The Pomp Podcast - #1067 AJ Agrawal On Building & Selling An 8 Figure CBD Business

Episode Date: July 31, 2022

AJ Agrawal is the Founder of Verma Farms. In this conversation, we discuss SEO, affiliate marketing, where his interest in CBD came from, selling his CBD business for 8 figures in just 72 hours, and how using Pipe has helped AJ grow his businesses. ======================= Crypto is all about giving the power back to the people and our sponsor, Pipe, is doing that in a big way. Pipe is the world’s first trading platform that allows you to trade recurring revenue streams for up-front capital. And with Pipe’s new API, companies with recurring revenue can build seamless, embedded financing options into their platforms. No loans. No dilution. No restrictive covenants or warrants. Just growth on your terms And right now, Pomp Podcast listeners can access tens of thousands of dollars even millions fee-free for 12 months. Whether you are a bitcoin mining company looking to enable financing for your customers or a SaaS, DTC, or any business that has recurring revenue, sign up at http://pipe.com/pomp to start trading today. =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. AJ Agarwal is the founder and CEO of Verma Farms. In this conversation, we talk about SEO, affiliate marketing, branding, and where his deep interest in Bitcoin and CBD comes from. We also discuss alternative financing, like using companies pipe, which allows you to borrow against your future subscription revenue. I really enjoyed this conversation with AJ and I hope you guys enjoy it as well.

Before we get into this episode though, I first want to talk about our sponsors. Today's episode is brought to you by Pipe. Crypto is all about giving the power back to the people and our sponsor Pipe is doing that in a big way. Pipe is the world's first trading platform that allows you to trade recurring revenue streams for upfront capital.

And with Pipe's new API, companies with recurring revenue can build seamless embedded financing options into their platforms. One of the most interesting uses for Pipe's new API right now is Compass Minings, mine now, pay later, which powers payment plans on Bitcoin mining hardware

so more miners can start or scale with a smaller upfront investment. Whether you're looking for mining hardware or scaling any business with recurring revenue, check out Pipe to access growth capital with no loans, no dilution, no restrictive covenants or warrants, just growth on your terms.

And right now, Pomp podcast listeners can access tens of thousands of dollars, even millions fee free for 12 months. Whether you are a Bitcoin mining company looking to enable financing for your customers or a SaaS, DTC or any business that has recurring revenue, sign up at pipe.com slash pomp. Again, pipe.com slash pomp to start trading today. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. AJ, what's going on, man? Hey, how are you, man? Good to be with you.

I am doing fantastic. I'm very excited to talk to you. Uh, before we get into the stuff we're going to talk about, I got some questions that I need. I need some free alpha for the audience, SEO, affiliate marketing, paid, uh, marketing, all this stuff. There's been huge privacy concerns from Apple. They claim that they're trying to protect people's privacy. And so therefore they are saying that they will, uh, drastically hurt, although they're not clearly saying it, They're going to hurt Facebook's business, Google business, and others in the targeting capabilities. What have you seen in terms of trends?

Are some of your clients, are they now saying, hey, we can't do as much paid marketing because it's obviously, you know, return on advertising spend has been kind of negatively impacted and therefore we're going to start doing other things. Like, what are you seeing on the ground? Yeah. So I think with Facebook and Instagram advertising and even like Google AdWords, early on, there There's a bunch of people that jumped into it because there are ways that you could push yourself ahead if you had really creative ads and like if you're really early on some of the terms to go for. But now I feel like it's kind of a numbers game.

