Transcript [EN]: How To Get Rich Running An Ecom Business (3-Hour Masterclass)

You start a business so that the business works [music] for you. You don't work for the business. That's where founders get it wrong. >> That's Roman [music] Khan, one of the craftiest operators in the game today. >> If you're not making six figures in [music] distributions per month, I don't think you should be an ecom operator. You should just go get a [ __ ] job at Meta. >> At 32, [music] he was negative $3 million. By 40, he's paid himself 8 figures in cash, and he's never sold a company. Going from negative 3 million to positive [music] 13 million in distributions is the biggest turnaround story of a lifetime because of this approach. [music] This is the reason I was able to do it. At 32 [music] he had negative $3 million in net worth. Fast forward to 40. No exit. Eight figures in cash distributions in his bank. Stay to the end and we're going to give you the playbook. How to make eight figures in cash in your 30s. We're going to walk through it all. Um, I feel like most founders pray for the exit, but you kind of have this cash cow system that I want to walk into. Let's start very, very macro to start. What is kind of the big thesis and how you get cash into your personal bank account? >> Oh, fantastic. I think the underlying premise is that you start a business so that the business works for you. you don't work for the business. I think that's where founders get it wrong. They end up getting themselves a very bad job with a ton of liabilities and they don't engineer their businesses to actually work for them and to generate profits in a consistent recurring manner. >> What is that flywheel to get those profits into your bank account? >> Great question. I mean, I come from a lens of e-commerce, but it comes down to just managing your working capital. And in e-commerce, it's really simple. Your opex is somewhat predictable. Your marketing is somewhat predictable once you've matured. The biggest moving piece in this puzzle is cost of goods sold. So, what are you paying your suppliers? How frequently are you paying them? At what terms? And if you can dictate that, you can actually turn your supplier into your bank that will eventually finance your dividends and turn your IBIDA to actual monthly distributions. Guys, we're going to double click on probably the most boring topic that is going to make you the most amount of money, that is supply chain. I've done so much due diligence on you. You've actually changed my life as we transitioned our production. So, let's double click into production as a whole. What are those kind of four big things that you have to really understand and know to optimize your supply chain? >> Yeah, I think the four big things that you have to harness as an e-commerce founder is boom, bum, bill of material, which basically breaks down your skew cost by components, sub vendors, etc. We'll dive into that in a little bit. Number two is understanding when your COGS actually comes down by certain volume thresholds under those subcomponents. The third thing is payment terms. And the fourth is effectively taking all of the three first steps and turning your supplier into a bank. All right, so let's start with the bomb. I come from a single unit drop ship background. So, uh, bill of materials was not even in my world and I've started to execute it absolutely insane. So I guess just for pretend like we're a fifth grader right now. What is the bill of materials? >> Yeah, great. So let's say you're buying, you know, one of my businesses is called linear. We sell jewelry. You're buying like these solid gold rings. The gold ring has a diamond attached to it. A bill of material will actually allow you to see things from the point of view of the supplier. What does every single component that goes into this? What Elon Musk will call first principles. What is the cost of every single component that goes into that ring? What's the cost of the diamond? What's the cost of the gold? It's a very simplified, straightforward spreadsheet that has a bunch of different columns. So you have the cost of the actual ring broken down by components. So in this case with linear with this solitire ring for example, you would have the diamond, the gold, the actual labor cost that the factory incurs, the overhead of the factory, and then their the factory margin. And you get this broken down in excruciating detail with the sub vendors because the factory might not be making their own diamonds. We use lab grown diamonds. So you'll see the lab grown diamond supplier and the vendor. You'll see the gold sub vendor what they paid for the gold because gold prices move intraday. So when you're placing the PO, they're buying the gold. So you get this full breakdown of each component. >> The fluctuation in market cost on a per component perspective. So if it goes up or down, >> you don't hurt your production. and they don't hurt you and you can just do the best business possible. >> Exactly. So, uh, it gives you granular a granular point of view of what it takes to actually make your product. >> Guys, Roman was nice enough. We're going to pop up kind of a rough sketch of what his bomb looks like. And we actually have one right here. And down below, we're actually going to allow you to download one of them, which is absolutely gamechanging. I appreciate you for that. When I walk through kind of those five columns on there, we have the component and cost, the subsup supplier and source, the lead time, the country of origin, the payment terms, and then as you mentioned, also kind of the labor and overhead, which quite frankly, I'm going through it right now. That's kind of the weirdest and hardest one to ask. The first five are very easy, but it takes a lot of balls to like ask like how much are you paying your labor? But I am seeing that I'm building better rapport with them. I guess when you kind of look at all of this, what do you actually do with the bomb? Like walk us through kind of like a use case and we can look if you want at your actual bomb for your diamond supply, but what are you getting out of this and what are you doing with it? >> Yeah, so as you probably know, I buy companies for a living, e-commerce companies. So usually the first thing I do when I acquire an e-commerce company is I actually go to the founder and I'm like, "Hey, do you have a bill of material?" And in 99 out of a hundred cases in conversations in my M&A life the last 10 years, 99 out of a 100 founders will say that they do not have a bill of material. >> I'm one of those 99. >> Yeah, exactly. So I figured >> not anymore though. Not anymore. >> Not anymore. Good. Good. Good. So to to give you an idea, let's talk about like a fictional scenar not a fictional scenario actually. I bought a company in June 2024. They produced everything in India. It's in the clothing space, kids accessory space. And obviously the founder did not have a bill of material. So the first thing I do is actually go to the supplier and have a conversation. There's a regime change. Here I am Roman. I'm the new owner and I want to actually know how I can drive prices down while you also win. Mark the supplier, right? Like I want you to win. I want me to win. My plan, the only reason I bought this business is because I want to 5x it. That's the only reason I bought this business. So, you're going to get a [ __ ] ton of more volume. And for me to unlock this volume, I need to work with you very, very closely, Mark, to understand our cost of goods sold. I'm going to funnel all the savings into more marketing, which is going to grow more revenues for you and for me. >> You got to really enter action with boldness there. You got to paint a big big vision, right? >> Big picture. Like, don't think small. really make it clear that you want to go big and make it clear that you're not just trying to cut cost to put it in your pocket, but to better and further the relationship between Roman and Mark as partners. >> And you really just want to refuel invest back into the marketing. So he doesn't think about his kind of margin profile from a percentage perspective. He's thinking more from a dollar perspective. >> Exactly. So it's just like with the current volume, I'm happy with the pricing because we're making profits. That's the only reason I bought this business. However, for us to take to the next phase, for both of us to win, I need to grow volumes. And to do that, we need to cut costs everywhere. I'm going to cut cost of marketing and all these other things. Happy to show you my P&L and what I'm doing today, what's taken our business this far and what I'm going to do with the savings, but make it really clear and then it becomes less ballsy like what you were saying earlier. it becomes way more collaborative and the guard comes down and they understand where you're coming from and they also frankly understand that you're not the not a new kid on the block. You've been here before. You've done it before. I go through my track record but that's that's usually how I enter the conversation. I just want to say that. >> And you're giving them access to your P&L. >> Yeah. I'm giving them a clear understanding of the what my P&L is today in abstract terms. So it's like okay I'm spending 20 20% on COGS 40% on marketing and I'm making 10% profits whatever my opex takes the rest this is the default state at you know twice the size you know the company I bought in June 2024 TTM revenue was maybe $24 million Ibita was maybe TTM was 3 million >> standard point so it's just like you know I'm going to take this from 24 million to 75 million and then I'm going to sell the business again you know and I want to do this in the next 3 years, worst case 5 years, and we'll all be happy and sail off to the sunset. And I more importantly extrapolate what the P&L is going to look like at that default stage. Opics is going to stay the same in absolute terms. So instead of being, you know, double digits, it's going to be single digits because we're growing topline so much. Two is like D2C is going to grow more than Amazon and wholesale, yada yada yada. So I give them not only my P&L in basic terms, but I give them the vision of where we're going to go. Then I transpose that vision into units because that's what the factory cares about. I can talk all day about a cost and meta and blah blah blah. It's all [ __ ] for them. But it's more like, okay, we're buying a million units from you now. In 2030, I want to buy 10 million units from you. You know, that's where we want to go. And that gets them excited. So usually that gets the guard down. We'll then start about component cost. Before buying the business, frankly speaking, in all transparency, I've usually bought samples. I've had mapped out redundancy. I already know that I can source it cheaper. So >> any and all other competitors, you'll buy it, reverse engineer it. >> Yeah, we do a ton of ton of due diligence. Usually I've also talked to a bunch of competitors. By the time I've decided to buy this one particular business, it makes a sense in my scorecard where I can add the most value, taking it from 25 to 75 million. But I've talked to, you know, the owners of the incumbents that are running $200 $300 million a year, what their cost of goods sold is with a very comparable product. So I'm very educated when I go into this conversation >> and you know where the tailwinds are probably on a per specific piece of >> Exactly. So I know I have a very strong idea of where I can get COGS and I already have some redundancy and I have some bill of materials already lined up with a couple of other suppliers. So caveat that like it's not maybe so applicable to the audience right now but just want to give a strong sense of how I operate when it comes to bill of material. So by the time I get into the conversation with the factory I'm saying like I want to really understand how I'm going to break down you know the cost of this unit that I'm buying from you. And often they'll play ball. often they'll just play ball because all these big brands like Nike, Adidas, all these guys operate with a bill of material. The only people who are ignorant about bill of material are the people operating in D2C frankly speaking. So it's fairly fairly straightforward conversation. We'll then go down, we'll dissect and rip apart the product. Like we'll actually rip it apart. So in this particular case, we're saying selling clothing. We'll actually take it apart like zipper, button, like the lining within the clothing. We'll go through >> and also understand the raw materials like poly, nylon, cotton, etc. >> Correct. Correct. Exactly. And we'll understand exactly what components goes into the product. We'll actually test it to just make sure, okay, you're saying it's organic cotton. Let's make sure it's organic cotton. We check sourcility and then we'll design the bill of material together with the supplier. So, we'll get to this like form factor that we've kind of illustrated here with linear. So, we have this like gold ring and it's a really really straightforward conversation. I think I picked this example for the audience because it's the best [ __ ] example that's out there cuz people who follow me on X will see that I tweeted this like dogma and doomsday scenario for linear because gold prices went from like 2,000 to 5,000 and I was like, "Holy [ __ ] we're going to go out of business." >> Good for almost anyone but you. >> Yeah. [laughter] Exactly. Exactly. Exactly. So, I raised prices maybe six times in the last 18 months. We're actually growing faster than we ever have. I did not forecast this because we're taking share from the luxury brands because half of our customers are working women who have big paychecks, right? So, it's been really interesting, but I think it's a really [ __ ] great example because you have two tailwinds. One, you have gold prices going up, but at the same time, you have lab grown diamond prices. It's becoming huge. >> They're becoming they're going to be be priced as cheap as this glass, right? Like it's crazy. Like lab grown diamond prices are collapsing. So it's a really great example. And what I tried to do with this bill of material is show how cost changes over time when you have a bill of material methodology and your ability to squeeze margin, not by squeezing your supplier, but by just simply being dialed into the component costs. How much revenue do you need to be doing to have a boom? Just a couple million dollars, you think? Or what do you think is kind of >> I think if you're spending a million dollars on cost of goods sold per year, >> Yeah. >> it makes a ton of sense because you're wiring your supplier on average close to 100 grand a month. >> As little for some companies as little as like $2.5 million a year in top. >> Exactly. Exactly. It becomes a lot very interesting to have it then cuz what's going to happen is you're going to unlock parts in your brain that you never thought of of before. It's like take for example linear. Do I really need to sell things with 14K gold? Can I go down to 10K? Do I offer a 24K version? Is that something customers want? Can I price that $200 higher than the 14K version, but then make an absolute $100 more? Like these are things that founders don't think about unless they have a bill of material. So the biggest unlock is not necessarily cost savings when you're procuring 100 grand a month but the biggest unlock is like you start thinking about your product in a very different way right like so I mean I didn't coin first principles like Elon Musk but I think very much in first principles and I think this is taking the Elon methodology to your business on a subscale not SpaceX level but you're thinking about it every single component every single day and that's what I've been doing for the past 10 years >> to tie a bow on the bomb. So, do you have someone internally that let's just say that you have, you know, seven different pieces that go into it and then two or three kind of sub items underneath each. Are they just tracking kind of the open market? Like one time a month they're checking on, i.e. the cost of copper and cotton, etc. Is that what is that what it is? >> Yeah, excellent question. Super good question. So, linear will spend 12 million US this year on cost of goods sold. Next year, we'll probably spend more than 20 million US to give you a sense of size, right? So that's substantial, but it's a rounding error in the jewelry space, frankly speaking. Like we're small. We're like tiny potatoes in the jewelry space. It's a great example because all of the prices are googable. Like so lab grown diamond prices are googleable. >> Solid gold prices are googleable. >> Lab grown diamond prices are a little bit more opaque. But what the way we actually run it is that our supply chain team will actually get lab grown diamond quotes from six or seven sub vendors every single month. >> Wow. >> Currently we procure our diamonds and our gold through our main supplier that makes up 70% of our cogs. So we have some concentration there. But in 2026 is 2027 we will move most of the procurement of components directly under our umbrella and supply our factory with the components and that will shave off even more from the bill of material. We'll talk about a little bit later because we have other components of cost in the bill of material like financing cost etc. But when we talk to our suppliers, they would actually give us a more they they do a markup on these two things because they carry some level of inventory risk. Right? So these are googleable. If you're taking for example Raycon where we use different chipsets for different airbuds, what you want to do is you want to go to the main trade fairs for those chipsets. They happen twice a year for our industry. For different industries there are different, you know, trade fairs. and you want to go out and not only talk to your existing chipset supplier, but you want to find alternatives and potentially better options, right? So, you're always in the market looking for ways to improve your product and reduce cost. That's literally probably my biggest focus with iconic right now is just finding more vendors doing this boom and kind of driving down the cost of goods because kind of opex is opex marketing is like a little bit kind of you have it's kind of macro and you have to the platforms are going to dictate a bit so it's like cogs you can always drive lower and you always can find new people. Love it. Let's dive into price breaks. So why don't you give me kind of the big picture before we get more tactical like how do you look at price breaks and how do you communicate hey at x amount of units I want to get a price breaks like how do you communicate that with a vendor >> great question so let's take this example where with linear for example here so we have a strong understanding of what our setting polishing and QC costs like so you'll see the line item here number four from the top I guess like we're spending $42 basically on some level of labor. In this case, the key here is to understand it from the point of view of the supplier. How much of the dedicated linear assembly line is being utilized 100% a month? Like where are we seeing how can I help the supplier utilize their equipment even more? And where do they get economies of scale? >> And this is just squeezing costs where it cost them X to turn on the machine. you have, you know, the machine's on and no one's using it. Like that's where you find a leverage point. >> Yeah. The biggest component is actually in this equation is how much fixed labor do they have dedicated to our assembly line in this case. And often it's like okay, we have 30 workers dedicated to linear at like X amount of units per month, we get incredible utilization of this labor and we can pass on two $3 to you. And that's where the conversation kind of becomes. So when we enter a business, when we buy a business like Linear is a very mature business, it's been around for 10 years. When we when we bought this business in June 2024 that was doing 24 millions a year in revenue, we would go in and try to really understand what the utilization was for the factory for this particular thing. And when we were doing the bomb, we were asking on each line item, when do we get price breaks on the cotton? When do we get price breaks on the labor? When do we get price breaks on the zippers? What volumes do we need to achieve for this price to come down? >> And these aren't discounts. These are credits because you need to execute it and then if you hit the overage on the numbers, then you get the credit moving forward. >> Correct. And more importantly, the supplier gets credit from their sub vendor. So if you're buying zippers from YKK, like a really big Japanese zipper company, you're going to shave off a dollar on the zipper if you're buying >> economies of scale for them on their >> Exactly. So that gets passed on to you and that's why it's so key to have a bill of material with the sub vendors because to give you an idea for linear and for Raycon I literally have my head of production sit with the supplier and reconcile the invoices. So we'll actually sit down. Yeah, they're just an assembly. >> They're an assembler for us. So, I say I use the word factory because that is how the audience would describe their relationship because they do everything with their factory and they're just like hands off. For us, they're literally an assembler and a procurement arm. So, what I'm saying is like next year they're going to go from being an assembler and a procurement arm to only an assembler. And I'm going to internalize procurement because we're >> probably the ideal situation is for you to get the economies of scale on the kind of single material level and then just have someone because at that point it's almost just like a flat labor cost for them. Correct. >> Correct. In particular for linear, it's a very particular situation because >> if I go in and I own the components and the materials, in particular gold, as you can imagine, and we have another crazy rally where it goes from 5,000 to 10,000. I might be in a position where I'm like, hey, >> let's not chase nine figures next year. Let's just sell the gold cuz I'm dividend first. I'm not revenue profit first. Right. So >> that is a gangster move, right? >> Yeah. That's literally >> you're layering in like a level of gambling here where you buy into the materials, >> but you could flip. Wow, that is crazy. >> Yeah, because it's just like that that's the conclusion from this year. I got completely [ __ ] by this like gold price thing. I was just like, "Holy [ __ ] I can't believe we're growing." guys to read behind the lines there. If he buys the gold for 5k, it goes into 10k, he can just go double his money and then just go let's just say lab run. Yeah. Then you just go downstream for labon. Yeah. And like the delta that you'd make on the 2x. Wow. It's way more than selling a product. So if you think about it like you know >> in all transparency, right? Like linear does maybe 15% of eba margins right now. Yeah. >> We're working towards 20%. It's going to take some time. I spend more on cost of goods sold than I do in bottom line. Right? So if I think about it, gold actually >> that's the case for everyone, isn't it? >> Everyone it is for everyone. But COGS is I think believe it is at least 15% of my revenue like actual solid gold before it's transposed into this ring that we're looking at on the screen. >> Yeah. like 15% of my P&L because I have a bomb approach. It's not just like cost of goods sold. It's like I literally like I can do a little plus sign on my Excel and see >> how much every component is. Yeah. So >> because of that