This Week in Startups - Transforming DTC via supply chain innovations with Boll & Branch CEO Scott Tannen | E1809

Episode Date: September 14, 2023

This Week in Startups is brought to you by… Squarespace. Turn your idea into a new website! Go to http://squarespace.com/TWIST for a free trial. When you’re ready to launch, use offer code TWIST to save 10% off your first purchase of a website or domain. Plunge. Go to https://plunge.com and use code twist150 for $150 off your cold plunge tub. NetSuite, by Oracle. The business management software that handles every aspect of your business in an easy-to-use cloud platform. Schedule a FREE product tour and receive your FREE guide: “Seven Actions Businesses Need to Take Now” at NetSuite.com/TWIST. * Today’s show: Boll & Branch CEO Scott Tannen joins Jason to discuss taking control of the supply chain (11:40), building a trusted brand through transparency (18:12), the importance of boots-on-the-ground methodology (28:02), and much more! * Time stamps: (0:00) Boll & Branch CEO Scott Tannen joins Jason (3:12) Boll & Branch’s position in the market (4:53) The origin story, insights gained about supply chains, and increasing product quality (10:17) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at https://Squarespace.com/TWIST (11:40) Going deep into the supply chain dynamics and Boll & Branch’s key innovation (16:05) The benefits of organic cotton and creating a cost of goods advantage (18:12) How traceability sets Boll & Branch apart as a textile brand (24:40) Plunge - Go to https://plunge.com and use code twist150 for $150 off (26:11) Hotels and the hospitality business (28:02) The importance of Fairtrade certification and the boots-on-the-ground methodology (38:33) NetSuite - Download your free KPI Checklist at http://netsuite.com/twist (40:04) Human rights, inclusion, and global wages (45:10) The impact of inflation post-covid and the changes in consumer behavior (46:48) The cost of marketing and the channels that work * Check out Boll & Branch: https://www.bollandbranch.com/ FOLLOW Scott: https://twitter.com/scotttannen * Read LAUNCH Fund 4 Deal Memo: https://www.launch.co/four Apply for Funding: https://www.launch.co/apply Buy ANGEL: https://www.angelthebook.com Great recent interviews: Steve Huffman, Brian Chesky, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland, PrayingForExits, Jenny Lefcourt Check out Jason’s suite of newsletters: https://substack.com/@calacanis * Follow Jason: Twitter: https://twitter.com/jason Instagram: https://www.instagram.com/jason LinkedIn: https://www.linkedin.com/in/jasoncalacanis * Follow TWiST: Substack: https://twistartups.substack.com Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin * Subscribe to the Founder University Podcast: https://www.founder.university/podcast

So when you carry that fair trade logo as Patagonia does, as we do and many, many other brands, you know that those come from, you know, completely economically sustainable. It's like a nonprofit that certifies some amount of standards. Yeah. And they, again, I knew them from the food business. And they are fairly ubiquitous. If you walk into Whole Foods, you'll see the logo everywhere. And Paul Rice is the gentleman that started it and runs Fair Trade USA.

And, you know, it was one phone call saying, hey, I don't know. know anything, but I'm starting a sheets company. I don't know how to make sure that I'm paying enough for the raw material. I don't know how I make sure that I'm, that my factories are charging me enough for the products and that the money ends up going into the hands of the right people. That is the key thing. This week in startups is brought to you by Squarespace, turn your idea into a new website. Go to Squarespace.com slash twist for a free trial. When you're ready to launch, use offer code Twist to save 10% off your first purchase of a website or domain. Plunge. Go to plunge.com and use code Twist 150 for $150 off your cold plunge tub.

And NetSuite. Once your business gets to a certain size, the cracks start to emerge. Things you used to do in a day, take a week. You deserve a customized solution, and that's NetSuite. Learn more when you download NetSuite's popular KPI checklist, absolutely free at netsuite.com slash twist. All right, everybody, welcome back to this week and startups. Our All-Star Summer continues. D-ToC, direct-to-consumer, has been a feast and famine of a vertical for venture capital and for entrepreneurs. Really hard to connect with consumers. And you've got all kinds of copycat, third-party sales. any kind of innovation you make in the product space is quickly copied,

and it's a race to the bottom in terms of your margins and competing. I mean, heck, you put something on Amazon. You might even get Amazon competing with you. And I'll be honest. I've gotten my ass kicked in the D to C space. And we kicked a little bit of ass with some products like eight sleep. We did okay. But I have been wondering, how do the companies that win win?

So Scott Tannen is the co-founder and CEO of Bowling Branch. Welcome to the program. You and I met because I was like, hey, what are the best sheets in the world? And I was, because I, you know, I'm really focused on my health. I'm trying to get my sleep dialed in. I got this incredible eight sleep bed. It lets me do my temperatures and full disclosure. I'm a small investor in it.