And so, like, for instance, if you are a company that's super well backed to a degree, you can just kind of buy the keywords that you that you really want. So we like what's interesting is like my brand was a CBD brand. So we weren't really even allowed to run, uh, to run ads at all. Um, so we just did SEO and affiliate, but I think for our clients, like we're definitely seeing, um, a reduction and we're really seeing the margins get very, very slim, but like at the same time, I feel like there's a lot of weird things when it comes to like privacy and, and data. Like I was just listening before about, um, you know, you were talking about search listings

and search rankings and stuff like that. And I feel like it's so hard to actually know, in my opinion, like what data we're actually giving out anyways. But to answer your question directly, yeah, we're seeing less and less margin on ads that people are running for sure. If there's like small business owners or even startups that are watching this and they're asking themselves, all right, cool, SEO. We don't have an in-house SEO expert. We're not working with an agency. What are like the three to five things that you're like, you got to do this? This is like the simple stuff that at least gets you in the game.

And then if you want to kind of go to 201, 301 level, then they can come work with an agency like you all. Yeah. So I think for SEO, what I would say is I wouldn't do it unless you have like a significant budget for it. But to be honest right now, like, you know, SEO is a super competitive long form game. And so like when I was running a marketing agency, we mostly worked with bigger clients on SEO. And then when I went into e-commerce, it shifted more towards the affiliate model. And so what I would say is that I think SEO is one of those things where there's so many agencies and I would say 99% of them just aren't great and it's not going to move the needle. And I'm even talking about my own agency to a degree where unless there's a company

that has a ton of money to spend, I honestly wouldn't spend it on SEO. I think where I would put more dollars now is definitely towards the affiliate marketing end because it de-risks your business. Like essentially affiliate marketing is, if you sell my product for me, you take a cut and I take a cut. And that just works, I think, way better. So if you asked me this question, I don't know, a few years ago, I'd be like, wow, like SEO, yes, it should be your number one channel. It's super profitable. You should go for it. Now I feel like my mindset's really changed in the sense that I think unless you have a massive budget, honestly, I don't even know if I'd invest that much into SEO right now. And when you see people not doing it,

people listen to your advice, what do you suggest them do instead? So I think what I would do is like, I would, I would look at the core principles of the business. And this is what I do when I start like an e-commerce project is one, I'll only do a project where the net margin is 80%. So like for CBD, for instance, the company Verma Farms that I had, like we would sell CBD oils for 60 bucks and our cost was about $4 to make. And like, that seems like a, uh, ridiculously, like it's a really good margin, but the reason for that is it gives you slack on everything else. So, um, the first thing I would do is look at a business that you can have 80% margin on. I think there's some companies in the e-commerce space right now, um, that even

though they have low margins, they just have mass scale. So you look at a company like athletic greens, look at companies in that space where they're not as worried about making a huge margin upfront, but they're going for sheer market share. And I think one of the pieces of advice that I got really early on that was helpful was you can kind of build the business in two ways. You can build a business where you're just going to pour a lot of money into it and you just want to win by market share and have a massive exit. You get over a hundred million dollars in revenue and you just sell on mass scale. For our business, we were only around for two years. We never even got to eight figures in revenue. But what we did have is we had over 50% margin. And so we didn't really

need that much in sales to eventually get the business acquired. So I would first look at the margins of the business. And then two, I really like the affiliate model. I think affiliate has been like a huge, there's been a huge change in affiliate over the past couple of years, especially with all the changes in publishing. Like if you look at the changes in what's going on in the media right now, more and more outlets are trying to figure out like, how do I make money? How do I generate money now in today's environment, which is super different. Like there's no longer the case. It's very rare for these media outlets to be able to make money off of sending like the Sunday paper and things like that. And so you're seeing more and more

more outlets going into the affiliate model, which is great for entrepreneurs. When you think of the affiliate marketing that you're seeing right now, that's working best, give me an example of kind of how those deals are structured or like where you're seeing it work well. Yeah. So like a great example that you guys were just talking about was Forbes. So Forbes has an amazing affiliate model. They basically have like a health space within Forbes where they independently review products. And so, um, you know, like they'll, they'll choose, uh, you know, the 10 best, uh, the best protein powders for, for 2022. And a lot of outlets do this. Uh, the New York times does this, um, and, and a bunch of other publications. And so once,

