The Startup Ideas Podcast - Bootstrapping An Eight-Figure Business with Michael Martocci

Episode Date: March 11, 2022

What does it take to build a successful bootstrapped business? Michael Martocci (@MichaelMartocci) is the right person to ask. The Founder and CEO of SwagUp grew his bootstrapped brand to more than 8-figures in revenue in just 3 years. On this episode of Where It Happens, Michael shares how to overcome the zero-to-one hurdles, finance secrets, and why he believes bootstrapping is the right way to build your startup before seeking venture capital.Want more community? Learn more here: http://trwih.comSPECIAL THANKS TO OUR SPONSORS This episode is brought to you by Tegus. Tegus is the fastest way for investors and M&A teams to learn everything they want to know about a company, all from an on-demand digital platform. Tegus is the most extensive source of instantly-available 1:1 conversations between investors and experts, covering companies from the seed stage to the public markets. Just log in for instant access to 25,000+ transcripts. They are offering you a free 2-week trial at https://tegus.co/room.This episode is also brought to you by OpenPhone. OpenPhone is an all-in-one business phone system that can help your startup look more credible—and it works right from your existing smartphone or computer. Each phone number comes with its own inbox for managing calls, texts, and voicemails together—making it easy to keep track of every conversation. Sign up and start using your new business number in minutes. Visit https://www.openphone.co/room to save 20% on your first six months.

All right, we just finished recording a dope episode with Michael Martochi, the CEO and founder of SwagUp. I personally came away with a ton of new learnings and actionable insights on business building. What do you got? So for me, the biggest thing was this whole idea of abstracting away complexity from a fragmented kind of crappy industry. And that was like what he did. He went in, bootstrapped a business, had an amazing cash conversion cycle, which we got into, and has grown into quite a juggernaut. Totally. I think my big takeaway was how do startup founders use debt, not venture capital, to finance their business? And he shares a few secrets on that that I don't think a lot of people know. Yeah, there were some great hacks in this episode. You're really going to enjoy it.

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All right. We did it. Awesome. Yeah. We're seriously stoked to have you here. So thank you for taking the time. Yes, fun. So I want to get into this pretty quickly, I guess, because I have so much that I want to talk about it.

What? Can I start? I like how casual it is, by the way. Can I start? Yeah, dude, fucking start. And you can curse. And by the way, this is all post-production. So like say anything, you're like, shit.

I shouldn't have said that. Tell us, we'll cut it out. I curse on all the podcasts. Yeah, you should curse. It's way more fun that way. And we're drinking tequila, so I'm going to pour some while you're sorry. Is it sponsored by these people? Yeah, Comos, man.

If you've never tried it, it's the best tequila in the world. It's so good. So, swag up. Thank you. Great business. No, it's a great business. Thank you. From what I understand, like you, I mean, we're at lay checkout as a customer,

so you help, when a new employee joins Lay Checkout, you basically send them a box of swag, and it's awesome because people feel welcome. and it's just seamless for like the company. We don't have to like think about it. Yep. You're a bootstrap business. Is that right?

For now, yeah. Can you talk more about why you bootstrapped it and how that experience has been? Yeah, for sure. Well, first off, like it wasn't meant to be this huge company, you know? Like when you're an entrepreneurial kid, you start lots of businesses. Like I had, you know, started when I was five years old, selling things outside my house and it evolved into. to like eBay, buying, selling, trading cards and stuff. So this was just one of many different things that I started.

And it just so happened to really take off over time. But in the beginning, it was just like startups love swag. And there's not the go-to brand in the space that every startup goes to. Because if you think of business cards, everyone went to moo, you know, stickers, everyone goes to sticker mule. But swag was a much bigger market. You know, in corporate gifting is a $200 billion market. Can I pause you there? How did you realize that?

Like when people that are listening to this, they're young, they want to go build something, they're ambitious. What did you do to actually like happen upon that exact realization that swag was a big industry and no one was doing it well? Yeah. And I don't know anybody in this industry or anything like that. You know, the reason I got into it and learned about it was in college. Me and a buddy launched an app. So again, just another one of the ideas or businesses that were started. And the app was called Click and it was basically a way to find kids on campus that are trying to play volleyball or, you know,

doing this or that and you can see a feed of live events going on. And in the process we want to put custom flags in the dorm rooms because, you know, I saw barstool sports had done really well by promoting on campus, putting flags up in parties and stuff. So we want to get flags and there are $140 in the US to just get like a polyester rectangle. And I was like, this is crazy expensive. And then I got introduced to Alibaba and found a supplier over there for $8 to get these custom flags.

So while we were launching the app, I was like, why don't we just get a little side website going and resell these flags? from overseas suppliers. So that's how I first kind of forayed into custom printing. And then, you know, fraternies would be like, hey, can we get T-shirts from you and stuff? And then, you know, I learned, I knew the people that had did Trump's campaign merchandise too.

And I went on their site one day and I saw on the bottom that it was like powered by this, you know, network of distributors or suppliers. And I went in there and you can see like, there's all these suppliers, you can get hard goods from like bottles and notebooks. And so now in the back of my mind I had this like whole supply chain

that I was aware of. And I didn't do, you know, SwagUp wasn't then the natural progression after that, but I always had that in the back of my mind. And then I ended up, you know, I dropped out of school, became business partners with an NFL player, this guy in the giant Steve Weatherford. Oh, yeah. And we started. The most jacked guy in the NFL, insanely jacked. Yeah, we were leveraging that persona to build like a fitness brand around him. So we launched like training programs and then physical products and stuff.

And even with that, we were bundling the digital programs with like physical items like shaker cups and, you know, resistance bands and stuff. So still in the back of my mind, I knew about that stuff. And then I ended up leaving that and joining a VC firm in New York City for like three, four months, a family friend of mine. And this is where kind of startups and swag came together because I'm around startups every single day. And you just realize, like, they're coming in. They barely have any traction. But the first thing they have is like T-shirts and, you know, mugs and all this stuff. It's the first thing you do.

