#310 - $100M+ Businesses in Controversial Industries: John Coogan, Co-Founder of Soylent and Lucy

What's up, DTC pod? Today we're joined by John Coogan, who is the co founder of Soylent, the co founder of Lucy, and more recently he is an Eir at Founders Fund, as well as a big creator on YouTube and all the other platforms. So we're really excited for this conversation today. John, I'll let you kick us off. Why don't you tell us a little bit more about yourself, your background, how you got started, maybe with Soylent. Was that your first business? How did things start for you?

Yeah, sure. I grew up in Pasadena, California, basically right outside Los Angeles. Went to a school right next to Caltech that was very focused on STEM and science, technology. So was always interested in know. Some people try and call Pasadena NASA Dina, because NASA's there. Never really caught on as nickname, but culturally, it's a very techie city. And so I went to college, studied economics, eventually learned to code, was doing some internships at some finance firms, Citadel being capital, a couple small venture shops, and saw that basically, the less employees at the company, the better I did. And the bigger the company, the more painful it was.

And so eventually I said, okay, I got to just start something. And the summer after college was, like, the perfect time for it. And so I grabbed a friend from high school, went out to Silicon Valley. We eventually got accepted to, essentially y combinator. It was a spinoff run by some of the Y Combinator folks, and then they merged it in, but now it's Y combinator. And basically, if your audience doesn't know about Y combinator, it's kind of a startup school. Three months, you sprint as hard as you can to build a business, show some growth, and then at the end of the program, you pitch it to investors, and there's a big room of investors. So we go through that program, we utterly flop.

Everything we build sucks. And I was learning to code. I was getting really great at it, and we were putting apps in the store. We were actually learning how to produce products, but we didn't know distribution, didn't know marketing. So we would kind of just build something, and then it would be a dead end. But we had wound up living with another team that was in Y combinator, and this team was building kind of hard tech, wireless networking stuff, a bunch of Georgia tech guys. And they also ran into the same problem. They pitched.

No one wanted the deal. No one liked it. Eventually, the idea was pretty reasonable, and I think someone wound up doing it, but it wasn't the right team. Know, building cell phone towers, essentially as new grads no one really trusted you would require a lot of money. So both companies have kind of flopped at this point, and we're running out of money, but we know, just build something people want. Make something that you like. Just start building for fun instead of really overthinking. Like, we need to build something that will make money.

And we noticed that we just wanted to spend all day coding, building things, and we had some money in the bank. From the initial y combinator investment, we had put everyone together into this know, disgusting apartment in the tenderloin in San Francisco. It was a complete mess. I was actually living in the living room. One of my co founders was technically living in a closet because it didn't have a window. And it was just like, pretty destitute. But we really enjoyed it because we just wake up every day and program and try and build.

That's the motivation to get out of that, right?

Yeah, it was definitely motivation to get out of it. But honestly, it was like a really enjoyable time. And I think it was very satisfying in terms of the work. You wake up, you don't have a boss, you don't have any external stresses, there's nothing on your calendar. You just have as many hours a week to do whatever you want. You can go off and read a book, learn a new topic in a day. And it was fantastic. So we just wanted to extend that.

And we figured that if we extended that, eventually we would build something great, build the next great app or something. As we noticed that, okay, we'd paid our rent a year in advance. We owned our laptops, we paid for Internet. We didn't really have any costs other than food. And so my co founder decided that if he just bought all the raw ingredients to the ultimate meal replacement protein shake, mixed those up himself, that would be the cheaper than any of the other alternatives. So in San Francisco, you basically always have to make a trade off. Food's typically either healthy, convenient, or affordable, and you can usually choose two. So, like, healthy and convenient but not affordable is like going to a nice restaurant, the chef cooks for you.

It's super healthy. You don't have to do the dishes. It's great, but it's expensive. Then healthy and affordable but not convenient is like growing your own food, cooking for yourself. Very time consuming, but it is pretty cheap. And it is definitely healthy. And then unhealthy. But convenient and affordable is like fast food.

So you walk in, they give you the food really quickly. It's not healthy, but it is cheap. And so we were really stuck between all of these, and we were like, how can we get something that's healthy, convenient and affordable? We were like, let's just eat the most protein shakes as possible, basically, and just distill what the body needs down to exactly what your requirements are. You need this many carbs, you need this much fat. So start mixing up the powders. Making this protein shake. And Rob, my co founder, CEO, writes a blog post about it. And he is incredible at content marketing, and he's a very, very creative writes.

He reads a lot of science fiction. He writes in this very trollish manner where you don't know if he's joking or not. And he rides this edge where you don't know, so people read it. Is this satire? We don't know. It feels like it, but maybe. So. It does very, very well. It's very entertaining to read.

And so he writes this blog post called how I stopped eating for 30 days, or something like that. I stopped eating for 30 days. And that sounds insane. A 30 day fast, no food sounds aggressive, like, what happened? And of course, he was like, having these protein shakes, which you drink them, but you're kind of eating. You're definitely getting calories. He's getting like 2000 calories a day. And then he goes into the health and says that he got a lot healthier. And so it's like the classic body transformation story that launches so many of these fitness and health and nutritional products, but it's told through the lens of a Silicon Valley programmer.