uh, you've, your product has been, um, selected, which I think, you know, in part is due to luck, but it's also great branding and putting your site out there and, and, um, kind of, kind of making sure that you have something that's different in the market. From there, you'll kind of reach out and you'll negotiate a deal per sale. It's important to note that like the publications, they will only negotiate those deals after you've already been selected. So it's kind of church and state between the editorial team and the advertising team. But if you can just land a few of those and like Forbes is obviously a big example, but there's a ton of other smaller outlets that are moving to this. If you can do that a couple of times, it basically doesn't cost

you anything. And if you have margin in your product, you can basically rely on them to get the sales through. And then the other thing that was really a game changer for our business is we added a subscribe and save feature that was the default. So if you go on Amazon, that's what you'll typically see. It's the subscribe and save feature. Then you can go to one-time purchase. And so for that, that even helps more because even if you don't make money off the initial sale, you get all the repeating sales. And then once you eventually get to the point where you go to sell the company um subscription revenue is worth leaps and bounds more than than one-time revenue um so that's kind of that's kind of how how we've done it and then when you

start to think about uh influencer marketing or anything where it's you know podcast it's instagram tiktok uh various other platforms newsletters whatever like what are you seeing there yeah so i think with uh instagram i think the influencer uh game has really um changed and adapted the past couple of years. What we've found success in is more of like the micro influencers. So people with, you know, maybe like 100k or less followers, sometimes like 10 to 15k followers, but super loyal followings. And what we've done that's helped to also help costs is like, we will start out with giving out free products, and then we'll try to keep the actual fees that will pay outside of that pretty minimal. And then we'll just use an affiliate tracking link

too. So as much as we can, we'll move people over to the affiliate model. And I think especially where we are in the economy right now, if you're selling a luxury good, moving over to as much as a paid per performance model is going to be really, really key here. I think there's a lot of things that we saw in the e-commerce space. And I know that we were a victim to this. When things were really good, we were just spending money on things that we didn't know that would convert. Influencer marketing is a great example of that, where we would just kind of throw money and see what's going on. I think right now, with current conditions, and how I think consumer spending is going to go, making sure you can keep as tight as possible, your marketing channels to

paid on performance, that's going to be super, super important. When you start to see kind of all this marketing expertise that you have, you applied it to the CBD space. One, why CBD? Like, why is that such a great market, other than just maybe the margins you mentioned? And then tell us a little bit about that story in terms of how you're able to build that business? And I think you sold for eight figures. Yeah. So, um, CBD, I think started with me. Um, personally, I, uh, always had like tons of trouble, um, sleeping. And, uh, what I really struggled with is after college, like I ran cross country in college where, so my schedule was super regimented, like everything from nutrition, diet, et cetera, was taking, was taken care of.

And then, you know, it's crazy when you leave college, you don't really learn a lot about, like the health and wellness space and keeping yourself fit. Um, they just don't teach it to you. And so one of the things that really, that I struggled with was just figuring out, um, how to get, how to get seven to eight hours of sleep. And so I tried a lot of different products and, um, and then I tried CBD and that personally for me, um, helped a ton. And so that was the first thing is for me, I personally, uh, it personally helped me. And then I looked at the margins of the business and I was like, okay, like, you know, at an 80% margin business, I really, really like this product. And then from there, I kind of looked at where the market was growing. And like,

I always look at the search volume for certain keywords and kind of track them and CBD was moving up to the right. And so for all those reasons, I felt really good about it. And so before that, I was running a marketing agency. So this was my first e-commerce project that I'd ever done. And I think the biggest criticism that I got running an agency, especially from startups, which I learned to appreciate was, you know, if you're so good at SEO affiliate marketing and running an agency. Why can't you do this for a product yourself? And so once I heard that on a sales call, I was like, look, I need to do this. And so, you know, I invested a little bit of money myself and then just bootstrapped that business.