then again you know you were asking why would you do a bomb at like $1 million of COGS per year? It opens your brain to these opportunities. It opens your level of creativity. So when I look at linear, I'm like, okay, we're talking about like 15% going to, you know, 30% if prices of gold double again, unless I increase prices, which I would be forced to do, obviously. >> I should be intellectually honest, see if I can still move products at the higher price. And if I can't move products at the higher price at the same percentage, then I should just [ __ ] sell the gold and go on the beach and just retire, right? Like it's just like it's [ __ ] dumb chasing numbers for the sake of chasing numbers. And again, going to our first point as we were opening, the business is here to serve me, to make me rich, to make me money. And if gold prices go to 30,000, I'm out of business. I hate to say it, but I am, right? Like it's just that's that's the truth. You just can't I'll move some units, but nowhere near how much I'm doing right now, right? So, >> what happens if the factory doesn't budge on the price breaks? What do you recommend? you find another factory. >> That simple. >> That simple. So if the factory does not budge, it is your job to create redundancy. Now the question I have when I talk to people, my mentees and everyone who's in this situation where they don't have a factory budging because they entered the relationship at the incorrect vantage point, right? Like they went in, they gave the factory too much power. Let's put it that way. the factory is reluctant to say, "Hey, I'm making a 50% margin on your stuff." To give you a little bit of a point of view, just from industry standards, when you talk to the head of procurement at Nike, when you talk of to the head of procurement at Pandora, I would like go on LinkedIn, be like, "You were the former head of procurement at Pedora. I'll pay you $2,000 to speak to me for an hour. I need to pick your brain. How do you do it?" So when you look at the industry standard for like take for example jewelry the factories operate with anywhere between five to 9% ebida margins. >> Wow. >> Right. So often you know >> it's a shitty business. Jesus. >> It's a shitty business but you know you do huge revenue numbers right? Like my biggest factory does three 400 million a year and he lives a good life you know and like he actually made a lot of money off gold going up in price because he he did what he inspired me to be like hey I want to do procurement of components because I want to be in a position where I can just dump gold if it doesn't work in my favor to double click on that really quick let's just say it's 5 to 9% and obviously >> go reach out to someone in the space to understand is it six is it eight is it 12 in your space you're then doing this bum you're reverse engineering And then it's just like again, let's just say it's six to nine in your space. Be a nice guy while time's good. Give them nine. And you know what I'm saying? So it's really just you're playing that game within the range. >> Exactly. >> Wow. >> Great. So So, so you want to you want to first get the lay of the land and like you want to pump emails to all these head of procurements at these different companies and just get into detail there. If you if you're unable to do that because you have a product that's not really been sold before by an incumbent. And I have mentees who are in that position, you want to really you want to really talk to at least five or six other factories and you start the conversation like the way I coached you now in the beginning, right? Like, hey Mark, I have this great business. You know, I think it's going to grow by 5x next year. You sell the sky and the moon, right? like you're just like, I'm going to go balls through the walls with this. My current factory does not meet my quality standards. I'm looking for another factory and have a transparent bomb relationship with them. I need a bomb from you. They'll then say, "Can you send me their bomb?" It's like, "No, I want you to come up with one yourself and source your own components and come up with the sub vendors." And then you just send them this template that you're downloading from the link below. >> Amazing. just send them this and just be like, "Hey, I want it to this standard." >> As far as these price breaks go, um just last question on this is if there's a trade war or tariffs, >> I would imagine that you understand and know what's going on. Is are you being proactive and talking to your suppliers? Are they coming to you and what does that conversation look like? >> Yeah, great question. So for the jewelry business, we were not able to get our supplier to share the burden with us because gold prices, everything was just going against us. So I think a good example would be the business that bought in June 2024. Everything was produced in India. Trump like really went after India. It was just like singling out India after China. I don't know why, but he did. I thought him and Modi would be best buddies because Modi like went to the lawn before he got elected. So like I was just like oh this guy's like really sucking up to Trump but it didn't work out in that favor. So at one point you know India had 50% tires right like it's brutal. So we actually paused growth in the business last year because we were just like you know what we bought the lemon let's just like slow down. Let's keep it flat for a year and then let's grow this year. Now tariffs are gone. >> Such an important part in your relationship with your partner to do that. >> So important. And it's just okay to be like, "Hey, we need to take a we need to take a pause. We're not going to go balls to the walls now. We need to slow down because this is this is getting out of hand." So you have visibility on duties, tariffs, and the impact on the P&L of the supplier if you have a bill of material approach. This supplier in particular gave us a concession actually because he had huge margins because we just bought the business and he understood that we understood that he had inflated margins. you know, I think it was operating at like 25 to 35% margins, which is abnormal for textiles. It should be much lower. So, we got a small concession there. And then as soon as the duties went away, we started paying a little bit more for cost of goods sold. I've interviewed over 3, 9, and 10 figure operators. And the [music] one thing they are religious about is average order value. Every dollar on the order they just got is a dollar they don't need to spend on acquisition. The 30 seconds right after somebody buys is the most valuable real estate you can own. [music] And most brands do nothing with it. That's what Afterell does. The second someone buys, it shows them a simple one-click offer and it gets added to the order without re-entering your cart. It's a no code app that sits [music] after your checkout, so nothing about your existing flow changes. Trusted by 40,000 plus brands [music] like True Classic, Hexclad, David Protein, Frost Buddy, Ridge, and Tomms. They gave us a special offer just for open residency listeners. Link in the description below. Enjoy the episode. >> Let's go into three payment terms. Um why don't you give me the big picture here. I have a lot a lot of thoughts on this. >> I've seen you're a crazy person. I I saw on the internet net 180. We're going to get deeper down that that rabbit hole. I mean I've had people come to me with net 7. We're now at net 90. And it really helps you cross the chasm to kind of unlock other things. But let's hear like how do you look at payment terms and how do you look at it in in relation to your relationship with the manufacturer? >> Great question. Let's take like two steps back and understand why payment terms are so important. Right? So if you're running a e-commerce business, you have revenue coming in. Then you have cost of goods sold. Then you have marketing and then you have your overhead. Overhead you have a very strong grip on and it's very predictable and you know it's recurring unless people quit or you're you have to hire someone because you're bursting at the seams. But overhead is somewhat predictable. Marketing if you're a couple of years in it's also somewhat predictable, right? Like it's like it's going to range up and down by 20% month on month at worst case like up or down. Well, you have some level of confidence in it and you know if you dial back the levers, you're going to be able to control your advertising as a cost of sales to some extent. >> Be more efficient if you pull back too. >> Be more efficient. Exactly. The most important thing with marketing is that it's a variable daily cost. You're in full control of the free cash flow impact of your marketing. I can turn off marketing today if I want to with a click of a button. I can't cancel a PO with a click of a button. So the important thing with payment terms is to ensure that you widen your your margin of error. That's the most important thing when you're looking at payment terms >> in relation to what widen your float >> to to to increase your float and to have as much free cash flow as humanly possible in case you get things wrong. The metaphor I like to use is like if you drive a Ferrari at 300 m an hour, you're going to crash and burn at one point. You can't do that forever. You're not Lewis Hamilton, right? Like none of us are. Even Lewis Hamilton will crash. You know what I mean? Like every Formula 1 driver will at one point unfortunately hit another car or go into the wall. And the only thing you can really do is like you can dial back the speed and drive at a slower pace, but if you want to drive, if you want to be Lewis Hamilton, drive at 300 miles an hour, you need to make sure that the tank is fueled, right? Like you have to have the gasoline in the tank. >> And by tank is fueled, you just mean wider net terms. >> Exactly. wider net terms because your payment terms minus your production lead times is literally the float you have. So let's say it takes you 30 days to make something and get it into your warehouse in the US or your warehouse in China to drop ship it to your customers and you have 90-day payment terms. You have a 60-day float, right? Like it's 90 minus 30, that's 60. >> And most people probably have longer than 30 days to kind of get it in their 3PL. Correct. So you're saying probably people are working on like a negative on the net terms like it takes them >> 45 to 90 days to get the product and they're probably at net 30 net 45. >> Yeah. Because the little detail that people miss is that you get [ __ ] wrong in your procurement. Like take linear for example, you look at this specific ring we kept talking about the solitire ring. It comes in a bunch of [ __ ] sizes, right? It comes in a bunch of [ __ ] sizes. you have this size complexity and maybe the team will buy too many sevens instead of nines or whatever and you'll get that wrong. So your actual float is much lower when you think about carrying that inventory risk on your balance sheet. This is super important to understand because this is going to move the needle massively for your business massively. So there so on payment terms I just want to give that context of what influence it has on your business from that standpoint point of view that point of view. The second thing is like there are two ways to buy inventory. The first way that 99 out of 100 founders do >> guys he's calling us out again calling us out again. >> Actually it's a hundred of 100. I copied this of Quint actually Sid like I'm an adviser to Quinc the DC company but they the number one way people buy inventory is outright. So they'll go out, they'll go to the supplier and be like, "Hey, I'm buying, you know, a 100 solitire ranks. Give me net 90 terms." They'll take the PO, issue me an invoice. I'll pay the invoice next 90 days later. Inventory gets delivered. It sits on my balance sheet. So it's recorded on my balance sheet as like, you know, whatever the COGS is. Consignment on the other hand is literally the factory gives me the product. It ends up in my warehouse and I only pay for it when I sell it. >> Basically like a drop ship. >> Basically like a drop shipper. Yeah. So you're taking the beauty of a drop shipping business model but you're taking it on your custom product and you're making that the default. So consignment is the true holy grail of payment terms. And we have it at linear. We don't have it for the other businesses. on Raycon we actually because you're eliminating that delta now in the float correct which allows you to take more distributions >> correct and linear is fairly easy because the supplier knows that the remelting value is great because it's gold so obviously it's it was a fairly straightforward conversation number two is like we fulfill all our orders in the US from the US but all the other countries we f from fulfill from Hong Kong so it is fairly easy for them to do a recourse and claim their inventory back. So, it's a very unique situation. At Raycom, we do something very similar to consignment terms. So, just because the factory needs an invoice that says net 90, the invoice actually says net 90, but the actual terms we have at our suppliers, our consignment. We pay them every week on Fridays. We drip them cash all the time, but we're never if we make an inventory mistake where we buy too much inventory, we're never really on the hook. >> Wow. Yeah. And this all goes back to the bomb because you understand and know how they're financed on their side to see where the flexibility is. Yeah. >> And you could just go to them and be like this is an absolute >> no-brainer. Like you can do it's it's black and white like you can or you can't do this if you have insight into all of their finances on their side. >> That's right. So that's like where we bring ourselves to the last line item in the balm, right? Like we have inbound, logistics, insurance and compliance. I really simplified it. So in our bombs, we might have 20 lines, but what we will have is a separate line for insurance, credit insurance, and we'll have a separate line for financing cost. So basically the way that it works for the factory is take our jewelry factory. They supply more than 100 brands. They do 300 million a year. Probably like the top 10. It's like probably an 8020 for them. I don't remember off the top of my head but they actually share the breakdown of revenue by customer. What they'll do is they'll go to a firm like Sinoshure. Sinosure is a stateowned enterprise in China quasi stateowned or they'll go to Alian or one of these credit insurance firms and they'll pay a lump sum like a one-off lump sum like 100,000 US a year, 200,000 US a year, 1 million US a year as credit insurance. So that means that if let's say more than 20% of revenue defaults because of some systematic risk, the insurance company will bail out the factory so that they don't go bankrupt, right? Like so so if they don't hit the numbers, even though it is on them, it almost isn't on them. So there's there's kind of this arbitrage percentage that gives them a little bit more peace of mind. So it's like consignment, but there's a second layer of insurance behind it. Yeah, that is actually to be honest why China has grown so quickly in the last 10 to 20 30 years is because the government has really backed small businesses and incentivize them to export the [ __ ] out of the country, right? Like so >> what type of percent is this insurance? >> The insurance is an absolute fee. They'll then take that insurance and be like, "Hey, look at this piece of paper." They'll then grade their clients from A, B, and C. So, this insurance company will send you a some of the audience will actually have experienced this when they get payment terms. You'll get a letter from this credit diligence firm. Like some there's so many of them I can't remember the names. They'll send you a letter and be like, "Hey, Mark, share all the numbers of linear like I want the management accounts, I want the P&L, I want everything on you." They'll also check whether you or not you've had any bankruptcies in the past. If linear has left some bills unpaid, if you've gone to court, they'll do all this diligence. >> Full on audit, >> full-on audit, very simplified audit, doesn't take you much time. And then they'll be we'll anonymize this and not share it with the factory, but we'll act as this independent audit firm that will do this audit for the credit insurance company. The credit insurance company will then grade linear A, B, or C. Like a great grade like this is like the Nike, Pandora, super safe. Yeah, it's like exactly great. And then B and C. I was graded C for linear because I had a supplier dispute like 9 years ago or something or 8 years ago with this supplier who tried to [ __ ] me. I was like not very sophisticated back then. It's a story for another time. But to give an idea, I had to see and I had to clean up my books. I had to work with the credit this audit firm to prove that I actually pay my bills on time. Blah blah blah. So you get rated, the factory will then take your purchase order, this audit from the credit insurance firm and then go to any bank, any bank like in China, the popular options are Bank of China, Agriculture Bank of China, HSBC, whoever it is. >> And these credit insurance companies, you have to be doing business in Hong Kong to get it. >> Yes. Uh, not really. You can be in the US, but you know, it's very favorable if you're subscale to be in Hong Kong, but you can be in the US. It's not a big issue. They'll go to the banks and be like, "Hey, I got linear hair rated C. You know, we got rejected the first time around until we cleared up a record." So, for simplicity, let's say we were rated A. They'll go to the bank and be like, "This is rated A. They're spending $12 million a year with me. What would you buy my invoices for?" So, the purchase order automatically turns into an invoice. They'll take that invoice, go to HSBC, and be like, "Hey, HSBC will be like, "Hey, we'll pay you 99 cents on the dollar for this invoice you'll get 99 cents right away and we'll float the 90 days or 120 days or 180 days whatever it is and then you'll calculate the APR based on that 1% like one one cent that they take usually the factory like for linear in particular the China now we produce everything in Thailand because of the trade war we moved everything to Thailand but I recall I don't recall the Thailand factoring cost it's higher than China but in China they were paying 6% roughly for that financing cost per year. So on 12 million, let's keep it around like five 5% like 600k in financing cost. Let's say I was buying 100,000 units a year just to keep it simple. That's $6 a unit, you know, and then that would appear in the bill of material. Like Roman, we're paying $6 now. If you procure 20 20 million, this will come down to five or four. So that makes it really easy to have a conversation because it's just like let's share the burden. >> What if I pay half and you pay half, right? You have a >> you're getting what you want because you're floating bigger net terms which allow you to take more distributions. >> Exactly. So we have this conversation. It's like you know listen so when I went to my factory cuz jewelry is a new business for us, right? Like so it's going gang busters now but we were just like we're really constrained by cash flow. We want to grow this thing. I need your help. I'm going to take my IVID from 15% last year we did that to like 5%. Just to get more volumes because we all win. Look at this bill of material. We're going to all crush it until gold prices went up. But like that was the mentality. And we were able to just have a transparent conversation. And I paid for 80% of the financing cost. They paid for 20%. We built the relationship. Now we're doing really well. They're happy to go over to consignment. >> So in short, the supplier becomes the bank. >> Yeah. Is what we're doing. >> Yeah. And then there's a negotiation on if or how much depending on how much leverage you have, what that split is. You're saying it's 8020, it could be 50/50. >> And it really depends on the industry. It really depends on the margin. And does it [ __ ] matter to be honest? Let's be real. Like I see all these like crack addicts in DTC that are taking wayfire loans at like [ __ ] and they can't calculate the interest. They can't calculate the interest cuz they don't understand. >> Sound like the wayfire they all went out, right? No, they I think WFlower is still around, but like they're like >> those are shark loans. >> Yeah, they're shark loans, right? Like people don't understand that if you grow faster, your cost of capital goes up. So you might sign a piece of paper that says 10%. On today's nominal growth terms, but if you grow too quickly, it turns into 30 40%. Right? Like so it's very you're paying crazy crazy cost. So as a percentage of total revenue, my interest cost to the factory is nothing. It's a rounding error. Like even if it's 6% of COGS, if COGS is 20% revenue, you know, it's it's a it's like low single digits that you're paying in interest cost to get a dividend first business. So how are you looking at kind of now that the supplier is your bank, how are you kind of looking at like the vectors of cash flow? It's payment terms and then you're just looking at how can I get the most amount of money in. It's basically just how can I squeeze the most amount of cash out of the business. Correct. >> Yeah. Correct. So I think like what I obsess about now more than ever is let's keep the numbers really simple. Let's say I produce $1 million in profits per month like profits. So 70 out of a 100 founders that I talk to in the M&A pipeline don't even have management accounts, right? Like they don't have their accountant. At the 15th of the subsequent month, you have to close off the books for the previous month. It's religion for us. It's an unbreakable ritual. Like on the 15th of the month, I want to see the previous month's books closed. Like I want to know how much in revenue I had, how much in COGS both by cash and acrruel, how much opex, how much profits I had according to the management accounts. Let's say last month I had $1 million in profits. What I care about is how much of that 1 million can I actually dividend out on the 15th. There are two components that goes into that like one is how much is of of that is actually free cash flow in the management accounts like how much cash is actually generating because IBIDA is not cash. You can have IBIDA but it doesn't actually transpose into cash in the bank. >> So we'll talk about that in a little bit >> because that's on like that's the float. The EVA could be the flow versus actual money in the bank. >> Exactly. >> Yeah. >> Two is, you know, what do I need the next month, the month after, the month after that in working capital to fund more growth. And once you have a very strong understanding of these two things, you're going to be able to take out dividends every single month from your business. The most important thing that comes out of component number two which is basically how much working capital do I need to let's say for linear we're going to grow like 80% next year like how much working capital do I actually need to keep in the bank account at the end of this year to fund that 80% growth >> which through the whole exercise we did you have the most favorable terms and the largest float you're going to need zero >> you're paying them yeah you need like basically zero >> I need zero I need zero I literally need zero >> so what percent of let's just say you had million dollar in cash flow from a percentage perspective. Obviously, we're we're white labeling the $1 million. Yeah. >> How