The Next Brand, Episode #1
Writing worth reading on health, wellness, and building the next generation of brands.
hello hello,
welcome to the first edition of The Next Brand - my take on health, wellness and building the next generation of great brands.
(cool - but who the f**k are you)?
in the last 4 years i’ve founded 2 health brands (Kettle & Fire and Perfect Keto), which will do nearly $100mm in revenue in 2019. i’ve raised nearly $20mm to build Kette & Fire, gotten into 9k+ retail stores, bootstrapped Perfect Keto, launched 80+ SKUs… oh and have a small portfolio of Shopify apps I’ve bought + operate with my partner Ryan. before this? i worked in tech and had no experience in CPG, DTC or any other 3 letter acronyms industries.
i also have some strong opinions on things like Beyond Meat, health, startups… all things i’m sure we’ll cover. in the meantime, let’s dive in.
what’s new
i went hunting for the first time in my life this weekend (officially earning my Texas resident card) and - it was fascinating. 3 days in nature + shooting, gutting and eating an animal made me appreciate more than ever how humans are just a small part of a massively complex ecosystem.
it’s great to virtue-signal going vegan while living in NYC, blasting the heat and eating Sweetgreen from the comfort of your office. when you’re outside in 26 degree weather, you can’t see an edible plant for miles and you’re starving - whole different story. it’s pretty clear that for most people of European ancestry, our ancestors killed and ate animals to survive the winter. there just wasn’t another way to meet a human’s caloric needs.
more and more i’m coming to appreciate that the root cause of most disease is a mismatch between human’s genes and our environment. as my biz partner Anthony Gustin says, the default of any creature (human, mammal, plant) is health. the only time we move away from our default state of health is when we take ourselves out of our natural environments. like i am by sitting and typing this right now 😃
anyway, hunting was super cool but really intimidating to get started with. i’d highly recommend giving it a shot, and happy to pass on recommendations if you want to jump in.
what’s going on in health and wellness?
the tech sector is fascinating. i used to live in Silicon Valley and still have a soft spot for all things tech. it’s inspiring to see great entrepreneurs building new things at the forefront of technology, literally inventing the future #props.
health is the opposite. in my opinion, the food + wellness trends that are here to stay are a return to a past state where humans (on average) were healthier. not a progression towards a techno-utopian world where every human has Soylent on IV drip.
the default state of an organism is health, which means we don’t need technology to make us healthy. in my opinion, the Great Health Challenge™️ of our century is reversing the damage done by the last 75 years of packaged foods and junk science. removing glyphosate, sugars, carbs, processing from our foods… all that jazz that’s made Americans both richer and sicker than ever before.
this is why shit like Soylent and Beyond Meat really piss me off. oh, you want to improve human health by introducing tons of canola + vegetable oils to people’s diets and pass that off as healthy? please, tell me how many times your ancestors would be able to take the following steps to extract the oils from a canola*:
the answer is clearly never. your ancestors would never be able to regularly consume canola oil, especially not in the quantities Beyond Meat suggests. Soylent? nah: i’ll take real foods humans have eaten for millions of years over a bunch of junk ingredients that satisfy “everything i need” in a shake.
*(sidenote - wtf is a canola? has anyone ever seen a canola plant? picked one from a tree? no, because canola oil is made from rapeseed, the seed most likely to get canceled in 2019).
what does this mean in practice? it means getting back to eating real food that grows, demanding sourcing and ingredient quality from food brands and entrepreneurs you may or may not support (👋🏼👋🏼), and being willing to call bullshit on brands that purport health but will make you sicker. looking at you Dr. Longo for selling people a “fasting bar” to eat while… fasting. (yes, a doctor is trying to tell you that you can eat ONLY HIS BAR while fasting and still be fasting. insanity).
this is a fundamental principle i think many people (especially in tech) miss. optimal health is a return to our ancestral roots and reflects our animal biology: technology shapes the future.
until we’re 3D printing sexy little bodies for us all to walk around in, i’m highly skeptical of the techno-utopian vision of “reinventing food”. tech should focus on making the transition to organic, regenerative agriculture more efficient and scalable, not trying to introduce weird processed ingredients into a complex system like the human body. keep that in mind each time you evaluate the latest hot health and wellness brand.
