#224 - Haris Memon: Miracle Brand - 30M+ How to break through the 8 Figure Ceiling

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What's up, DTC. Pod?

Today we're joined by Harris Memon, who is the founder of Miracle brand and Nameless. So Harris, I'll let you kick us off. Why don't you tell us a little bit about some of the brands you're working on and your just general involvement in the space.

Yeah, for sure. So about five years ago, my business partners and I started a holding company called Nameless Ventures. The goal was pretty much we're going to incubate a number of direct to consumer brands and at the platform level, at the hold co level, form relationships for distribution opportunities. So media companies and publishers, affiliates, retailers, things like that. Our theory was pretty much distribution was going to be the main differentiator for D to C brands. This was back in 2017, 2018, when we were first kicking the idea around. And so we built the platform. With that thesis in mind, we raised capital to build out a couple of brands.

What actually ended up happening was our first brand is called Miracle. It's functional home goods. So think of bedding and bath products and kitchen products. Think of the Parachutes and Brooklyns of the world. We built product lines similar to those brands, but with functional fabrics. That brand ended up taking off a lot more quickly and with much larger scale than we expected. Our second year of business, we had eight figures of revenue and close to 25 X growth. So we decided to just double down there and focus primarily on scaling that business out instead of spreading ourselves across five different brands, finding product market fit into other categories and opportunities.

So for the next couple of years, we put most of our capital and team resources into that brand. So that brand today is quite large. This year we'll do close to 30 million in revenue. We're a profitable business. We've got a full team in place operating the day to day of the company. We own 100% of that venture at Nameless, and then we have another business which is seedwell to plant based vitamins. So think of sort of a line of supplements across gut, health, sleep, stress, different sort of product lines, all centered around sort of plant based Remedies. That brand has been growing quite well recently as well, but admittedly it's still sort of early growth stage compared to sort of Miracle.

So, yeah, that's kind of the core business at nameless, and we've kind of structured it as we haven't raised a lot of capital or a lot of growth capital. It's mostly just been a couple of rounds of capital, primarily from highly strategic individuals. So founders of much larger media, commerce and entertainment businesses. And then outside of Nameless, I've been pretty involved as kind of an investor advisor to a number of different brands across like Food and Beverage, health and wellness, just kind of other brands operating in a similar kind of retail and commerce territory.

What's your background? How did you start getting involved in this landscape in the first place?

So before nameless, I ran an agency. I feel like it's a pretty common story for a lot of CPG founders today. I ran a growth marketing agency five, six years back, and pretty much initially, a lot of my team was operating sort of within tech. So we were basically handling all the growth and performance marketing for a lot of major tech companies, like, for example, like Lime, Scooters. From series A onwards, for a while, my team was running all of their growth. We were advising their in house team as well. It was a lot of sort of traditional consumer tech. As time passed, I ended up getting a lot more interested in Ecommerce.

And so what happened was I started signing sorry, if you hear a screaming baby in the background, I think he's in the living room over there. From there, I started signing on a lot of retail and commerce brands and I ended up realizing that that was where I wanted to focus as an agency at the time. Because Ecommerce was a category where I think the clients understood that the value was in the distribution and the marketing, and they understood that a lot more than tech, right? Because in tech at the time at least, it was much more about product and engineering. So the client relationships were a lot easier to handle on commerce. They understood the value and they sort of very much just trusted the decisions at hand. And honestly, it was just very fun to work with consumer brands. So ended up shifting a lot more of the client base there. As time passed, I was like, you know what, if I feel that 70% to 80% of the value here is the actual growth and marketing operations, then why service the brands? Why not build them? So around that same time, my two co founders, victor and Ahad, were guys that I was collaborating with on different things.

So Victor, for example, at the time was running a pretty top brand and design agency. He had a lot of CPG and e commerce clients as well. And Ahad was kind of doing his own thing in manufacturing, retail and importing. So each of us were thinking about building brands and I was sort of getting to know Victor at the time. We were sharing clients and collaborating on the agency side. He was the global head of design for Lime Scooters at the time through the agency he founded. So we were collaborating. So at the time, all three of us were like, all is this is the time to go after it.

Why are we servicing brands? Why don't we build them instead? We had all the three key functions. We had design and brand leadership, manufacturing and retail leadership, and then marketing leadership. So, yeah, that was around like late 2017. We were kicking the tires around. Mid 2018 is when we kind of more formally kicked it off. And then first brand was launched, January 2019, more formally.

So yeah, one thing that you mentioned that I think is true is the fact that when you compare tech with, say, consumer products or physical products, is that the alignment of what you're selling versus what they actually get is there versus tech. It can be so different, especially in early stage companies, which you see these memes of what the pitch deck looks like and then what the product actually looks like. And so that makes it very hard to not only create sales, but then obviously also have retention. How did you see if somebody were to start a brand today in the ecommerce space? Given that we've seen here at Dtcpod, a lot of brands very successful have started by people that had an agency. Would you recommend someone to work at one of these companies before work at an agency? What is the difference in experience of being in an agency versus having worked in just one DDC brand?

Honestly, I wouldn't say you have to have agency experience. I think all that matters is you have very core skill sets that are needed in D to C. The way I kind of look at D to C is it's just very much about hard skills for the most part, right? Your skills on the performance marketing side, the creative development side, the product development user experience side. These are all sort of more hard skills. And what I mean by that is, I mean, look at how a lot of D to C brands are structured. A lot of them have individual freelancers and agencies tackling each core function because it's all about highly skilled specialists. So I wouldn't say you have to have agency experience to go start a brand. I mean, for us, we just happened to be that way because we were running agencies at the time.