You get fun and you make a logo, you get swag. And, you know, there was just no company that stood out as like the startupy version of a swag company. You go on these sites and floor imprint and. and Vista print and stuff. And these sites look like they're from 2003 or four, and they throw you into a sea of like way too many options. And I wanted to build a brand that kind of resembled, you know, Stripe and the types of, you know,

platforms they're already using, you know, from a software standpoint, but in the swag world. So one of the things you hit on there that I think is really actionable for people that are trying to find a new business idea. Like, oh, I want to be an entrepreneur. They're entrepreneurial. Maybe they did lemonade stands. Like I read about your background.

You had done all this stuff since you were. a kid, which I always admire, by the way, because I was, like, dicking around playing sports. And to this day, I'm about to have a son, like, what am I going to teach him? And do I want him to, like, be dicking around playing sports like me or do I want him to be doing entrepreneurial things and starting businesses and poking around with stuff? And I always really admire it. But one of the things, it's clearly part of your ethos, but that people can take away from it when they're starting businesses is, like, that curiosity that you had where you were starting something totally different, click. And you were going and looking at the flag and you were, you were

were like, well, shit, man, this doesn't make sense that this costs $140 here and it costs eight. What can I start with that? Well, I could resell the flags. Then someone else asked you a question, can you make T-shirts? And you're like, hmm, yeah, like the curiosity to say, hmm, maybe there's something bigger. Let me go ask a couple more questions about it.

Like, what else might you need? How could we do more with this? That is a really cool thing of like, if someone is just trying to go start a business, just start asking questions about the stuff around you that people are struggling with to like start trying to find those little, you. nooks and crannies of opportunity. It's also so much easier now to start things, you know? Like you have to get over that initial hurdle of like zero to one of like just getting

something started. Once you've done that a couple of times, then it doesn't seem scary anymore. And you're like, oh, it's very easy to start this website, start that. There's free tools to make, you know, sites and use Zapier to connect them and all this stuff. And a lot of the initial swag up site that did millions of dollars was all just hacky, bootstrapy, free stuff. So I think it's, you've got to get into that creation mentality where it's very easy to, you know,

start, you know, seeing problems and creating solutions versus thinking about all the reasons it's not going to work or why it's too hard to do it, you know? We were talking about this earlier, so I want you to talk about this too, of like the whole, like, I don't know, I call it Lego blocks as a framework, but basically we live in this world now with like with low code and no code. You can just go, you know, hack something together to, as you said, like you can go test your minimum viable, minimum viable product. You can hack together over a weekend probably with like developers in Eastern Europe and

like a bunch of low code, no code. stuff. So like, do you have any reactions? I mean, my, my, one of my takeaways is, is you started with the community, right? Like, it's not like you're like, hey, let me go build swag for everyone. You had, like, a particular community in mind that you defined, like, a particular type of startup. And then from that, you used the Lego building blocks of no code, low code, to piece it together and then tell a story that really resonated with that group of people. Yeah. One of the books that I read leading up to Swag Up was the Purple Cowden. And it's all that idea of like, if you're going to stand out in this world that's so

noisy, you have to be like instantly remarkable. You know, if you walk by a farm and you see a purple cow, you're going to be like, holy shit, like that's like purple cow. Like I've never seen one. And the first thing you're going to do is you're going to take a picture, you're going to share it on Instagram, you're going to call somebody and be like, I just saw a purple cow. And the idea is that you need to embed like this purple cow nature into what you're doing so that

when people see it, they instantly are like, this is different than anything I've ever saw. And that was the idea first. around focusing on high growth startups and ones that are looking to, you know, buy their time back that are looking for modern solutions to problems. But then we niche down even further and focused in on like this swag pack concept that's, you know, I call it a Trojan horse or a mousetrap into the door with all these companies. And because I was always looking for like, how can we even dive deeper than that? Because with the custom flag business, I learned about the supply chain, but I also realized that you can't build a successful business just being like

a cheaper provider of these products. You need to figure out like who, what can you? like you said, do you resonate with? And what's a specific thing you do better than anybody else in the world? And that's what we've focused on. There's been so many times where we could have diverted the attention and, you know, do new product lines or focus on other areas. And we constantly kind of try to stay in this like lane that allows us to grow really quickly and then move out of it over time.

This is a great business building framework in this of go find a massive industry. So like the swag industry, big, fragmented, tons of money flowing around. No one's really doing a great job. find an underserved community, to your point, in this case startups, and basically just deliver the best product, like exactly what they need, no more, no less, and just go in and create the product for them. You go talk to, I bet you could literally do it. You go find that industry, you find the community you want to focus on.

Go talk to 100 startup founders. I mean, you also don't even initially need to build the product for them. That's the hack that no one talks about, which is if you could tell a story that resonates with them, they'll bear with your product that isn't all there. Say that again. Like, what do you mean? Go deeper on that. When you go to Vista Print, as an example,

I probably haven't been to Vista Prints in 2004 or whatever either, but if you go to it, and you're a startup founder, it doesn't resonate with you. When you read the website and when you see the story that they're telling, you'll look at it and be like, okay, maybe I can figure this out. maybe I could like it feels like Amazon right there's just like so much option and it doesn't connect with me if I go to let's say swag up it feels like it's speaking to me and that's like a it gives me a warm and fuzzy feeling so I think that people who create warm and fuzzy feelings

basically as a way to to storytell is is the huge unlock When it comes to marketing, you mentioned Purple Cow. I think that there's, if you want to learn anything about marketing, there's only two books you need to read. The first is Purple Cowell. I've never read it. I need to go read it by Seth Godin. You're going to read it tonight. You need to read it tonight.

It'll tell you how to stand out. I wonder what you're going to say the second one. I wonder if it's the other one that I know. It's also a Seth Godin book, actually. It's Tribes by Seth Godin. Have you read that? I haven't, but I haven't read yet. Well, it's a short read.

it's probably from what I remember like 100 pages. Okay. It's like community building before community was a thing. Yes. That book changed my like changed my life basically. I read it in probably like 2005 maybe. Is this what originally got you into community? As an investment thesis and as a business building thesis?