And so no one had come to the Silicon Valley programmer archetype with a protein shake with a nutritional product before, people had done this exact same thing for cyclists and bodybuilders and Olympic weightlifters and football players and boxers. There had been a story about, oh, do you want to be like Mike Tyson? Get on his protein powder? These stories are dime a dozen. But no one had done that for, like, do you want to program more? It was a very, uh, just od thing. So Paul Graham at Y Combinator, the head of Y combinator, he says, he calls it, like, the biggest pivot in YC history, because they pivoted from. We pivoted from a wireless networking company that was going to build, like, 5g towers into a protein shake company. It's like completely opposite. But we had to, because the response was overwhelming. Like, Rob put up that blog post, and 10,000 people signed up, gave their email to us, and answered, like, a multi, multi page form explaining what their health goals were, what they want, how much they'd pay.

We even asked them like, hey, what if we could customize this for you? Would you send us your dna from 23 andme? And people were like, yeah. 93% of people said, yeah, we would send you. That's how crazy people were about the idea. They wanted something because it was just a very small market that was completely unspoken to. No one was selling health products to programmers. And so people said that they would send in their blood work and stuff. It was like crazy people were asking, like, hey, I'm going to burning man. If you can come to Oakland and give me some, I'll pay you cash.

Rob was like riding out on the subway to go deliver this, like, a drug dealer. It was crazy. The demand was just, like, overwhelming. And so it was very obvious that this was going to make money. This was going to be a business. And as soon as he told me that he wanted to call it Soylent, I was like, before, I was like, why are you doing this? Nutrition doesn't really matter if you're a 21 year old programmer. Just wake up and code. All that matters is, like, your product.

That's obviously wrong. But regardless, I thought it was, like, a silly project. I thought it was, like, too far of a side project. But once he told me the name and he said, I'm calling it Soylent, I knew about the movie. So in the movie, Soylent is based on this movie, Soylent Green, and it's this dystopian Sci-Fi future where there's this food called Soylent Green, and it's revealed at the end of the movie, spoiler alert, that the food is made of people. And so it's this really dark cannibalism joke. And so I was like, this is going to catch fire because it's going to be so controversial to name a food product after, like, a cannibalism joke, essentially. And also, like, this weird Sci-Fi reference so old programmers who have seen this 1970s movie will love it and they'll get the joke.

And then there's actually a book. So there's, like, lore around the brand immediately. And I was like, yeah, okay, we need to sell this. The name makes a ton of sense. So we put up a website, and in the first hour, we make, like $200,000. It was, like, crazy. And we were just like, let's go to the Apple store and buy better.

Computers, what was the reaction from the VCs in the SF area at that time, whenever you would tell them, why was this something?

Well, it was arguably better from Silicon Valley VCs than from traditional food and beverage investors because the VCs were seeing it on Twitter and seeing it on hacker News and TechCrunch. Our marketing was tailored at tech people. So vcs saw that there was a lot of soil in a lot of different VC offices. There were programmers at the different companies that they were funding were using it. So imagine you're a VC and you go to visit your best company. You open up the fridge in the office before your board meeting and you see a Soylent there. It's in your brain. Whereas if you're some legendary food and Bev investor and you're going over to the 711 headquarters and you open up the fridge there.

It's not going to be there. So we were disproportionately low in attention from traditional food and Bev, but punching way above our weight in terms of tech.

So when you guys got those $200,000 in sales, what was the conversation right after, when you guys gathered? And assuming that the topic is now, how are we going to supply this? How are we going to scale this?

Yeah, so we'd talk to, do you like the granularity? Is it helpful if I tell it in really deep? I mean, it's interesting to me. So basically, there were four co founders. One is my current co founder, David Rinteln of Lucy. And so we continued on, but he had a little brother who went to USC and was in a fraternity with the son of the guy who was the CEO of Muscle Milk, I think. Or maybe he was like the president. He was, like, running that company, high up head honcho guy. And so we use that connection to get a call with him and just be like, hey, we got a problem. Like, 10,000 people want us to produce a protein shake, and we have no experience here.

It'd be one thing if it was like, writing some code and dropping it on AWS. That's what we've been practicing for the last year. Like, put an app in the App Store. This is not that. We need a huge machine. We need a v blender. I don't know if you've ever seen a vblender, but it blends up the powders. You put all the powder in it, and it just splits it half and half again and again and again.

And we walked into this room, and it was like the size of the room, like multiple stories, huge. Mixing up, like 10,000 pounds of protein powder. It's crazy. So we call him, and we're like, hey, we need a manufacturer for this. We're not going to be able to make this in our garage. This is impossible. We had a little r and D facility where we would go and kind of mix it up for ourself because we were making it in our apartment. Basically, my bed turned into a table where we were making these powders and testing it on ourselves.