I was running a marketing agency, victor was running a design agency. So it gave us all the exposure as we saw all the different frameworks, price points, brands, categories that we worked with. But you can get that expertise elsewhere as well, right? So, like, for example, if you worked in performance, marketing and growth at a consumer tech company or at another DSC brand or retail brand, you can get the same level of sort of exposure. I think the benefit, though, I will say, of having ran an agency before starting a brand is you end up getting a breadth of exposure into the real challenges and frameworks that all brands face. And it makes you realize what's important because then if you're seeing the same successes and same losses across brands in different categories, price points, levels of scale, you end up realizing, well, here's where the value is derived from, right? So you have a better understanding of just what it takes to win in the space. If you've serviced 20 brands at a time, or ten brands at a time, and you've seen all the similar challenges, so that definitely was a big plus. The other thing was, because we ran agencies, it was a lot easier for us to manage agencies and freelancers than other brands. We understood how agencies operate.

We understand incentives for agencies. So when we switched to owning our own brands and starting our holding company, we knew how to manage agencies. You kind of have to be up their ass a little bit sometimes, right? And at the same time, you have to understand how to assess them and how to vet them. Because look, agencies are good bullshitters. And it's not that they intend to bullshit, it's just the reality is an agency's incentive is to give you sort of maximum value relative to minimal effort and time. That's just the reality, right? If you have 30 clients, you have to prioritize what's working. You're always trying to onboard new clients and it's just the nature of the game. It doesn't mean you intend to do that.

But it does mean that when you own a brand, you have to understand how you're going to manage those agencies, how to vet the right agencies. And then also, just in general, having ran agencies, we had a pool of talent on the freelance side that we already really trusted and worked with. I had my go to guys on growth and marketing. Victor had his go to guys on yeah. I would say what really matters is just having deep expertise in one of the two or three core skill sets needed to succeed in DDC, whether you're a marketer, a designer, or manufacturer. So, like, for example, Ahad, our third co founder, he's done tens of millions, high tens of millions in revenue in retail over the years, importing and distributing products to big box retail. So he's manufactured goods around the world. Right? So for him, he also understood how we were going to source our product with the specs that we had in various markets at any given time.

We needed across all SKUs. So yeah, basically just echoing my point that really what matters is just whatever core skill sets are needed in DTC, which I classify as like those three categories, just have that experience. It doesn't mean it has to be in an agency. But yes, there are definitely benefits to having done it at the agency level.

When you guys ran your agency, were you focusing a specific revenue range with the clients that you guys worked with?

It was honestly pretty variable. I mean, I'll speak for myself because Victor's agency was a different agency. His was designed my agency. We had a pretty broad mix. I had anywhere from like pre launch startups to global brands. Some of my clients had raised hundreds of millions of dollars. Some of them had just raised a precede round recently, right? And some were bootstrapped. So even on the ecommerce side, sort of in between running my agency versus starting the holding company of brands, I did a couple of sort of interim CMO fractional CMO roles.

And that was kind of like for larger consumer brands, like an apparel brand that had done 100 million plus of lifetime revenue, an audio brand sold in Apple stores. It was like some of those later stage brands, but at the agency level. There was a mix of those at the earlier stage as well because we were sort of helping brands get from traction, post product market fit to scaling. And so the reason I kind of gave those examples was like, I've been involved pretty in depth at the sort of like overseeing the entire function level for different brands prior to starting my own across all scales and sizes.

The reason I asked that is because the core skill sets needed to probably take a brand from zero to 5 million and then from five to ten. And some agencies might have the expertise for a specific revenue range. So how do you sniff out? Because if I'm trying to onboard an agency, for example, and I'm vetting them out and I'm like, all right, guys, I know you can take me to 5 million, but should I be aware here that I might be start needing to look for another one? Once we cross five, once we cross ten? How do you sniff that out from an agency?

So that's a great question because I want to then redirect that to the most important part of the discussion of DDC, which is I think everyone places way too much responsibility and accountability to their agencies way too much. And the reality is, your agency is not going to be the one to get you from zero to five, nor the one that gets you from five to 25. It's got to be you. And the agencies are just supporting partners to that. And I don't mean that in a cliche way of like, oh, don't rely on your external parties. What I mean is D to C is not easy and it's way harder now than it was five years ago. And five, six years ago. Yeah, I'm not going to lie.

You can have your agency be the one taking you from zero to five and five to 25. And the reality is you could place most of the responsibility on them. Why? Because, well, growth was way simpler back then. Profitability was a lot easier. Media buying at scale was a lot easier profitably. So because of that, most of the value was just derived from really good media buying. Today, that's not even close to the case in terms of building out your funnels, optimizing your funnels, leading your creative process, experimentation, everything. The reality is your agency is just not going to be the one building out your funnels, your upsells, your advertorials, your creatives.

That's just not what they're here for. So the challenge that a lot of brands are facing today is they're hitting a wall at between five to $10 million. I'm seeing this all the time, and the reason is because they've relied on their agencies. They have some decent creatives built out internally, and their agencies have continued b buying. They don't know how to break through the ceiling, and a lot of them think it's the agency's fault. So they fire the agency, they hire another one. They have the same problem. And the reality is, it's because those teams aren't taking the growth function in house and thinking through all of their experimentation, their landing pages, their funnels, their upsells, their creatives, their advertorials, they're not really doing a lot of the experimentation themselves.