But I'm trying to get everything dialed in. I'm doing my cold plunge. I'm doing my sauna. And I thought sheets. I got to get my sheets correct. And so I got some Bowlen Branch sheets. Very nice. You guys, I thought Bowlin Branch was like the discount value brand, but I found out you have some higher-end sheets.

So maybe you could explain where does Bowling Branch stand in terms of market for sheets? Yeah, I was straight up horrified by that assumption. But, you know, the truth is where we sit in the market is we're a premium product, actually a super premium product. And we've been that way from the get-go. Because we have a lot of control of our supply chain, we're able to, you know, it's sort of the old DTC cut out the middleman, except you're actually cutting out the middleman, which sits on the back end of the supply chain, right? So it sits between the raw material and the manufacturer.

So rather than ordering finished goods from a manufacturer and having a container load show up that's private labeled, we actually create the products. and because we have that full chain of custody, we're able to pass along a lot of savings to the customer, but deliver a lot more value to the customer. So our product's not inexpensive, but it is, you know, it's a really good value at the price point

relative to, you know, a super premium brand. The super premium brand would be something like fret day. Is that the, because when I was asking people, Frete came up over and over again. These are like $1,000 sheets for your bed, right? Yeah, and I would argue they probably don't even stack up when it comes from a cotton grade standpoint or even manufacturing quality to where we are.

But those are the heritage brands that have been around for 100 years. So they've built reputation. But a lot of the brands that you might have historically seen at Bloomingdale's or Saxbath Avenue and above and thinking about retail channels having dominated the category. We started. Most people couldn't identify what brand of betting they even had. Maybe they'd throw out the store. And so even heritage brands like Frecht take don't have a lot of market awareness even today.

But they make a beautiful product. It's just very, very expensive. So talk to me about where the products come from and how, because you've been at this for a decade. Yeah. And so a decade ago when you said, hey, I want to take on betting. Number one, how did you come to that conclusion that betting was the right approach as an entrepreneur that you wanted to go after? And then what did you learn about the supply chain and building a better product? Because my perception, and this is the big picture I want to talk about, but I want to

want to get the foundation of, you know, what you learned here. All of this through the lens of we now live in this copycat world, margins go low, and then what is the value of brand? Because I have some thesis about this, but I don't want to get there too soon. But let's start with the origin story here. And then what you learned about the supply chain and the markups and the margin and cutting out the middlemen. Yeah. So, I mean, you know, I actually made, I made flash games.

I made casual games for the first part of my career. I actually, early in my career, I was a marketing guy at craft foods and places like that. And then I had a website called Candystand.com. And we were one of the biggest casual game publishers in America. And I sold that company. And, you know, as anybody that comes from the video game industry might do, they want to sit on their couch all day and just play video games

because you've got a little money in the account and, you know, no accountability. And you're tired. And my wife let me know that was pretty much not going to be acceptable to her. or to anybody else. And, you know, I found a way to get fat, but I didn't, you know, I didn't do so by sitting on my couch playing games. But I wanted to start another business. And I missed the idea of tangible products.

I'm, you know, having done a tour of duty in the tech space, and I love the tech space, I invest in the tech space. But I love the idea of creating something for people, buy people, and trying to do it better. And so I had a ton of different business ideas. And we were at a place. And this kind of unpacks maybe how a customer enters the betting market, right? Because it's the most commoditized category in consumer goods you can really think about because everybody participates in the category.

All price points, all socioeconomic status, everybody has a bed and sleeps in a bed and buy sheets. Yet it's a category nobody, including me, knew anything about. And, you know, so when we think about a space that's just sort of crowded, undifferentiated, but really, really big Tam. I just was, I was attracted to it. And, and, you know, we were in our own process. I mean, truly, my wife, Missy was, we were moving from a queen bed to a king bed.

We'd just renovated our bedroom. And during the process, she was like, you know, I went to Bloomingdale's, went to bedbath and beyond. I just don't know what the difference is with all the stuff. And I was like, I'll Google it and figure it out. And I found an article. The only thing I thought I knew, right, which is probably. probably the only thing you might have known is thread count, right? That's some numb magical number that I hear means something or maybe means nothing.

Yeah, I mean, it is by definition, it's the number of threads in a square inch of fabric, right? Okay. A lot of really low quality threads is a high thread count, but is that a great product? Probably not, right? So, and when you think about brands like Frete, I mean, for years, they'll sell $2,000 sets of sheets that are 200 thread count, but they're using incredibly high quality cotton and really high quality cotton threads. and what they do with it is, you know, is also part of the equation. So there's the count and then there's the quality.

And the count and the quality are two separate things. So you start going down this rabbit hole. You find some article that starts to explain this. Yeah, exactly. It was actually an article in the Times from, gosh, it had been like the mid-90s. And somebody had talked about it. It sort of blew my mind at that moment, right? As I was knee-deep in trying to buy sheets, which that was my big task of the day.