And that business was grown through SEO and affiliate. And then about a year into the business, there was another company called Penguin CBD. And I wanted to acquire that business. It was primarily being run through SEO and affiliate as well. And so I knew that model, but I didn't have the seven figures of cash laying around that the founder wanted to buy it. And so what I did is I reached out to a platform called Pipe. And I said, and at the time, I think I was the first one to do this. I said, look, I really like this business.

Pipe is based on subscription revenue. So they'll take your subscription revenue, give you multiple for it and give you that money. So I took that company that I was acquiring, I took their subscription revenue, I brought it to Pipe and I said, look, I want to buy this business. Here's how much subscription revenue they have. If I'm able to sign these docs, can you give me that money? And then I could use that money to buy the business. So what I did is I went to the founder, we signed the deal to acquire Penguin. I then took those financials, gave them to Pipe, Pipe gave me the money, and then I bought

that business. And so, um, that helped a ton and that was within a year. And then, um, after two years from starting Verma farms this past December, um, yeah, we sold it to, uh, for eight figures to an Amazon aggregator. Um, so yeah, it was just a, it was just a really cool story and, um, interesting experience for sure. So this is fascinating. You basically went to a business, you found it, they had a recurring revenue. You then went and said, if I sign like an LOI, essentially to buy your business, I can take your financials. I go to pipe, pipe will then go ahead and give me the money and i'll be able to buy your business now uh obviously we do a ton of work with pipe uh i'm a huge fan i've never heard of anyone doing it this way though

right i've only heard of people probably know uh maybe a year or two years ago uh i piped uh some newsletter revenue to just kind of try it out and i went i bought some bitcoin with it right uh and so with this you essentially are doing it to be able to buy a business which i don't think i've ever heard of anyone doing. What was the contractual like out when you went to buy the business? Was it contingent on you being able to secure the financing or was it you were on the hook for the money regardless? Yeah. So this is where the risk came in. I was on the hook for the money regardless, but I think what's really cool, um, about my experience with pipe is I think I was the first one to do it. And like, um, they, at least for me, they were super, super founder

friendly. And what I mean by that is like, by the time I signed that deal, it's not like pipe guaranteed that, Hey, once you get this deal signed, we'll be able to fund you. Um, I brought them the, the, uh, signed LOI. And I said, look like per this LOI, I have to get this funding within 72 hours to the founder, um, or the deal doesn't close. And they got me the money within 72 hours. And what I love about pipe and especially how you've, um, used it as well is like the the ability to repipe. Um, so every time that, you know, you pay back, you can repipe the way I've always thought about that is as long as the, in like, as long as the interest that you're paying, whatever the bid price is, if your business is growing faster than that, then it's

kind of a no brainer. So like we have, I think four of our e-commerce businesses, um, with pipe or more. And, um, we've used pipe for all of them because in my mind, especially like for me, I'm a Bitcoin holder as well. You look at it and you say, well, if I can get a higher return on what I'm giving and you can repipe, it's a no brainer. So yeah, I think we're the first to use it. But I think at least for like e-commerce, but really all startup businesses, Pipe is a game changer in that regard. Because like the ability to get funding that fast, I think is really unique. And when you did this, Pipe will only give you some percentage of the revenue, right? So for example, if I have a hundred dollars of revenue, they're not going to give me $500, right? They're

only going to give me some percentage. So how did you make the economics work where you basically could get enough money to actually buy the business, even though the revenue was, uh, was higher? Yeah. So, um, what we did is we piped both Verma farms. So at that point, Verma farms wasn't, we hadn't put them on the pipe platform. So we put them on the pipe platform and then we put, um, Penguin CBD on the pipe platform. And then we had a little bit of cash left over from the, the business as well. Like so we used all those reserves and then we bought it, which at first I think it was you know, it was a little bit of a risk in the sense that I had to know that I was going to get this funding and like, obviously you're operating two businesses now, but I think

being able to unlock that subscription revenue for both businesses helped. And, and the acquisition, you know, was, was a big game changer for us. It paid off. And then I think one of the worries that I had initially with Pipe was what was going to happen when we sold Verma Farms. Because I think just like Pipe being a new platform, you're kind of wondering how an acquirer looks at it. But what's nice is when we went to sell Verma Farms, we had no problem in the discussions. And actually, I think just based on the platform of using Pipe, it was super easy to explain. And so we didn't get any pushback. So even though we've sold now Verma Farms, we still own Penguin and we still use Pipe for Penguin as well.