So what's happening is the agencies don't have much to work with. But look, the agency is never going to complain to you that, hey, you're not giving me more stuff. You're not giving me funnels and creatives that are going to work. The agency is going to keep doing its job, focus on their 20 other clients that they have, and it's your job to continue pumping out each of these and working with your agency every day to say, hey, here's what we need to test next. Here's what we need to test next. Here's what we need to do next. Like, for us at Miracle, the amount of experimentation going on on a week to week basis is insane relative to most brands. We have 3000 video ads in our library.

We have probably thousands of landing page experiments and tweaks we've done over the years. We have different funnels, landing pages, upsell systems, advertorials, everything. And we feed that to each of the sort of agencies and traffic partners and contractors involved. Right. So that's kind of where I wanted to direct your question and also to jump in on the specific question itself of like, how do you vet what agencies have experience at each level of scale? Is it's kind of the founder's job to really realize how they're going to hit each ceiling? And the reason I say that is I don't really think that there's a big difference between the agency that can do zero to five versus five to 20 million. Sure, to some extent there is. Like, look, there's agencies that in general have not spent $50,000 a day of ads so they don't know how to maybe spend at that level of scale efficiently compared to those that just spend at maybe five grand a day, typically. But media buying today is a lot easier than it was years ago in terms of the actual work for the media buyer.

Because right now Facebook is really like if we're going to talk about Facebook and TikTok, for example, specifically, it's really about your creatives and your landing page. The actual media buying and traffic in between. Yes, there's still an art to it and a science to it, but it's much less than five years ago. And instead, like 80% of the value is on your creatives and your landing page.

It's so shocking to me though, that most brands settle with just a few pieces of content, not enough content.

Crazy.

We sell content at Trend and we try to tell them like, you need to ten x the volume. It's not just quality, it's quality and volume. And they have one that hits that really works and they just saturate that out and then they wait until that one doesn't perform to then produce more content.

Yeah, and that's the problem. And I always tell people, I'm like, look, media buying and performance marketing still works today, right? It's always going to work. The problem is you just have a lot of inefficiencies that are there in between. And what I mean by that is there's a lot of brands like you mentioned who have a creative that crushes until it dies and then they start thinking about the next creative that's going to work. Well, now you have a few weeks of that creative crashing and burning, no new creatives working, and it might take you two rounds of creative tests to find a creative that works again. So now you just have four to six weeks of terrible performance, right, while you were already declining for a couple of weeks. So the reality is like the extent to which you're able to experiment more to find the winners. If two out of every ten creatives is going to be a big winner, you've got to be very efficient on how quickly you're going to kill the eight that don't work and how quickly to get that data and then how quickly you're going to keep pumping those two hypothetical sort of winning creatives.

And that's the problem, is if you're not really doing that efficiently, that's thousands of dollars of wasted spend. And now that's why your ROAS or your CPA figures are off. That's a big problem, man, that a lot of brands are facing, for sure.

Do you guys also produce organic content or is it just paid marketing type of content that you produce? Because you have 3000 assets, so you have a lot that you could just repurpose across the board.

I would say from a content perspective, it's definitely all for performance for the most part. I mean, we're very distributed in terms of where our revenue comes from. Like Facebook is not the majority of our revenue. Facebook is the minority. Right. We get like a third of our revenue from Facebook. So we're pretty distributed at scale. But in terms of content, yeah, to be honest, it's definitely mostly just all performance based content.

We don't really do a lot of organic.

Why is it just a third? Is that intentionally? Is that given to depending on the market for a specific brand? How do you guys look at that?

Yeah, I mean, look, two to three years ago it was probably 80% Facebook. These days it's a third. Because Facebook for us and everyone in the world was definitely easier three years ago. And I don't mean that just because of iOS 14 and everything going on in the world just in general, traffic networks are always going to get more expensive as time passes. CPMs are always going to rise, inventory is decreasing and demand is increasing. So at the end of the day, the advertiser and the ad inventory available is always going to get more expensive year over year. And yes, obviously a lot of this other factor is like iOS 14. So for us we saw that, I mean two years ago, I don't saw that two years ago meaning for our brand, we saw that there was going to be a risk of having 80 90% of our revenue come from Facebook.

I don't really like to build unsustainable businesses and what I mean by that is I don't really like significant dependency, I don't like platform dependency as a whole, the more diversified you are, the more you can sort of have a fundamentally sound business. Otherwise, if 80% of your revenue comes from one channel, well, what happens during a swing. Quarter? Like, for example, what happens in election season when costs rise substantially for two months on Facebook, you just went from plus three hundred k a month. Of EBITDA margin. To now -300. Right. So that you can't let a platform have that much control over your business. So for us we started to diversify pretty heavily into affiliate, into Google, into a couple of other channels.

So like affiliate today is close to 40% of our revenue and that's at our scale, that's over $10 million this year from affiliate that we're expecting.

So knowing those macro changes rather than me asking you what are the companies that you would start in today's environment, what are the companies you would avoid starting in today's environment?

Yeah, that's a good question. There's two things. One is I would avoid companies that don't have the potential to scale omnichannel. It sounds very cliche today, but the reality is just look at the end of the day there's two reasons why you don't want to build a brand that can't be Omnichannel. And just to clarify what I mean by that is omnichannel meaning you can be at scale at brick and mortar retail, your own D to C and Amazon or other third party marketplaces. If you can be omnichannel across the three of those, you've got a much better business for a number of reasons that aren't as discussed, which is like, number one is, look, that's where you find scale, right? Retail is where you find true scale and build a 5100 200 million revenue business. You can do that on D to C, but it's very tough across a number of categories. And to be honest, the economics are not as sustainable.