And you start unpacking the industry from there. So you find one thing in thread count. that doesn't mean anything. What's the other thing I knew? Egyptian cotton. And it didn't take long to start learning about Egyptian cotton. It's like, wow, Egyptian cotton doesn't actually come from Egypt. Like, I'm psyched. I'm like, all right, I'm going to start a business. I want Egyptian cotton. I want to see the pyramids. I'm going to write off this whole trip. It's going to be amazing. And I'm talking, I mean, fast forwarding a little bit, but I'm talking to a supplier.

And I'm like, all right, let's go. Because I'm thinking this guy with a straw hat, banks of the Nile river with his hoe, you know, family farm and fertile soil. Yeah. Yeah. Like, like, this is going to be amazing. You're Indiana Jones of sheets. Let's go. Dude, let's do it, right? And he's like, well, you know, I don't really know where in Egypt.

I end up reverse engineering their supply chain and find their Egyptian cotton is grown in China. Right. Okay. And they're made in Italy. Sheets are actually made in China and finished in Italy. And so as I started learning more about just what goes into this product, I was like, nobody, including the people that are in the industry, have any idea how any of this works. So I'm as, I'm completely unqualified to start a show. Sheets company.

But I just felt like, wow, this is a massive, massive category that is, we think about ripe for disruption. I mean, it was it was ripe for somebody to just try to change the game. And so, you know, look, law of simultaneous invention. I'm thinking about this at the time the guys that ate sleep are thinking about the sleep category. Casper's thinking about that category. All these other kind of DTCs are thinking about the category.

So there's something in the water that made us all get there. But we took a little bit different approach. If you're a landing page is terrible, I'm out, right? Most consumers are. It's 2023. You can't have an ugly website. Stop selling for okay or good and have great. And great means you're using Squarespace. It's out of the box. Beautiful. These websites have templates made by the world's greatest designers that are going to engage your audience, let you sell anything. And Squarespace, over the past decade, has just added feature after feature on top of the gorgeous templates that are designed for mobile and the drag and drop web design with their fluid engine is just perfect, easy to use.

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These are the legendary brands of the internet, of this era. Go to Squarespace.com for a free trial. And when you're ready to launch, I want you to go to Squarespace.com slash Twist. And they're going to give you 10% off your first purchase of a website or domain. Go to Squarespace.com slash Twist because they know we sent it. So when you unpack the supply chain. Yeah. What is the innovation at the core of this?

Because you said you took out a bunch of cost. I'm assuming that a lot of these brands, they don't control each level of the supply chain. You all go to the same people to buy cotton or end or finished product. Yeah? Like there's some factory or how deep do you go down into the supply chain? I mean, I went really deep. And I wasn't sure if I was writing a book or starting a business at this point, honestly, because I found it so fascinating how each step you get.

So I'll give you, you want to go start a Sheets business, right? First thing you're going to do is you're going to go into New York City or any of the surrounding suburbs like in New Jersey, which is where we live, so I can't speak poorly. But you walk into like a showroom of this old like company and they're like, here's Model 5, model 6, model 7. And, you know, this is the West and Heavenly Bed. You can private label that. This is the, you know, what we make for pottery bar.

You can private label that. Here's Target. You could private label that. These are the costs. And you find really quickly, you have all these different salespeople that ladder up to five, six mills, mostly in India, Bangladesh, Pakistan, China, that are making the product for everybody. I used to have my office over on 37, 38th Street and 9th Avenue. You were in the heart of it. I was in the heart of it.

No, in the Silicon Valley days in the late 90s, I had an office there. And on other floors where people literally process. dressing dresses and sheets and everything. They're running around like maniacs with racks of dresses and shirts. Does it still exist in that area? It does. Actually, the textile building just kind of closed, but that was up until COVID. Wow.

But yeah, it's still just like that. I always wondered how that real estate operated because I got my space at $18 a square foot, which is a buck 50 a month. And I had 10,000 square feet. So I had a 10,000 square feet for like 15,000 a month. Oh my gosh. It was crazy at that time, but yeah. And it's totally nuts.

And so, you know, these are showrooms. And the way the industry typically works is buyers from department stores are walking in and then ultimately ordering into their house labels. Right. So if you go to Macy's, they have the hotel collection. That's one of their brands. You go to Bloomingdale's. They have Hudson Park. Largely the same product, probably from the same factories.

So you jumped the fence and you went straight to the sources. You went to Bangladesh. You went to Sri Lanka. You went to India? I started learning about the sources because I was just fascinated by it and what I couldn't believe is you start talking to these very same factories and you try to learn a little bit about their sources.