</rant>
thoughts on brand building
over in DTC / brand building land, Web Smith made an interesting observation:
i’ll tell you why this holdings company doesn’t exist - valuations in DTC are NUTS.
now, this doesn’t make the rollup a bad play. like much in business, it’s all about timing. and for this idea, the timing just isn’t there because of large private market valuations.
public consumer trades between 3-5x revenue on average. Away luggage, Hubble contacts, Farmer’s Dog, <insert-fav-DTC-brand-here> are all raising at private market multiples between 5-10x. hell, i even saw a pitch deck where the founder was raising at a 5mm valuation while only having done 50k in revenue in the last year (and on a 300k run rate) - a 100x revenue multiple!!! i passed.
you end up with DTC companies raising at 5-10x revenue valuations, while strategic acquisitions generally occur at 3-6x. with early private market valuations that high, you have a crop of mature DTC startups (Casper, Warby, Freshly, Hubble, Hint, etc) that have raised at high multiples and need to get 2-3x more than their last valuation for investors to be happy. as long as the music hasn’t totally stopped, no brand is going to take a major valuation haircut to execute a rollup strategy in a bullish private funding market.
the more money you have to raise, the more conservative valuations get - very few growth equity PE firms are writing huge checks at inflated valuations because the strategic buyers are very rarely paying big multiples, and already have lots of regrets:
it’s well known in the industry that Unilever regrets paying up for Dollar Shave Club (~5x rev multiple)
Hershey’s hasn’t been thrilled with the Krave (~6x rev multiple) acquisition and
Walmart is having a terrible time digesting the Jet.com and Bonobos acquisitions (~3x rev acquisition multiple)
let’s run the numbers: let’s say you were to execute this strategy and wanted to build a big DTC conglomerate. if you had $1b to pull off this strategy, by rolling up DTC brands at about a 5x rev multiple you’d probably be able to buy about $200mm of revenue, likely close to $0 in earnings. in fact, many of these brands are likely losing money, somewhere between 5-15% of revenue. that means that - after spending $1b on this strategy - you’d have 4-6 brands doing ~$200mm in revenue, and the honor of funding these brands at an indefinite loss for about $20mm a year.
who buys this package of DTC brands? where do you get $20mm+ of synergies to cover likely losses? i’m just not sure that this strategy makes sense (yet), but it soon could. there’s a lot of capital sitting on the sidelines waiting to execute on this as soon as these DTC darlings can no longer raise at hefty valuations.
until then, stay lean and hungry my friends.
*note - i have some strong opinions on scaling a DTC brand without a ton of capital. reply to this email if there’s more you’d like me to dig into in this area.
dope stuff on the internet
some of my favorite things since the last newsletter (note: i don’t get paid to recommend anything here):
📰 article - i really enjoyed matt taibbi’s reporting post 2008 financial crisis, and he’s back at it with a killer series of posts on what’s going on in American politics. here’s a favorite, please don’t email me political things now.
📚book rec - i really enjoyed the Three Body Problem if you’re into sci-fi. if not, i also got a lot out of Seeing Like A State (though very dense).
⌚cool product - Copilot is easily the best budgeting app i’ve come across. if you want an invite code let me know - again, i get nothing from recommending this.
🎵music - if you’re into deep house, you gotta check out Cercle. it’s great DJs playing sets in epic locations - what could go wrong? i’d recommend starting with the Hot Since 82 set (though the location is less cool than others). if you want more deep house / long mixes, Lane 8’s Fall 2019 mix is 🔥🔥🔥
🔗link - each Halloween, Tokyo has a “mundane Halloween costume party” which is every bit as amazing and Japanese as it sounds. check out some of the costumes here, including my favorite: “Guy at the optical store who gets mistaken for staff”
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that’s all for this episode. let me know what more you’d like to see, what sucked and what didn’t. otherwise, if you enjoyed this i’d love if you’d forward this email to a friend, or have them sign up for free here.
feel free to reply back with questions or comments. otherwise, enjoy the week 🙏
justin