And so as subscriptions have grown, we've constantly just re-piped to increase that money and we're kind of just fueling fuel to the fire. When you think about kind of the position you're in now, what are you going to do with the cash that you use from the sale? Like, are you just going to put it in your pocket? You're going to go buy another business?

Like, what's the plan? Yeah, so it's really cool. Harry from Pipe, he's been like, he was awesome. So like once we sold the business, I like, he was really grateful for them because you know without them none of this would have happened and um i was thinking about like what i wanted to do next and uh what's interesting is so with with verma farms the number one selling skew that we had was actually like dog cbd oil and uh so i was like oh i know this market well

i've been um i've been a huge fan and like i i have a dog myself so i was like i want to do a pet startup and so um like six weeks after the acquisition i was like i wanted to go into my next thing. So I started a company called Pupper and Harry from Pipe actually led the round, which was, which was super cool. So he's been super supportive and awesome. So I've been diving into Pupper. I invested some of my own money in that. And then I keep a majority of my money into Bitcoin, which is probably one of the reasons I love your show so much is like, it definitely gives me peace of mind because when I invested, you know, in December, the money that I've put there, I kind of think of it as like, look, I'm holding this money for like 10 years. And so,

um, you know, outside of wanting to do my own e-commerce projects, it's, it's basically e-com, um, and then mostly Bitcoin. I love it. What, what's your thoughts on Bitcoin? Like, why are you so excited about it? I think, uh, for me, like I try to think of it as like, I try to be as practical as possible. And I think like right now, um, you know, if you sell your business. Like if you have like this influx of cash, um, I like went through this long process of deciding, you know, what is going to be the best investments for me. And I honestly looked at everything. And in my mind I said, okay, like if you're looking at a 10 year horizon, um, well, what are you going to do with it? So like for me, I travel, I like to travel, like our businesses

are remote. So I was like real estate. No, I don't, I don't really want to do that because I kind of want to go explore around and I want my assets tied in to pick a particular occasion. I don't want to be tied to a particular location. And then setting that process up, if I want to buy it elsewhere is a lot. So I was like, I don't want to do that. And I was like, well, what about if I bought some stocks? And I was like, okay, well, what if I looked at some interesting companies? And then I kind of looked at Bitcoin in a light where I said, you know, if you're looking at such a long horizon, and you want to put your money somewhere, and you're looking at the highest return, do I trust any company more than I trust Bitcoin? And, and I couldn't find it. And then I think the final thing, which is not really a good reason, but it's just me being honest, is like, if I look five, 10 years from now, and Bitcoin accomplishes what I think it's going to accomplish, and I think a lot of really, really smart people like you and people on your show have thought that the feeling of not investing in that asset, which I think is going to be a life changing thing. and looking back at five to 10 years and thinking about, wow, I did not put money into this when I had this much conviction. Man, I don't know. That should be really hard to deal with. So for all those reasons, as a long-term horizon, I haven't found a better investment.

I love that kind of approach of the e-commerce, the understanding of marketing, but also just this deep-rooted belief in something like Bitcoin. What would you say is the best path for somebody to gain the knowledge that you've gained other than just like doing it? Are there books that you've read? Are there, uh, movies? Are there documentaries, YouTube videos, interviews? Like what are some of the things that you've consumed over the years that stick out in your mind as like, man, if I was an entrepreneur, uh, starting all over again, here's where I would go and get some information. Yeah. Um, so what I would do is there, there's a tool and like, I'm not associated with them at all, but, um, but I love this tool. Um, and it's called Ahrefs, which