So you want retail and then number two is, look, the reality is, like I mentioned, the more dependent you are, the more fundamentally sort of unsound your business is, right? So if you're diversified on D to C across a number of acquisition channels and you're diversified on distribution across retail wholesale, Amazon and D to C, you have a pretty sound business. And what that means is you're also much, much more compelling to an acquirer most CPG strategics. The reason they actually buy brands that are already scaling in brick and mortar retail is because that's showing them data at scale. That's proving that you can reach mass market America, that you can outpace the legacy players on the shelves, and that you've already proven a level of turnover at scale at the most important retailers in the country. So that's why most of the big exits you've seen 100, 300, 500 million plus are brands that have substantial retail distribution. That doesn't mean all brands that have exited for that amount have retail, but a very large percentage of them do. And what I actually like to explain to people is kind of the inverse incentive problem, actually that D to C has relative to retail. So think about retail Amazon and D to C and think about how each of these channels scale, right? With retail.

The more that you perform in retail shelves, the more efficient you are, the more you get rewarded. Right? Because if your turnover and sales velocity and volume per week is high, if your units per week sold is increasing, you're going to get more doors, better shelf space, and more purchase orders from those retailers and more retailers because you're incentivized to maximize the efficiency of your sales. Why? Because you're sharing the economics with Walmart, right? Meaning, if they're buying a purchase order from you and they're putting you on their shelves and they only make money if you sell and they're putting you over other brands, their goal is for you to sell to the best of your ability, right? Because they control the distribution and their economics are aligned with yours. Amazon is the same thing, right? Amazon, as you have increased sales velocity, you get rewarded with more distribution. It's the same system. Why? Because the reality is those who control the distribution have the same economic incentives as you in those two channels in D to C, that's not the case, right? Those who control distribution at the end of the day are the traffic directors, which are ad networks. Ad networks do not have an incentive for you to increase efficiency as you spend more. I mean, you can argue they do, but that's not really how ad inventory works, right? Because the reality is as you spend more, you're saturating the audiences that are relevant to you further and further.

You are bidding up against and requiring more ad inventory, which is increasingly scarce and increasingly decreasing on ad networks like Facebook and Instagram. And so the reality is you're competing against a number of bidders in this auction system of ads that don't have the same economic incentives as you either. You're competing not just know it's not the brand on the shelf next to you. Your ads are competing technically with Mercedes Benz's ads, right? And they don't have the same economic structure. They're also spending for brand awareness, you're spending for purchases. But you guys are competing for a similar inventory on the same network, on the same feed. So understanding those economic incentives is very important because what that means is D to C gets harder as you scale theoretically, right, at least to acquire brand new customers. Because D to C is meant to be a game of acquiring specifically the customers that are relevant for you.

And as a result, as you spend more, things get tougher. You saturate your ad costs, increase retail and Amazon. The better you do, the more you get rewarded with even heavier profits. And so at the end of the day, I would avoid brands that don't have the potential to be in those. And I guess to elaborate on what that means, usually I can look at a brand and a product and understand whether or not Walmart, Target, CVS, any of those guys will pick it up. A lot of times it's price point, it's category, it's audience like. Look, you can go to Walmart and go on a shelf of any category you want to look at and you can look at their maximum price point. Walmart is not putting a $5 drink in their stores.

They're not putting $300 comforters in their stores. I think the highest cost bedsheet at Walmart is like $70 to the MSRP, right? The most expensive drink you'll probably find is $3. Target is not too far off from those figures. So there's a lot of brands that just don't lend themselves well to being retail driven brands or they don't have enough differentiation to be in retail shelves.

So is Miracle built with this in, like for these retailers or not necessarily. I guess another way of asking, would you consider Miracle for the higher end upper market or is it for general America?

I would say to be honest, it's not really for general America. It's definitely a bit more of the premium end of the market. So we're not a very retail. Dominant business. And I know I sound like a hypocrite saying, look, I wouldn't build a business that doesn't have omnichannel potential. But our benefit was we built distribution streams that most others don't have at a level of scale. And we founded the brand in a time where there still was a window of opportunity to build your brand and audience base in a time that was predominantly D to C without retail required to be profitable. And I think for us, look, I'm not going to sit here and say we're a great business because of the fact that we don't have retail or that we don't need it.

I mean, retail would definitely help us get unlock a substantial level of scale and profits that we have a much tougher time doing on D to C. We are a profitable business. We are growing rapidly, but we have had to work tirelessly and put in a lot of effort to build a really strong foundation on our marketing and continue to experiment a ton every week so that we can get D to C to continue being profitable. It's really difficult. Right. And the margin is not the same as retail. We're not a 2020 5% margin business. You can get those margins in retail for us, if we were designed for retail, we definitely would have an easier job scaling, at least profitably.

What I find super interesting blaine jump in at any point. He's just a passing in the audience. So I think what I find interesting is that especially since you mentioned, like, ad networks, I have a friend, for example, has a $50 million company in the high end food space, and I think they're having trouble exiting. And it's what you mentioned with the strategics, like, you get to Arowan, you get into Whole Foods, but strategics are probably like, this audience isn't anywhere else in retail, so there's not a whole lot for us to do. And then these ad networks, they have the audience they have, but probably affiliates is like the best way to continue tapping into sort of new and new and newer audiences that most other brands don't have direct access to. So that's kind of like the mode around it. I'm curious, in these strategics, they don't have those Playbooks, probably. I'm not sure if that's the case, but how do you guys view affiliates? Do you guys have a Playbook? Is it an agency? Because you're essentially building your own ad network by building an affiliate system.