They don't even have an idea, right? So just like you're buying from a middleman, so to speak, or an agent if you're one of these big box retailers, the factories they're dealing with are also dealing with middlemen. So they're not buying the cotton, say, directly from a cotton farm. Got it. There's a lot of different steps. And these middlemen, you know, you've got someone that secures the cotton, someone that takes it to the gin, someone that takes it to a diehouse and so on and so forth.

And so I started thinking about it in two ways. Number one, and I can go deep and I'll avoid it unless you want to. The actual textile trade from a farming standpoint and agricultural standpoint is awful. It's environmentally awful and it's humanitarian, from a humanitarian standpoint, it's horrendous. You know, I was like 35 when we're doing this. And life expectancy of a conventional cotton farmer in India is 36, right? Because, wow.

Well, we think about it. Like, if you ever drive cross country, you see these big farms and this equipment, if you walk into India and you go to these rural villages, right, this is a family with two acres of farmland. They buy their seeds from Monsanto. They buy their chemicals from Monsanto. They're not protected. They're wearing a backpack with these chemicals and walking into the fields.

And then they're getting their water for their family. right from the ground that it comes from. So I started learning a lot of pollution from pesticides. Tremendous. So this is the challenge of supply chain for a company from the United States is maybe some people, you know, may, I'm a single out anybody, but maybe some department store likes the fact that this is all being abstracted from them. So they don't need to know.

I think, yeah, it's a convenience, right? But when you know nothing and you decide you want to know something about it, you end up starting at the very base level. And that's when I started learning a lot about organic cotton. And I was going down this interesting path where, you know, I started to understand the environmental, the humanitarian benefits of organic cotton. But at the same time, you know, everybody that knew me was like, oh, you know, I've got a friend that works on the cotton board. Go talk to him. I've got a friend that works at this company. Go talk to her.

And you hear consistent. Well, there's no interest in organic. right? And you know, you don't want to get into that because once you start unpacking and buying organic cotton, well, it's like kosher food. You can't then throw it into a conventional supply chain. So all these people that have made it really easy by making these products for years, you can't use them because they're not set up for it. So I realized really early on, if we're going to do this, we have to do it ourselves. And this is where like the whole book standpoint came in because I was honestly questioning whether you could make a product in,

in an environmentally humanitarian way that you feel proud of, build your own supply chain, bring it to the U.S. and actually be competitive from a price standpoint. And what I realized is as we went through it, we ended up with a massive cost of goods advantage because what we were doing is actually pre-financing the cotton. We were actually buying the cotton at the point that it was a seed. So we were going to these farmers and rather than them, you know, loading up up on debt and having all these chemicals, we were walking in and we were the first demand that they had seen.

And we were tiny, right? We were buying, it was like my life savings at the time, but it was, you know, our first order was $250,000 in finished goods, you know, so what is that $100,000 worth of cotton? And so we were. But that gives you control over the supply chain because you pick the farmer and you can monitor what they're using and because you're paying them in advance, you get. some guarantees that this is going to be organic and not be totally pesticide filled. Well, what was important to us was going to be traceability.

And I think that's what really sets Bowling Branch apart from pretty much everybody else in textiles, whether it's home textiles or we, with every single purchase order of every product that we make, I have a tag inside that sheet that you can flip over and read me that number and soon you're going to be able to put it in on the website. We're launching that within a few weeks here. And it'll tell you, this is where it came from. This is the farm. Here's where it was gin.

Here's woven, spun, died. the whole nine yards all the way through to the warehouse. So when you have that chain of custody, I mean, look, if you're going to go out there and talk about building sustainability into your business from day one, you need to have your act together. And so,

does this matter to your customers? Does all this matter or is price matter? Because that, I guess, is where the rubber hits the road. I was talking about, hey, maybe the department story doesn't care,

but, you know, do consumers actually care? Quality matters more than anything else. Okay, so quality first. I mean, this is where we could have a conversation around brand.

And when you think about building brand over a long haul, I mean, look, I come from a place where I worked on Oreo, right? This brand was built over 100 years. And what a lot of DTCs try to do is they try to fast track that. It's like video game talk. It's like, I want to speed run brand building. So I'm just going to spend through the market and build brand that way. But the truth is you can't build trust and loyalty with a customer that way.

So we focus on quality, good value for the money. And at the end of the day, that's what the customer wants. They want a product that is soft, that gets softer with time, that lasts, it doesn't get holes in it, that's beautiful and all of those things. They wanted it at a price that they feel is fair. So there's a big segment of the market that buys only on price, but they're never going to be able to play with a product that has some of the sustainable attributes. Although, hopefully, the market moves that way, it's just unfortunately the reality that if you're going to pay $49 retail for a sheet set at a big, box store. And I tell you, I have more than $49 that I'm paying a cotton farmer for his un-ginned cotton in my sheet set, right? Like, that's a big difference. And you have to educate