much are you taking off the table? >> The evolution has been really interesting. Uh >> range, man. What's the range looking at? >> Right now, we're projecting 65 to 75% for this year. >> Oh my god. So, every single month, 65 to 75% of free cash flow. >> Yes. >> You are taking out. >> Yes. >> For guys out there listening to, he's an extra gangster. No capital gains in Hong Kong. What is it called? What's the tax that you pay? And it's like >> uh 16.5%. So you should just move to Hong Kong. That's that's lever number two, >> you know. Yeah. So I think >> optimizing for that is going to allow you to live a very rich life, right? Like so >> one of my mantras is like you open with it, right? Like so when I was 32, I was negative $3 million in net worth. I was an idiot. Like I'd taken on too much inventory risk. I was like growth, growth, growth, growth, growth at all cost because I just left this like enormously successful company as an executive. I was working at Rocket Internet. We raised $700 million, end up selling that business to Alibaba for 2.1 billion 2 years after I left. I didn't have any meaningful equity in it. But I came from a culture where growth would come at any cost. So I applied that to linear. It was the classic founder mistake, right? like single leg table, 10 creatives that were pumping in meta, only meta as a working channel. And I was like, let's go gang busters with no payment terms and buy a bunch of inventory. Became a titanic situation, right? Like, so I went from like negative $3 million of net worth because I had to take on personal loans to just like float us because there was no way Flyier back then and there was no like Shopify Capital. There was not there's like, you know, I'm a dinosaur, but there was no like big ecom lenders back then. So, I was staying on these personal loans to to get me out of it to basically in my 30s, the remaining eight years, I just turned 40 last year. I was just doing the math. I took took out $13 million in distributions from my companies in total, right? Like not astronomical numbers, but incredible numbers. I parlayed that into investing in the public markets and turned into much more. We'll talk about that later. But like being in a position from going from negative 3 million to positive 13 million in three free distributions while at the same time using my own balance sheet to buy another three companies is like the biggest turnaround story of a lifetime because of this bill of material approach. It's all rooted in this. This is the reason I was able to do it. >> This is so wild, man. I mean they always just, you know, I lived it in the beginning. It was like leaders eat last and like I would randomly take kind of big chunks out because I was like, "Hey, we have x million in the bank account. Let me just take out a a chunk of money." It's the complete wrong way of thinking. What percent of founders do you think have this distribution first mentality? >> It's interesting. I probably talked to 1,500 to 2,000 founders over the course of the last 5 years. like talking meaning actually got to see their P&Ls for their DTC business. I'd say maybe 10% of them. It's harder than I thought actually. >> It is. >> It's really interesting when you go through the bell curve because >> of those 1500 companies, I'd say a thousand of them run with sub real 7% 10% EVA margin. sub sub sub 10% Ebida margins, right? >> Ebida, too. We're not talking about cash. They're not doing all the other things >> and they're stressed and they live a horrible life and they would be better. What I what I've tweeted about before is like you're just a glorified category manager for Meta unless you're doing like Raycon level numbers like linear and now with meta that with the with the invoicing I lost all my MX. >> Yeah, exactly. >> I lost all my MX. That really [ __ ] hurt. They put a gun to the head. I kept getting that email like damn >> crazy. >> So like I think like >> you know you you think about okay Raycon is not that business because it's like an enormous business. Linear right now I tell the team all the time we're just category managers for Meta. That's what we are guys. Let's be real. Let's be real. Like we have a really cool job. We work for Zuckerberg and we're running that little store in the world of Meta Flea Market and our little store is doing really well, but we work for the man. We work for the man. Let's be [ __ ] intellectually honest about this. We work for Zuck. Until we have 100 retail stores, until we have like some level of an organic engine working for this brand, we are working for Meta. And let's be completely intellectually honest about that, right? Like so >> he is dead serious looking me in the eyes. >> Yeah. It's like that's that's the business we're in. So once you understand that and you really incorporate that into your thinking, you're like, "Okay, I need to start taking out dividends." So the thousand are running at sub 10%. Maybe two 300 are running at like 10 to 15%. And then you have a couple of hundred 150 people who are running at like 20%, 25%. >> Like don't really have that shitty of a business right now. You're actually through this whole entire process and going through through this whole entire bombing. >> That's awesome. >> It's actually better than I thought. >> Yeah. >> Those are those are tough numbers. Sub 7%. That is >> Exactly. It's crazy. It's crazy. They're growing, but at what ends, right? Like it takes again the Ferrari car metaphor. You're Lewis Hamilton. It takes one Trump tweet to put you out of business. It takes one algo change on Meta to put you out of business. It takes one [ __ ] freight [ __ ] to take take you out, right? like you're one wheel puncture away from dying. You know, >> it's tough here, guys. Guys, we're going to get into the whole entire DTOC mix, marketing mix with Roman a little bit later. I want to tie a bow in this. >> Yeah. Absolute master class on this whole entire supply chain optimization for people out there listening that are doing 5, 10, 50, $100 million. What would be that first step for them to take to kind of do this? Is it just the bum? Is that that that's really what it is, right? >> I really think it is. >> Just all things lead to that because that kind of opens up. It's a foundational layer in the pyramid. If you have the bomb at the bottom to get to this like dividend euphoria, you know, touching the skies, touching the clouds of dividends and cash, >> you have to see the passion in his eyes and [laughter] the euphoria. >> Uh, it starts with a bill of material. It's the most foundational thing you have if you're selling physical goods >> by far. So much free game there. Unbelievable. This episode is brought to you by Momentous. Most Americans today are walking around deficient in omega-3, vitamin D, and magnesium. Three of the most foundational things in energy, recovery, and sleep. And even if you're already taking supplements, the industry is so loosely regulated that you really don't know what you're taking. I know the team behind Momentous personally, and that's why I trust it. Every [music] product, every batch is third-party tested for NSF, certified for sport. So, what's on the label is exactly what's in the bottle. It's why over 200 pro sports teams trust them [music] and why my whole stack is theirs. Omega-3 vitamin D, magnesium, and creatine every single day. If you're putting real effort into your health, you want to know that it's actually working. Go to livemus.com. Use code open residency for up to 35% off your first order. Quick break. A worldclass bill of materials strategy took Roman from -3 million to 8 figures in distributions. This is part of a supply chain playbook and he gave us the actual template. It's free in the top of the description box below along with everything else he mentions in the episode today. Go grab it. Enjoy the episode. >> I had never even heard of a dividend recap. You're really putting me on game. Let's talk about that. What is a dividend recap? More free game, guys. What is it? >> Good. So, I think for dividend like let's take again I like taking a couple of steps back talking about how you actually make money from your business. So, think about it as a quadrant. You have free cash flow and then you have enterprise value. Okay, so the classic like drop shipping business from AliExpress has no enterprise value. We can agree on that, right? Like they're just literally printing money. One time it will die. Just a free cash flow game, right? >> My thesis is not many people have enterprise value, period. >> Agreed. 100% 100% online. >> Guys, you're probably not a brand. I'm just going to throw that out there. We talked about that in the past. >> Exactly. So bottom right is enterprise value. You're like a rich like Sean or you're you're Iate, right? Like you're like some big off the bat you're crushing it. You're doing multi- nine figures. You're the real deal and there's a buyer for you like Grunts or whatever. Now in that quadrant you have many ways of making money. So we talked about free cash flow which is basically hone in your bill material, hone in your management accounts, hone in your free cash flow and take that out every single month. The other lever you have is a dividend recap. So dividend recap is basically taking a loan as a business. So let's say linear is a CC corp. You take a loan as linear. Maybe three times IBIDA. Let's say IBIDA is uh you have to have at least $2 million of IBIDA for a dividend recap to be a realistic lever to pull. Let's say let's say you have $2 million of IBIDA. You can go to a bank and be like, "Hey, I've had $2 million of IBIDA consistently for the past five years. Here are my audited financials." >> What's that minimum threshold? You said 2 million in IBIDA. How long? Three years. >> Three years. >> Years. Okay. >> Three years. Last year has to be audited. >> Yep. >> Then you go to the bank and you borrow, let's say, three times I so $6 million. That debt now goes on the books. So it's a liability that sits on linear, not on mark, but on linear. No personal guarantee and the purpose of this cash is to dividend it out to you as an owner. That's a >> radical transparency with the bank and what you're doing there. >> Yeah. Is it's a it's an instrument called the dividend recap. It's a really well-known instrument that DTC founders don't know, but usually private equities will pull this all the time. What's attractive about the business is like take for example the business bought in June 2024. It had no debt on the books. So, I could literally go in. I wired the founder low eight figures. Um, >> wow. I'm already thinking in my head what you did. Holy. >> Yeah. Yeah. I could immediately go in and take out a loan and get get paid back and like literally put down zero on the business. You know what I mean? You can leverage to the tits and like take out >> on his P&L. >> On his P&L. Yeah, you could do that. We didn't do that because we just he rolled over some equity. >> We don't really need the cash, frankly speaking. But if I wanted to, I could have just taken out all the cash as a loan against that business and the liability would have sat on that business. And this is what private equity guys do. They get the business almost for free by using leverage. >> And you're basically saying, so on that loan, let's just say, correct me if I'm wrong, like 6 to 10%, 6 to 11% like 8 to 11% whatever it is. And then you're like, how much money can I make if I had that $6 million? A little bit of a gambling game. How much can I make on that? and then have let's just say it's 10% on the interest knowing that your free cash flow or IBIDA is more than 10% that you can just pay off yeah principles. So let me talk about tangible examples so it's like real for the audience. In the current market state with where interest rates are today and where e-commerce is today, you would be able to do a dividend recap at 12 to 14% interest effectively effective. [snorts] Interest rates and term sheet might say 10% but then there's a breakout fee. There's like admin costs. There's all this [ __ ] that comes with it. I'm also going to add the cost of doing a quality of earnings. all the maintenance cost that goes into maintaining this loan. Let's say effectively you're paying anywhere between 12 to 14%. If you're doing $10 million of IBITA, which some of my businesses do, you can probably get that down to like 9 to 11%. No warrants, no equity, just a pure loan on the business. Now, there are a couple of things you have to think about when you go through this intellectual exercise. Number one, it is extremely [ __ ] tax efficient because ITA is before interest in taxes, right? So that interest you pay, >> wow, >> lowers your profits, which lowers your taxes. So let's say it's 10% that you pay, you probably effectively are lowering your taxes by at least like you're 30%. >> Yeah. So the interest rate you're actually paying is closer to 6 7 8%. If you >> if you blend the blended average, >> if you account for the taxes, >> so founders get really emotionally attached to it, but if you think about it, it's [ __ ] cheap. It is so [ __ ] cheap and not a personal guarantee. >> Not a personal guarantee. Now often the caveat is the caveat is they'll only do it when a new equity partner comes in. So it's hard to do like I'm able to do it for linear like I own 100% of linear. I will be able to do it like next year we'll do probably 10 million plus. will probably do anywhere between $10 to $15 million of EIA and I will be able to do a venture back like you know a dividend recap on that business because it has 10 years of history but usually and often in many cases they want to see new equity getting injected because it all comes down to incentives like it's like is the market just going to shut down the business and run away with the money blah blah blah so I'm giving you the best case scenario there might be a recourse and personal guarantee on parts of the money, but you anyways have it as the [ __ ] owner. So, just take the [ __ ] money and invest it somewhere else. Buy your wife a house. Take some chips off the table. Don't be a degenerate because it's a great great lever to pull in this quadrant of free cash flow, enterprise value, right? >> How does a recap blow up? >> Recap blows up when you have something called there's covenants in the agreement. So you have something called an interest expense ratio. So let's say let's keep the numbers simple. Let me try to normalize them. You're taking on a $10 million loan. You pay 10% interest. That's $1 million a year. And your business generates 3.33 million in earnings per year, right? You know, you levered up three times. You taken out that loan. What the bank wants to see is that you at least cover your interest expense two times over. So, let's say you can't dip below $2 million in profits. If it dip below $2 million in profits, you're in breach. >> You're in breach and they can claw your business. >> And that's a negotiation on that multiple. >> Correct. >> But you're saying ballpark is usually two. >> Let's say two. Like for the simplicity of it, it can go all the way down to 1.5. Some of these like huge guys start doing 1.5. Like super low numbers. It's crazy. But yeah, but they have a basket of companies and they borrow billions of dollars. So don't use that as a benchmark. >> All right. So here's the real question. Optimizing the supply chain profits and distribution first. Where does the money go to have the bank account that you have that he told me off the record and it is looking good. So where where is the cash where is the cash going? >> Yeah, I think you should do as I say, not do as I do. Like people financial advice. >> Yeah, exactly. It's not financial advice and I'm a completely degenerate that the biggest com I would say is like >> I think the biggest thing just to interrupt you really quick is >> you more so I would say we've done I think this is we've done I 34 episodes are out we've done 42 you are of probably three or four people that you made me think the most and like the bomb was one thing and this what we're about to get in to right now at the very least guys don't take the advice >> but just think about it so >> continue the the biggest disclaimer I want to make is that the distributions I make for my companies per month now cover my annual burn. Right? So every year I make more in distributions than I spend as a family over the next decade. So that allows me to think about my distributions in a very high risk manner. So my investment strategy is very like yolo like if you read about it from afar there's a lot of thought going into it believe it or not. So one big caveat is >> you're covering you're not so you can take some I can take some home runs with it right like so >> that's the reason I can do it. Um, there are two books I really want to recommend to the audience that changed my life that I bought when I was going bankrupt at 32, like eight years ago or nine years ago, whenever it was. I bought these two books. Actually, one I bought, the other one I discovered at a book swapping corner in my neighborhood. It was like, God send it to me. Book number one is Profit First. I don't think it's very well written, but it's a book about how your business is a casheing monster and how to turn around and make it a dividend making monster. So, it's like profit equates to sales minus cost instead of just thinking grow grow. It's about profit first. So, read that book. I think it's going to really help you understand if you're in that 1,000 companies out of 1,500. If you're in that bucket and you're not really >> making any money, >> yeah, if you're not making six figures in distributions per month, I don't think you should be an ecom operator. You should just go get a [ __ ] job at Meta. I mean, they're firing everyone, but you know, at some company, maybe OpenAI or Anthropic, but you know, you should just go get a [ __ ] job cuz like it's just not worth the stress. Life is about enjoyment. It's not about suffering. I think what founders think about too much is suffering. They think that's the default because they look up to Elon and they're like, I need to suffer for greatness. You don't. You can achieve greatness without suffering. I wish someone could go back in a time machine and tell me that at like 25, life would have been so much better. So all I do now, that's actually why I like mentor all these degenerates because I'm just like, you don't need to suffer. You just don't need to suffer. It's like me trying to make up for my suffering 20s. So read profit first because I think it's going to get you in the right frame of mind. The second book that you know was sent to me from above in this book swapping corner this really cool neighborhood that I lived in. We had like these bookshelves with these swapping corners. So someone left a book by Tony Robbins and my wife was in it like we were co-founders. We were equally anxious waking up every day like thinking about this like [ __ ] Titanic of inventory. the personal guarantee we had on the $3 million loan we had taken out. >> God bless this with your wife, too. >> It's crazy. It was >> crazy work out here with the wife. >> It was heavy. It was heavy. >> And we postpone starting a family because we were so in it. Like now I have three kids. You know, I'm so blessed. We want more. But, you know, we paused life because of this. So, this book is called Unshakable by Tony Robbins. He co-wrote it with Ray Dalio, I believe, and it's about being unshakable, you know, and it talks about an investment framework and how you should invest your money and dollar cost average. The punchline, if you don't want to read the book, because I feel like half the audience won't, >> guys, read the book. [laughter] It's just time and market. Don't try to time the market. Just be in the market for as long as humanly possible. And that book will prescribe a really boring investment strategy that actually works. You will see that you know what was it again? If you dollar cost average I was doing this thought experiment for an for for someone I was mentoring. If you take out $50,000 every single month over the next 10 years you will have taken out 600* 10 >> 6 mil >> 6 mil. If you dollar cost average it over 10 years and you simulate it the last 10 years and you do it according to the unshakable portfolio S&P 500 or the golden golden portfolio which was the best one according to AI you need to fact check this 6 million turns into 12 or something like that along those lines but more importantly like you're setting aside chips at table so if you're in your early 20s 30s 40s 50s it doesn't really matter over 10 years, you can completely transform your life with $50,000 of dividends per month. It's pretty remarkable. >> It's so crazy. >> It is really crazy. >> It's crazy just cuz like again I do obviously pre-production and and I research the guests that come on. It's just like yeah, you have such an interesting like I look at everyone and like when I look at you now like I look at everyone as like what's their superpowers and it's so funny supply chain and then like the market. Yeah. Which is just interesting because I look at you as like an operator by trade. So that's very interesting. So it's in the market. So you're just saying you're getting the cash. Obviously you're in a very taxefficient place in Hong Kong. God, God bless you. >> Yeah. >> And then your dollar cost averaging. You're putting it in the market. And are you doing predominantly S&P or are you going degenerate style and taking some homes on your >> call? Yeah. Yeah. I'm taking I'm doing degenerate style now just because I want to live on the edge. So obviously what I'm doing is if I transpose like I I do this exercise which is called a vivid vision. So the COO of 1800 Junkyards was at this summit that I was on and he taught me this. So basically a vivid vision is manifestation for lack of better words. So I think of myself when I'm 45 and I write a letter to myself at the age of 45. So I turn 45 2030 4th of August. So I wrote a letter to myself dated 4th of August 2030 and I talk about like what I have achieved as a family, as a husband, as a son, as a brother, as an operator. And for me, my vision is by the time I'm 45, I want to be so meaningful in the world of e-commerce and public markets that when I take a stake in the company, people get as excited about it as Warren Buffett, you know, like within my segment of of of my focus. So that's where I want to go and this is the reason I'm taking such concentrated bets in the public markets because that's the end state for me. I want to go move from just being a pure operator slash roll up your sleeves kind of investor to a much more highly leveraged type of operator investor and I think I'm going to achieve that through the public markets. So anyone who follows me have seen that you know I was the first advertiser on Axom. So when Apploven opened up, the first person they reached out to was actually me. I got introduced by a hedge fun called Faralone Capital. So a friend of mine works there and he messaged me was like Apploven is trading at less than 10 times earnings. They do mobile gaming apps right now. I want you to take a look at it and like actually tell me whether or not >> ballpark year. What year was this? H >> man 2024 I think early. Like literally Linear, Linear and Raycon were the first brands on Apploven. They were the first brands on Apploven. They there was no platform. I was interacting with the team. We had to send them the files by email in Google Drive. Their go-to market, which obviously you were a part of that absolutely brilliant. I'm like >> next level. >> Like you have to take that approach to get there's 15 people in