Yeah. So to also address the point, you just mentioned on the Arowan example, right? Yeah. The strategics want to see you in mass market American retail if they're going to buy you because a CPD strategic is buying you at 100 million today because they think you can do a billion in revenue under their system. Because how is their system built off the back of retail distribution and manufacturing. Right. So in their minds, they're saying you've proven product market fit, which for us in the venture world and in the early stage startup world, that can mean a few million or 10 million plus in revenue for a CPG business. That doesn't mean anything to them. To them, that's more, hey, you've got 50 million, 100 million of revenue across brick and mortar retail because they need to feel like they can plug in their manufacturing at scale and their retail distribution to ten X.

That business.

If economics don't work, they're not going to do it.

Exactly. And that's where I talk about the Omnichannel portion. The reason I say, don't build a brand that doesn't have Omnichannel potential. That sounds like I'm saying, oh, don't invest in a brand that's not in Omnichannel. But no, I literally mean, like, when you're founding a brand, there are things you can do at the founding level to understand if a brand has potential to be in brick and mortar retail, like, don't launch a $50 wellness product, a vitamin, that's never going to be in retail shelves, right? Sure, you might be able to get Aeron, maybe a couple of other sort of businesses, but if you want to build 30 million in annual brick and mortar retail and wholesale revenue, like Costco, Walmart, Target, CVS, those guys are not taking a $50 wellness product. They're not taking a $6 beverage. They're not taking a $200 premium pet product. Like, none of those things can really break into that level of retail just to kind of reiterate that piece and then the affiliate portion.

So the way that we've done it is with affiliates. Here's what matters. What matters and I don't mean like influencer affiliates. These are like think of, like, email lists, listicles publishers, performance marketers that kind of put their own dime. All they care about is earnings per click. Okay? And the earnings per click is calculated based on the conversion rate of your offer lender and the CPA or acquisition cost that you're going to give them as compensation for every sale that they drive. And those two markers indicate earnings per click. So for every click that I send you, a certain percentage will convert, and I get this much payout.

So this is my earnings per click. All they care about is maximum earnings per click, because then all they need to do is figure out how to drive quality traffic at a cheaper cost per click than the earnings per click they earn with you. So what we do really well at our team is we're very good at building and optimizing these offers and funnels. Our landing pages and our funnels that we've developed are unbiased, but I feel that they're best in class. And the reason I say that is myself and my partners have advised and helped other brands kind of build similar systems, and they have been a success for a lot of folks. And we've always typically been pretty ahead of the curve on experimentation on our funnels. So we have presale pages, which are advertorials. We have long form landing pages that convert really well, and then we have a custom checkout system that actually gives you one click post purchase upsells in a very custom formatted way that's very different from most one click upsells.

And all of those pieces allow us to generate more earnings per click and offer a higher CPA for our affiliates. So what we do is we focus relentlessly internally on continuing to optimize our offer. And that way our own internal media buying teams and traffic teams and the external affiliate partners all succeed and perform really well. So the more that we can continue to optimize that, continue to find more upsells, more bundles that work, the more we can pay affiliates more commissions than others in the category or other competitors in general. And that gives us more traffic. Affiliates have a finite amount of traffic and amount of dollars they're willing to spend to the offers they work with. So the better you perform relative to others, the more traffic you're going to receive. Right.

So, as an example, we're on a bunch of listicles that are very high performing at large levels of scale. These are offers where these affiliates will build listicles of gift guides of different products. And they have commissions for each product that tracks affiliate links into what sales they drive, and they get paid a commission. Then these affiliates drive a ton of paid traffic onto these listicles. Now, how do they decide who's number one, number two and number three on a listicle instead of number 42 is who's got the highest earnings per click. So the more we continue to optimize, the more we perform really well on these listicles and get fed hundreds of orders a day then. Right. So that's how we've sort of built a lot of our affiliate system.

And affiliate has been awesome for us. I mean, we've done eight figures of revenue on affiliate. Like, last year, we had 8 million of revenue from affiliate out of 21 million of revenue as a brand. This year, we'll have about 10 million of affiliate revenue out of close to 28 million in revenue as a brand. So, yeah, affiliate can be a very powerful distribution network. And our acquisition cost that we pay the affiliates, our CPA is like 20% cheaper than costs on Facebook.

Blaine I know Seated isn't necessarily a fully affiliate, but it sounds like this is along your playing field.

Yeah, I mean, one question that I'd have, Harris, in terms of the affiliate stuff is basically what you're saying is you guys are really focused on generating a lot of really customized landing pages and conversion that's tailor made to the different affiliate campaigns that you're running or how are you doing it?

No, not custom for the affiliates. Instead, we're always trying to find the highest performing funnels that we can create whether like landing pages, advertorials funnels, whatever, like all of that sort of in one, because we provide the different elements of the flow to the affiliates and the affiliates will all drive their traffic to that core funnel that's winning, right? So for us, we're always trying to experiment to squeeze an extra couple of bucks out of each funnel that we can, right? So if we have an offer, if we have a landing page built for our brand and it's centered around a certain number of upsells or bundles or whatever it might be, our goal is to continue to price test, to test a design, to test the copy, to test the flow of our upsells. As an example, to increase our average order value, increase the gross margin or, sorry, increase the average order profit on every order so that we can continue paying out high CPAs to the affiliates. So we don't build custom funnels for each affiliate. Instead, we build our central funnels and feed the highest performing ones to the affiliates. So, as an example, we have a ton of different advertorials that are designed for specific value props that we have, whether it's the temperature regulation, whether it's overall general overview of the different value props, we have different seasonality ties into different value props. And we always sort of experiment with those and those then lead into the core landing page that we're always improving and optimizing. And then we're always kind of making tweaks and price tests across those to improve our conversion rates.