customers as to the quality of this product. So practically speaking, how do you do that? You know, you don't want to speed run it. So how have you done it over time? A couple things. You give a lot of it away, right? It's, and again, coming from the food business, that was the key. Like, when I was at Riggily and we came out with a new gum. We launched five gum. The goal is let's just get it in people's mouths. And so we've, we've applied that same approach. I mean, that's why, you know, you'll see me on Twitter all the time. And, you know, and I'm always like, you're got to, you got some kind of a search set up. No, I just did it myself. I wish I was, I wish I was, I mean, I followed you anyway. And I saw it. I'm like, oh my gosh. But, but, you know,

the truth is is that you just need to build reputation. We, we focus a lot on customer experience, it's customer service. And then we make sure our communication is super high quality and educational where we can. Because we believe in a category where no one's ever been educated. When the customer becomes educated, we have a true opportunity to become the default choice. See, this is what I think the future of this D to C stuff is. I agree. Everybody now knows, hey, you can get a knockoff brand.

So I think consumers now expect if you were going to go for high-end sheets, you know, there's going to be knockoffs. If you are going to, I'm sure somebody has knocked off, Casper or ate sleep or any other product. So if there's going to be knockoff products, then I think, and this sheen, is that the disposable clothing website? Sheen or shine? I don't know how to pronounce it, but this thing is like horrific to me, but people buy clothes, you know, to go to a party and then they throw them away. They get one or two chances at it, right? And I understand you're a young person.

You want to look great. So you buy some fast fashion, you throw it away. But it's the worst possible thing for the environment. Yeah. The stuff should be outlawed. But, you know, whatever, free markets. I think what that's going to train everybody to is, hey, these are the quality products. If you buy this pan, if you buy this jacket, you could have this jacket for 10 years.

You could have this for 20 years. I have boots that I could have for 20 years. I got jackets that will last me 20 years. I got a pair of jeans. That will last me 10 years. You want to buy value. I think that's where the consumers, especially the high-end ones, are going to wind up. which is, hey, what's a brand where I trust it, right?

And then I think that's where you're probably now getting to in your second decade. Yeah. And, you know, even it's one of the very first like brand thesis decks before we launched that put together was we want to be the first trusted brand in this category. Right. Again, coming from big CPG in a world where you have Oreo planters, chips, Ahoy, there's, we can all say what we want about whether it's junk food and you probably are right.

But these are trusted brands and they're woven into the fabric of Americana. So how do you take the right approach where especially like, look, we launch around the same time Casper's on this like massive race to nowhere, wherever they got and spending a ton of VC like you're not a tech company. You're actually, you just make mattresses. And, you know, we feel the same way. We make betting. We make amazing products.

But we're not on a race to nowhere here. We're trying to build a real business and a real brand. And I've now got, I mean, separately, I've got, you know, 50, 60,000 cotton farmers and factory workers in the other side of the world that are living above the poverty line for the first time in their lives because of how we run our supply chain that are relying on this business being around for a long time. But I think the customer, you know, again, getting back to your original question, the customer is not buying us for that. The customer is absolutely buying the quality of the product, but they're beginning to trust us because it's what, you know, people talk about transparency. And transparency means, I'll tell you everything I know. But if you don't know very much, how great is that? For us, we've taken the other approach.

We want to know everything we can. We're only 10 years old. And, you know, Missy is my wife and co-founder. I'd put her in the top basis point of textile experts in the world, certainly in the home category at this point, because she just goes over to India. She spends a ton of time. She learns. And that is something that our customers end up feeling.

Literally. Literally. Not from the website, but from sleeping in the sheets. Exactly. You know, most people have never slept on a $1,000 set of fructase sheets in their life and may never. And we've democratized it, right? We've brought it down to a $250 price point, not inexpensive. But if you buy it on your $1,000 phone, it's not a leap.

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Four Seasons. That's how I solved it as a customer. I talked to my wife and I was like, hey, for this guest house, we had this little, we had, or in our first home in L.A., had a little guest house. I said, I wanted to be like,

when I go to the Ritz Carlton or Four Seasons, and she reversed engineered, she found the robes and she found sheets. Some of them actually now starting to sell sheets. Mandarin Oriental has sheets. Four Seasons has sheets. People who have sheets. They seem to have figured this out

because that's their abysseats. You know, they're getting you to sleep overnight. How did they perfect it? And then how do you relate to them? And are they buying from you now? Because that seems like a natural extension. Yeah, we do a lot of smaller ends, especially places like Napa and whatnot. The truth is the names that you're talking about are working with the very same mills and

private labeling. However, it's the mythology, right? So if we think Weston was the first one that did it, believe it or not. And they came up with this concept of the heavenly bed. And they put it into their marketing communications. and they got, you know, an extra plush mattress and you're sleeping on it for a night or two. And it feels so elevated over where you are. And I think that the notion of the hotel or the resort, you know, if you walk into the four seasons in the Bahamas,

I don't care what you're sleeping on. It's going to feel good when you're looking, you know. And so many of them, and we're starting to actually, we're just now starting to build our hospitality business because we're getting a lot of demand for more sustainable products. And again, that's been challenging for a four seasons or somebody like that. to actually go in and get a product that they feel good about the traceability in the story. Again, they could do a lot of brand damage unintentionally by, you know, the person that just says, yeah, sure, it's organic.