I had always like been into community. Like I feel like people who are into community like you don't choose community. Community chooses you. So always like. into like internet forums and stuff like that. When I read Seth Godin so eloquently describe tribal nature basically and how why people come together and how you can use that from a storytelling mechanism that basically told me that, hey, like, this isn't just some fun thing that like internet kids could do.

This is something that like real, like Seth Godin, he's like a New York Times best selling author. He's like maybe 15 times. He's a real, a real trusted source that is telling me, at the time, 15-year-old kid, that this is the way. So that's what made me believe that, you know, it gave me the confidence to be like, maybe I can have a career out of this. There's another book similar to that called FIS that's really good. It's about where to mark, word of mouth marketing and virality. There's a really big viral nature to our business. And then another one that's like a classic marketing book is called Pizz.

By Al Rees and Jack Trout, which is all about like, you know, planning your business in the minds of people and tying it to something they already believe in and so that you'll be remembered. And it's very similar to like Purple Cal's, you know, nature. Can you talk about the viral point that you just made? Because I hadn't thought about that until you just said it. But like, your product is visual. Your product is also surprise and delight because companies are sending this stuff and you're getting it.

And you're like, oh, holy shit. One of the benefits of having a physical world business. Yeah. Where, like, they want to tweet a picture or post a picture on Facebook or Instagram or Snapchat or whatever of like, holy shit, this new company I just joined just sent me this swag pack. Yep. So how are you, like, how is it clear that is powered by swag up when that happens? Or is it just like implicit because it's a startup doing this and you know they're a customer? Well, there's a few things.

I mean, we have a channel in our Slack called Swag in the Wild and every time we see one of these out in the wild, we'll throw it in there. We make newsletters out of it and we'll show our customers as like social proof. but there's a lot of it. You go on Twitter, you go on LinkedIn, you'll see a lot of it. And I think one of the most interesting things that we've accomplished

is that swag-up swag means something versus just swag. You can buy a notebook and a hat, but if you're a startup that didn't get that swag-up, you almost took like the cheap router. You didn't go with the brand that companies go with. And even without us prodding,

you'll see people on LinkedIn sharing like, oh, we just got our new hire swag packs from swag-up. Like at the end of day, we're selling a commodity wire them. tagging us? They're tagging us because there's some sort of value and brand like around what we do that showcases that, hey, swag up is the best. They do it the right way and we're proud that we work with the best type of company. I think if you can build that connection for your brand, that's like a huge, huge unlock because now it becomes this sense of like, you know, ego in a way.

Like we need to be working with them or else it means something about us. Like we don't, you know, and that's the focus of when you work in a tight community, everyone knows each other, you know. one, they start telling each other like, hey, we work with Swagup, you guys should too. But also, like, if they see you working with another company, maybe they think, like, oh, they don't work with Swagup, like, why is that? But then the other vital nature to your point is, like, our products are out there in the world all the time. Every customer we get has an exponential growth in terms of how many packages are out in the world.

K-factor is high. Yeah, that people get. And naturally, if you get a package from a company, you know, let's say you really love Ramp and Ramp sends you one of their packages that we made for them, like SwagPacks. you're going to go to Kareem or Eric or somebody at Ramp and be like, hey, these are awesome. Like, where did you guys get them? Like, how can we get them? And they'll say, oh, swag up there the best.

Reach out to them. We also put our logo on the bottom of every custom printed box. So if you flip it over, you'll see a small swag up logo on the bottom of the boxes. So that also helps a little bit. But it's almost like type form, you know, powered by type form. They have that there and gets people to, you won't want to do that. Product-led growth. Yeah, product-led growth.

I was just going to say the exact thing. Because we've talked about this a lot of, like, the most amazing product-led growth. that we normally see it in like software and tech products where you see like superhuman had the sent by superhuman email. Mercury is amazing with like their wire sheet is just beautiful and it's an amazing wire sheet and it's a beautiful product. Great product like growth. This is a really cool example of product like growth in physical products where it's out and because it's like integrated into what is naturally already a pretty exciting process of like you've joined a new company. You typically announce that on LinkedIn or on Twitter or Facebook wherever and now you're tying it to a

physical product that these guys are integrated into it's like a really cool natural acceleration high k-factor activity one of the other digital components is like we do these redeem pages where companies could build out a little landing page and send it to the people of the recipients and those also will say powered by swag up towards the bottom so like every new customer leads to more new customers I don't know the exact viral coefficient of like 1.8 or 1.9, but every incremental shift, like one leading to 1.5 and one leading to 1.6 has a huge exponential difference. So if you can drive that. Let's tie that back to bootstrap businesses. So what you're, what yours talking about is like the dream of any VC, right?

So now you started this boot trap business. You're hitting some scale. I don't know if you can share like what sort of scale you're hearing. hitting. Tens of millions of dollars. And Bootstrap also makes you do things like this, you know, because the constraints, you don't have the capital to just pour hundreds of thousands of millions of dollars in the market. So you have to look for the ways that you can drive growth in a way that doesn't cost you anything. So we've always focused so much on like the user experience, the customer experience so that they can become our advocates. Because then you know that if you

pour money on top of it, it's just going to have an exponential effect versus, oh, you're just so relying on capital to get new customers and they don't really love the product they just you know you are you were able to buy them basically is would you ever consider raising venture now that you're at this point of of scale and yeah for sure i mean there's so much that we want to do long term from a technology standpoint to just change how this industry operates you know and be more of a supply chain API layer and that requires like the best engineers in the world the best product managers in the world and it's just going to be a slow slog if we want to keep going down this path. And it's like one of those things like it might not even make the most financial sense to

raise money for me personally as a founder because I own so much of it. My life is like nice and chill. You know, we run the business. I can keep doing it and we'll build a several hundred million dollar company. But at the same time, I get more enjoyment out of like seeing the vision come to reality than just like milking a business like for cash flow or something. So, you know, we've always reinvested all of the money back. We've always taken low salaries.