No, that makes a ton of sense. And the other thing that I'm kind of excited to talk about is it seems like you guys are really leaning in, like you were saying, in terms of the budget and how much you're investing and spending on affiliate. It seems like that you guys are probably a little bit more ahead of the curve than a lot of the other brands we've spoken with that aren't maybe as versed in affiliate, the power of it and being able to support that much of revenue. So one thing I'd just like to talk about is for a brand who's maybe starting out a little bit earlier stage, who maybe they've grown up spent, they've created a product, they've grown through ads, they have their own channel, maybe they're spinning up an Amazon store and now they're trying to get into affiliates. What are the first steps? What networks should they hit and how should they think about building out their own affiliate program?

Yeah, for sure, I would say the very first step and this is important, not just for your affiliate operation, but everything you do as a brand is nail your offer, right? And your offer is effectively think of your core lander that you're driving most of your traffic to, but also the sort of combination of products that you're selling with that. I know that sounds really vague, but your offer is not just this random landing page or this theme for holiday season. It's more like, all right, we've got, let's say, our core bedsheet product, plus two free towels at this price point with this entire sort of landing page funnel selling the entire sort of value props and USPS of the brand and product. And that funnel, that offer mixed with sort of the price point. And what CPA we can give is the offer as a whole. So I don't constitute the offer as just the landing page. The offer is, hey, we've got this core funnel with these Upsells in place, with this AOV that we have, and this CPA that we can pay to the affiliates, and this is our offer. So when an affiliate network asks us, hey, what's your offer? We say, hey, look, this is the lander, this is our conversion rate, this is our AOV, this is the CPA we can give you, and this is how much scale we're getting off of this offer right now.

And for each of your core hero products, you have a different offer. Your bed sheets are different from your towel offer and your pillowcase offer. The upsells, the bundles, the combination of products with it, that's your core offer. So I would say you have to nail down an offer that works, because an offer that works and converts benefits all elements of traffic that you're driving. It benefits your organic traffic, it benefits your paid traffic, it benefits affiliates, because then they can send traffic to you because they know you have a high performing offer. So I would say, first and foremost, nailed that. And that sort of consists of your presale pages, which are your advertorials, your landing page, your upsells, get everything in place so that you can go to affiliates and say, hey, look, we're driving 500 orders a day or 100 orders a day on this offer. This is our flow, these are our ad creatives, this is our advertorial presale page, this is our landing page, these are our upsells, this is how much we're driving.

This is our conversion rate, this is our AOV. That is how they're going to see it internally and say, should we drive traffic to this? And then from there, in terms of the networks to go to. So a lot of people go to the classic networks, like CJ, Share, Sale, all of that. Look, those guys are not like those networks. You're not going to get more than like 25 grand a month, 40 grand a month off at the high end of the scale. If you remove coupon sites, you're getting twelve grand a month off of those sites, right? Those are not really like valuable affiliate networks, in my opinion. Those are just run of the mill classic coupon sites. Random publishers and blogs.

To form real affiliate relationships, you need to go to sort of CPA based affiliate networks. DFO is one of them. Giddy up is another one, a 4D. These are all sort of various affiliate networks that we've had either relationships with, experiments with, or continue to work with. If you're a good offer, an affiliate network may want exclusivity and then they feed it to 30, 40, 50 affiliates in their exclusive network or in their network as a whole. And then they drive traffic to you. And then the other way to drive affiliate traffic is to partner with this is a little bit more difficult, but partner with traditional publishers like the Hearsts and Buzfeeds and Bustles of the world who can sort of do one off articles that drive scale for you. It's a bit more difficult to do that because they mostly like driving traffic to Amazon and Skimlinks and other sort of systems that already have all their tracking and offers within them.

But you can definitely do mean we've done various sort of affiliate partnerships with publishers.

But yeah, what I love about this is that affiliates are like, they want it just as bad as you do to make it work. They're looking for the next best product to promote, whereas Influencers is tougher because the Influencer is getting eight grand up front. They're like, Fuck, it, good luck if my audience buys it or not. But the affiliate, it's like levels to it where only the best get the best products. They keep it within that circle. By the time that's on CJ, it's like every affiliate already has poured out the best unit.

It's also kind of like, Haris, what you were talking about before in terms of aligning incentives with retailers and drawing scale. It's almost like a similar thing, right?

Yeah, exactly. Remember, that's a great point because I'll dive into how that works at the listicle level that ties into similar incentive systems. So, like Ramon, like what you just mentioned, look, Influencers will get paid for brand reach and content from various brands that are willing to pay them 20 grand up front regardless of performance. If Gucci is paying that Influencer 30 grand or Pepsi is paying that Influencer 40 grand, they're getting paid. So they will take your money if you're offering them money. But they don't necessarily need to figure out how to make their audience continue to drive real influence and conversions because they work with brand spending on brand reach. That's the same exact problem you're facing on ad networks, right? Yes. Facebook is very good at driving quality leads for high converting users.

But at the end of the day, you're competing in an auction network of ad inventory at prices relative to brands that have different incentives than you. There's other brands that are willing to spend hundreds of dollars of CPA. There's other brands that are willing to spend just on brand and reach, just like what the Influencers get paid for retail and Amazon, that's not the case. They only make money if you sell through it's directly tied to conversions. Right. So that's why those sort of incentives are so aligned on affiliate. Because affiliate, they only make money for every sale. That's the name of the game.

It's a pay to play. Or it's sort of you only get paid for whatever you bring to the table. You drove 20 conversions. Here is your dollar amount. Right. For example, the listicles. Right. That's a great example of how the incentives are very similar to retail and Amazon.

