail customers as you go. And so I think you're doing a lot of the right things already. Getting into Chewy's great. And I I'd ask you questions like

36:48 Which channel is giving you the clearest signal right now that it you know, if you focused on it, customers would keep coming back and you could add scale to it. Yeah. Gosh. I do think it might be ours our standard wholesale.

37:04 We've started to gain quite a bit of traction in the back half of this year. And we've been seeing a lot more reorders than kind of when we initially started. So that's that's definitely been a good indication, I guess. These are gift shops mainly. Yeah, so we mostly it's it's gift shops, pet shops, and sports shops. We actually sell a lot to like Soccer specialty stores and they actually tend to be our highest.

37:28 Um converting wholesale retail customer and also our highest repeat rate as well. And Do you have a sense at the same time of which channels are giving you the most margin, at least directionally, like where where you're seeing profitability.

37:44 Yeah. So In theory it's our direct to consumer, but As as I mentioned in my my question, our marketing spend is just getting so high. Um but actually Maybe what I will say in terms of our best margins it right now it actually might be the professional club

38:01 partnerships. We just started production with our first club partnership. Um a couple months ago and what team is that? Um it's El Paso locomotive. It's a USL team in you guessed it, El Paso. Um

38:16 So th those margins have been Our best. Yeah. Do you do you see that club channel? Is that more of a credibility building channel for you that you have those partnerships or is it a kind of a scale marketing channel? Yeah, I kind of see it as a scale marketing channel. I guess one of my visions for the brand is a fan could walk into their favorite clubs. Team store and see

38:39 See fluff ball on the shelves. So I I definitely see it as a channel. To scale for sure. You know this market better than me. I would think a lot of those club stores do deals with the national organization and are getting inventory through them.

38:55 And that organization may want a cut at some point of what you're doing. Yeah, a absolutely. And You know, maybe the reason we saw better margins, I guess, with with El Paso is'cause they are lower league. So um maybe they they don't have as many kind of um hoop to jump. Um so yeah, I definitely get get what you're saying there for sure. I mean the other question I have is about Chewy, because Chewy is such a I mean, I I think it's the biggest distributor of of pet supplies, I think bigger than Amazon when it comes to pet supplies in the US. And and you're talking about, you know, I mean there's an incredibly trusted brand. I mean, are you able to um to work with them to to push it out to promote it on on their site.

39:39 Yeah, I guess that's that's kind of what I'm wondering right now, like where to put my resources'cause there's definitely the opportunity to work with the brand to do kind of on site promotion, things like that. Um kind of pay a little bit extra, I guess, to market on their own platform. But maybe, you know, now that we're talking about this and I'm thinking about it. Maybe that would uh result in a greater return on my marketing spend, my marketing budget than my direct to consumer marketing just simply because of their large platform. Yeah. I think you've hit on something there. I think thinking about Chewy as marketing is a really interesting way to think about it. And they They would love for you to think about it that way too. Totally. And you can build

40:23 uh customer loyalty, you're gonna be shipping boxes. You can put a QR code or a you know, you put your website in the box. So when people get it, they come and they come to you directly for the next order. But rather than trying to make you know full margin or full profits um on the on every Chewy order, you can take that on D to C and pay less to acquire your customers. Yeah, that's a great idea. And it honestly just gave me an idea where Maybe like on the packaging itself. even to the product that I send it chewy, like maybe I can make it

40:52 even more branded than it already is. to encourage the customer that buys to kind of connect back with the fluffal community in a way. So it's not just like oh it I bought this on Chewy and forget about it, but still a way to kind of grow the brand even though it's not direct to consumer. I love that. And and as a consumer, I'm sure it's not an eco friendly attitude, but I do love a well branded box. When I get something that's beautiful and like it really s it tells the story Of the brand. Um you know, I love that. I love a little postcard in there, uh you know, like um I see on your website there's this photo of you and your husband, you know, celebrating a a Soccer wind. That kind of stuff like builds connection with with your customer.