the ecom space like you and you have to find a way to incentivize people like you. hell or high water to have you talk about it and obviously champion the product and obviously it has to be a good product and work but if you do that ecom is one of the it's like a very incestuous space especially on Twitter where like if you get a bunch of people to talk about it you can literally drive >> Yep stock price it's a real thing >> it's pretty interesting like right so it's like I saw that journey I didn't talk about it publicly at all right like at all during that time because I didn't want to be seen as like >> a shiller >> yeah exactly But I I referred Sean from Ridge, right? I referred all these other guys who were kind of coming in the pipe and the rest is story. But I saw the stock go from 60 to 750 over a very short period of time. It was very volatile and that opened my eyes to like okay I have that all these hedge funds were calling me asking me about the product, right? Like because I'm a former finance guy, they felt comfortable talking to me and I just understood like oh my god my alpha is real. like I actually know things months in advance of you know like I can see the pattern of something taking off >> under the notion that you were using it at your companies and it was starting to >> customer I didn't know anything about the internal earnings or revenue of the company but I had a strong understanding that this was going to change the game and be at least 10% of my spend you know and it's going to change the game for a lot of my colleagues and friends in the space right like everyone spends on appla now that's a sophisticated marketer >> so that was on two was like, you know, the founder of Prenetics, well known for IMATE, their core brand. >> Great episode. We'll pop it up. >> Exactly. >> Uh Danny's an amazing guy. He's actually based out of Hong Kong. Smart guy. Everyone should be moving to Hong Kong. That's like going to be the DTC Mecca by the time I'm done with the place. But so he's based out of Hong Kong. He scrolled into my office. I had met him once before on an occasion. And he came into me and it was like I'm launching IMA. Like I just launched it. It was like 2 months in the journey or something. They're spending $5,000 a day or something on Meta and I was like, he was explaining the Cact TV to me and I just told him like these numbers are [ __ ] phenomenal. Your reorder rates after first order, incredible. Incredible. And go behold, like I've been involved in that company. I'm a on a I'm an adviser to the company. I'm an investor. And I've also seen that stock go from like $4 to $20, right? Like, so I think for me, my unique investment strategy is just getting involved in this like publicly listed e-commerce derivative companies, whether it's, you know, something like Apploven and Meta where I just feel like I'm very comfortable underwriting. Like when Meta a couple of months ago were labeled as a tobacco company, the new tobacco, the stock price went from $750 to $58. So I just went all in at 525, right? Like so for me underwriting something like that, I had hedge funds calling me being like, "Do you think this tobacco narrative is real?" I was like, "Are you [ __ ] kidding me?" Like does not affect the business. even if they banned all users below the age of 18, it would have no impact on the ad engine, you know. So, I think our ability as operators understanding fundamental businesses is so unparalleled and it gives us an edge in the public markets. I'm new to this journey, but that's where I'm deploying my money right now. If I was not in this position, the way I would do it is just straight up follow like golden golden butterfly portfolio or whatever it's called or the Ray Dalio book or >> S&P QQ. Exactly. Super simple. Keep it simple. Keep it brainless. Be unemotional about it. Do it in routine. Again, time in market like midmon, end of the month. Just buy the same [ __ ] over again and over again and just dollar cost average so that the volatility doesn't get to you. The Danny play is very very interesting on Prenetics. I did a lot of due diligence obviously before that episode. I I'm not a public markets guy, but I was looking at from like a TTOC perspective and then there was all these kind of other assets that I knew that they could liquidate. It was an interesting situation. That's consumer. I feel like your big bet though is like the picks and troubles like you're doing like the platform base. So meta app apploven. Is there any other kind of big ones? Yeah. There's not many other big ones that are like driving spend from a platform perspective. Yeah. >> On there's not that many other ones, right? Like >> Yeah. >> There are like maybe 65 names out there that are really big and chunky that you can sink your teeth into and you're not moving the stock price, right? Right? Like if you buy a lot of frenetics today, like >> mid7 figures, you'll move the price because the volume is so low because it's a micro cap. >> So there maybe 65 big names like anywhere from like Meta to Global E to, you know, Google, like Pinterest, Snapchat, all those names, right? Like there's a lot of them actually. >> What are some of those other like categories you would look into when you say Pix and Shovels? >> Yeah, Pix and Shovels would be more like these big big names. Pixel travels be like the global ease of the world or CLA or one of these things >> payment processing >> payment processing all those things so I would say like 65 to 70% of my portfolio at any point in time is in these big names and what I want to do more of is these smaller names like Prenetics so like I think a large part of my career moving forward is going to be an active shareholder in these names maybe I can give you some examples that people can look up I'm not I have no shares in them at the point of this time of recording full financial disclaimer and I I don't actually plan on buying any shares in these companies. I'm very comfortable talking about them. But, you know, take for example this incredible founder Eric and Beth. Like they run a company called Brilliant Earth. Have you have you heard of the company? >> Is that a jewelry company? >> Yeah. They sell they sell like engagement rings. >> 420 to $440 million in revenue per year somewhere there in ballpark. Maybe like $20 million of Ibita, right? Like so $20 million of IBIDA can [snorts] be higher in my opinion. >> That's low. That's four or five%. Yeah. >> Yeah. The loss of optimization to be done there. Market cap is at $120 million. >> This is what I'm saying is the TTOC versus the public markets. Like how is it not >> crazy? >> Yeah. >> So, but more importantly, then you have to dwell even deeper. You look at their balance sheet. They have $60 million of cash on the balance sheet and no debt. So effectively, if you remove the cash, it's trading at 60 million, which is three times IBIDA with $400 million plus of revenue with not a very lean opex. >> So that's one example. >> So they they should shave OPEX, get creative on the debt, scale this thing up and everything. Yeah. >> It's just like that's a it's a great business and I think like honestly intellectually I think like >> yeah, I just don't you know again mispriced in my opinion like a little bit like Prenetics when I looked at it. Right. Second thing would be would be pets. So 1800 pets. Have you have you seen that? >> I've not seen that one. No. >> So I think they do $200 million in revenue. Market cap is maybe 30 million US for a pet company. 80 plus% of the revenue subscription. 80 plus >> which is phenomenal. That's the best. >> I don't think they have any debt. They probably don't make any money. But again, super bloated organization. Like they even have a [ __ ] chief accounting officer. Like it's just so random. So like it's just a lot of bloat they have their own 3PL fulfillment and all that stuff. Like they have their own facility that they spend $20 million on. So there just so many opportunities like these two in the public markets that I can kind of sink my teeth into and kind of try to influence and make better. Like I've had an impact on Prenetics. I think I can have a much bigger impact on all these other businesses. >> Love that. Um, yeah, definitely obviously take advantage of understanding and knowing exactly what's going on in the space. Let's dive into DTOC. We haven't even kind of talked about that yet. Uh, your businesses. Um, I guess let's just first start with like channel mix. You're spending, I don't know, 50, 60, 70, 80, $100 million a year across all your brands. What's your thesis on like the mix right now? If you look holistically, where are you spending your dollars? >> Yeah, I was trying to reconsolidate before this recording, but I think we'll spend 85 to$90 million this year. >> Yeah, like roughly. Let's say >> let's make it 100 just for even numbers. >> Yeah, let's make it 100. Like I think 40 to 45% is going to go to Meta. 20% is going to go to Google. 5 to 10% is going to go to Applovin. And then I would say the rest is influencer. >> Wow. What do you know on Google that we don't that's a very high number. Is it is YouTube obviously a role under there? >> It's the nature of our categories frankly speaking. I mean I should add in Amazon ads. So I take in Amazon ads maybe Google goes down a little bit but you know it's the nature of our category. So like linear Google shopping is huge. Raycon Google shopping is big. Google shopping is still a big thing you know. So I'd say we also are huge on YouTube. You can't open up YouTube without seeing Raycon, right? Like so with an influencer we also spend quite a bit on YouTube ads. >> I'm in both the funnels right now. I was not in the funnels but a lot of earbuds and and and female jewelry is now >> in my world right now. Good, good, good. Alsos are working. >> Yeah. Um, what do you think is the most kind of underrated channel right now? Obviously, I think let's just put Meta and Google aside. 40% is actually fairly low. I'm starting to see now via Tik Tok and influencer a lot of people that are scaling are pushing hard there. And you could be spending 1% on it. Where do you see a lot of meat on the bone from a channel perspective? >> I think like obviously we're all sleeping on Tik Tok if you're not in it. Like the OGs like you and me, we're not Tik Tok. actually been thinking too much about Tik Tok lately about like why that that's like I obviously learn a lot and take advice from these and bring them back to my business. We have a really high AOV so I've kind of >> shied away from it but I think we're at a point now we're like what the [ __ ] am I doing dude? >> Yeah. >> Yeah. So Tik Tok is like the big one. We barely spend on Tik Tok and that's not something I say with pride. >> Yeah. Like even within our influencer mix, we spend zero on Tik Tok. Like that's not true. Maybe like 3 4% of our influencer spend is on Tik Tok influencers and the Tik Tok platform. So that's the biggest thing that I we're sleeping on. I feel like a lot of people are sleeping on. But I feel like that's an obvious one. If you're spending time on X and on YouTube watching this podcast, you will know that you're sleeping on TikTok. The biggest thing that I feel like people are sleeping on and the biggest reason we're growing on Meta this year and having better performance on Meta this year is because of partnership ads. You see it in the IMAT funnel. You see it in the linear funnel. You will see it in the Raycon funnel. 40 to 50% of our ads are whitelisted. So partnership ads is a new future by Meta where they're cloning or copying Spark ads. So they made it super easy for influencers to give a brand access to the ad and the rights of the page for that ad. So they'll send you >> guys. We are still early. We are still early on this. >> We're still early. We're still [ __ ] early. >> A lot of people have come on and they're like like Ketone IQ is another one. They're a partner. They go so hard in it. >> They're you're we're printing with partnership ads. [snorts] So when I had this event, right, like the average revenue of people who came to my summit in Hong Kong was 72 million US. everyone is printing money with Tik Tok and meta and all that stuff. And I kind of surveyed the room on how many of them are running partnership ads. It was like very few people. We're talking like five or four operators out of 65. So people are still really sleeping on partnership ads. The reason partnership ads work in particular for high AOV products like Linear is because you bridge the trust gap, right? Like it's really simple. >> Yeah. you see something from someone with like 100k followers because there's just so much [ __ ] AI slop in the ad accounts like in the in in the feed, you see a real person with a real profile that's 10 years old, you're going to trust that person and you're going to buy the product off that person. You'll get asymmetric benefit from that. But ironically, if you just run through a any ancillary channel, I see for a lot of people that is just performing better than the core channel because it's just one more touch point. as opposed to getting >> a linear ad. You're getting it through random 5 10 15 20%. You need diversity in your account and diversity means >> multiple sources of trust to get people to convert. >> So that's the biggest thing people sleep are sleeping on in my opinion. >> Yeah, I agree on that. And yeah, it's so funny. My wife is dealing with with it right now. She's doing a lot of negotiation on the whitelisting side. There's a lot of money to be made on the other side for creators in this >> flat fees. If you're going to go all platform, you can get a premium for that. How are you compensating creators on this side? You're doing a percent of spend. >> Yeah, we do fixed fees. >> Fixed fees. >> Yeah. >> And you own the assets. Fixed fees. On the assets. Fixed fees. Yeah. >> And then we the fixed fee is usually a daily rate. So, let's say like it's running ads under your handle mark would be $10,000 a month. We'll break that down to a daily rate with a breakout clause after 14 days. >> Oo, I like that. So that's how we run it because we're very dividend first and we want to predict our cost and like we have a budget and we're really boring in that way. But you know it's pretty crazy. I had this kid come to my event second year of business he did $180 million in revenue supplements. Crazy. And he pays variable and for some his some of his creators he was paying like 60 70 grand a month you know. So I don't I'm not sure. I'm secondg guessing whether or not our system is the best because I think paying variable it all comes down to incentives, right? Like so we're going to test out variable too with some of our creators. >> Yeah, I would say obviously like Hudson from Comfort, they go crazy. They give a fat upside rate. I would say what we tried is I was like negotiating all different deals with all different people. It gets so [ __ ] messy then. And then like what are the terms? How often are they going to be paid? >> Yeah. I think just locking in kind of when you're split testing this, just locking in kind of one offer or else it gets so [ __ ] messy. >> It does. It does. It does. That's why we kept it simple. It scaled really well for us. We don't need to break something that's working. But it did get a little bit of FOMO when I saw kids coming to my event doing monster numbers with a different model. So to stay intellectually honest and to really try it out, I think we're going to try some variable this year. >> That's a really really good thing for people to listen to. Never heard a per day with a 14-day out. I love that. Fiscally conservative. That makes sense. Easy to process for the person on the other side. >> Exactly. >> I love that >> cuz the conversation is just like, "Hey, Mark, I don't know if you're going to convert. We really appreciate what you're doing. We need to manage our risk. Can we pay for 14 days to start and see if it works?" And then like, you know, often we'll pay a higher day rate for the first 14 14 days of trials. It's like, hey, we'll pay double just to try try it out, but we just don't want to not double, but like we'll pay a little bit of a kicker just to try it out. Actually, the trial period right now, I think, is 10 days, but yeah, don't quote me on this, but it's somewhere about there. Yeah, >> for the upfront work to actually create the content, >> probably. Uh, let's double click into meta. Um, >> let's just say someone is in the 510 million range. Meta is probably their driver. What do you think is broken in meta for the people that can't scale up? like what's that thing that's preventing them from getting scale? >> I spend 80% of my time when I acquire an asset thinking through the offer. So when I bought this business in 2024, $24 million revenue, 60% of that revenue coming through.com, the rest came through Amazon and wholesale. So let's say like 12 14 million came through Shopify. My question was like, how do we take Shopify from 12 to$14 million to let's say 60 $70 million in the next years, right? Like how do we actually 5x this channel? All of it really boils down to the offer. Like that's what it really comes down to. So we're selling like baby accessories. It's like buy two, get three, try that. BOGO 50 freebies on the at cart tray. Offer offer offer offer. And that is literally what's lifted the performance of the meta account by more than 50%. It's just the offer. Same creatives, just different offer. So I'd say for most of the people I get on a call with when I'm auditing their accounts when they're sub, most people who like book me obviously are doing like 25 to 50 mil and they're kind of stuck. 90% of the time it's because the offer is stale and not aggressive enough or compelling enough. So that's that's the 8020. Then let's say if you have the right offer and you're going stale, it's because of the hooks and angles you have for that product. >> The USP is the value prop basically. >> So you take like I made, right? Like there that adacon is [ __ ] crazy. Danny's like a Danny is like so good. >> There's a thousand there's a thousand celebrities in there. There's >> he was not in DTC two years ago. This guy, right? Like and now he has like a thousand hooks, right? like a thousand hooks like [ __ ] IMA like you know they promote like boosting of testosterone you know like it's just like all these angles that you can't think of. It's like it's an incredible product. I drink it every single day. I love the product. Like I [ __ ] love I imate but like they have so many angles, right? Like so what I usually see in an ad account is that founders are stuck at three or four and they're not trying enough new angles. Take linear for example. [ __ ] hard. You're selling jewelry. >> Same with made with art. >> So hard. >> Motivation on a wall. >> Stuff sell fell. >> So hard. But then I saw this creative yesterday from a small independent brand that had like this incredible hook. There was this woman who said, I'm personal assistant and she's like, I'm buying this for my boss. She's being super unreasonable. And it kind of leads to the end is like a jewelry shop. And I actually watched the whole [ __ ] ad because like this is [ __ ] good. >> So I think like Yeah, it's different, right? Like, so you have to be creative, which is easier said than done, but you know, there's always a new angle. I sent the ad to my team. I was like, we're not being good enough at this. So, that's that's like I think lever number two is like just think of new angles. Level number three, where I see brands being like steady state, printing money, so they have the offer, they have a winning offer that's been battle tested with more than $10 million of spend in meta, right? >> Backed by landing pages, too. Sping landing pages. Yeah, landing pages are their offer is like [ __ ] ripping and they have some hooks, but they're still stuck. It's because the ad does not line up with the landing page. So, take Linear for example. Anyone who's here can go through our ad library, click through the partnership ads. It's a it's the best most simple way of explaining it. Actually, you can do the same with Raycom, but it's a little bit more complex. Take Linear for example. an influencer will promote like 10 different jewelry products because it's jewelry, right? Like five different rings, necklaces, bracelets, earrings, yada yada yada. When you click through that ad, there's a specific collection page with that influencer, with the face of the influencer, with the discount code of the influencer, with the products that she just displayed in the chronological order of the video. She showed her this ring first. She then showed the necklace, yada yada yada. It's merchandise exactly the same way, >> guys. Dopamine casino cheat code. This is a cheat code right here. One to one exactly with customized landing pages. Maybe throw a quote on um doesn't make sense from a USB perspective for linear, but like if you're doing something that has things that you can sell, quote, picture, lifestyle of of the person, >> um like in terms of like an influencer or >> like for an example like I'm partners with Ketone IQ. They're building out a specific landing page. We'll pop it up right now. It's getting built right now and it's lifestyle pictures of me when I use >> Oh, that's amazing. >> When I use Ketone IQ, a quote on what I love most about Ketone IQ. Actually, >> I should actually make sure that the creative the product and the creative lines up with the product on the landing page. I'll make I'll make one for Mark for Raycon. We do that for all businesses. So, just to recap on meta number one offer that's just so so so essential. Like your business, how many offers do you have running right now? two. Not enough. >> What are they? >> We do buy three, get two. We do collect the email 20% off and then stuff in the cart. We probably have more than two going on right now. I wrote down right here though. I always on the front page of my notes, I wrote down the things that immediately I'm going to bring back to my team. And the first one is offer because we're not we're not aggressive enough. Like we could do buy two get four and win, but we're not doing that. >> Okay. And then it just comes down to RPV, revenue per visitor, >> profit per visitor. >> Yeah. Yeah. And it just comes down to math. >> So what I would say like when I'm hearing this right like so one thing is like this one test I'm running like for example with linear is people this is going to save you 5%. People don't care if it's 10% 15%. Has off on the first order has no delta. 