So we call him, and eventually we brought him on as an advisor. He introduced us to another guy, I think David Ackerman's the guy's name. He had been maybe working with him and had a lot of experience in the industry. And he put us in touch with a copacker manufacturer, which we didn't even know what that was, but copacker I mean, I'm sure your audience knows what that know. So we go out, I think we were in Modesto, kind of know, an hour or two outside of San Francisco. I don't know if that's right, but we're kind of out in the middle of California, and we tour this facility, we're like, great. And then we made, like, one fatal error. I think there's probably other ways to handle this negotiation, but we're like, hey, we have $200,000.

I think it actually went up to, like, 3 million pretty quickly. We basically have $3 million of revenue that we need to deliver on. We have $3 million in sales. This is like, I don't know, 50,000 units of the stuff, or I don't exactly know what the average ticket was, but we got a lot of product that we need to make and then ship to our customers. Can you make it for this? And they're like, absolutely. It'll cost $2.9 million to do that, because we just want all your money. And it was because we'd exposed our pricing beforehand as opposed to going asking them, like, okay, we need to drive down the price. We need to talk to ten different copackers.

We need to get the lowest possible price, lock it in, and then at the last minute, tell them, and we're actually selling it for $10. So that would have been a much more effective negotiation strategy. But that's not what happened. We came in, they could look at the website, see exactly how much we were charging, and they charged us an arm and a leg. So our motors were very bad for the first run, but it didn't really matter because we kind of knew that people were going to be subscribing. We were going to be able to scale up. We'd eventually be able to go to bigger copackers. So we weren't super locked in, but it was just kind of like a silly mistake at the early stage, kind of rookie mistake.

Yeah, but I think it's so important at that stage. Like you're saying you have the demand, you have to fulfill on it, and you have to see, okay, let's deliver on our product, and let's see where that takes us right after the first production run. So you had to do it. You couldn't just be like, oh, we're going to take a year negotiating our best rates while customers are still waiting, and you're trying to capture that lightning in the bottle, right?

Yeah, 100%. I mean, we tried to go on Kickstarter, and they denied us because Kickstarter wasn't doing food products at the time. Hilariously, years later, someone goes on Kickstarter and starts a Soylent Brownies project where they're making brownies with our product as an ingredient, and they got approved by Kickstarter. It was very weird. So we wound up going with a different platform that we knew from Y combinator called crowd tilt that I don't think they're really around anymore. James Bashara was running the company, though you might know him from Magic mind. He'd be a good guest on d to c since that's his wheelhouse now. But we were on this kind of, I mean, I don't want to disparage them, but it was like kind of janky.

They built it basically for us. We were just really by the seat of our pants, like, getting this going. It wasn't very established, and a ton of Kickstarters had failed. Like, there had been a ton of kickstarters that had not gotten over the finish line or never delivered. People kind of lost their money, and Kickstarter used to be the brand was like, if you put your money down, you are going to get that product. It's just going to be a year or two and you're putting the money up front. But all of a sudden, for right around 2012, 2013, it started flipping to like, you might not get this at all. It's too risky because people were doing like, crazy, like, oh, it's like a flying car on Kickstarter.

And it's like, that might not ever happen. But we delivered in a year, and it was painful, like every day. I think we said we were going to deliver in three months. We pushed that delivery date back like a ton. There were tons and tons of customer support tickets, just like tens of thousands of people emailing us constantly. And then the problem was, during this time, we were doing a ton of press because that original viral story, like, if you've been following Brian Johnson with the man who spent $2 million to live forever, we had that same kind of viral moment where Rob was like, the guy who doesn't eat food and that's weird. And so everyone wants to point a camera in his face. And then he was also just like this weird Sci-Fi guy, really interesting.

Could just talk for hours in all these different directions and all these different places and just be a really far futurist in terms of where things go. Like, oh, yes, we'll definitely have a pill that you'll take and you'll never need to eat again. Just like crazy Sci-Fi concepts and just very entertaining. So great for earned media. And so I remember one night I woke up and there was, like, a discovery news camera in my face being like, this is the guy who sleeps next to the guy who doesn't eat food. I'm like, okay, turn the lights off. I'm trying to sleep. I've been up until, like, three in morning coding, and Rob was doing, like, BBC hits in the middle of the night.

He got invited on Steve Harvey, which I thought it would have been awesome. And they were going to do. They wanted to make it the at. Look at how much weight I lost. And he was like, I didn't really lose that much weight. That's not really like a weight loss program. It's more just to let you code more. But I was like, dude, we should do it.

Go have fun on Steve Harvey. That would have been fantastic. But eventually it started getting very serious. The New Yorker wrote a cover story about it, like a super long profile on the company. And this reporter came out and embedded with us for days and days and days and was like, at our facility. She came to our house and we were doing these science discussions, sessions, I forget what. Journal clubs where we'd read different scientific literature with some scientists from the Caltech community. And she was participating in all aspects of the business.