We've always be, you know, we're growing two to three X a year. You know, like for a sense of scale, we'll do 55 million plus or minus this year. Wow. We'll do over 100. This month alone, we did eight. So things are moving really quickly. And again, without raising any money. And we're always like redlining.

Like we're always at the very, you know, edge of like how hard we can go and, you know, the resources we have and what we can do with them. And like I said, it forces a sense of discipline. And I think that bringing capital into that environment in such a. scrappy environment, we can use that capital so much more effectively and efficiently than another company that's so used to buying their, like, solutions or paying away their problems. You've learned capital allocation from the ground up. Like, you've had to be an extremely efficient capital allocator because of the fact that you didn't have capital. And so now bring capital into that, you already have built a really efficient capital allocation engine.

One dollar is not the same for everybody. Sure. You know, $1 for us might be $6. $1 for you could be, yeah, half a dollar could be 20 cents. So I think we have, you know, we've proven that we can get a higher return on capital when we have it. Now that doesn't mean we're just going to raise $100 million just, you know, to get a good article out of it if it's going to sit there, you know. And I think there's also a big use of debt too. You know, when we have a physical business that's relatively predictable, you raise some equity,

but then you follow it on with debt or you want to buy companies or vertically integrate the supply chain, just raise debt. You know, these are predictable businesses. I don't think enough founders understand how debt works or, you know, they get spooked out of it by equity investors like, oh, debt's bad. Don't use debt. You know, they can be bad if you don't know what you're doing. Can you talk more about that? Like, I feel like you're totally right.

Like, you know, a lot of the founders that I know when they're thinking, you know, they're running a technology business, they're just, they only think venture. So how do you, you know, what's your advice to founders and how do they, and how do they, you know, learn more about debt or how do they use debt to their advantage? Well first off I have a finance background you know I went to school for finance I worked at a hedge fund I was 18 you know as an intern that was the path I was going down so I think there's a really big advantage to understanding finance in startups if you're gonna be the the CEO or leading the company because every business you know Keith where Boy will say it and others it's like an equation you

know the whole business is just one big you know algorithm and one big equation there's all these inputs and levers and leads to outputs and you need to be able to model that out and understand how that works. And then when it comes to resources and capital for these businesses, different types of capital are good for different things. Like if you're taking bets or long-term investments in the future, debt is not a good idea. Like you need to be able to cover the cost of that debt over time,

and there's a chance those investments don't pan out. But it's when you have predictable cash flows that are going to be derived from the investments, then it's just a measurement of what's more expensive. Is the dilution more expensive? Is the cost of capital more expensive? You know, the cash that you're pulling out of the business in the meantime. But if you're, let's say you're buying a cash flow positive business. Like for us, let's say we want to buy a screen printing facility to vertically integrate.

It would make no sense to raise equity capital to purchase that business. It already has cash flow. We can just get dead at a very cheap rate. We know the cash flow from the business is going to cover it. You can even spin that out as a separate entity that doesn't impact, you know, the main swag up business or something. So you just have to be really smart. about how you structure the business. It's an important concept.

So I, similar background to you, so I spent seven years in private equity, and so got very familiar with that because leverage buyouts were the game in private equity, and we didn't over lever things in the way that like, barbarians at the gate and people think of private equity. But one thing that I learned intimately was the whole idea of cost of capital.

And when you think about the cost of debt capital versus the cost of equity capital, like equity investors expect a 20 plus percent return on their investment. debt right now, you could probably get debt in the... Yeah, depending on what it is, four to seven percent, four to six percent, depending on how risky. And where does a founder go and find that debt? Well, if you have investors coming in on the equity side, it's very easy

because then you have like the stamp of approval from an equity investor and you can raise on the back of that. Like SVB won't even talk to unless you have... You need the equity. Although Mercury is disrupted. Like there are companies now that are disrupting that where if you have a bank account and you're doing other things like Mercury has now branched into doing venture debt because they can disrupt SVB with that. Companies like that I think are very interesting, like pipe, capchase, these companies that are doing like Clearco, doing revenue financing where it's mostly for SaaS companies.

So they haven't quite branched into stuff we're talking about with physical. But non-delutive revenue financing, another interesting like paradigm shift within these markets that again can be much cheaper. give you two more unlocks too one is local banks you can actually go do and they'll have you know very loose easy terms for small amounts like 50,000 100,000 150,000 and there'll be maybe no personal guarantee they won't want the first position on the debt and you can stack them you know so you can go to this bank and get 100 you go to TD bank and get 150 you go to this bank and get 50 and now you just got 400,000 in lines of credit and and debt that didn't really you know at a 4% 5% 6% rate and they don't care if they lose 50k they want your business as a customer that kind of stuff so we

did a little bit of that that's interesting the early days and then the other thing is if you do let's say you go to like a sand tander bank like a local bank and you get 100k and now you want to get 300k in a like a line from them or something me as a 22 year old at the time or 23 year old is going to be very hard pressed to get sandander to give me another 300,000 I'm going to say first off the business doesn't have a lot of credibility and you're 23 years old so what I did early on was I brought in a a partner into the business that was the finance person you know the back end compliance finance legal all that kind of stuff artem and he already had small banking relationships so i inherited his credibility into the business and he can go to his banker who he's worked with on other

businesses and be like hey you know we've worked well to here i'm now part of swag up can we you know can you help us raise raise a little bit of debt and you know that's that's like a cheat code i think is if you can inherit people's credibility to get their relationships um otherwise it could be hard, you know, if you're just starting out, like, not many people want to give $200,000, you know, lines of credit or something to some business that has no revenue and it's started by a 23-year-old. The SBA loans were like the original genesis of a lot of this. Like, people would go get an SBA loan, but a lot of times those came with a personal guarantee.