10 to 20% has a big difference but 10 to 15% makes no difference. So, for many years, we ran 15% off on your first order. We lowered it to 10%, zero impact. Zero. Just more margin. Now, we're running 10% versus win a free gift card. Zero impact. It's pretty crazy. So, like what you also see people do is like they go too aggressive with their offers to some extent. The second thing they don't think about is like the implications of the offer. So you have more revenue but you don't necessarily have more profit. So let's take your example for example, buy two, get four. Now obviously maybe your prints are really cheap to make but the variable cost in your case is going to be shipping like packing six of them instead of two or three or four is going to add a lot of dimension to it. Correct. >> So thinking through the variable cost per offer is something I find founders not to do really thoughtfully. And you're talking about like economies of scale like potentially you could put three pieces of jewelry in one box and arbitrage shipping. >> Exactly. >> Yeah. >> Exactly. It really moves the needle. It really moves the needle. So that's the caveat I would put on offer. So So I would say like offer second thing is like you know the partnership ads. What was the second thing again I said? Uh >> the creative the unique hooks and angles. >> Exactly. New hooks and angles I made is a great example. I don't think we do a good job of it on my brands to be honest. The third one is an ad that actually lines up with the landing page. And I think >> that's not talked about at all. >> Yeah. To give you an idea, that was a 30% lift. 30% conversion rate lift for us. If you take linear, since we talked about it so much, >> if the products in the ad appear on the collection page first, you get a 30% lift immediately. >> It's crazy. It's crazy. So, it's going to be the same for you because you sell all these pictures. If you make sure that the if you send people to a collection page, you're going to get like a huge lift if it appears first. >> Yeah. I mean, we thought at one time, you know, kind of these mashup B-rolls showing 25 pieces to show range of catalog would do better. It's ironic the intuition that we tested that now, it's so funny, man, because I'm partnering with companies and I'm learning I'm learning a lot from Keton. We partner with Momentous, too, on the supplement side and it's like I'm learning so much from them. They're like, "When you do your ad reads, you're going to talk about one product and one product only. Obviously, it's going to be one of their best sellers." And I would imagine that landing page is going to go right to that. We've had way more success with iconic not doing the mashups of just going very direct response. Yeah. One single skew and then the landing page that it drives to that is the first that is the first piece. >> Yeah, it makes a big difference and that's where thing breaks. But yeah, those are the three levers I would say in the meta accounts. >> What are you looking inside meta? What is that one key metric that you're looking at? Cuz I know people are using Northbeam. Maybe they're blending their myrrh. What are you looking at in Meta? What's that one KPI that you're looking at? >> Yeah. Yeah. I'm like, it's interesting that you bring up North Beam. Like I'm an adviser, investor, early customer of North Beam. So, the one thing I look about look at is one day return on ad spend, one day click return on ad spend. And I look at that as my source of truth because um >> and this is in platform agnostic from what you're seeing in North Beam. So if you're looking >> No, I'm I'm looking at it in North Beam. >> Yeah. Cuz they just have so many channels going out at the same time. But the northstar for me is one day click return on ad spend. >> And the reason for that is it's the only thing that you can compare over periods of time as an apples to apples. And the beauty with norpam I think for me is like you have both acrruel and cash. So in steady state days I'll just use acrruel but like on days like black Friday, cyber Monday I can switch over to cash and just see is my intraour spend actually incrementally driving profits or not. >> So I use one day click in norbeam to guide the ship per channel because it creates a baseline that's independent of each platform. >> Predictability. >> Yeah. unpredictability like when Meta launched their engagement attribution, it just like kind of >> just muddies the water. Muddies the water. So, so I use Norpam. I have no experience with triple whale, frankly speaking. Like we switched IM8 from triple whale to Norpam because we just want like true sense of like >> one to one across. Yeah. Share the learnings. Exactly. >> So, >> so are you looking in platform like at all in any in any of these channels? >> My team is My team is, but I'm not. So everything just basically northgame is the north star. >> It's the north star. So look at one day click and this is the most important thing. It's like when I screen share like I did like a Twitter video where I think I show everyone my ad accounts just like [ __ ] it. People are like why are you running linear at how do you make profits running at 0.5 one day click? So the math I run for that is I take my post-purchase surveys and in my post-purchase surveys I ask a question like when did you hear of us? was today in the last week, two weeks ago, three weeks ago, four weeks ago, six months ago, a year ago. So for linear for example, let's keep it simple. It's like 20% came in the first day of learning about the brand, right? That's roughly actually the truth. 20 to 25% depending on the seasonality. I take the one day click. I assume that one day click none of my conversions come from view. Okay? Zero. I assume I go like completely pessimistic and say like only one day click is drive clicks are driving revenue. It's a super conservative way of looking at it. Right? If I take 20% and I have a 0.5 one day click return on ad spend that extrapolates over a lifetime lifetime return on ad spend of greater than 2.0. So I need like 1.7 to go break even. So if I'm hitting 0.5, I know I'm going to print 15 to 20% profits on the back end. >> Interesting. >> So that's how I use one day click. I extrapolated using the post-purchase survey to guide the ship because I know if I have one 0.5 one one day click over time that's going to translate into 2.0. So North Beam is able to do LTV calculations on your one day click. But I do the LTV calculations myself because I just don't trust any platform to guide me through multi-months of conversions. Like Linear is a very considered purchase. Norbeam will tell me that people go to the site seven times before a purchase, but I'll use the one they click as a source of truth. >> What are those other questions in that post-purchase survey? >> There's a lot of them. Let's drop a link in the description below because I think everyone should copy my post-purchase survey. I used like a cheap tool called Zikool or something on Shopify. I'll send the link to all the questions, but it's basically where did you hear of us? Where what platform did you come true? When did you hear of us? Age, gender, couple of other things like what other brands did you think of buying from? The coolest question we have in there is what influencer should we book? >> It's interesting. >> Who do you think would be a good linear spokesperson, Raycon spokesperson? and we actually use that field to find influencers to book. >> Another interesting part to kind of bring this full circle from the bomb perspective. Is there stuff that you can hear from the customer via the post-purchase and or whatever that can inform >> what part of the experience or maybe they don't like a piece >> of the actual product. So that can inform where problems are as well too. On the influencer side, I know you know you had a pretty big chunk of your spend being spent on that. We talked a bit about partnership and whitelisting. What else on the influencer side are kind of your core like frameworks or thesises in relation to that because you're spending a lot of money on influencers? >> Yeah, we're spending a lot of money on influencers. The way influencers came about like you know I haven't talked about it publicly because it's too much sauce as the young kids say. I learned sauce like 3 months ago. >> Drop it. >> Uh but I've spent maybe 70 million US on YouTube influencers. Year one I spent like 7 million. I mean the I think second year was 20 million then another 20 million. So we've dropped our spend since then. I like [ __ ] went balls to the walls like early years and then now we maybe spend like steady state four or five million a year on YouTube influencers. >> What's the thesis? >> Maybe maybe seven actually. Maybe seven. >> Is it evergreen and trust? Like what's your thesis on why you think YouTube is the one? YouTube is so hard to attribute against and you have to have a lot of comfort with numbers and this one day click a cruel thing cuz the payback windows on YouTube for us is more than 30 days. Payback meaning I go break even after 30 days of spending a dollar. So it's super hard for people to stomach. You have to have like a high risk tolerance to make YouTube work at scale. Two, it's a little bit of the venture game. You're booking like a 100 influencers, 20 will [ __ ] print and pay for all 80 losers. So number one and number two are really hard to crack. I think I'm the largest physical goods. I have been the largest physical goods like Raycon in particular early years like over co years. We're definitely up there like as one of the top YouTube influencer sponsors. >> And what does it look like? Are these ad reads? Are these native integrations? >> Ad reads. >> Actual ad reads. What's an example of like a persona that has done well for you? Is it for >> There's so many. There's just so many. Like we've Raycon is such a utilitarian product. Everyone needs Airbuds. We've literally had women and men of all ages print for us in any category. We're so dialed in because we spend so much that we know whether or not how much CPM we can pay a gamer versus a car hobbyist. Like we know that down to the detail. We have a scorecard by persona that we're so we do our negotiation accordingly like okay Mark is worth this much to us Roman is worth this much. So we break it down by category. So the reason I focus on YouTube was because it was really unchartered and like there was literally no competition. I'd say >> I still don't think that there's much competition. There's not you really need to go you have to have somewhat deep pockets to do it, you know, >> but the the the KPI that you're leading with is a CPM per cohort as the baseline understanding and then you're backing into >> return on ad spend and return on ad spend backs out to the holy grail profits and profits back out to dividends. So if I spend 10 grand a mark, can I generate $1,000 of dividends at the after all cost of sell? That's the true northstar. >> Everything is under that lens. >> Yeah. So it's a CPM buy category and it gets really interesting especially you now with this content game, right? Like and CPMs, the YouTube landscape of CPMs is very very non-transparent and opaque. And I feel like I sit on the most data than anyone else in the world on how you price YouTube placements like podcast reads because I sponsor a lot of podcasts too. >> It's really interesting. I had like Ali Abdal and Izzy who you probably know these big YouTube influencers. >> I know Ali. Who's Izzy? Izzy. >> Uh Izzy's wife. >> Oh >> yeah. So she's big. She has like a million subscribers I think or 800,000. and they were at my event like they were talking at the summit and we were debating me as a sponsor them as the creator and we're talking about economics and you'll be really surprised when you talk to Ali and Izzy and all their friends are huge YouTubers they don't think about it from a price bracket standpoint so there's a lot of arb there's a lot of arb between the creator and the brand and I encourage everyone to explore that territory for their brands >> yeah we're we're in a spot now I'm not sure if we talked about it in earlier podcast, but like I feel like CPMs is usually the baseline, but there's something to be said also about just brand and you can charge a premium on the CPMs if you have the right brand association kind of right right mix there. >> What's like an a unique untapped cohort that you've had success in? Because I'm sure you've been in anything and everything. Could be Midwest Midwest moms, it could be gamers. Like what what's a random one that's won across either either in any of your brands? There was one guy, not going to mention his name, but he delivered $2 CAG at six figure scale. >> I'm going to need that one. I'm going to need that one off the record, guys. We're We're going to cut We're going to cut that part. >> I spent 100 grand on him and he drove me 50,000 customers >> on the first video. >> What? >> Now, we were the first to sponsor him ever. and he has such a captivated audience and his ad read was just like [ __ ] incredible. Just [ __ ] incredible. But yeah, it was like a video of him being shirtless in the backyard dinging another guy with a Star Wars sword and they were having a Star Wars fight or something like that. I'll find a video and send it to you because it's hilarious. But yeah, >> we may or may not keep that. um [laughter] to tie a bow on the YouTube, what would you if you had to give one piece of advice to anyone that is going to go on YouTube and spend dollars? What would you boil it down to that one piece of advice? >> Be patient. >> Wise man, let's dive a bit into AI. I would be remiss if I didn't ask you that. Yeah. >> How are you using AI? Whether being creative, whether it be ops. What's >> the latest there? >> We're big believers in second mover advantage. I think I've been wipe coding a lot and I have very little to show for it in terms of how it increases my dividends. My team >> I love that thesis. It goes right to how is it increased my >> Yeah. Yeah. It's always this recurrent theme, right? Like on spending I'm burning tokens but I have nothing no more cash to show for it, right? Like >> I'm spending 10 grand on tokens. I want like at least one $10,000 and1 back, right? Like so >> we have I think all teams have this, right? Like so we are 770 people in the front offices. Let's say 110 if I include my rockstar supply chain team which is like kind of more front office operation in Shenzen, Hong Kong, Singapore, London, New York and Salt Lake City across the board. We have 110ish people maybe 200 people in the back and like 100 plus virtual assistants in the Philippines and you know these low lowcost countries and then 100 people like in fulfillment. We have a business-like factor but in the U in in Asia called nutrition kitchen. So we have big kitchen operation in Hong Kong and Singapore. Among these 110 people let's say we have eight AI superstars. Eight kids who are really cracked on AI and are delivering real value with AI. So tangible examples would be I can show you my dashboard later. We can take a screenshot and like kind of anonymize the numbers. I think it would be helpful for the audience to see how does Roman operate this many businesses because I have a dashboard that loads instantaneously and I can see the profits and revenues of any of my businesses at any point in time by each line item in real time predictive and someone coded that up for me. So I had that very useful tool. Number two is for linear we've automated all of our procurement with AI. So we build custom software for ourselves so that we can go from placing purchase orders weekly to daily which is really complex when you have thousands of SKs like it's really really hard and we've been able to do that at scale with like really good logic. theory. We're doing some AI ads, but that that many like statics. All our statics now are AI. We're not doing UGC creators with AI. >> I don't think it's there yet. I think >> it's just not there. Two, legality. It's just not worth it at my scale. Three, I just think humans will crush. Partnership ads are [ __ ] crushing for us. Let's just go down that rabbit hole and spend. Tik Tok influencers, I think, will crush. Let's just go down that rabbit hole and spend. AI influencers, I just don't believe in AI slop. And I think a good ad and spending money on a good ad is so ROI positive because you won't waste dollars in the meta ad accounts. But you know we're doing a lot of backend stuff with AI right now. >> So more like operations and like predictive analysis based on like grabbing numbers from certain places and then on statics only on the creative side. >> Yeah. the most I wrote a thread about it on Twitter and on LinkedIn about what are the five AI initiatives that we have at the company and the only thing I look at personally that I actually care about that I know is going to move the needle that's going to add nine figures of revenue the next like 12 to 18 months is automating my AI influencer operations. So sorry automating my influencer operations. So today, you know, we source screen source influencers by searching, using tools, yada yada yada. We screen them against the brand card. We then reach out to them, get the media kit. We then do a rebuttal to the media kit because we're just like, "Hey, Mark, we can't afford 10,000. >> This is my baseline. This is my CPM for this. I just can't afford it. Can you meet me in the middle with this? And if it does really well, I'll pay you a kicker." All of those steps that I just outlined for you are getting automated by AI. Up until two months ago when it was non AI, we were having 500 real conversations with 500 real creators every single week. Real creators meaning people with a real audience, more than 100,000 plus. Now it's come to 200 or 300 a day, right? Like so we're >> 4xing. >> Yeah. 4xing because we're tinkering with it. I think we're going to get to 500 a day. You know, what we're doing in a week, we're going to get to a day with AI. And that's really moving the needle for me. That's huge because if I can double my influencer spend, you know, we're going to touch like billions of dollars in revenue. If we can get to like double or triple in influencer spend, I'm on the path of doing billions instead of hundreds of millions. >> And that's not increasing your opex at It's a one time lift to create the system and then optimize it over time. >> It's not even an opex issue. I'd be happy to spend more on opex. It's just finding people >> who can really filter for the brand. Like my head of influence for linear would not do a good job at Raycon and vice versa. You know, there's no it takes the you have to be the customer to be good at the influencer. You really need to understand the audience, be the customer yourself to really be able to move the needle. and it's a really hard function to hire for. So I think like an AI first approach is going to really move the needle for us. You >> ever think about flipping that out and productizing it, something like that? Some of these internal systems, >> maybe. Maybe we're too early in it to do it. It's generating too much value for ourselves. So I think we're not going to do it anytime soon. >> On the actual creative side, where do you think the AI creative is going? I know we kind of talked about slop. Like my thesis is like I think AI creative on the video. I mean, I think it's going to be like 30, 40, 50% by like end of next year. What's your thoughts on that? >> It's really hard for me to predict because like there's no AI is never going to get worse than it is today when you think about it, right? >> That's a bar right there. Yeah, >> it's getting better every single day. So, is there a world where we can prompt this whole video, right? Like with like a prompt probably. But people want to connect with real humans. In a world that is getting completely commoditized by Amazon and eaten up by AI, you have to stay human. So my overarching thesis is that Meta, Applovin, Snapchat, Pinterest will reward real people in the feed over AI slop. That's the fun foundational bet that I'm making and that's why I'm saying influencer is so big for me because I think people want to buy from real humans. >> How do you think that feeds their agenda? You just think that holistically it's what you said and it'll just be more efficient thus spending more dollars on their platform. >> Yes. And you will spend more on partnership ads and real people. So, I think that's like >> partnership ads is an important thing to work because the reality is is like push comes to shove if traditional ads that are AI perform better for them. >> Yeah. >> I don't really think that they're going to be that emotional. I feel like they would push those AI ads. >> I think that's the caveat I would say is like there's going to be some regulatory stuff coming in. We saw like a couple of days ago New York now has banned AI UGC ads. You'll get fined. I think that's going to be a opposing force to some extent. It's just very hard for me to predict, but I have no shadow of doubt that like AI ads are going to be on par with human UGC. Like we all know that that's going to happen. That's just going to it's a question of when, not if. Whether or not it's going to be rewarded in the ad platform, I'm not sure. Like I'm not 100% sure what the take is going to be there. >> Yeah. That that begs to answer ask the question of like if AI influencers are actually a thing and it kind of gets standardized. >> Yeah. Gary Vee is very very big on that as an industry. It's going to be huge. But we'll see how it shakes out. >> We'll see. >> As an operator, I am always asking myself, what are the low lift ways to save or make money? [music] Charge flow is an absolute no-brainer. Here's the problem. A customer buys from you, they get their product, they call the bank, and they get their money back. That's a chargeback. Most brands just eat it because it's actually built to exhaust you. In my first few years of Iconic, we lost well over six figures before we put this in place. Charge Flow is fully automated. It handles the evidence and the follow-through. You don't even have to touch it. Fanatics, Hule, and Hex, some of the biggest names in e-commerce, use it today. And the best part is they only get paid when you recover money. It's a 4x ROI guaranteed or you pay nothing. 