I mean, famously, the Uyghurs in China are in, you know, basically slave camps picking cotton. And so how does somebody know that their cotton is not from a Uighur slave death camp? So in our case, we brought in Fair Trade to come in and we do constant. So Fair Trade is an organization that has, they work globally. They started in things like coffee and chocolate. And they go into a word. So for trade is a term, but it's also like organization. It's a certifier.

So what they do is they take a look at a local area and say, okay, what's the living wage? How do I back off to the raw material cost here to make sure that those who are growing it are being paid? above a living wage. And in many of these developing countries, the minimum wage, when you start talking about factories and things like that, is below the living wage. So when you carry that fair trade logo as Patagonia does, as we do, and many, many other brands, you know that those come from, you know, completely economically sustainable. So it's like a nonprofit that certifies some amount of standards. Yeah. And they, again, I knew them from the food business. And they are fairly ubiquitous. If you walk into Whole Foods, you'll see the logo everywhere. And Paul Rice is

the gentleman that started it and runs Fair Trade USA. And it was one phone call saying, hey, I don't know anything, but I'm starting a Sheets company. I don't know how to make sure that I'm paying enough for the raw material. I don't know how I make sure that my factories are charging me enough for the products and that the money ends up going into the hands of the right people. That is the key thing. You know, I had a group of people when I was doing a search engine called Mahalo.com back in the day. I had a group of people in Manila that we were testing to just check for spam links in the search engine and to organize information. And then it would go to American folks. And, you know, I was sold on this by somebody who had a business process outsourcing there.

It was unbelievably cheap, like $2 an hour, $3 an hour for a knowledge worker. And we were, that was the most you could spend at the time. This is 15 years ago. The most you could spend was two or three dollars. So a shift was 30 bucks. You know, obviously compared to an American at the time, maybe $15 an hour for that level of work. You know, 10 to 15 bucks. So that was the minimum wage back then in California.

Anyway, long story short, we got leaked to us from one of the workers that they weren't getting the pay because we were told from the business processing person, hey, we're paying them $3 an hour. And we take 50 cents or something, right? So it was $2.50 to the worker, $3 of them. I'm trying to remember here the exact numbers. They told us they were getting paid a dollar. And so then we said to them, okay, and I sent somebody over there, an American over there, to sit in the office and work with them, to train them, and also to make sure. And then we found out that they sent us like pay slips, and they had doctored the pay slips.

And somebody said, listen, you're in Manila. You're in the Philippines. This is the absolutely most unethical, like, you know, Banana Republic you could ever imagine. If there is a way to angle shoot you, they will angle, shoot you. That's their business. And I was like, okay, I don't know if it's that dire, but certainly you can get duped. A hundred percent. And I would tell you, if we were not working with fair trade, we would be getting duped. And I'm quite certain that the workers would as well. But with fair trade, we now bring in independent auditors constantly. We're evaluating their

books. We look at the flow of cash. And we also, it's crazy to say, this, but in a sense, we actually encourage the workers to unionize. And they create committees. So we take, for instance, at our factories anywhere depending on the local area, one to two percent in addition to our cost of goods, and we put it in an account and then it's up to them how they want to distribute it. Could be cash bonuses. Last year, one of our factories bought induction cooktops for all of their workers.

Another one bought bicycles so they could get to and from work and things like that. So you have to empower the worker and you have to demand that your supply. liars. Now we have leverage, right? We're the biggest game in town from an organic cotton standpoint. And one of the bigger games in town in general from a betting standpoint. So we have leverage to walk into larger mills at this point and say, you'd love to work with us. You're going to have to reinvent your business because how you work with this retailer or this retailer is not going to meet our standards. And that's the most empowering, you know, the most empowering thing we see and even feel is that you have the ability to start moving the market because you can

have a little different set of demands. But compliance testing out there that exists, it's all, it's garbage. Like if you're not boots on the ground every day, then you don't know. You know, this is one of the, just to open the aperture of our discussion here, it's like one of the things as an entrepreneur and as, you know, my first job at a college or while I was in college was working for Amnesty International and have a passion for human rights. and, you know, I started to think about engagement versus boycotting, right? You can boycott a region. You can say, I'm just not going to buy anything out of China because I have a concern about the Uyghurs.