Wrote this really interesting profile. You can read it and be like, oh, this is kind of trash talking us because we're like rookies, which we are, and silly and kind of talking too much about the future. But it wasn't super negative and it wasn't also glowing. It was just that perfect balance where we were kind of getting made fun of, but for good reasons, so you don't fault her. So it turned out phenomenally and sold a million dollars of product in a day. It was like the best thing ever. And then we had some hit pieces, but even the hit pieces would, I think when we were launching, we had some press that we were embargoing, and we were deciding we'll either go with the New Yorker or the New York Times. Like, for the big announcement, we'll do like a really deep dive with one of them and only one of them.

It's one or the other. And we went with the New Yorker. And so the New York Times is kind of, like, upset with us. And so they wrote kind of a negative thing, but even that drove like $100,000 in sales. It was great. Even though it was like, this thing's stupid, it sucks because people were like, I want to see how much it sucks? I'll be the judge of that. New York Times.

Yeah, I remember. I bought it long time ago and my parents were like, you have a problem. So I totally see that. So you guys scale, fast forward. You guys scale to having million dollar days. Scale to high eight, nine figures. But with no prior experience in DTC, I assume you guys must have passive moments of near death moments of the business throughout that scaling. Or was it just so fast that.

There wasn't even time? So there were definitely huge oh, shit moments. I'm trying to think if there were true moments close to death. The real moment close to death was like before we started the company because we had like 50k in the bank and it was just dwindling down. And there were three guys trying to build a business off of that and it was just getting less and less and less. And now you talk to seed stage founders who are on their first company and they're like, oh, I got 500k in the bank. It's really tough because I'm burning one hundred k a month. We were burning like two k a month between three people, including food and rent. It was like crazy, but that was going to run out and we were failures and we'd really burned the ships.

It wasn't like there were going to be jobs waiting for us at Google. And also co founders were leaving. There was originally six people, maybe at.

Mussel milk there was going to be a few jobs.

Yeah, maybe. But this was before that, so we didn't even have experience there. So we just had like no experience. It would have been very bad. So something had to work while we were actually scaling the business. I mean, there were definitely like, oh, shit moments. One was Vice news came out and did a documentary about the company. It's like a 30 minutes video all about us.

We walk around this farmers market, we talk about food, we talk about the business. They go to one of our R and D facilities where we're kind of making it for ourselves and like friends, just small batches. And while they're there, they get on camera a rat running through the warehouse, which is like the worst press you can possibly get if you're a food company. But we weren't actually making customers products there. We were just making it for ourselves. And also we were living there. So we went beyond it being bad to just being like, it's weird. And I think that was kind of okay.

And there was so much going on in the press that the bad stuff didn't overwhelm it wasn't like we were like some silent company, and then all of a sudden, there's a firestorm of negativity. It was like, every day there are three interesting positive pieces. Like, Tim Ferriss writes about it, and then Vice News says something bad about it, and then Vice News says something good about it because there's more news. And it was just something that was constantly in the media. And so we had tons of setbacks. There were problems with different formulations. I forget one thing about heavy metals in a certain ingredient that we had to pull out. And then there was another one with an algae that we were using that people were intolerant of.

So it was like a lactose intolerance response. But people don't know if they're intolerant to algae. They know if they're lactose intolerant. And so people were having just like, there was a 1% chance that you'd just have a really bad reaction and be like, maybe throw up. It wasn't, like, super dangerous or anything, but it was not good for a food company. And it was just something that was not. That was a pretty interesting story, because the company that was supplying us was, like, this company called solozyme. They were, like, a clean tech company that wanted to do, like, algae biofuels, where they would make the algae and then use that to power cars or something like that.

I guess that was, like, the long term goal, but that wasn't working. So they pivoted to being like, we'll sell algae, and you'll eat it as food, which is not bad. Algal protein is fine. Like, it has good amino acids, but there's a certain amount of people that are intolerant to it. So they'll have a lactose intolerance type of response, which is not good. Basically, you have to go to the bathroom. They sold us this. They didn't disclose this.

We wind up selling it to people. There was another company that was selling it as well. Honey stinger. This packet for bikers was using it like cyclists, and they find out that it's bad too. And so we're both like, okay, well, it's not us that's responsible, necessarily, because if this random cycling company is also having the same problem, it's clearly not us. It's something upstream in the supply chain, in the ingredients. And so we go back and we're like, it's you guys, we're not going to sue you. We just want an apology and make it clear for our customers that we're going to fix this, and they'll be happy, and they'll figure it out.

But it was crazy because we were, like, 23 years old and the stock of this public company was moving based on our board meeting. We walked out of our board meeting, we made a decision. We were like, okay, we're going to put the screws to these guys and kind of make them admit that they fucked up. And we see, oh, we knocked $100 million off their market cap with that decision. It was, like, crazy. It was like Wolf of Wall street type shit. I was like, wow, this is wild.