60 days fully managed for free. Chargeflow.io with code open residency to tap in. Stop giving back revenue you already earned. I want to quickly dive into localization. I watched one of the pods you run. You talked about it being like one of the single biggest efficiency unlocks left in your business. >> Yes. >> What's like your thesis on localization? >> Yeah, we suck number one at localization. I just want to make that really clear. Go to Caseify, right? Like at my summit, we went to Caseifi's website, phone case company that does all these collabs. >> They kill it. >> They crush it. Like [ __ ] behemoth. Like Hexclad behemoth, right? Like huge company. >> This means hundreds of millions of dollars. >> Hundreds and hundreds. Hundreds. hundreds and hundreds probably on track to billion plus, right? So, >> incredible company, well run by Wes. I'm going to try get to get Wes to come on your pod because he's like, >> let's do it. >> Such a such a legend, a good friend of mine and was so gracious to host us at his office. His office is [ __ ] insane. It's like the guy is OCD. I tell him to his face. Like, it's just like meticulous. >> Let him know that I run Raw Dog. I don't I don't use cases. I never use cases. So tell him, get him on here and we can we can we can make the move. >> Awesome. >> I got it. >> So, you know, he's the master of localization. So, go to his website. Everything is in local languages. Localized pricing. Even merchandising is localized, right? Like you see the phone cases that sell well in the UK versus China versus Korea versus, you know, you you get the you get the gam. >> Arsenal phone cases. He just like really gets it and nails it down to. So, that for me is where I want to go. I'm not there yet. Like that's a whole other business in itself that I feel like not a lot of people know about. >> Yeah. Like how to run it efficiently. >> Correct. >> So if you think think about my revenue, 60% comes from the US. US and Canada. >> Same thing. >> 40% comes from non North America. So we're very diversified. Like linear is maybe 35% US, 65% non US. >> Wow. >> Yeah. So it's huge outside the US and Canada. And level one optimization is the bum of your variable cost. So you want to look at shipping. You want to look at all these like moving needles of how do I get this product in the hands of the customer in the UK, in Europe, in you know different countries in Asia and really optimize the [ __ ] out of that. So if you have a small product like linear or raycon, it's really simple actually. You just house your inventory with coinc like with in a Hong Kong 3PL and just ship it out of there. Like it's super simple, not very hard and you're off the races right off the bat, right? Like it's like really easy if you have a light product and you just start spinning up ads in all these countries in English. Like that's it. It's super simple. >> Yeah. >> And you'll actually just start printing money. And the level number one is like you start one ad campaign with one ad set. You load it with all your best performing creatives from North America and you just let it rip with all the best performers and you put all the countries in that adset that you can physically ship to at a reasonable price >> in that one new 3P ads that you're doing. >> Yeah. >> As long as they can ship >> run like an ad campaign on Meta with all of those best performing creatives from North America consolidated under one adset in a new campaign, a global campaign. >> What's the future for you there? When are you going there? with AI now localizing the website copy imagery everything is going to be done really to a high level so take linear for example we're big in Asia I believe that our website should have Asian women as models displaying the jewelry we should have the website in Chinese we should have it in you know Thai we should have it in you know Vietnamese whatever you know all the countries we ship to and everything should be truly truly localized >> it's so crazy how many of these again picks and shovels. We go back to these little mini new businesses that AI >> Yeah. >> can do. Like having someone come in and just reformat you for a different country. >> Yeah. >> It's huge. >> Insane. Where you going next? You think >> for me now? Like uh under the lens like I'm going to be be in e-commerce until I die. I think I'm good at it now, but I want to be excellent at it. I think it's going to take another 15 20 years to get excellent at it. So we talked about a little bit like I want to financially diversify into public markets instead of just doing private equity. So instead of buying these private companies, I want to focus more on the public markets. But now I started doing the picks and shovels of e-commerce. So I spun up like Petra Sparks. It's like a packaging supplier that I started launching because with linear we upgrade our packaging like crazy and we got 15% higher LTV and I saw a lot of my mentees were struggling with like good packaging. So, I just launched a packaging company. I think we're going to hit $10 million for revenue run rate first year of business >> just because I spun up Petra Sparks. It's crazy. Like the demand is insatiable. And I know like for three of my mentees, I was able to cut the cost by more than 50% because they don't have a bill of material. [laughter] This is like >> it literally all goes back to this. >> Yeah, it all goes back to bill of material. They spending so much on packaging. I was like, yo guys, like this is a dummy number. I do not spend $12 on packaging for for linear. I do for the Lux actually. I do for the Lux. I spend like probably like eight or nine, but you know, because it's so [ __ ] luxurious. But, you know, we were So, I'm going more and more picks and shovels and thinking about how can I make money serving my friends and mentees in a way that actually saves them money, right? It's a win-win. The same way as I approach suppliers. How can I actually be the supplier? How can I build an agentic layer on top of supply chain right now? Like, you know, working with your supplier is a [ __ ] pain in the ass. It's all done by email. >> You can't have an AI agent talk to your supplier. I'm thinking like, okay, packaging is the first leg to this business. Eventually, I'll open up a sourcing office so that I can cut costs for all my mentees under this umbrella, right? So, eventually I will help everyone do a bill of material approach. I'm just starting with packaging because it's [ __ ] easy, right? like it's an easy lowrisk high return way of delivering value. But like I would love for this company to eventually be so good that you can use your a AI agent to talk to our supplier and we have two agents speaking to each other and you're placing order automatically pending your sell true volume because my agent has visibility into your sell true. >> I mean that's going to happen. >> Yeah, it's going to happen like just how long it happened. It's just like my competition in the packaging space doesn't think like that. Right. So that's number one. Number two is I want to yeah I want to take more strategic advisory roles in a lot of different companies. So Prenetics was one of them. North Beam is another one. I did Sko which you probably saw. Canon sold that recently. I was an adviser and investor. I did the hustle like really early on with Sam Par. I was hanging out with him last night. He was saying like I was saying like I'm going on Mark's pod talking about how you make $10 million of distributions from your business. Like well it's easy for you. You live in Hong Kong, you know, come to New York. It's a lot harder. But you know, so I think I'm going to take more strategic advisory roles, right? I passed on being on the board of Passport because it was too busy. Passport just sold to Global Leaf for 400 million. It's crazy. I passed on that, right? Like it was a mid7 figure check if I had taken that seat. And Alex is an incredible founder and I just didn't have time at the time when he approached me. So I'm going to do a lot more of that. Like the re most recent thing I done is like I taken on an advisory role for Quint. So everyone here might know Quint. Quinc is this behemoth multi-billion dollar DTC company that knocks off all these other DTC brands including Linear. jokingly like they go after other DC brands and basically shave off the cost and sell things at the fraction of the price. So they're the largest cashmere sweater brand in >> Teemo. Are we talking Teemo here? Is this Teemo? >> It's like Teemo but high quality. Quint, right? >> Nice. >> So you know last year they did more than a billion. This year they will do multi-billion dollars. They're San Francisco based company. Incredible. But they built all this infrastructure to drop ship products from China, India, Asia to the end customer in the US in less than 5 days. So they've now taken that capability and externalize it to all other uh providers like >> a logistics 3L company. >> So linear now will use Quinc Logistics. Raycon will be able to use Quinc Logistics at the speed of FedEx but at a fifth of the price. It's actually cheaper for me. I mean, I fulfill all US orders from Dallas for linear, but it's actually cheaper for me to ship from Hong Kong using Quinc Logistics than doing the endto-end fulfillment within the US. And it takes on average 4.5 days to get something delivered to a US customer from Hong Kong with Quinc Logistics. It's crazy. So, I started working with them. I'm basically shilling the service on my ex. And from my ex, I have 16,000 followers. We built a pipeline of more than $150 million of ARR in just like people wanting to use our service. Not not revenue that these companies do, but $150 million they would spend in shipping with us analyzed if they were to move 100% of their business to us. It's crazy. So I think for me the next thing is to take more strategic advisory roles, generate a lot of alpha by being able to look at these businesses under the hood, get more data and then use those insights to invest in whether it's public markets, private companies or spinning off and shovel businesses >> from the bomb from the distributions. >> Exactly. From a bomb approach and taking this bomb approach to the rest of the P&L of a DTC company. >> Yeah. I also think to make this like radically transparent to people on here. I'm not a a big Twitter guy. More of like Instagram and YouTube. Like the third bucket with you is like it's it's a very very valuable 16,000 followers on Twitter. You're also for all intents and purposes you're like you're a content creator. Like I know Twitter is words. It's not like >> you know dynamically producing videos and photos and stuff but like that has been a huge part of you driving deal flow is Twitter. Correct. >> 100%. That's the only reason I did it. Like so up until 2022 I was just in stealth. I was just like, okay, I'd already bought four companies with my own balance sheet, no LPS, nothing. And all of a sudden, so the way Peak 21 was actually formed, my founding investor is Jeffrey Yam. Jeffrey Yam's father owns Forbes Media. So they're a Hong Kong family that actually owns Forbes. And Jeffrey is on the board of Forbes. So my wife was on Forbes 30 under 30. There was a summit in Hong Kong. We went there and Jeffrey recognized my wife just like oh you guys run linear incredible story and he was just like and then he met me and was like Raycon and they got to know us and they heard that we had done nine figures in revenue by the time we met them. They were like who the [ __ ] are these people? So as you get nominated for Forbes they had access to our books like Jeffrey wanted to learn more. I think Jeffrey wanted to put Jen on the front page of Forbes or something, right? Like he was like really interested in the story. They were looking through our books. It was like how the hell are you doing this? Like how are you doing nine figures without having raised any money >> or how is your opex like 5%. >> There was like nothing. Your [ __ ] keep going down. >> It came to my office and was like I spent no money on my office, right? Like it was like a [ __ ] hole. It was he was so impressed. So him and his father pulled us aside and he was like you have to take our money and start buying huge companies and take way bigger swings than what you're doing right now. And I said no. I was like we're enjoying our life. I'd just gotten out of the bankruptcy. I was just like, you know, like I'd just turned a corner. I was like, you know what? I want to chill out. Guess what TC does? Jeffrey's father, he sends Jeffree to my office every single [ __ ] day for 15 days. He's at my office every day for 15 days. And then I was like, "Fuck it. Let's like form a company together. So peak one is a little bit misleading because the first four companies were under my name like Linear, Raycon, etc. Nutrition Kitchen. Peak one is a separate entity where Jeffrey and a bunch of other investors invested in us. I own like majority of this entity but we use those funds now to buy companies. So the whole impetus of building a personal brand was because I felt a moral obligation to generate return for external shareholders. It's like I need to generate deal flow. This is really hard. Let me go on X and start writing about my journey. And that's how it came about. >> So it's just a CAC arbitrage, a deal flow. >> It was just like deal flow. And now it's turned into so much more. I have a community. I host two really big events in Hong Kong every year. You know, even though I'm not buying companies actively now, I'm still doing it because it's so much fun. And I'm having a huge impact on Petra Sparks and Quinc Logistics by just talking about helping founders actually save cost and getting a better offer out there. >> And this is all under the notion that your wife, who's the face/content creator, was seen by this guy. So that's right. It worked. >> It worked. Double leg short. It [laughter] worked. >> It worked really well. Yeah. Really well. >> Guys, this episode is sponsored by Ketone IQ. I often [music] sit down in this chair for over 3 hours and stay super dialed with ketones. It's a completely different category of fuel for your brain. Clean, sustained, and no crash. I take a shot before recording, before deep work, and any session that I need to be sharp. Head to ketone.com/open residency for 30% off your first subscription and a [music] free gift with your second shipment. That's ke.com/open [music] residency. Guys, this is something that I use every single day, non-negotiable. Give it a try, guys. Let's buckle up for this last segment because it's it's very very aggressive. We're going to talk about a little >> how you look at management. >> Yes, >> it's very aggressive. Why don't you just give us your like >> management thesis and framework? How do you manage your companies? >> It's very anti-Genz, right? Like so I think I really believe you have a moral obligation as a senior, me being 40, right? Like the average age among my employees is definitely not 40. It's sub 30. You have a moral obligation to put young people up for success in a postcoid world. It is very easy for me to just throw in the towel and retire and hang out at the beach and not work anymore and do nothing else. But I feel like I've accumulated so much experience. It is my obligation to train the next generation of D2C founders. I just had one girl. She used to work for me for 2 three years. I trained her personally. She would travel to me to New York to the Raycon office. She was one of the centralized resources. She begrudgingly left me 18 months ago. I love her. But you know, and she's now doing nine figures. She started her own DC company doing nine figures a year. That gives me a lot of pride. I hope 10 years from now, if you fast forward, my legacy is that I've trained at least 100 people like her, like Momo, that go on to do really incredible things. Like I have a lot of people who have worked for me, that I've trained personally, who've gone on to have incredible careers after working for me. So, I want to put that really big disclaimer in there. The way I was able to train these people when they come in is by micromanaging the [ __ ] out of them [laughter] like crazy. And it's blasphemy saying micromanaging. >> Saying micromanaging is like a bad word. >> Yeah, it's a bad word, but it's a great word if you think about it as a gift. And the gift you're giving is recurring constant feedback to your most junior employees on a consistent daily manner in a predictable frequency. What people don't like about micromanagement on the receiving end is that it's unprompted, it's random, and it's not consistent and it's not structured. None of those things happen under my umbrella. Right? So, we'll splash it up on the screen. I'll send you a screenshot of it. But every day I get an update in Slack now by AI. Previously it was done by virtual assistants where I get my revenue profits spend all the excruciating detail that you can think of on the P&L by day. So it will be like oh today Raycon should have done $200,000 in revenue. We did $199,000. It will have a red circle next to it. Yesterday we were supposed to spend $100,000 on ads. We spent $90,000 because influencer came in short because an influencer didn't deliver. Red light return on ad spend was higher than our budget. Green light. Our repeat customer rate was 20% higher than target blue light. So we have this like red, green, and blue light in our reporting and it's automated in Slack and everyone gets it. >> Everyone gets it. >> It's a town hall. It's a town hall. So we have like a marketing analytics channel and you can see all the numbers there right there and there. Let's say Amazon is offt target three days in a row. Let's say Amazon is off target today. In that thread on Slack, you as the Amazon manager have to reply and say why you're red, not green, not blue. Oh, you know, we didn't get the best deal prime spot. It got cancelled last minute. It was out of our control. We're going to make up for it by doing XY Z. So an SOP for every red light and green light and blue light. If you have many blue lights three days in a row, you also have to explain why your budget and forecast was so off to start with. So that's radical transparency that starts in a town hall that's lives on Slack. >> And this is just I mean this is a million things, but it's it's pattern recognition. It's accountability over time. You can basically see how the like every single day. >> Yeah. Because if you make a compounded improvement of 0.1% every single day, you're it's going to compound to multi nine figures a year. So like if you look at it daily and improve every single day and measure your performance every single day in this manner and you have a intellectually honest debate in that town hall every day, you're going to set up the team for success. So that's the number one thing I do to show juniors that I still care. Even though I'm traveling like [ __ ] crazy right now, I'm still on this thing. and anyone can access Slack, right? Like or you know you can open that up and have a conversation even if you're on the road. We'll do that and transpose it. So our department leaders will reply in that thread. Our juniors will see it. Usually our juniors will prepare the answer for the marketing leads but then more importantly I have of the 110 people that are in the front office actually not the supply chain team I take that back like 70 people have a daily task channel with me. So, your channel will be, let's say you run PPC for linear, be daily-tasks-mark. And every day when you clock in at 9:00 a.m., you're going to say, Mark is going to say, these are the three things I want to accomplish today. These are the other things that are on my to-do list. And then when you clock out at 6 p.m., you're going to tell me, I got these three things done with a check mark. And then you're going to break down how you spent your day, like on time allocation. I spend 30 minutes on emails, one hour in the Facebook ad manager, 30 minutes in the Google ad manager. And this helps me understand over time how you are allocating your time, Mark. Do I need to hire support for Mark? Is Mark overloaded? Is Mark spending time on things that don't move the needle? So, I actually get these daily reports and that's the actual micromanagement technique that I use to manage my org. And there's correlation between that PPC channel and then the macro channel if you know underneath digital marketing PPC is red red. >> Exactly. >> You hit the nail on the head. >> Yeah. Yeah. Yeah. >> And I could be like, "Oh [ __ ] Mark is not spending enough time on creative production." >> So I have visibility to all 70 channels. Obviously the department lead is grilling you and not me. But I have visibility on it. So when we have a very difficult conversation, let's say we have a sixmon review, right? Like we have reviews with all our juniors every 6 months or anyone in the company and we have a feedback session that can give really detailed feedback and have a chronological diary and journal of how Mark spent his time >> with AI now. This is absolutely crazy cuz you're getting daily logs. >> Exactly. >> Backing into the macro. >> Exactly. >> Red, green, blue. >> Yes. We haven't applied the AI to it yet. We have not. It's something I'm thinking deeply about how to do with it being human and respecting the individuals in my organization. But this is the foundational layer of my success is micromanaging. I am in the weeds still today, but I've created the system that doesn't bog me down >> cuz it's simplified to three color circles layers of sea level. >> Yeah. And the right hires that come in like Momo who came in and left. And >> who's Momo? Let's give Momo a shout out. Momo is amazing Japanese girl who came who lives in Hong Kong came to my office to deliver something or pick up something for her boyfriend who's her co-founder Rahul. Amazing guy. And they run this crazy company called Nancy. You should all check it out. They sell sex toys. She's like a model example of someone who comes in and just like embrace it. Just wants feedback. And you have a lot of other people in my org that would just come in and like >> have good LTV. Sex toys have good LTV. >> I don't know. You have to ask Momo. you should have her on the pod with Rahul. But you know, I think >> extrapolating like that attitude is what's going to get you to the next level, you know, like that's what's really going to unlock something. I had that attitude as a junior when I worked in private equity, when I worked in finance, when I worked at Rocket Internet. I had that attitude. I just want to do better. Give me feedback. Feedback is a gift. So, if you're allergic to feedback, you're going to be very unsuccessful in your career. If you have too much of an inflated ego and you're not self-deprecating and you can't you take yourself too seriously, you're not going to have big success in your career. I think that's what we filter out for when we hire. >> So these are the two these two core systems is this macro Slack channel, three color circles, and then on a per person basis, the micro Slack channels. Yeah. How long you been doing this for? >> Six years. >> Jesus. >> Yeah. Yeah. I've been doing it for six years. I honestly think like that was one of the biggest unlocks for my business by far. >> Here's the real question. Have you ever let go? Like have you ever tried no >> kind of pumping the brakes a bit? No, >> I will never do that. This will not work. I won't even delegate it to AI fully. >> I will get like a digest to help me be my chief of staff with AI. I mean, think about it. But I don't want to stop my habit of looking at the numbers manly myself. This is something I learned from Oliver Samir at Rocket Internet. He's the founder of Rocket Internet. I was a managing director at the firm. We cloned everything in the US and brought it to the rest of the world. So we cloned Zapos, we clone Amazon. They went on to become billionaires on the back of this like incredible story that you should dive into. But he said something that resonated with me. We had like this weekly Monday call where he would rally up all the managing directors and ask us, grill us about our numbers. It was crazy. like it's like so it was like a big bully like it would just grill us in numbers and like why don't you know this Roman why why why and he said something we're bakers he said something like that like it was a metaphor so like in the morning we buy our flour we bake all day we sell some buns we count the buns we didn't sell and we check how much cash was left in the cashier and we have to do that every single [ __ ] day and that's something I really took with me from Rocket Internet when I started my own businesses was like I need check my numbers every single day. I think I lost track of that when I was going almost bankrupt and then I went like completely maniacal on the other end. I was like, I'm going to check everything every single day. I want to know what's going on. And I've been able to find systems that's allowed me to take a little bit of a step back. >> What about weekends? What are we doing here on weekends? >> Oh, I don't check numbers on weekends. Like I'll I'll scroll through analytics and stuff, but like I'm not that needed in the businesses anymore. Frankly speaking, my workday is really short. People are actually quite shocked by it. Like my deep work I'll work two three hours a day like very deep like very concentrated so maybe one hour on triaging emails difficult conversations with suppliers or employees or whatever like you know let's say two hours of like just communications and I would say like two to three hours of like real deep work when I'm trying to solve a meaningful deep problem. Um but I'm not really needed in the day-to-day. I only work on our moonshots. >> I was just gonna say outside of wife, family, kids, it's how do we find a way to put this cash to work to get the asymmetric. It's finding those opportunities. Three hours. That's the three hours. Like >> me diving deep on pets or me diving deep on the next prenetics or you know whatever it is. That's where I'm spending my time having conversations with you. Having conversations with Sam Parr