Or you can engage and just take Apple. Apple engaged building stuff in China. And 400 million people went out of abject poverty into, you know, what is a reasonable middle class, not what you would perceive here in the United States, but, you know, and now we're decoupling from China in a major way and the risk of a war with Taiwan and all these things are going up. And so I've really started to wonder, you know, when I was younger, it was just, hey, listen, we're going to boycott Sun City, South Africa, you know, during apartheid. We're going to boycott this.

We're going to boycott that. Or Amnesty's going to write a bunch of letters. And then I realized, wow, when you engage and you tie up the finances like you're doing, and now people have dependencies on each other. Bowling branch is dependent on organic cotton farmers in some regions. You mentioned, I think, India, Pakistan, Sri Lanka. I'm not sure where. Now, you have to work it out because you have this dependency.

And you don't have relationships, I assume, in China, because it's hard to understand where the cotton's coming from or you do. We don't, cotton traceability in China is really challenging for us. We do source down, actually some ethical down because it's a byproduct of the food system. So they eat a lot more duck there. Yeah, of course. So it's a good way to do that. But it's been moving mountains to nail the traceability.

So you just think about what is best for humanity for the planet, for existence, as we know it. I'm kind of thinking engagement has its merits. Absolutely. of you out there engaging, it just sort of bends it. Now, if you were just saying, you know what, we're done,

we're not going to take this down from China. Okay, you're not going to take the down from China. Somebody else is going to wind up buying it. And now we've got this standard up with China. It's kind of good that you have this relationship with down. Because at some point, they'll say,

hey, can we give you some cotton? You can say, you know what, we prefer not to buy it because it doesn't hit our standards. Right. But here are our standards if you want to. And this is where I think like there's some incredibly interesting bending that entrepreneurs and companies

can do, that is beyond this ESG nonsense or DEI, like all of these things were kind of constructed as a bit of a scam. You know, it's just, I mean, if Exxon is like got a higher rating than Tesla, I think we know what we need to know about, you know, it's obviously a scam. But what you're doing is not a scam. Boots on the ground is not a scam. It is a methodology to actually encourage people to. to engage and I just think it's wonderful.

And I've been thinking about it with the Middle East as well. They want to participate in venture capital. And it's like, okay, I've been very outspoken about Saudi Arabia, I've been very outspoken about Khashoggi, human rights, gay rights, you know, just obvious stuff. Okay, do I partner with, you know, countries in the Middle East? Well, some of them are incredibly, you know, are no different than, say, the United States in terms of their human rights records. Other ones are more challenged.

Okay. Do we engage or not engage? well, they want to participate. And then if you do engage, you can always disengage. If you disengage, oh my God, that's a big statement. So if you had a bad actor do something horrible and you disengage from a country, that creates news, which is what's happening with, you know, the iPhone 14 moving from China. Right.

To being also built in India. So I'm kind of appreciating in my older years engagement as a strategy for changing human rights around the world. And, you know, I think there's something. There's something romantic about the entrepreneur in that deep within our souls. We go through what we go through because you want to be a part of creating the world you want to live in at the end of the day. And I truly believe that most entrepreneurs share that.

Not all, but most do. Certainly those that are on Act 2, Act 3. Like, you keep wanting to do this. It's more than just trying to get paid. And so, you know, when you have that as a belief system, I mean, one of the things that that we look at even, you know, if you walk into even the best Indian factories, right, you'll see women generally doing only specific jobs. And so one of the things that we've done, we work with a group in moderay, India,

called Paramount. And they were actually started at a time where it was illegal for women to own a factory. And the woman who started it, not only, you know, did she build the business, but she put women into roles in the factory. they're master tailors. They're things that that don't exist. And we go in and try to celebrate that as much as possible. We give them more orders, right?

They get more of our business, not only because of the quality, be because of what they stand for. And in India, which is such an amazing culture, it's so service oriented, right? It's all about pleasing everybody. And so when we're standing up a model that says, Paramount's done this, it's incredible to see how women become empowered in other factories, because that's suddenly, looks like the bar and oh i'm going to get more orders if i do these things and to an extent the ends justify the means there scaling a business is really hard you know that you're listening to

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free at netsuite.com slash twist. That's netsuite.com slash twist to get your own KPI checklist. It's such a profound insight. I was having this discussion confidentially. I'm not going to say who I was having this with. But they were talking

about raising money as a lot of fund managers are doing in the Middle East, specifically. And they were discussing how over the last five years, my God, there's so many women in the meetings and the women are talking, shaking hands, going out for a beverage, in some cases an alcoholic beverage, having dinner, and going out and doing business stuff. And there was a cynical comment made like, you know, that's window dressing. They're just doing a female washing, whatever the green washing term would be here,

gender washing. So, oh, it's just gender washing. They're just putting on a show. And then, well, you think about it,

okay, they're putting on a show, but they know that in order to work with the West, the idea that women would not be included is a non-starter. Because, as an example, in our fund,

of our top five people, four people are female. Yeah. So I'm literally having meetings with people in the Middle East, as I'm raising my fourth venture fund, and we have two women on the call. And they have one or two women on the call

and in the meetings. So to your point, even if it was gendered, you know, if you take the most cynical approach, oh, it's gender washing. Mm, but there's women in the room.