That's so wild. I mean, I bet there's so many stories of Soylent, but I'm also really interested about your new company, Lucy. And you mentioned you have an economics background. You grew up in the tech community, but you decide to do another DTC brand, and so definitely want the audience to get an understanding of what Lucy is. But I'm also curious. Why DTC again?

Yeah, so DTC. I don't even know if DTC is, like, the right word anymore, because DTC, as a strategy might be basically dead post ATT with apple.

CPG.

Yeah. CPG really is, like the genre that you should think about. It's like, what's the product you're making? What problem does it solve? It's food or drink or beverage or nutritional supplements. And then you might set up a Shopify store and run some Instagram ads as your first go to market effort. But pretty quickly, you're going to be doing retail, and then you're not really a DTC company. There was a DTC boom. Like, you're 100% right. That there's, like a DTC thing that happened now, like, omnichannel from day one is definitely like the meme, but we wanted to do another packaged goods company because we'd seen a lot of the problems in the business at Soylent high Churn.

Very expensive to ship. Like, shipping water effectively is extremely expensive. Like, a box of Soylent was probably like ten pounds. Cost us like $10 to ship. And we were trying to be really cheap. It was trying to be like a $30 box. And so, like, 30% of your margin is shipping, which is just crazy. Not as much of a problem if you're doing retail, but we were still figuring out retail, and we were like, okay, we still haven't figured out retail.

We don't have a retail hack. We don't have something that can really accelerate us there. We don't have an unfair advantage in retail. So what are the problems well, focusing on something that's light. So if you think about a box of Lucy, this is like the nicotine gum. This is probably like $30 or $40 worth of stuff, of goods, but it weighs probably less than a pound, so it costs nothing to ship. And so much more of the margin can be taken up by the actual product, and you can actually compete with other brands much more effectively. And in many cases, our products are cheaper than our competitors in retail, which is great.

And that's not true for protein shakes. Protein shakes might be more expensive, and that's why in DTC, look at the recent winners, like the athletic greens, the LMNT, the hydration. The other hydration packs, they're stick packs with powders. You pay $40 for a stand up, gusseted bag that has 50 little powder sticks in it weighs nothing. Now, imagine if lMnt was like, we're going to ship you two gallons of this stuff. It's like, okay. Their margins gone. So solving for that was one thing, and then the other one was like, defensibility.

We had this idea at Soylent that, oh, this is just like a cool idea. We want a cool community. If you want to start something that's similar, we'll support that. And that was really stupid. So we had tons of copycats, people that would just clone the business. We wouldn't defend it. We should have been suing people. We should have had more intellectual property.

But in software, you don't need to be as hard nosed about this stuff often because there's more lock in. There's more. You could create a clone of Facebook today. Cloning the software is not what makes that sticky. It's the network. Right. But that's not the case for food products. If you clone our protein shake formula, make it a little bit better, a little bit cheaper or something, you'll just win often until you have a really established brand.

Obviously, people still buy Coca Cola even though there's a store brand. But that took a hundred years. We were not there. So we get copied left and right. There's so many copycats, people literally just taking the name and changing one letter like there was a zoilant, a joynt, like all these different ones. And then there were some other ones that were a little bit more mature about them, but they were making real money and taking real market share from us. So we were like, okay, let's not make that mistake again. Let's go into an industry that has some sort of intellectual property regulatory barrier.

And that's how we came across the tobacco industry and nicotine specifically because nicotine was going through a change where it was previously basically unregulated by the FDA. So just like when you make a food product, you can just go and mix up a bunch of ingredients, as long as they're all generally recognized as safe, you can go and sell that product. But if you want to make a new weight loss drug like Ozempic, you're going to have to go through tons of FDA approvals and do trials with real people, take blood tests, monitor them for years. It's going to be hundreds of millions of dollars to get those big blockbuster drugs approved, like cancer drugs, et cetera. Nicotine was moving from the unregulated. Just mix it up and sell it to closer to biotech. Like, we need to review everything. And so we recognized that the train was leaving the station.

And the last year to start a company in this space was 2016. And so we start thinking about it, formulating it. We do some small launches and then really start doubling down on the business in like 2017, 2018, and then have just been growing it ever since. And it's great because now it would be super obvious, especially with what's happened with Zinn. It's like a total meme all over Instagram. It's clearly a category that's growing, growing, growing. But this isn't going to become like some trendy thing where every know leaves and starts like a new hip pouch brand. It's just not possible.

It would cost them millions of dollars and take multiple years to get up and running because of the FDA process. And so having a barrier to entry was really, really key.

So for context for the audience, what is zinc? Sorry, what is Lucy?

So Lucy is a nicotine products company. We started the company because my co founder was smoking and his wife works in medicine. And look, like if we're going to get married, you can't smoke. You have to stop smoking. He was like, come on. I smoke like a few cigarettes when I'm out with my buddies. I go out and I'm only a social smoker. And she's like, yeah, but you're out with your buddies every single night.