And so if things went sideways, you were stuck for the next 12 years, whatever, having to, like, have a portion of your income, go towards paying it off. My main idea when I was starting it, once we realized it was going to be somewhat successful, and there's a whole entire idea of like cash conversion cycles and when you have to pay out and when you get paid that is a huge component of how we were able to do it first off. But the idea. I want to talk about that actually. Sorry. So I'm going to pause you on that because so cash conversion cycles is a super interesting business concept that I don't feel like people dive into enough.

But like the whole idea of a working capital cycle and being able to actually collect cash on a faster cycle than you have to be paying. it out to your vendors or your suppliers is a huge unlock as you grow. It can be the difference between two businesses that do the exact same thing and one that grows at 100% and one that grows at 20% or goes out of business. Because growth, so the actual math of it is that if you have negative working capital, when you're growing, you actually are funding the growth with the cash that's coming in from this and you don't need to put money in. A positive working capital business means like I have to pay for inventory before I'm

receiving cash for my customers. That's a typical apparel business because they have to pay vendors on 30-day terms and then they receive cash from their customers on like 60-day terms. And that's really bad because when you're growing, you're actually just bringing in cash much slower than you're having to pay it out to your vendors for inventory. The three legs to cash conversion cycles are how long it takes you to pay out your vendors or how long you get to pay out your vendors, how long it takes you to collect money from people and how much money or how many days you have of inventory sitting there, how much cash is sitting in

inventory. For us in our business, everything is just in time manufacturing. So the inventory component is out. So that's a, you save 10, 20, 30 days of working capital there that most businesses have to put out. And then it's a matter of, you know, selling the story to the vendors and trying to get credibility with them to give you as far out terms as possible. Net, you know, in the beginning it might be hard. You'll get a couple net 30s. The rest will be like, no, we need you to pay until you start to build up credibility.

But at least it's still only when you collect money, you know. And then we try to collect as much as possible up front. The good thing about working with startups is they're not Amazon, Walmart and Facebook where they're going to be like, no, we only pay net 60, you know, screw you guys. And since we're doing custom goods where those goods aren't really useful to us afterwards, we can say, hey, no, you need to pay us right now before we start because we don't want to sit on a bunch of, you know, striped hoodies that are useless to us now after, you know, because you didn't pay us. So, you know, really thinking about that is super important. I think we have a negative like 16 day cash conversion cycle. So like you said, as we grow, we get to sit on every million dollars for 16 more days. So as we keep growing, we're able to fund more and more objects over time.

I mean, this is like the maximum iteration of this is like Warren Buffett and Berkshire Hathaway, like having insurance companies having a float where you collect premium up front from all these people for something that you're not going to have to pay out until a much later day. So you have all this cash that's just sitting there that you can do things with in a business like, this, you have all this cash coming in from your growing customers and you can use that to invest in things. You can pay all of your employees with it. You have all of this capital that you're actually as you grow amassing and accumulating that you can reinvest in things. And you're going to say like a lot of people are like, oh, they just want to go straight to the software and just build software.

But that's very expensive and the payback periods are long. But if you take a business like the one we have, it can become a bank for you to build software. One, you get to learn about the customer. You get to understand the problem. So it's almost, it's like the agency stuff. You start with an agency, you build tech layer because you get paid to learn the problem and you get customers out of it. And they're giving you the capital that you can reinvest without diluting yourself. So what I was trying to say before that I couldn't get out was every day you can push raising money out. You're saving yourself lots of dilution because the risk in the beginning is so high. You know, investors are going to want 20% 25% on a seed round because you haven't proven anything.

So every little thing you can de-risk, you're going to save yourself. 5%, 10%, that equity is so important. So if you can be really scrappy, don't spend a lot of money personally, get a few customers in the beginning, you're going to save yourself tens of millions, hundreds of millions of dollars down the line by just saving you that 5%, 10%, 15%, versus just the easy route of just going straight to raising the money because you know, you're going to use that money to figure out the problem you're trying to solve or you need, you know, and some people aren't in the same position. Like they need that capital to get out of their full-time job or something.

But the more you can avoid that, you're going to feel much better about it, like two years down the line. Can we talk about this whole idea of abstracting away complexity as a business? Like, Twilio is the best example that I can think about as a public company of doing this. They took messaging, which was this super messy thing that startups and small companies didn't want to deal with. It was, like, really hard to set up and hard to cobble together. And you just didn't have time to do it. And they took that messy back-end process. and abstracted it away into this simple API first company.

You've done that with this industry. Can you just talk about how you thought about that, where it came from? It wasn't the natural inclination from day one. It was the over time understanding the problem and the way the industry is set up in the supply chain, you start to realize what is the best way to solve the problem in the industry? So as we started to gain scale and get a lot of customers,

you hear the same problems over. over and over again about how they deal with it. And that helped us build like the front end, but then you also realize it's so fragmented. There's 30,000 swag companies, 30,000 that's basically do the same exact thing. 90% of them are doing under two and a half million. So if you just think about, you know,

and that's a 30 billion dollar industry. And like I said, corporate giving is like 210 billion. So if you think about that network, you have 30,000 swag distributors, millions of customers and hundreds or maybe thousands of suppliers. So if you think about all the nodes and a network like that, It's hundreds of millions of one-to-one connections. And they're all reinventing the wheel over and over and over again.

You have a swag company in Milwaukee that has their own warehouse. They have their own tech team. They have their own designers. They have their own relationships with these suppliers. The suppliers have to have 100 or 1,000 people of sales orgs or account management orgs to deal with all the volume. And it's just wildly inefficient for the world in general. And it eats the margin in the industry because there's so much manpower involved. And if you think about the biggest swag companies, some of the biggest ones, they're just private equity roll-ups.