You're incentivized to drive the most efficient click throughs and conversion rates because at the end of the day, that means they make more money on the listicle and they'll move you up, which is kind of like the retail shelf. They're just moving you up the listicle. And those listicles are no joke. Those listicles would do like 100,000, 200,000 a day of revenue, probably half a million a day of revenue in Q Four. Right. And if you're a top five brand on there, you might get 40 grand for that a day. Right. So those are pretty substantial offers.

I'm sort of talking about some of the top listicles generating that amount of revenue. But yeah, man, there's a lot of different affiliate partnerships like that out there.

So when you put together the offers because obviously, well, those affiliates, the listicles is like not only the alignment with the audience, the quality of the product compared to what else is in the market, and then obviously the margins and the payout for the traffic, et cetera, when you create these offers, and I have no clue about this. Is this based on AOV or LTV? AOV. Okay, so you're not losing money on first purchase or you might be breaking even.

I should clarify. Yeah, for us, it's AOV because we're a high priced product and we have a very strong performing offer. So we're highly profitable on every affiliate order that comes in. But I have other brands I advise whose offers are meant to be unprofitable first purchase, but it's because their LTV is substantial. Right. If they've got a $40 AOV, but a $350 LTV, they price their CPA based on the LTV because, look, at the end of the day, the affiliates are not going to drive traffic to you for a 15 $20 CPA. They're going to drive traffic to you for a $40 CPA. And if you're a $40 AOV, you're now making money on that first purchase because obviously it costs goods, shipping, everything.

But it's because the economics work for you because people will buy for eight months, for example, if you're a subscription product. So, yeah, no, I mean, for us, we do it off AOV calculations, but I have other brands I've advised or been involved with where yeah, it has to be baked in based on the LTV calculations. And that doesn't mean they're paying it out over time. It just means you have to understand when your numbers hit profitability on affiliate.

What are some things that can go wrong that you shouldn't fuck up. If you jump the gun, like, let's say somebody listening to this just goes in, can you do something wrong? To the point that you might be banned from one of these networks. You might be never let in, you might never make it to the top of the list. You earn a bad reputation around these people.

I mean, look, the first thing is it's not easy to be on these networks. This isn't CJ share sale. These networks are driving substantial scale for a finite number of brands, and it's not thousands of brands, right? So first, actually getting in with these networks and getting them to actually drive traffic is not very easy. But in terms of screwing up, look, you don't have a lot of chances to make a first impression on affiliate. I mean, you don't have a lot of chances to make a good impression on affiliates. And what I mean by that is, look, if the affiliate puts their dollars or their traffic towards you and it doesn't convert, doesn't perform, that's it. They tested the offer. It doesn't mean they're not willing to test again.

It's just highly unlikely. These affiliates have so many offers to look at different offers that are already performing and scaling. And so if it's already worked or it's already been tested and your offer is not performing or not scaling, it's just really hard to get the affiliates to actually give a shit and try again. So you got to make sure that you come to these networks in general with a high performing offer that's already cracked. You know, your numbers in and out, the performance is strong, your conversion rate is great, your AOV is great, and you've got everything dialed in and you're already sort of testing at scale and proven that this is working, because there's only a handful of networks that can really drive real scale and you don't want to screw up with them.

Got it. So this is really the affiliates at this level. It's really about throwing gas on the fire, right? You've already done all your own testing. You've tested it out, you know the offer is working, and this is where you're going for scale. So I guess that would lead me into the next question about that, is once you know that stuff is working, right, how do you put together a compelling pitch for these affiliates? Like you were mentioning, I have relationships with these guys. I already know them. So I'm able to get in and get our offers once we know they're working. But imagine you're a brand that hasn't done this before.

How do you get in with these different affiliate partners and how do you get seen? Like you said, there's so many people competing for that limited shelf space.

Definitely. I mean, look, the reality is money talks. And what I mean by that is you don't have to pay these affiliate networks just to get in. But what I mean is if your offer is converting and it's a mass market product or product with a large audience that they think they could scale, they're going to be willing to take a look if you can get a conversation with one of them or get an introduction. And that's why I say money talks in that if they think there's millions of dollars out there with your offer, they're going to be willing to explore. But you can't go to an affiliate network and just say, hey, I've got this awesome brand. I've spent 300 grand developing it. Look at this beautiful design.

They don't care. It's about what converts the best. That's the only thing that matters. And what converts the best and what CPA you can offer to get their affiliates excited within their network. So that's really all that matters, right? And in terms of getting an intro to one of the I mean, you can get an intro, you can reach out. Maybe they're not going to respond. Right. I mean, for us, we have good relationships with the founders of a lot of these affiliate networks, and that's because we're a fairly decently sized brand and we have a lot of friends in the space.

So I recognized that we didn't have a very typical it's not like we had to find their contact info. It was definitely easier for us to say through our mutual friends, hey, look, we've got this offer, can we test it on this network? And they were willing to explore a conversation, and now we have a good relationship with them. But my point is, if you don't find a way to get in touch with one of the folks on the team, which isn't too difficult, but just have a high performing offer, that's all they care about, right. You don't need to have a beautiful brand or a ton of it. They don't care how much you've raised, what your packaging is like, nothing. It's literally just do you have a high performing offer and what CPA can you give us? And cool, that's great, let's do that. That's it.

And be able to supply it at scale.

Yeah, that too. Also, yeah, if you have the production capacity and that's where kind of mentioning you have investors or you have a short lead time, things like that can help them get excited and say, okay, they've got the capacity to pump out thousands of orders a week. Let's do it. So, yeah.

Harris as we kind of wrap up here, I know one thing that we didn't quite get to touch on yet, that is another thing you do is like, you invest and advise in a lot of companies in the space. So what kind of companies have you invested in? What gets you really excited as you put your investor hat on? What gets you excited in this space?