last night at his house, right? Like I'm hanging out with him and his wife. They're super close friends of mine. But Sam has so much alpha. Like for me, that's not only hanging out, but it's almost a little bit of work because he gave me a couple of tidbits that were just so huge that I kind of want to run with, you know, like so it's like uh stuff like that. I have a problem. I feel like all the conversations are like a little bit of work. I just [laughter] I just had this whole conversation with my wife about this. >> Yeah. And it was like when we were I thought we were talking about something that wasn't work, but she's like, "You're looking at it under the POV of business." Uh yeah. So I want to talk about how you hire. Um this book the who I don't know do you know Kenth from Neurogum? >> No [ __ ] killer. I'm great guy. Uh he was the fastest growing brand on TikTok in 2024. Okay. >> Absolutely smashing it. He loves this book as well too. We did not double on it. I want to double click on it. So >> amazing. Why don't you tell us about the book and then let's just kind of go over kind of each big part and what you've learned through the years because the reality is I think we set the table here properly where like it takes a very specific type of human that is going to not only say I'm going to accept this job in this kind of slack situation but stay over the long haul. So >> what's the name of the book and let's just kind of touch on each of the kind of big steps that it takes. >> Yeah. Um the book the a method is an incredible book that changed my life. For context before reading this book and implementing this process our attitation rate was really high. People would stay with like 20% or 30% of our employees would leave within 12 months of being hired. What was first was uh did you have these systems in place without this method? No, we didn't have systems which was a big drawback. So it probably was micromanaging but not predictable. >> I just said like I was a bad manager. I was just a bad manager. I was a bad leader >> and we didn't filter people out. So we hired the wrong people. >> So this book has literally changed my life and I honestly think going from 50 million to 200 million that step that step like over co pre-COVID 50 million being able to meet that demand we were only able to do because of this process number one and number two because I almost went bankrupt in 2018. So I knew not what to do with the bomb. So these two things, the bill of material and the A method is the secret sauce of why I'm so big today. So the A method is basically a process, a five-step process on how to communicate what your firm is about externally through your job description and having a very clearly defined scorecard. So that's step number one, like a scorecard that communicates that transposes into a job description that communicates what you want out of this person joining the firm and so that person also understands what he or she will get out of joining the firm. >> The second, so this is role clarity. >> Role clarity, super clear role clarity for everyone on the organization to align. everyone, the hiring manager, the CEO, the person that's actually going to report into this person. Everyone is just aligned through the scorecard. >> And is this like what your daily operating rhythm is going to be? Like what are you going to do? And then what are the KPIs that you're held to type thing? >> The most important thing is the attributes of the person we're trying to hire. >> Attributes. Okay. >> Is this person charismatic? Is it a salesperson? Does he or she have to be very extroverted? Is it a head of finance? Does extroversion even matter? Do how do we remove bias in this process? We are drawn to each other because we're both extroverts. That would make me prefer you over an introvert for any role in my company. How do we remove bias and focus on the right attributes in the candidate? So, that's a scorecard. The second step is the screening. The screening is the first step of McDonaldalizing your hiring process. So, you want to, you know, when you're at McDonald's, you're flipping a burger every 30 seconds and you're putting the lettuce on in a certain order of the tomato and then the mustard and then the bun, right? Like, you want to McDonaldize your process and completely standardize every single interview so that you can compare candidas as apples to apples instead of apples to oranges. And is this uniform across all roles or is it uniform across like like would the head of finance be different than the head of marketing? all standardized for screening. That's the beauty of this method. You can use the same questions. So, you can whip it out at any point in time. Let's say you're having a coffee with someone and you're like, "Fuck, I want to hire this person." You can immediately apply the screening questions just to screen the person, regardless of the role. Regardless of the role, it's incredible. It's incredible. Step three is top grading. Top grading is going deeper. Now, this person has passed screening. We'll talk about screening in a little bit. You want to go really deep into this person's track record. So the first screening process takes 15 to 20 minutes >> max >> macro questions. What do you want to do with your life? ETA >> kind of like so we'll get into details. >> Top grading is like 30 to 60 minutes. You're going deeper. You're being like okay let's say you're interviewing me Roman you know what did you do at Rocket Internet? Exactly. You know and then you go deeper and deeper and then you go into what did you do at linear? What did you do at Raycon? What did you do at Nutrition Kitchen? What are you doing at P21? you find that hole in 2017 2018 what were you doing in between these two jobs >> what went wrong etc etc >> so you get to know the candidate really well >> step four is competency and culture or what we do is the competency is usually a case study so we run someone through an exercise for their domain expertise so like for a head of finance it would be spotting mistakes in management accounts and reconciling the income statement against the balance sheet You know, it would be like a case study, very specific. >> So, at this point, this general interest probably sign a mutual non-disclosure agreement, access to real things. >> Yes. Or we have fake case studies with fake dummy data with like traps in them. So, we can check for attention to detail, all these things. And then you do a cultural fit questionnaire where you kind of try to understand whether or not this person would be a good cultural fit. >> I.e., are they okay with your Slack system? >> Yes, exactly. Are you okay with constant feedback? Are you okay with giving me constant feedback? Are you going to be afraid of giving me constant feedback? I want feedback too. I have a daily task channel that everyone has access to. I do the same by the way. So I lead by example. Important. Yeah. And then the last thing is so let's say they pass all these four stages. You'll do an offer conditional on reference calls. You'll be so surprised by how many founders who skip reference calls. It's [ __ ] insane. It's like the dumbest thing you can do. Like [ __ ] dumbest thing you can do. But you do two reference goals for senior hire. Ideally, three. This is very interesting because I have in my brain, it's kind of like a pendulum. It's kind of gone back and forth. What are you really interrogating and getting out of that reference in in relation like if I give you references like they're going to talk well about me? Like some of my past employees like I'm helping them get new jobs. >> I'm like, "Yo, I'm I'm going to say what you want me to say. I love you, bro." And again, I'm not I'm not lying on their behalf. Is it more like what are you actually trying to get out of those reference calls? >> This process will destroy someone like you. Like it would like actually get to the root of what you actually think about the candidate because there's a standardized process in how to ask you questions so that you don't actually give me a fluff. I like Roman, so I'm just going to say something nice about Roman. I'm going to ask very specific questions about Roman that I caught in screening top grading and competency. The reality is is the reference interviews are malarkey for 99%. If if you're using this, it makes sense. >> Exactly. >> Yeah. What I'm saying, it doesn't make sense for me. You want a straight line through this doc. There shouldn't be any zigs and zachs. Everything has to reconcile. So, let's go step by step. Okay. >> Yeah. >> Scorecard. Let's go through that first. So, for this case study, we're going to use a head of finance because most people come to me for two things. One is to hire a head of growth. Usually my answer to them is you are the head of growth, hire for everything else. And then the second thing is head of finance because everyone has shitty books. And you know they want to do dividends. They don't even know their numbers. Usually we come down the road of like hiring a head of finance. I think head of finance is really easy to extrapolate because it's a very like squared role, right? Like it's very defined what this person does. So the outcomes I want from the head of finance is, you know, I want that person to build me financial models. I want that person to do me management accounts, reporting, audits, budgeting, monitoring, risk, all that [ __ ] right? Like we know what an a head of finance is doing. The competencies, the real things I want in this person is I want extreme extreme OCD. Attention to detail has to be 11 out of 10. like I want this person to not make mistakes. >> How many of these if we look across the five steps, how many of these are correlated and native to your specific company versus like okay if you want a head of finance like this is applicable to everyone. >> It's no but I'm saying that head of finance the competency is that going to be the same competencies across every company or is it going to have wrinkles native to >> it depends. Yeah, >> it might be a little bit different per company, but for head of finance, I would to say it's the same for every single >> for the most part, it's a very it's it's very close to one. >> Very close. Very close. So, I want like my head of finance to have incredible OCD and attention to detail. That's crazy. Incredible analytical skills, decent problem solving, and then like get [ __ ] done attitude, right? Like get hands on. What I don't need this person to be is charismatic. I don't need them to be extroverted. I don't need him to arouse me in an interview process and get me excited. I want to fall asleep in the meeting. That's completely fine as long as he ticks the [ __ ] boxes. The mistake I made early in my career was like, "Oh, you're very likable. You're going to do a good job." And that has nothing to do with being a good head of finance. We don't need to be friends. We don't need to hang out on the weekends. You don't need to come to my daughter's birthday party. You need to [ __ ] do a good job of accuracy and get me the financials on the 15th of the month and tell me, Roman, you're getting a million dollar dividend this month from this business. That's what I want from you. That's the outcome. And you're not going to miss the clock by any means. You're always going to hit those numbers, right? Like, you're always going to be able to close the books on time without me chasing you cuz that's the scorecard. This is so important to sit down and actually be intellectually honest about. Now in the world of AI, I feel like you can prompt it really easily. Like for me, before we would actually have a long meeting about like what do we want out of our head of finance, but like what do we actually need for Raycon? What do we actually need for linear? What do we actually need for these different businesses? >> And is this scorecard, this first step, is this binary? Is it like yes or no? Like yes, you make it to the next round or no, or how does that go? >> We'll get to that now. So now that I have the scorecard and I'm like, okay, I know what I want. Like Daniel, my CFO at Raycon. He's [ __ ] amazing. I love that guy. He's amazing. He like fits the scorecard. I'm actually close to him, so we hang out. [laughter] >> But, you know, he just like ticks all the boxes, right? Like he's amazing. He actually used to work with my business partner's father for many years, right? Like, so lots of trust and all these things. So, when you get candidates in, right? Let's let's go through screening into with you. You're the you're Daniel now, okay? You're the head of finance, right? The first question is what are your career goals? Now any recruiter can go through the screening interview and you as a founder don't need to do them. You should even give them to your head hunter and have your head hunter or recruiter give you do these questions and take maniacal notes so that you can read them later. What are your career goals? If I'm hiring someone for head of finance, I want them to say I want them to be a little bit entrepreneurial because our companies are very lean and like entrepreneurial by spirit. I want you to say that you eventually want to be a CFO of a big company because for a head of finance, I'm probably interviewing someone who's a senior controller who's like has a little bit of a chip on their shoulder, wants to step into a head of finance. >> Has to be aspirational in nature. >> Has to be aspirational by nature. Exactly. I don't want to hire someone who's already head of finance. probably I want to hire someone who's been a senior controller or a head of accounting at one of these firms because that's a stepping stone to head of finance. So I want that person to say like I want to be a CFO or maybe eventually I want to start my own DTC brand. I want to get to CFO and maybe start my own business because then you have a little bit of an entrepreneurial flare and you're fitting the scorecard of like okay I want to be a CFO. You definitely want to hear that, right? that person says like, "Oh, I just want to save up a million dollars and then like kind of go retire and like bumble [ __ ] nowhere." And you know, that's the end of my career. This is the last stop. Is probably not the right fit. If that person says like, "Hey, I just want to be the head of finance for a small company and not go public with the company, etc." You kind of get a sense of whether or not that person fits your scorecard. You get what I'm getting at, right? >> The and the thesis here is longevity. How do I hire this person and they stay forever? >> Exactly. >> Yeah. Exactly. How can I actually make this an exciting place where the person can actually grow into the role and does that career goal actually align with what I can deliver and offer? Often, you know, when I talk to my heads of growth, I'm just like, listen, there's a CMO here already. There might not be a role for you here because there's a glass ceiling with someone's with the company. Well, I'll buy a company and make you the CMO or CEO. And that's how I retain people. So it's important to understand that really early on in the process. >> Radical transparency for sure on this part. >> What are you really good at professionally, Mark? Right. Like it's like you know what I want to hear here is like I'm really good at building processes. I really enjoy doing the same thing over and over again. >> Yeah. >> Like I really enjoy actually going through the books at the end of month. If you say to me like I don't really enjoy repetitive work. That's a deal breaker for a head of finance. Because head of finance, it's like you don't notice when that person is doing a good job. You only notice when things go wrong. That person is invisible in the organization because he or she is doing such a good job. So if you say like, hey, I'm really good at process and doing things great. What are you not good at professionally? And then you'll say like, I'm not good at doing repetitive task. For me, honestly, deal breaker if you want to be ahead of finance because I want you to close the books. I don't want like some junior accountant to do it. I want you to do it because it really matters to me. And then I go into the tricky question here and there's a lot of nuance here. Who were your last five managers? Give me the exact names. And how would they rate you from 1 to 10? So you're working currently at IBM. Who did you who do you report to at IBM? Oh, Roman. How if I called Roman, this is how you have to ask the question. If I call Roman and I asked him to rate you from 1 to 10, 10 being the best. How would he rate you? And then you're like, hm, eight, and be like, okay, why an eight and non nine. Why? Give me give me give me give me detail here. And then you're like, okay, you know, sometimes I get the books delivered late, like he wants them on the 15th of the month and sometimes >> under the gun to really tell the truth and >> Yeah, exactly. Yeah, just 15th of the month and sometimes he gets 17th and he gets really annoyed because he's obsessed about the 15th of the month. >> That's what you will hear from one of my head of finances, right? Like I drill a new hole in his [ __ ] every month because I'm just like it's the 15th. What the [ __ ] is going on? I have an audit email going out like to all my heads of finance like where are my books? I have a counter invite for myself. And then he'll be like well because I get bogged down. We have a lot of random initiatives at the company and I kind of dep prioritize it. It's like okay so do you have a problem with prioritization like what's going on there? I won't ask that here but I will take a note and we will ask that in the next step in top grading. I'll be like okay Mark clearly has issues prioritizing. He like we need to double click on this. Last question is why do you want to work for peak 21? Like why do you want to work for us? And if the person hasn't done research which is surprising a lot of them don't. I'm just like, you know what? Like, if you're not that if you if you haven't even spent five minutes researching me, then you know what are we doing here, right? Like if you if you're not excited or if the candidate is amazing, we should do a good job of selling this person to get him or her into round two. >> This is basically just a million different booby traps. >> It is. >> Yeah, >> it is booby traps. >> It is. >> It is. [laughter] It is. It is. It is. It is. It is booby traps for both parties. It's for you to also step away, avoid booby traps for your company and not hire someone who's going to be deeply unhappy at your company. >> It's almost like you are trying to not hire them. Like you're trying to ask too many things. >> Good. Good. >> Yeah, >> that is right. So, you have like 15 to 20 minutes doing this. Then you want to leave 10 minutes. So, >> this is one thing I learned from my wife. She works in management consulting and you always want to leave the candidate. Even if you're rejecting the candidate, you want to leave them excited. So your the last 10 minutes is just like, you know, Mark, this is an opportunity for you to ask me anything about the role, about our company, how we operate, anything you want. And I know I'm going to reject you. I know that you're not the right fit, but I still leave the room open because you always have to be selling. And you know, Mark, you'll go home to a party that same night, hang out with some friends, and be like, "Fuck, I really like I interviewed with Roman. He was an epic guy and picked one seems so epic. I hope I get the job. That's what I want you to leave with. Even though I don't think you're a right fit. So, that's the last 10 minutes. A really important 10 minutes. >> Is that nuance a part of the book or is that a wrinkle that you do? >> It's a part of the book, but not as much like this has come from like professional working experience myself. >> All right. So, uh let's get into step three. Yeah. >> Top grading. We went through scorecard. We went through screening. Yeah. What's top grading? >> Yeah. Top grading is like you now filter through candidates that align with your organizational goals. on top grading you're just going very very deep what we talked about earlier like you're actually going to go chronologically through the CV and go through every single role so the way you apply these questions are you take take myself for for example like when I rock worked at Rocket Internet let's say that was my first job out of school my title might say managing director but was hired as an entrepreneur in residence so what you were going to say ask her is that what were you actually hired to do Roman it's like I was hired as an entrepreneur in residence. Okay. What did it take you to progress to managing director when you left? What were you actually hired to do as an entrepreneur in residence? You go into detail. Then you ask, what were you the most proud of during your time at Rocket Internet? Uh that gives me an opportunity to talk about something positive. What were your low points during your time at Rocket Internet? And I'll say like I didn't like the culture. You know, sea level was like culture was really toxic. Blah blah blah. I'll describe the culture and why it was toxic. I can see that, you know, I would be a good fit for Peak 21. Who did you work with or for, right? Like, so Roman, who did you report to during your time at Rocket Infinite? I would say Pierre and and then even say like, okay, if I called Pierre, how would he rate you from 1 to 10? >> Trap him again. >> Exactly. So, because in the screening, you usually don't have time to ask about five managers. You'll ask about like the last the current one or the last one just to put people on the spot. Here you have an opportunity for people with a more extensive CV to go through each and every single role. >> So this is the minutia from the past. >> All the small details. >> Exactly. >> And then why did you leave? Why did you leave this firm? And I think that's that's the last question. So yeah, who you worked with? The manager rating you from 1 to 10. That's a that's a big one. Then you have step four, competency and culture, which I think is really really big. So competency is like a case study which we talked about earlier. And then there the there's the basic like cultural fit questions. >> And this is you hammering down in this is our operating rhythm of how we do it. And this is where you almost scare them. You want to like tell them. >> Yeah. I don't think it's like scaring, but it's it's it's more like I think people the right candidates really appreciate how granular we go. They really appreciate that we put so much thought into this and that we're reference checking this much because I think the right candidates really appreciate it because they can tell that we're thoughtful in how we run our companies. >> Give me some uh like context. Let's just say you have a hundred people that are on step one. How many people have the nuts to get through all five? >> Yeah. when we when we apply before like [laughter] if you have a 100 applicants right coming down to screening we've we filter out like 70%. So like only 30 people actually make it to screening from scorecard. So we have the scorecard and people apply right on the website screening people who are actually going to get a phone call for the step number two. You have a 70% rejection rate 80% rejection rate. So let's say we have 20 candidates left. From those 20 we'll probably extend maximum one offer. >> Wow. >> Maximum. Max. >> So >> you're backing into like 1%. >> Yeah. 1% from applicants. >> And what's your thesis? Are you just always always hiring and is it more for role or is it more hey this person is super talented