41:31 Yeah. Yeah, John, can I ask you a question? Um When when you mentioned you you kind of shifted your focus to B to B, how did you continue to connect with your end consumer and grow your brand while while doing that. That's a great question. I I'd say that

41:49 Focus doesn't mean exclusivity, so we still market Yeah. Uh that's a lot of the brand origin story. That's where we came from. It's and and we built around that customer. But our marketing dollars, there's only so many dollars we can spend efficiently in that channel. Uh and I think we max that out every year. And

42:10 Really? No The only way we can spend more and continue to grow faster is through B2B, where we have more of a repeatable sales motion and we can find more more ways. We can always hire more bodies and like call call on more businesses to sell more 401ks. So it's those kinds of scale channels that over time you have to look for. It doesn't mean giving up. It doesn't mean you only do one thing. But where are you putting your focus and your your your time is so valuable in this. And so I really want your leverage going towards those channels where you feel like you can scale them right now. Yeah, awesome. Thank you.

42:42 Yeah. And I mean, I've got a child who's a b believe it or not, is a fan of Everton. Um and like that's the team he picked. This the other team in Liverpool. And we actually went there a few years ago to see to see his matches and uh Yeah, I mean when you love a team, like you love everything. You buy their jerseys, you buy their stuff. I mean, this is a really, really cool idea. Congrats.

43:05 Thank you, thank you. Yeah, someone actually gave me the idea for for Everton fans to give them Liverpooch treats to feed their dogs. That's a great idea, right? Maggie McDonald, the brand is called Floofball. Uh good luck. Thanks for calling in. Thank you so much. Pleasure. Nice job. John, before I let you go, um a question for you, which is

43:30 Now that you have all of this experience, right, having built what you built and you're building now a new company and you've been involved in advising so many founders. Like if you could go back and say, Hey, you know, I have all this experience, John, I'm gonna give you some advice. What would you have wanted to know? Oh wow. Aren't we lucky to first of all to to be here giving advice to to folks who who are just starting out. Um and I

43:56 think that all the time. Um one thing that I have been shocked by as I've been advising more and more folks is just How hard it is. to find that early product market fit. And once you've got it, lean in. Um and and give yourself some grace that it's gonna take some time to find it. To me, that's the sort of unpredictable part of the journey.

44:17 Uh and uh and know that you know, you just gotta keep talking to customers. You gotta keep finding people like who are in the part of the the customer journey that you're working on, or in the part of the the In the product consideration set that you're looking at. Keep talking to him and uh and you'll figure it out. Yeah. Veteran founder John Stein. John, thanks so much, man. Thanks, guys. Always a pleasure. Uh and by the way, if you haven't heard John's original How I Built This Episode, you've got to go back and check it out. We'll put a link to it in the show notes, so uh make sure to check it out. And here's one of my favorite moments from that interview. I'd been up all night. I knew that I would have to deliver this amazing speech if I wanted betterment to be successful. And this is my baby, this is the thing that I've been working on for the last three years. And I had a Blackberry at the time and the Blackberry timestamps when you leave these notes. And I woke up in the morning and I saw every 30 minutes, all night long, I had been awake and like writing down edits to my presentation.

45:15 It was probably the most nerve wracking day of of my life. Hey, thanks so much for listening to the show this week. And by the way, please make sure to check out my newsletter. You can sign up for it for free at guyRaz.com or on Substack. And of course, if you are working on a business and you'd like to be on this show, send us a one-minute message that tells us a little bit about your business and the questions or issues that you're currently facing. Because we would love to try and help you solve them. You can send us a voice memo at hibt at id.wondery.com or call us at 1-800-433-125. 1298. Leave a message there and make sure to tell us how to reach you, and we'll put all of this information in the podcast description as well. This episode was produced by Nora Gill with music composed by Ropina Rablui. It was edited by John Isabella.

46:06 and our audio engineer was Quasey Lee. Our production staff also includes Alex Chung, Casey Herman, Carrie Thomson, Katherine Cypher, Ramel Wood, Sam Paulson, Neva Grant, and Elaine Coates. I'm Guy Roz, and you've been listening to the Advice Line. on how I built this lab.

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