There's a company called Halo. They do like $850 million and they just buy all these smaller swag companies. But they don't unlock any sort of real efficiencies or scale dynamics and they don't use technology. They just aggregate all these people. So there's 10,000 people that work at Halo, 5,000 people, whatever it is. So to me, there just seemed like a much better way to utilize shared resources. you know and i you have to give credit to dac our ctl as well because when he came in he also saw this and he decided when he was building you know the first version of our internal and external

like platforms to start with APIs and then build around it so it wasn't it wasn't meant for external users yet but it was like let's start let's build those APIs it's the right way to build our infrastructure knowing that one day people might want to tap into that you know directly and build something else with it or build the same type of thing and compete with us or whatever so you know then I started to do the research into companies like Twilio and Plaid and Stripe and how they're set up and how you know they're able to scale so so greatly and how they're able to enable creativity at scale because they take care of the boring hard stuff that it's really inefficient for people to continue to solve that same hard problem like let one company solve it so but those principles haven't really

been applied to the physical world as much the physical world is still so messy and hard to deal with. So, you know, as I started to think about the competitive nature of the swag world, like, we can keep going with swag up.com and be the best swag management platform and stuff. And we'll continue to do that. But to me, everyone, it seemed like everyone was running away from the supply chain. You know, that was the hardest problem and nobody wanted to deal with it. And even if you see companies like, you know, like Sendozos and Snappy GIF, there's all these like both sales enablement platforms and sales marketing and also like employee experience platforms. And they want to leverage swag in some way, but they all want to partner with a company like us because they don't want to touch

the physical part of it because they just like being the software layer and making it really simple and not getting in the weeds with it. So as I saw everybody running away from that part, it's like that's where the real value is. That's where like the moat and the big opportunity is if we can just kind of consolidate this industry, aggregate all the volume coming through us as this central control point, both the supplier and supply chain side will be much happier because it's one centralized place to interact with all the demand. And then on the demand side, and the distributor side, they now have best in class technology to scale their business and they can just focus on customer relationships, you know, partnerships expanding revenue

within the accounts they have and not worrying about the actual fulfillment of orders, execution, running a warehouse, running a tech team. And a lot of these companies don't have the capital or even wherewithal to know how to do those types of things, you know. So we feel better about empowering the industry and making it more efficient at scale than being the one that's going to go out and acquire every customer. And also, that's very expensive to acquire all the customers. There's, you know, there's so many different niche types of users that utilize swag for different reasons. And the way that I think of it, you know, there's a swag

company probably in Michigan that's really good with like the hospital systems in Michigan. They really understand that market. They have, there's still a big relationship component to these types of sales too. Like I know, I know the director of, you know, HR at, you know, University of Michigan hospital system. Like, are we going to try to spend all this money trying to acquire that customer and break that relationship or why don't we just empower the people that already have those relationships and just be the one that all the volume is flowing through and we'll take a take rate on the entire industry and we'll work to drive our cost down so that we can get as close to the industry margins as possible and still give them the margin they need. So that's how we think about it.

So there's a lot there. And I guess a couple things, a couple reactions I have. One is just like looking into the future. The takeaways from that for me, if you're a builder and you're going out and you're wanting to create something, there's so many interesting insights of like, where can you go do that? So SwagUp is a perfect example. Like you found this big, like very inefficient industry.

You abstracted away all this complexity. You did all the like grunt, shitty stuff that you had to do in the background. And it's still grunting and shilly. Yeah, and you're dealing with the supply chain. You're dealing with transportation. You're doing with all that stuff. Like what other industries,

if we want to get tactile and we want to think about the future and brainstorm, like where could you do that? What industries jump out? to you guys as places where this could happen to me. I look at financial services as a huge one where I'm like, we talked about it actually at the beginning, taxes for like founders, for startups, for entrepreneurs. I look at that and I'm like, this is a huge market that is somehow massively underserved.

Like all of these founders are selling equity, getting into these things, not optimized at all from a tax perspective, huge opportunity to go and do something that's just like really simple, seamless, plugs in, like offers a great experience for them. I look at transportation and logistics.

Like right now, I mean, we all know about the supply chain issues that are happening. I'm sure you know it intimately, probably too intimately.

And that's one to me where I'm like, there's no clarity, no company wants to deal with it. I'm on the board of a few consumer companies that it's like dealing with freight forwarders

and the entire experience. It's awful, the whole thing. Flexport is trying to do it. And Ryan's amazing and he's going come on the show actually too and they're like phenomenal and they're trying to do that they're trying to abstract away a bunch of the complexity um what other industries or places do you think about

that might have some similar attributes i mean the way i think about it is start like i start i start with the community of founders so i think about what do founders do on a daily basis and what do they do in the life cycle of a startup and i think the way to think about it is you just start mapping out what founders do hiring team members you know, paying them, incentivizing, like all, and you, and you just, I think like the challenge I would have for our community is,

you know, if you feel like you have an edge in a particular community, for example, founders, map out that life cycle and then through that, map out the challenges, and then through that, map out what a product that abstracts the complexity away, that you could make API first, community first.

You want to look at common themes of what are things that all these people are doing in a way that's very manual. They're all doing it in some sort of different way that's a pain in the ass for them. And how can you be the one that kind of consolidates and does that part for them? I think another, I think deal is an interesting one, D-E-E-L, where they're kind of, you know, taking over the whole compliance and payroll for overseas workers. And you can easily embed that into lots of other platforms and they don't need to be the interface layer for that.

I think notarize is really interesting. So good. That one, like, to this day, I look at it and I'm like, why didn't I do it? Like, pisses me out. Like, it's the dumbest thing. Like, DocuSign is a perfect example of this where you're just like, it's the most obvious business that should exist. I mean, notarized can be plugged into so many different transactions and platforms,

and it's so much better than the old way of doing. But you bought a house before? Like, the notary process for a house. It's like, oh, my God. I refinanced my house during COVID, and then I sold a house and bought a house during COVID and the amount of time I spent with a notary physically in person during those three processes. I mean, it's insane. Like I spent more time with them than I probably spent with my parents. Because like they have to come and you have to do all these signing.