I have an everexpanding organization new companies I need to get this guy or girl how do you look at that >> we don't hire ahead of the curve we >> keep that opex low baby got to keep that opex low baby >> no we want like high utilization and like we don't have any excess capacity in any form or manner >> so your thesis is just to be a teeny bit understaffed and kind of push at the seams and then higher when >> correct Love it. For everybody out there, this is multiple times. Kent, someone else too also mentioned this book as well. At this point, I've been hit over the head two or three times with this book. I think that we actually have to use this book. So, I'm excited. >> This is a cheat sheet that I think is like gets you 80% of the value to be honest. >> Love it. I guess next is why overseas instead of the US. I know you're a big overseas guy. Yeah. >> And we don't have uh HR over here at Open Residency. Sorry guys, it's a very very small team of sub five. Maybe when we get to 10 plus we can we can get there. But give us the the the God's honest truth right now. Why? Salaries in the US are quite out of control compared to the rest of the world. Inflation is a real thing here. Even though the consumer is here for the large scale brands, the cost just makes it really prohibitive to have large teams in the US in D2C. Why don't you give us context as well? We're uh on iconic big in the Philippines. My business partner actually lives there for >> Oh, nice. for half of the year. I guess let's break it down from US Philippines and if you want to layer in any I'm just going to call kind of lowcost labor there. And then I actually know nothing. I've been to I've never been to Hong Kong. Give us if if it's $100,000 in the US, give me some context. Yeah. Versus kind of the other places that you hire from. >> Yeah, we have big hubs in Shenzen. Shenzen is really low cost. Like the $100,000 person in Shenz in New York would be I mean there's no hundred,000 person in New York anymore I feel like but you know let's say 100,000 would be 20,000 a year in Shenzen $30,000 a year in Shenzhen. >> So is that lining up to almost Philippines costs or Philippines? >> It's Philippines plus two times two maybe. >> Yeah. >> So Philippines is at 10. >> But the caliber of the person in China is so high. so high. Like our Shenzen office is really, really, really, really good. Like I can name you three D2C companies that are Shenzen native. I can't mention them on the pod, but like that do more than nine figures a year. Like one company went from 10 to 100 to this year $500 million in revenue. All Shenzen based. >> So this is the opex arbitrage among other things is >> and just like the work ethic, the sheer work ethic of the talent there. They're willing to work seven days a week. >> So say this slow then we're talking about 20k Shenzen 100 New York. Are you saying it's one to one as far as talent and output >> if you have a specialized role? Right. Like so >> where they don't have to understand and have as much context across like multifunctional. >> Exactly. Exactly. So procurement for example >> and I mean I mean at that point if you're going to hire a generalist in the US to do five things you might as well hire >> correct. Exactly. You hit the nail on the head. >> Damn, dude. >> Hit the nail on the head. So like my head of procurement is from mainland China. My for one of my brands, head of BI and analytics and PPC is like one mainland Chinese colleague. It's just much more affordable on an hourly wage basis because these people show up all the time and are consistent, loyal, and deliver. So it's really in a global world in a global very flat world right like very flat very homogeneous world in terms of talent you owe it to yourself to hire outside the US because your cost base and the livelihood of your business really depends on it so I'm not saying go draconian and spend nothing on people but you need to be in a position where you can spend on people which means your margin of error has to go up true bomb through better opt X true everything. >> Love that. What about in-house versus agency? How do you look at that? We kind of went over overseas versus local. >> It's so founder driven. Like if you're a sub$50 million business, you're either winning because you have a unique novel product with incredible USPS or you're a marketing savant or you're both, right? Like so it really depends. Like if you're good at marketing, never outsource it in my opinion. Just own that capability in-house. It's very rare where I've seen a good marketer be able to delegate the marketing division pre-9 figures in revenue and it turn out well. Pre-9 figures in revenue you really have to be dialed in. You know >> what percent of your company would you say is in-house versus agency? >> All of them. [clears throat] >> Everything is in house. >> Yeah. Yeah. Everything is in house >> because of that micromanagement. I know. >> Yes. Exactly. And it's just like my biggest cost. I really want to harness and control it. And we're really good at paid, right? Like that's my bread and butter. We're really really good at paid. Like I'm known as a marketer. Like I'm the CMO at our companies. We have a professional CEO for each and every single company. But I I still hone in on marketing and managed marketing myself. >> Love that. Uh taking a step back to kind of wrap up hiring. What do you think is like the biggest hiring mistake you've made? And you can say from Rocket, you can say from any of the the past companies and or now. >> We were in one situation once at Rocket Internet. We were had to let go of a lot of people at this Zapos clone Zora. It was like Z it was Zapos for Southeast Asia and it wasn't a mistake that I made but like it was just mistake the whole team made overhired and Mark Samir one of the three brothers the German brothers from Rocket Internet came in and said like hey Roman and all the MDs that were in the room they grouped us together in this like room the size of this studio I said Roman there's like or all the MDs like guys there are A B and C players and any organization has maximum 10% A so German like maximum 60% B and the rest is C and we're going to fire all the C players today. The one mistake we made when we massfired during that mass firing was that we did not talk to our A players before we fired the C players. So it created general panic and a lot of our A players left. I think when [ __ ] hits the fan and you have to fire a lot of people, the first thing you want to do is like take your A players out for a coffee and be like, "Hey guys, we are not doing well. We're going to do well, but we need to make some really difficult cuts. You're safe, but you're going to see a lot of your colleagues leave. If you stay behind, we're going to take care of you." And then you go out and you take care of the C players and you you let them go. I think that was like a very like big learning for me and it set the standards and bar really high because I said like I never want to be in a position where I have to let go of someone. I don't want to have these conversations. These are tough conversations. I don't want this negative energy in my life. So I think like that's the most memorable HR lesson I have. >> Yeah. You said earlier like always be selling. I think another thing that I've learned through the years is always be retaining. So you're selling and obviously selling is is a form of retention too. So, letting them know before that's coming. >> Yeah. >> Last quick segment before Quick Strike. You're >> holding on buying businesses right now, but you've bought a bunch and I'm sure you'll pick out pick back up shortly. When you buy businesses outside of, let's just say, the supply chain, what are those like key levers that you always look to shave or cut? I only look at two things. I look at marketing spend and then I look at bill of material. That's it. Can I do I have an unfair advantage in one of those two domains? So for marketing, it would be really simple. Are they spending as much as I think they should be spending on meta? Are they spending anything at all on influencer? If the answer is no to both, like they're not spending enough on meta, they're not spending anything on influencer. >> So the worse the better hypothetically when you're buying a company, >> great green field for me. Like the company I bought in 2024 spent $1 million in a year in in in ad spend and did $24 million a year in revenue. >> My god. >> Because I find like >> 3k a day. >> Yeah. Crazy. >> I find like needles in the haststack, right? Like I find needles in the haststack because I talk to so many people. >> And when you go in there, it's obviously you're first looking at the bomb, but then it's basically just like a cact exercise. We're like, can I push >> push on meta? >> Exactly. Can I just spend 10 million instead of 1 million? That's it. Obviously, I couldn't because of the trade war, but like now we're back at it, right? Like now we're going to scale this thing. But that's the that's the number one question I ask myself and that's the biggest lever. Second question I ask myself is on the bill of material. It's like is this optimized? If I buy this, can I immediately add another million dollars in bottom line by just renegotiating terms? When is the last time this 10year-old business saw a decline in COGS? Zero. Okay, I can go in and like get that down. You know, >> usually I would say that for the majority, it's probably >> Exactly. For majority, >> probably never. >> Yeah. >> Anything else? Like when you go in, how do you make sure that you're getting what you think you're getting? It's like you're going in and like you see what you see. Um any type of like insurance plays that you do to kind of understand and know that it looks like it is what it looks like. Yeah. Take Nutrition Kitchen for example. When I bought into the business, I did it over time. First I bought 12%. Now I probably own like 60% of the business. The founder rolled over some equity. I actually started by just managing their marketing budget and designed a call option like hey if this works out and I'm able to scale your budgets I have the right to buy more shares in your company. So I think it's just by leading with value. If I were to do it today I haven't done this practically in a long time. I'll just go and be like Mark let me take over the reigns of your company for a month. I'll spend a 100 grand of my own money. No strings attached. At the end of it, if it works out and I'm able to like drive revenue with the 100K, I want the right to buy your business at >> XX. Yeah, exactly. >> Sounds like a win-win there. >> That's cheaper. And if it doesn't work out, you just let that founder keep the 100K. He doesn't owe you anything. That's cheaper than spending 20 $30 million buying a company. That's bad. >> It's basically just like test drive. Uh >> let me the Ferrari analogy. B let me borrow your keys. Let me drive your car for a moment. >> Any red flags? I mean, a lot of these founders, I would imagine. I mean, you just mentioned one that he rolled over some equity to get a second bite. What are those kind of green flags and red flags that you see when you're talking to these founders? Because again, you've seen a lot. >> Yeah, green flags. You could just tell if someone is an [ __ ] or not. You know, people like kind of understate that factor, but you just don't want to buy a company off an [ __ ] Even if the terms are great, it never works out. I don't even want to deal with an [ __ ] anymore just because >> it just never works out. It never works out. It never works out. Like so just avoid [ __ ] all together. Even if the deal is incredible, the 9010 value prop I would say of like deal making just avoid [ __ ] >> That's a bigger gem than people out there would like at the surface level. It kind of sounds obvious, but >> yeah. >> Yeah. Can't make a good deal with a bad person. We said it a million times. >> Don't sell your company to a bad person either. you know what we just did on the screening do the inverse when I bought this company in June the founder was smart enough I mean I offered it I offered it I said you should do reference calls why don't you talk to Ray Josh you know all these people I partner with over the years and see how it is selling a company to me or working with me so I think just avoid [ __ ] green flags and red flags those are the main ones I'd say everything else is kind of noise and situation specific >> force choice. Great brand, mediocre founder, mediocre brand, great founder. What's your thoughts? >> Great brand. >> Always wins over time. >> Yeah. >> All right, last couple questions. We're gonna fire off some random questions. >> Sure. >> Amazing time. So many gems in this [ __ ] I'm on roids right now. Um 3 million to 32. How'd that happen? Ego five slide deck you showed your rich friends to help you get out of that hole. What was on each slide? Uh, I was like, number one, I'm an idiot. Number two, this is what happened that led to this situation. Number three was like, this is how I'm going to get out of it. Number four was like a timeline and a payback window, I think. And number five was like the actual ask for money and like what I was willing to give. >> Simple, profound. Yeah, >> man. You you're subtle cell here on Hong Kong here, guys. Why Hong Kong over anywhere else for an ecom founder? >> If you're in ecom, it's very likely that you make stuff in China or in Asia. And geographical proximity to your supplier increases the frequency of interactions. That's it. So, the more you time you spend with your supplier, the more you're going to grow. You're going to grow way more if you're closer to your supplier. So, it's great for your business. Number two, you're going to get incredible terms over time as you build Guangshi. Like when you build a relationship with your Chinese suppliers, you're going to get incredible terms and incredible unfair advantage in a world that's turning into a red ocean in ecom. So those are two main things. Number three, healthc care is incredible and free. Rents are actually really low when you compare to New York. Really low. If you went to like Brooklyn in Hong Kong, two-bedroom apartment, three-bedroom apartment would be $5,000 US a month. >> What? >> It's I don't want to be out of touch and like talk about things like but like that's really cheap for a world-class city. Nature is incredible. 80% of Hong Kong is lush and green, low taxes, incredible ecom community, just an incredible place to build. future mayor of Hong Kong, Uncle Roman. You talk a lot about mentorship. Who's yours? >> Really interesting. My ex-girlfriend's father, super successful entrepreneur. Me and my wife actually traveled around with him. He likes to be anonymous, but incredible guy by the name of Michael. And he's the most profound influence on my life by far. >> Was not expecting that. One of my favorite books, you're a fan as well, too. Brad Jacobs, How to Make a Few Billion. >> Yes. >> What's one idea that sticks with you from him in general? >> Context, guys. He's bought like I don't know, six, seven, eight, nine companies that are billion dollar companies. Billion 7 billion companies. >> Very lively, too, for his age. I think I don't know if he's >> I want to meet him. I want to meet him. It's like he's on die hard on my list. The thing you talked about when people resign, are you jumping out of your chair panicking or are you just like whatever this people is person is leaving? That really stuck with me. There are two things that that's one thing that really stuck with me. >> It's the ABC players and and one of them was like a C player is like they leave and you're like I don't give a [ __ ] B's like eh is like [ __ ] >> Yeah. >> And like never be in a position where an A player is leaving without you like >> having a heads up kind of thing. Like be proactive. The second thing was like it's better to have a seat empty than filled with the wrong person. I think that was really powerful too. It's an incredible book. Everyone should read it. >> Very, very simple and easy read. So good. Simple and easy read as well too. >> Incredible guy. >> You were a USD millionaire at 19. What happened? What'd you learn? Tell us a little bit. >> Oh man. I quit high school to start a business. It was a media agency of all things. We were doing after a what is it? After effects. We do motion graphics and then sell it to advertising agencies. Long story short, I had a dispute with my co-founders. We had nothing in writing, blah blah blah. I made maybe a couple hundred,000 out of that venture, but I parlayed it into stock investing. Actually invested in the first company to drill for oil in Iraq. It was a Norwegian company. I'm from Norway called DNO. My whole investment thesis was like, they're going to find oil in Iraq. Go behold, they find oil in Iraq. [laughter] stock [ __ ] balloons and I become a USD millionaire. I pay capital gains in Norway. They're really hard and I start googling low places of like low tax jurisdictions. China was in the news all the time and that's how I actually end up in Hong Kong. No joke. >> It's a great segue to the next question. The degenerate gambler in you. >> Yeah. >> Does it help or does it hurt? >> It hurts. I think it's deeply rooted. Like so I have two therapists. I've abcde E tested. I know that Elon says that introspective being introspective is a negative thing. Mark and Dre says that as well too. >> I think it's [ __ ] I call [ __ ] on that stuff. I had a tough childhood but nothing near what my parents had, right? Like I was born with an passport. >> I think I had this perspective where I felt sorry for myself and then my parents used to go back to Bangladesh in the summers and I was like okay I shouldn't feel sorry for myself. I have it. Incredible. And I think that's instill a huge drive in me. But I think it also creates a chip on your shoulder where you feel like you have to like some level of survivor bias and feeling like you have to do a lot with what you've been given because I've been given a lot. Being born with a Norvian passport is literally winning the lottery. Um, so I think that drives the tendency of me gambling. Also, I want to be relevant. I feel like modern day society has vilified men and women wanting to have a grand am am am am am am am am am am am am am am am am am am am am am am am am am am am am am am am am am am am am am am am am ambitious vision for their lives like for me my legacy really matters what I leave behind how I think about it like I want lots of kids I want my businesses to have a big impact I want another hundred stories like momo and I think it's much easier to reach a broader amount of significance with a bigger balance sheet. For better or worse, money matters. >> It's a good take. By the way, too, guys, Norway, Darkhorse in the World Cup talking. I'm I'm claiming it right now. Very, good, good, good. >> Very, very, very good. Dark horse. Some good players. >> They do. Holland. If you launch one new brand tomorrow, what would the category be? I think anything that has to do with health and longevity is has so much tailwinds that I feel confident telling a founder to go and work on something like that for a decade now because you're not you're still at the beginning of the cycle. >> Completely agree. >> Yeah. >> Last question before the final four. You talked to tons and tons of founders. What's the one trait that the winners share? >> Intensity and tenacity, I'd say. >> Final four questions. Favorite book or podcast and why? You've mentioned a couple books. Do podcast. Any podcast you listen to? >> Favorite book would be Chasing Daylight by Eugene O Kelly. He was a KP he was a CEO of KPMG USA and he gets diagnosed with cancer and he gives us this incredible book which is chase chasing daylight. It actually changed my life. I um end up writing a will. I end up writing a vivid vision of how I want to lead my life. It's an incredible book cuz it will resonate with you. Amazon will give it 4.1 stars because like people who read the reviews are so that people read the book are sometimes so offended because they're not achievementoriented >> and he's very achievementoriented. >> So I found that book I felt seen and I felt that I was it was a big reset after reading that book. So I highly highly recommend reading that book. >> I don't read books like that. So that's a good one. >> It's really good especially if you're a parent like I think it's life changing. >> Not there yet guys soon. Good. An entrepreneur or brand that you want to give flowers to and why? >> Brad Jacobs. >> Goat. Last question, man. How big can Peak 21 be? >> Good question. Something I asked myself too, especially on this trip. How many billionaires do you know in D2C? >> Through DTOC or in general, >> D2C operators, founders? >> None. >> I've come to the same conclusion too. So I know billionaires because in D2C that gone and sold their business for nine figures and then parlayed into billions. I know one person who's done that but I don't actually know any DTOC founder billionaires. I've seen billion dollar outcomes but I don't know founders that are billionaires. >> I don't count other people's money but Rahal with RXAR assuming he was 50/50 post tax etc. with David. I'm sure on the second one he was probably way more strategic in what his equity was. I think the liquidity through both of us, I'm a I'm a big believer in what David is doing in a in a big big way. He could be one, >> but um >> but in such a big multi- trillion dollar industry, >> we're talking we're debating over one human, which is insane. So extrapolate Shopify will probably do $600 billion of GMBB like process revenue in the next two years or so right like 550 to 600. Amazon will do what 800 900 I don't know what the number is but like some gigantic number right like so 1.5 trillion between two behemoths and that's not even counting for Magento all this other [ __ ] right like so it's a multi- trillion dollar industry and I fundamentally believe it's a long-winded answer to your question but I fundamentally believe in the US e-commerce is like 22% or 21% of all retail I believe our children by the time they're fully grown up in our age, it's going to be 60%. 6. I don't think that's a crazy take. I think a lot of stuff will be delivered with drones, things will be made on to order, 3D printers, whatever the [ __ ] Right. >> That 21% include Amazon. >> Yes. >> Yeah. >> It includes everything I believe. Don't quote me on this, but like I've seen that stat everywhere, right? Like so I think it's going to 3x from here. So it's a huge industry. My question is the only people who become billionaires on the back of DTC are the pix and shovels. It's the apploven of the world, Pinterest, Snapchat, Quins. It's just the picks and shovels that are going to really rack in money. And that's that's where I'm like, you know, probably if I kept going for another 30 years, I think Linear could be a billion dollar company. I think we could get to like 300 stores. I think we get to like a billion dollars plus in Ibita. Pandora, to give an idea, that's $4.5 billion of revenue, $1.1 billion of IBITA, and they have 2,400 stores. To give an idea, like it's been done before. It's just like, do I want to spend the next 40 years, my golden years from 40 to 80, building my way into buying more brands under peak 21? Big question mark. I'm not sure. And that's okay. And that's okay. >> I'm excited to see the journey, man. Dude, I had an amazing time, guys. If you made it all the way to the end, you definitely got smarter. I appreciate you, man. >> Thank you, Mark. Thank you for having me. Thank you guys so much for watching. 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