basically just shows you the search volume of like um interesting categories and so uh i think that you know you should find something and i think everybody says this so it's kind of cliche but you should find something that you genuinely like and are interested in like for me um you know the reason i love e-commerce is like if i give you a product that i've made i feel like this sense of pride in it like there's nothing i like more than when i give somebody a product and they say like oh AJ like I really enjoyed this like that for me um I just I love it and so um like I would one look at a product that I'm interested in then two I would look at products that have ridiculously high search volume that's trending to the left and so like there's tons of these um there's tons

of these products out there and then from there um I would look and say okay you know if I find if I find a product that I like um I would go out and I just I would I would just start experimenting. And I think what stops a lot of people from doing e-commerce projects is they think that there's a ton of money involved. And to a certain degree, at some point, things like inventory, et cetera, you do have to spend a bunch of money. But right now, I would say it's the easiest time to start something in the e-commerce space with minimal risk. And there's so many shortcuts that work to de-risk the process. So for instance, when I ask most people, why don't you at least try something? Even if it's a side project, why don't you give it a try?

They say, oh, I don't want to spend hundreds of thousands of dollars on inventory. Okay, great. So there's an easy solution for that. You can put products on your website and then you can do one of two things. You can either put this product is sold out for 12 weeks. And if people still buy it, then you know that there's a demand for the product. And so you can wait until there's some demand and then buy the inventory after. You cannot do that and just put a wait list. So you can get a bunch of emails and that's a way to track if people are interested, or you can allow people to buy the product and then email them immediately right after and say, look, um, you know, it's going to take a few months to get this product in.

We'll give you another product for free, et cetera. There's all these different ways that you can minimize the risk for it. And then like setting up a site, if you use tools like Shopify, you don't need any coding experience. You could do it over a weekend. So at that point you have a website, you have at least products up and then it's constant experiment experimentation. Like, I think, um, if I looked at what really worked, uh, with Verma farms and even the

e-commerce projects now, like for the new pet business that I have pupper, most of the time I would just sit at home still to this day. And like, what do I enjoy to do is just experimenting with the site. Like if you put this button here, does it convert better? If you use this language, does it convert better? If there's, if you use this price point, does it convert better? Um, and if you do that enough times, like, I think eventually you you'll build something, But honestly, um, like getting started and at least getting something into the market. Now you

can do it for such little money. Like if you even have the slightest interest in e-commerce, um, you should, you should give it, give it a try for sure. Yeah. I love that. I've just like, try it and you can do it for very low cost. Uh, what did I say? Doing is the best, uh, the best teacher, right? Just as you get started, it's, uh, it's, uh, it's worth doing. Um, where can we send people to find you on the internet? This is awesome. I feel like so many people could learn from you and kind of follow along as you keep building pupper, uh, where should we send folks? Yeah, honestly, email is best. I'm not really on too much social media. So just aj at pupper.com would be great. Awesome. And you want to give a kind of a, a one second, uh,

pitch on pupper. What exactly you guys are doing there? Yeah, totally. So, um, like I was saying before, uh, Harry from pipe has been a lead investor, uh, into the business. It, um, it's been great having, having him on and our, our kind of goal is we're trying to build, um, pet nutrition for the future. So we created, uh, customized, um, pet vitamins and supplements, uh, basically for all around health. I think like the pet space, uh, is really interesting for us. We we've noticed a lot of innovation going on. Um, and a lot of people, I think, uh, during the pandemic, um, bought pets and right now there's a huge focus on just longevity, um, of our dogs. And so, um, yeah, it's like an all encompassing solution for pet nutrition, um, for, for pupper.

I love it, man. AJ, thank you so much for taking the time to do this. You've got a very cool story. And I love the the creativity on how to how to get cash to buy a business is probably one of the better ones I've heard. So keep up the great work. And we'll definitely bring you back as you continue to build Puppr. Thank you so much. Really appreciate you having me on. All right. Sounds good, buddy.