The promise of APIs is like you take something that's really annoying and complex and become the best company in the world that's solving that problem over and over again. And then you just let people access it as easy as they can access anything, like making a text or calling or whatever. It's like, and it's so efficient for the world because it's one company solving a hard problem and letting everyone else focus on the problems that they solve. And you're going to see so much more of it because if you think about what happens with swag up at scale, as we continue to take on this really complex supply chain and make it available through APIs, now just like Twilio, you're able to like handle the whole communication stack

through an API. With us, you can tap into the whole physical world. Sourcing blank products, sourcing decorators, sourcing the ability to kit and assemble, the ability to store items, fulfill them. we think of our supply chain as Legos and building blocks in an entire kind of physical supply chain. So if you just want to procure the blank merchandise, the notebook, you just want to procure the iPad, or you want the iPad and you want to put the logo on it, or you want to build a membership subscription box that taps into our sourcing capabilities and our assembly and our storage and fulfillment capabilities. You can build those things as a kid in a house in Michigan or Wisconsin without ever touching the physical world,

without ever figuring out the supply chain, without ever building relationships. All you're doing is looking at different APIs and I want this part of it. I want that part of it. It's like a menu and you put them together to be building blocks of a business without having to re-figure out the things that everyone else has already figured out. And it's just so much more efficient for the world to have expertise, you know, that does it once and other people can use their creativity on top of it versus trying to figure out the logistics. And then their creativity is dead by the time they figure out the operational component.

If you talk to people that, you know, people that loved baking pie, and then they start a pie business, they end up hating baking pies because they had to deal with the operational part that's been solved many times over. And that's why I'm a big fan of private equity versus venture capital, because I think it's much more interesting

to take businesses that are bad at the operations and that part and help them scale that because that part's repeatable versus the creative side and the product market fit side is the hard part, you know? That's so interesting. First off, super hot take on liking private equity versus venture capital, which I love. I love a good hot take.

And I love this like find the annoying thing framework, like hiding the ugly stuff or like find the annoying thing because it's so easy if you just open your eyes on a daily basis to go find annoying things. And it doesn't have to be things that annoy you. Everyone's like everyone loves the, you know, find a pain point. Like what's something that you find annoying or find a pain point? If you literally like sit in an Uber, I've tried take a lot of Uber's in New York. and every time, rather than sitting there on your phone and texting, if you just talk to the person and ask them, or like people on a daily basis go to your, like,

landscaper or someone that's at your house or service workers, whatever, you just ask them, like, what's annoying about your job? What do you find annoying on a daily basis? What do you have to do? It's like sending invoices, whatever, whatever they say, sending invoices, finding enough rides. Collecting money. Collecting money.

There's no better skill to be being deeply curious. Oh, you know, it's such a good way of saying that. You're talking to the curiosity chronicle king. Yeah, it's true, man. I mean, this is my thing. It becomes a sickness. Like you're just so curious. Like I spend so much time reading on my phone and talking to people.

And, you know, even in an Uber, I'll ask them. Like, what's their life? Like, what are the pain points with Uber? Like, all these things. Because you just want to know, like, how can you make it better? And you're just interested, genuinely interested. And those types of people end up building the best companies because they're solving very real problems. I think another one is an example of a type of business.

Like, when I worked at a pizzeria, that was my first job. I was a bus boy for two years in New Jersey. Every Friday night or Sunday night or whatever, Mike De Nino orders his ingredients. got a list of all the things. I got to get three bags of sugar. I got to get 20 pounds of flour, all this stuff. Like, it's every pizzeria is doing that. Why wouldn't that just be embedded in the POS system? As you sold 30 units of this pizza, automatically reorder flour from this centralized distributor and it gets sent to me. It's just taking those things that are happening in the physical world that people like don't really like to do. And how can you do that once and let other people

tap into it? And what could he be spending time on rather than that when you, when you compound that over five years. Could you have opened up different locations? Could you even improve the experience? I mean, it's like when you play that out actually economy-wide, there's something incredible in terms of the value-onlock that happens when people do abstract these things. Think of it after

10 years, 50 years, 100 years, that incremental 5% back that people are getting keeps adding. Instead of GDP going here, it goes here. Yeah. It is a really powerful thing. I mean, I love this. The whole, like, the power of just being insatiably curious, that's going to be my takeaway from today because it's

The biggest thing I try to find in like people we hire. Yeah. Are you curious? Are you curious? How curious are you? How do you like interview someone for curiosity? Like practically I try to see like have they started something on their own. Like do they have a podcast?

Do they have a blog? Do they have a book club? Like just have they done something from zero to one and started it for no reason other than they just wanted to, you know? That's like the biggest tell tell sign. And then it's just you have the product. Do you read? Like how do you find information?

Like what are you interested in? Like why did you even apply to this company? You know, did you do? research on Swagga before you got here, like just because you're genuinely interested in it. Like so it's not it's not cut and dry. Like you never know 100% but that's the number one thing I try to look for because startups, you don't have time to be on top of every single person. And you have to hope that they're just going to self motivate themselves to find the answers and ask the people the questions they need and stuff and be proactive.

Like the worst thing you can have at startups is reactive like we call them like passengers because they they don't get anything done and you don't really get leverage as a leader because you have to keep prodding them to do things. That's really interesting. Passengers. I've never heard anyone describe it like that, but it's so true. Like, you want drivers, not passengers. Yeah, we talk about it all the time.

I bet if you took an index of people who talk to their Uber drivers and ask them questions about their life, I bet if you put an index on those people, you would do really well. Like a financial index on people that do that. Yeah. I mean, if I was a seed investor, The only thing you're really looking at that point is the characteristic traits of that type of person that's leading the company because everything else doesn't matter. The business is probably going to change.