So he's like, yeah, okay, I get it. I've seen the data. The data is really bad. Even if you're smoking a few cigarettes a day, it can definitely cause lung cancer. This is well understood. So he's like, I want to stop smoking, but I like nicotine. I like the stimulation effects. Like nicotine, it's similar to caffeine in some ways, it has a shorter half life, so kind of gets in and out of your system.

For certain people, it's just like an enjoyable thing. That's why people smoke in the first place. If you ask someone, like, why do people smoke? They'll say, oh, because they're addicted. And that's true. It is a very addictive product. Or they'll say, like, oh, because it's cool. And it's like, yeah, but how did it get cool? Well, the reason is that nicotine is a stimulant, and so it makes you more alert, makes you less sleepy. These are things that people.

So he's like, I want to stop smoking, but I want to keep using nicotine. I know that nicotine is safe because there's all these studies on nicotine gums and lozenges and all the FDA approved stuff like Nicorette is not killing people. So we should make something like Nicorette. And so the first product we come to market with is like a direct Nicorete competitor. It's regulated as a tobacco product instead of an FDA drug, which is kind of like a complex FDA regulatory thing. But that's what this product is, this nicotine gum. So we come to market with this nicotine gum. We're selling it online, and we're kind of in this unique space where there are no d to c companies in the category.

Even Nicorette's not really. They kind of sell on Amazon. There's some generic stuff. And the product hadn't really changed in, like, 40, 50 years because of the FDA regulation. It was very expensive to release a new product. And so we start growing the product, kind of running like the default d to c playbook. And then the second product we launch is a loss that actually is FDA approved for smoking cessation, which means that we can come to the customer and say, look, if you're trying to quit smoking, we can tell you that this has been studied by the FDA specifically for quitting smoking, which is great because certain people need that quick claim marketed to them. This, we can just say, hey, look, it's enjoyable.

It tastes good. It has nicotine. We can just kind of make, like, standard claims about it. It's very much like in the supplement space. I'm sure you've seen. There's certain things you can say, there's certain things you can't. And then we expand into pouches, which are kind of like the latest innovation in the category. And they still deliver nicotine.

They don't contain tobacco, and they are growing in popularity.

We are really excited to announce that DTCPod is officially part of the HubSpot podcast network. The HubSpot podcast network is the audio destination for business professionals, and we're really excited about being part of the network because we're going to be able to keep growing the show, bringing you guys amazing guests, and obviously helping you guys learn from the best founders, marketers, and builders of the most successful consumer brands. So anyway, keep listening to DTC pod and more shows like us on the HubSpot podcast network@HubSpot.com. PodcastNetwork John, the question I had is, after you got everything set up, I know you said there were some regulatory things changing around 2016, you got the company set up, but today, are there different regulations you guys have to navigate in terms of selling to different states? I know that's the case with alcohol and stuff like that. Or is it once you guys are set up and you're pass all your regulatory stuff, you can kind of sell, ship, do whatever.

So there are state by state regulations for nicotine products, tobacco products, and all of these things are defined in different ways. Certain products might be categorized in different way on the state by state basis. It's usually just, you either can sell it or you can't. So, for example, you cannot sell flavored vape products in San Francisco. That's just something that's been banned. So there's no amount of regulatory work that you need to do. You just need to make sure that your products aren't sold there. In terms of most states, it's just a tax factor.

Like you get taxed, obviously, much less in Virginia, where all the tobacco companies are, than in New York and Los Angeles. And that's why when you walk into bodega in New York, you spend $10 on a pack of cigarettes. Now, when we say regulatory, we're talking about federal regulatory, like the United States government, the federal Drug Enforcement Agency, the FDA, not the DEA, sorry. But yeah, the Food and Drug Administration, FDA, we are responsible to them. So all of our products have. We've submitted these massive PMTA applications, which are the pre market tobacco application. Tell them everything that's in the product, where it comes from, what happens when someone uses know, we show the products to people, see how that affects them. They look at all of our data or revenues, like everything, and then they make a determination on whether or not this is suitable for the protection of public health, which means that this is not the case in supplements.

If I'm selling a protein shake, the FDA does not say does it get you jacked? The FDA just says, is it safe to consume these ingredients? And then you mix them together and you're good. People like it, that's fine. But for this stuff, it's like, it needs to be suitable for the protection of public health. And that means that it can't be worse than cigarettes. They need to look at addiction and gateway drugs that effect. Like, if you start on the gum, would you switch to cigarettes? And so they look at all this data and they make a determination on whether or not releasing this product or keeping it on the market will improve the public health or make it worse. And so with mean, that was like the most hotly debated company and hotly debated topic the FDA, you might have seen. They ruled against them.

They basically said, the FDA said that Juul is not suitable for the protection of public health. Like, it's making the public less healthy. But Juul fought back and got an injunction and is fighting it back and has just raised some more money. And so there's all these different things going on, and we'll kind of see. It kind of depends on your scientific opinion on a lot of these. But we felt at least that we had a really good shot at convincing the FDA that having more smokers switch to nicotine gum would be suitable for the protection of public health. And so we said, we can make that case to the FDA. And then if the FDA approves us, we will be one of the only companies that can really sell a new and innovative nicotine gum.