Yeah, for sure. So for me, I like to invest in two things. Number one is sorry, there's a printer right next to me going off. So for me, what gets me excited from an investment perspective is, number one, brands that have substantial omnichannel potential. And I can usually vet that out pretty easily because depending on the category, the innovation of the product and the price point of sort of the product being offered in the market, like I mentioned earlier, a $500 product in a luxury space is not going to get it to retail. So number one is omnichannel potential. Number two is a lot of the categories that I do tend to look at are sort of Food and Beverage, health and Wellness. Reason being that's just where I see a lot of interesting innovation and mass market potential in terms of retail distribution and things like that.

And also those are categories with really interesting M A prospects, right? Like strategics are willing to pay premium multiples in those markets. And if you're investing and you're looking for a venture scale outcome, that's where you're going to get it. And the third piece is team. Does the team have substantial expertise or understanding of marketing and distribution? Or if not, are they incredible learners who are surrounding themselves with the best of the best in that, right? So, as an example, one company that I'm an investor in that I love is Emmy EMI is a vegan Keto Ramen. Kevin Lee is a good friend of mine. He's one of the two founders of the business. And I love their product because there's real innovation in a category that needs it, which is Ramen. They've brought sort of Better for you into the Ramen category.

And immediately, in my mind, there's a few things that I think of. Number one, substantial retail distribution prospects because Ramen is a very retail dominated category. Number two, so I look at that and say, that checks my box. Number two is substantial M A prospects if they can get to scale. Because, look, if you've got the better for you driver of that category and you're the category leader there in an old school category filled with billion dollar strategics, you're going to get M and A interest if you get scale in retail and D to C. So those two sort of were there. Number three, it was a very overlooked category. I love sort of Better For You and Food and Beverage Innovation into categories that people haven't yet paid a lot of attention into because a lot of people paid attention to the first wave of Food and Beverage CBG.

It's like cereal and bars and things like that. Now people are going into sort of the next wave, which is like the Ramens and the pretzel snacks of the world, right? And the third is the team. The two Kevins have filled their cap table with the best of the best operators in CPG. And the reason. I mentioned that is the two Kevins are very good at understanding who and when to reach out to different investors to ask for help on very specific, tactical, execution related items. And that's why they've done so well. They're seeing substantial growth and are kicking ass. So that's an example of one brand that I'm excited about.

And so, yeah, for me it's like, does this check the box of can this hit big box retail at scale? Can a product be a costco Walmart Target CVS 711 type of play? Number two is it in a category filled with large strategics who have the interest to buy out assets or have the preexisting sort of examples and comps of assets they've bought that have innovated in categories that they're in. And then number three is how strong is the team on that front? The team is the number one most important thing to me. But when we're talking like, product specific, I think of those two things. And that relates to a lot of a lot of how I think about if a brand can get into retail is also just through personal experience, having pitched to most big box retailers, having been involved in it, or invested in brands that have been in big box retail. So a lot of it is like specific markers of things I'm aware of. So it's hard to kind of specifically quantify those in a more brief answer. But yeah, those are kind of the main things. And then, oh, the last piece, how smart the founders are at capitalization.

I think one of the biggest challenges we face in this space is everybody raises too much money. And I don't mean that in a traditional tech way of like, oh, you've burned $100 million. I just mean that more from like, look, a lot of really great brands can be amazing 50 to 100 million dollar exits, but they've raised capital to the point where only a $250,000,000 exit is a success. And you've kind of shot yourself in the foot because, look, D to C and CPG is not a category with a lot of billion dollar outcomes. It's also not a category with a lot of 500 million dollar outcomes. It's a lot of 100 million dollar outcomes. And if you've raised a $25 million Series B, you're going to have a really tough time getting your board to approve that $75 million acquisition offer. So I fundamentally believe that a lot of brands should be capitalized with up to 5 million throughout scale or ideally even all the way up to scale, less than 10 million total, unless you're raising like, growth equity later stage.

So the problem with a lot of brands is I know a lot of brands that have gotten to 20 or 30 million of revenue. They can be great 75, $80 million exits in the next year, but they decided to go and raise a $30 million Series B. And I don't see a world where that brand becomes a 400 million dollar exit. Now, that's not to say that all brands won't. I mean, if you're crushing retail, your brand is scaling and there's a clear line of sight to 100 million of revenue, then go for it. But if you're pure D to C and you raise $30 million, you're going to be in a rough situation. So I like to just talk to the founders to get a sense of how they look at profitability building their teams lean and how much capital they intend to raise. If they tell me they just feel like they need to raise one or two rounds at most and feel that they can build the business with strong fundamentals, strong retention and retail distribution, then it usually means that they know how this space works from an M and A perspective and an investment perspective.

Sweet.

Well, that's really helpful in terms of a nice lens to evaluate not only businesses as a founder, but as an investor and everything. So wanted to thank you for coming on with us today. This episode has been really great. Love covering everything from how to evaluate a business, how to start a business, how you should be thinking about building it the right way, scaling up traffic, affiliates and everything. So for our listeners who are tuning in, where can they connect with you, where can they find more about you, miracle nameless and all the other cool projects you're involved with?

Yeah, I would say LinkedIn is probably best. Or email me. Harris Haris@namelessventures.com to be honest, the reason I say LinkedIn is I don't have any social media. I deleted all of my social media about eight months ago, so I am nowhere to be found other than LinkedIn or email. So that's probably the best place to reach me.

Sweet.

Well, thanks for coming on with us today.

Awesome. Appreciate you guys having me. Yeah.