They're going to have a lot of hardship. It's like, is this person going to make it through? Are these people going to make it through? Do they have the right skill set to interact with each other? You know, like, people matter so much. So maybe this is the venture fund of the future. You, like, get a fleet of 10 Uber drivers and you have them, like, strategically pick up the founders of the people that you're going to be going in backing and assessing and you see, like, how interactive. This reminds me of the things like hedge funds do.

where they send people out and they got like a clicker on the road, like how many trucks pass by today? Orgo stand in line on a new Apple launch, you know, a new Apple release and asks, like, are you going to buy this? What are you going to buy? How many are you going to buy? Are you going to buy in the future? It's like some associated at an edge fund standing there. It gets harder and hard to find your edge, you know, in the world, especially as AI comes in and stuff, like what's going to be the unique edge that you can, the insight that you can draw that nobody else can. Interestingly, curiosity is still an edge to this day. Curiosity and community. Yeah. Yeah. Community is always going to be an. Community becomes more important as the world gets more digitized. Like we've seen it over the last two years.

People have flocked to like communities in this world where they were so, you know, away from their, you know, the people that they've seen on a daily basis. And every brand that's been successful now over the last three, four, five years all has a community element to it. You know, and that's why I've always said that swag matters now more than ever because it helps bind, bond communities together, you know. And the theory that I have is that if you go back 10, 20 years before it was like companies had all, the power, you know, whether it's employees or their customers. From our customer standpoint, there's not a lot of solutions out there. You are the one or two or three main solutions. As an employee, you can, you only have a few companies to work at. If you're an engineer back in

1985, you work at IBM or you work at G or whatever. Now today, the power is shifted to the employee and to the customer and stuff. You have so many more choices of companies you can work at. You have so many more choices of companies you can buy from. So when you choose to work at a company, you choose to buy their product, you have some sort of connection to that brand in a deeper sense than just the product they're providing and the paycheck that they give you. Like if I'm a developer and I choose to work at Stripe, I chose Stripe over 100 or 500 other companies I could have. And I didn't just choose it probably because of the money.

There's something deeper about Stripe that I resonate with, the mission, the type of people there are the values. And swag becomes this physical kind of embodiment of that connection and it binds the people together. And if I'm in a bar and SF and I work at Stripe and I see someone else with the value, a strike hoodie, I instantly have a connection to that person, the same way that if I went to Stanford and I saw another person wearing a Stanford hoodie, you instantly are connected because you have these shared value systems. So that's why I think not only have we executed well, but we're also hitting a stride where community and building bonds between people and communities

is more and more important. And doing swag right really helps do that well. And that's why I think it's more valuable than ever. Would you ever explore doing digital swag for teams? So for example like late checkout we're like 30 people we are actually we like we we actually just realize this that we're a customer and but not only do I get like a welcome box for new employees but we also get like an NFT that I can use as my profile picture for example yeah yeah we thought about NFTs and how we can integrate them into the experience but I don't I'm not a huge fan of NFTs to begin with hot take yeah just unless there's some sort of practical value,

not to say that it has to have real world application, but if we introduce NFTs, how is it adding any new value to the experience? And if we can come up with a way to where it is, then great. But if we're just going to throw it out there to tie the word NFT to what we do to get some sort of like credibility or something,

then that's not really something I'm interested in. But if we can figure out like, hey, this is actually really valuable, like you get the one-of-one representation of the branding in this year's swag pack for something. and it's a collectible or it gives you access to something at the headquarters or something like that that makes it interesting.

But also, I mean, it's not for us. It's for our customers. So if the customers come to us and say, hey, this is how we leverage it. We're talking to one of our bigger customers last week about it. So we're open to it, but it's got to be. There needs to be utility. Let them pull you into it. Yeah.

Well, I'll introduce you to the late checkout agency. Maybe they can help you out. All right. Yeah. Super interesting. Cool. This was awesome. Thank you so much.

Thank you so much for the time. man, thank you so much for the time. This is super interesting, casual. I love, I mean, the story of what you're building is just like so, so cool. And I like that you like private equity rather than venture capital. All right, Greg. What was the one big takeaway from that episode for you? I had several, so it's going to be tough for me.

Okay, what do you got? All right. So, number one, the whole idea of abstracting away complexity from a bunch of, like, very messy, ugly processes, doing all the dirty work in the background and building a business that is built around just taking all that messy stuff and making it clean and easy for a customer and a community was just an amazing idea that I think is very broadly applicable. People can go build that around financial services. You can go build it around transportation and logistics. That was a really cool insight to me. The other one for me was like just being insatiably

curious as a huge competitive advantage. Michael's a perfect example of that. He thought about the idea of Swag Up because he was out there seeing different things. He was starting something different, a totally different business that he talked about. And then he saw this flag that realized was so much more expensive in the U.S. than it was in Asia. And it started making him ask questions. It started making him dig into it. And that has led to a, what did he say, a hundred million dollar, close to a hundred million dollar business, which is insane. Yeah, I mean, the scale that he's been able to hit as a bootstrap business to me was mind-blowing. My big takeaway was that starting a bootstrap business really allows the founder and founding team to intimately understand the business and all portions of it,

unlike when you raise venture capital at the early stage. So I actually think that, and it was a great reminder that don't be so quick to raise venture capital if you can bootstrap because that is a huge competitive advantage. Yeah, I mean, he learned very early on about capital allocation. It's something that we don't talk about with startup founders and with builders is like the power of now for him to go raise money, he has learned so intimately and deeply what capital allocation means and how to efficiently allocate capital that, If you went and gave him $10 million, $20 million today, I'm extremely confident that he would know exactly where to deploy it with really high ROI and high efficiency. Where a normal startup founder that just goes and raises that right out of the get-go, they don't know where the high-leverage spots are in their business yet because they haven't built them. So I agree with you. I think that's a really, really powerful one.

And especially the product-led growth stuff. Like all those... So cool. So cool. How does he think about implementing, you know, this was created with SwagUp and all. the different ways in the physical world. Super smart. You're going to love this episode. Let us know what you think in the Discord. Yeah, let's jump into the community after. I really want to go deeper on where else could you do this? Where else could you take a messy, messy industry, fragmented industry and just abstract that away to go build something beautiful for a niche community customer

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