Nicotine pouch, et cetera.

Gotcha. No, it's super interesting. I think one of the most interesting things is just the space that you guys are operating in. If you're looking at the trends, right before, smoking was absolutely massive. There's probably a lot less smoking in the US now. But like you were saying, the rise of things like Juul and the puff bars, it's like, if you go out in any city, it's like every teenager is like puffing on these things nonstop. So how do you see your product? Well, first, why don't you walk? I think you alluded to it before, but tell me about your product suites, what you guys actually offer at Lucy, and then how those products kind of fit into this larger ecosystem of the smoking products, which are like traditional tobacco, cigarettes, cigars, that sort of stuff. And then the vaping products, which you're.

Seeing sold in all these. The bread and butter of the business for the first couple of years was the nicotine gum. What differentiates us from other products is flavor and strength. So most nicotine gums are not very flavorful. They're kind of hard. I'm not a big fan of them. Ours, we really focus on the formulation, but ultimately, it's a qualitative distinction. We do have one quantitative distinction, which is that we sell a six milligram nicotine gum, which Nicarag actually sells a six milligram in Australia.

And I was buying it on eBay and importing it, and it was amazing. But for some reason, probably the regulatory burden, they never got it approved in the United States. And so it's my belief that it's a better product and it should be in the United States, even though it'd be a competitor. So I guess keep it out of here. But I think if I'm just like the president of the United States and I'm trying to just make people healthy, I would definitely get that product rolled out in America. It was also dirt cheap on eBay for some reason, because of the transaction and different costs. Anyway, so nicotine gums, the first thing, and then pouches, and specifically these breaker product that has a capsule inside. So the number one product.

The problem that we found with other pouches was that they dried your mouth out, because if you look at the lineage of nicotine pouches and tobacco pouches, it starts with just ground up tobacco leaf. Like, people would just take the tobacco leaf off the plant, grind it up in mortar and pestle, and then take it and stuff it in their lip. And this you might know as dip chewing tobacco. You see the baseball players back in the day chewing it up, spitting. The spit is brown. You might have seen, like, the frat guy in the basement of the house with the Gatorade bottle that's filled with the brown spit. It's disgusting. It's not just disgusting.

It also has cancer causing nitrosamines and carcinogens in there. It's a dangerous product, and you can get mouth cancer from that. But there were a few innovations in the space. One of the first was, like, snooze pouches, which were the actual loose leaf chewing tobacco is now wrapped in a pouch. And so general snooze by swedish match is a product. These are very popular, and so it's more convenient. It doesn't create as much mess in your mouth. Like, the particles just don't go everywhere.

So people liked that. That was getting bigger. But again, you still have tobacco in there. Not good. Then in 2014, swedish mash released zin, which is a white nicotine pouch, meaning that there is no tobacco inside, which means they've removed all the tobacco, and it just contains nicotine and some flavorings and some filler, basically. And that product has done phenomenally well. The swedish match was doing, I think, 2 billion in revenue and got acquired for 16 billion. So that gives you kind of an idea of the scale of this thing.

And this was a year or two ago. So, like, eight years into this business, swedish match has been running for decades, but Zinn was, like, really moving the stock because it was growing so fast. So anyone who was trading swedish match stock was always focused on the zin performance. And a lot of the retail traders were really pissed when they got bought by Philip Morris because they wanted to continue owning Zinn as, like, a pure play product. And now they have to buy, like, philip Morris stock, and it's like this bigger thing. So it's more complicated. But the beauty of Zinn was that they took the tobacco out of the pouch. So now you don't have to deal with all that.

If you don't want tobacco in your mouth, you just want the nicotine. Zinn offers that. Great. But what we found was that, personally, I didn't like that the product seemed to dry my mouth out. And this was true for kind of everything in the category. And so we focused on finding ways to deliver more moisture into the pouch. And so we do that in a number of ways. But the breakers product has an actual capsule with liquid inside that dissolves and then moistens your mouth, moistens the pouch, and releases more flavor and just makes it a better experience.

And so that's kind of like the overview. We sell mostly online, but heavy retail push into all sorts of retail chains, and that's kind of the product mix. And because of the regulatory, there isn't a lot in the product pipeline. We're really just focused on better marketing, better branding, better distribution. Right now, we have some cool ideas for stuff, but any new product is going to be years of waiting, years of working with the FDA and millions of dollars of investment to get it to market.

And that was the next thing I wanted to talk about, is distribution, because, like you were saying, zinn, for example, if they're selling $2 billion, they have to have really solid distribution. And I know just from anecdotal things, it's like I walk into a gas station, I walk into a convenience store. You see the zin tins right on the counter. So how do you guys approach starting d to c? But like you said, you're expanding into retail. What's your retail play. How do you think about it? How do you scale it?

Yeah, I mean, the benefit of d to C is that you do get a lot of data about your customers, and so you know where the product's playing. Well, for us, the Northwest is particular. We're particularly punching above our weight class there. And then also the major cities like Los Angeles, San Francisco, New York. And I think a lot of that has to do with taxes. And then the Northwest has a whole bunch of other know. I think it's generally health conscious crowd, outdoorsy types not wanting to smoke all day. But the thing that we found, obviously, there's no substitute for just having a really great sales rep who is willing to call knock on doors, follow up, really educate the customer and the store owner about the value of the product, why they should take a shot on this.

Send some free product, try some things out, educate them. It has helped when we find that our d to c efforts translate into retail. So they've heard about us on a podcast. Even though that podcast had a coupon code and we were expecting a customer to buy directly, a retail owner heard about it because they listen to podcasts too, and they're like, wait a it. This is a cool product. I should try this. Or a lot of times they'll just be buying the product, or someone who works for them will be buying the product. They'll see it and they're like, if you're buying this independently and ordering it online, maybe we should be carrying this in the store, and then they'll give it a try.

There are a bunch of other hacks.

But yeah, it's interesting, too, how most brands are looking at creator distribution, like TikTok influencers, et cetera, as like an instant attribution play. However, it can drive massive awareness for retail adoption because it just drives awareness. Then people go to their local gas station and ask if they have Lucy. I mean, this is how Zin also really took off. Even jewel, it wasn't like a direct placement. It was just on every video. And so it flips the script where then retailers are requesting from you to carry your product.

Yes, that's half true. I think that's kind of true for Juul. I think they did a great job of marketing and branding the product. And obviously the folks at Zen did a great job too. But it is important to remember that Zinn was created by swedish match. They already had distribution into hundreds of thousands of stores, tens of thousands of stores, through the general snooze product, which is the exact same dimensions by the way, it's a can of pouches. It just happens to be a brown pouch instead of a white pouch. And so you can imagine that it's easier when you have a salesforce to be like, put this everywhere, and then the customer becomes aware and then the viral videos start happening as opposed to the other way around.

If you're a startup, you don't really have that option unless your dad runs some major distribution hub or something.

711.

Yeah, exactly. If your dad runs 711, like, different strategy for you, but for everyone else, it's like, yeah, go with the creators, get popular, figure out the d to c play, and then use that to accelerate into retail.

So, John, I know you went on a side quest to become a YouTube creator. You now have over 300,000 subscribers. So you yourself are becoming a creator. I'm curious, how does that play into the brand you're building and how do you look at creator distribution overall? Are you involved with more creators in the brand? Is that even in the mix?

Yeah, I mean, it helps a ton. Obviously, once you hit a certain scale as a creator, you kind of can meet any other creator who's at a similar scale, which has been very helpful in terms of finding people who do speak to that audience. My content is very business focused, but we've been able to meet a lot of content creators that are very, like lifestyle, health, wellness, even just straight up tobacco and nicotine influencers who are like, perfect. So it's been helpful there. Obviously, it's helpful to see the other side of the business and understand, okay, what do they really want? What actually moves the needle for these folks? So that's been good. And then, yeah, just generally in terms of hiring partnerships, just everything, like being a known quantity, if somebody says, okay, do I want to do business with this new brand? And then they look me up and they see me on this podcast and they see my content and they see that I'm a real person and I've been known quantity. They know my whole history is out there. It's just added credibility.

So it opens doors. You get more intros. All these different things all come together for sure. Cool.

And John, as we wrap up here, what's your involvement with founders Fund as an Eir? What are you working on? What excites you? Clearly this isn't your first rodeo in terms of company. You've built a couple of different companies, you're building your business as a creator, and you're doing some other stuff. So what does that look like for you?

Yeah, I mean, Founders Fund is a fascinating place. It's an incredible group of folks. It's a very small, tight knit firm. They have not hyperscaled the staff, which has been cool because even as an Eir I've met basically everyone and yeah, my role is just to continue doing what I'm doing. Basically I make a lot of YouTube content. I'm building out a real process for making really high budget looking documentaries about new startups and new companies. So I'll go to a company that's building something. I was at a factory yesterday.

They're building like a crazy machine shop and I walk around the floor with the CEO. I interviewed all the team members, I cut it all together, make it really great, and then that helps them recruit employees, potentially get customers, all these different things. And so figuring that out has been a really fun thing. And of course foundersfront knows a lot of really impressive entrepreneurs that I've known some, but not all. And it's been great to be able to meet people and then make more content about them and with them. So that's been cool.

I love, you know, why don't you shout out to the audience? Where can we connect with you? What are your channels? Where are your socials? Where do we find you?

Yeah, I'm John Coogan, basically on YouTube and Twitter or x don't really do much on Instagram. Feel free to shoot me a DM on Twitter. My email is also on my website, johncoogan.com. If you want to find. Yeah, I mean, you can subscribe to the YouTube channel that's like the main place and then Twitter is kind of where I hang out and have fun with people. Sweet.

Thanks for coming on the show.

Yeah, no problem. Thank you, John, good to be here.