Right. So it's undeniable, and I make a point of asking when there's women in the room, what are your thoughts and including them in the discussion? So you can't, like, fake this.

You can't fake it. You know, you're not hiring actors to come into, the room. And so it is palatable how the world is changing, right? To sort of bend towards, you know, some some baseline of human rights and inclusion that we could all get behind. So I'm, yeah, it's really present for me as I as I travel the world and as you do, right? like just seeing this disparity.

How do you think about wages on a global basis? Because with work from home and with what you've learned, okay, farmers and now you're dealing with farmers in different regions, over time, are you seeing wages become like an international, a band or is it still very specific by region and country? I think it's very, for us it's very specific by trade to an extent, right?

So at the end of the day, are, you know, a factory worker that may be, you know, an assistant versus a master tailor versus somebody else, right? The pay wages can be a little bit different. But what we are seeing really positively is that if I look back 10 years ago, the factories that we started working with that, you know, we were talking about paying double what other people were paying at a factory level. I think the gap between where we are today and is still, you know, we're still quite a bit, paying quite a bit more, but it's narrowing.

And I think that what we're starting to see is that more companies are beginning to pay attention to this. And, and they're recognizing, you know, all right, kind of back to your Mahalo example, like,

I've got to be okay with this. And so when I think about margins, there's a margin implication of labor. And there's some margin. There's margin you take and margin, that you might say, okay, this is this is not where I want to take the margin. And so, you know, and actually as a result of COVID, you know, prices never come back down, right? When when prices go up.

And so using cotton as a great example, there was a cotton shortage, certainly around organic cotton a year and a half, two years ago. That's over at this point. There's plenty out there that the prices have held. and, you know, those who are growing, the product are doing better. And so there's more demand for it. It's still not overwhelming demand, but there's more demand. And so, you know, you hope these kinds of things are permanent. I just don't think we're yet, at least from what I see, at the point where we can look at wages completely globally.

No, I mean, there's, you have different locales, still have different costs, radically different costs of living. For taxation. And, you know, Vietnam is undercutting. China, India is kind of on par with China and in some places just don't have the ability to scale and have high-end workers yet. They don't have the education system or they just don't have the history that China has, let's say, in high-end automation or high-end factories yet. But a lot of the bottom third of factory production, Pakistan, India, Vietnam, they're taking

a lot of market share away from China. It makes me very worried about Chinese unemployment increasing. and then how does China look at that? What do they do with that surplus? Hopefully they don't use that surplus to build weapons or start wars or, you know, whatever it happens to be. When you look at inflation, you have a front row seat to that. What is happening with inflation post-COVID because you had these input costs went up? So you had to raise your prices, I assume.

Or were you not able to raise your prices and how are consumers sort of behaving? And what's the state of consumers right now? You must have your finger on the pulse of consumer behavior. Yeah, you know, I think that at any time like this, people are just more thoughtful about the purchase. So we look at time to transaction is elongating, right? People are being more thoughtful or thinking it through. And reputation becomes obviously critical. So from a repeat customer standpoint, we're doing phenomenally well.

And actually, overall, I mean, the business is up significantly year on year, top and bottom line. So we feel really good about that. from an inflation standpoint, shipping costs were a massive spike, right? For everybody that's bringing goods into this country, that subsided at this point. Raw materials, right? You saw this big spike. That's kind of come back. For us, we held off at raising prices because we had a very strong margin profile.

We've had a very strong margin profile from day zero. I just believe that there's two kinds of businesses, ones that make money, ones that don't. So we've been profitable since our second year in business. and we'll continue to fund our growth with our cash flow as much as possible. And so that's been a hallmark to the way we've operated. So we had the margin profile, understanding, at least expecting that some of these gains in price were going to be temporary. So we only had one price increase in the post-COVID period of about, you know. What about marketing costs?

Because it did seem like marketing collapsed in 2022. Prices were very high in 2020, 2021. I know you were a pioneer in audio, radio, syndication, and podcasting. So talk about, you know, maybe has the cost of marketing come down significantly and, you know, which channels are working now, if podcasting is still a great channel for you? Or is that channel burnt out or the prices? Because it used to be bargain-based and prices. You were in your first early?

Yeah, no, I mean, literally audio used to be like, I'm like, this really nobody figured this out yet. And that's the thing is everyone's just gotten so smart, right? And access to information is out there. There is no secret silver bullets out there that it's like, well, just, you know, just do this and use second party data and do this. Like it's, it's the game's changed a little bit. And I think at the end of the day, you've got to have a real message, a real distinctive, differentiated message like old fashioned madmen advertising to cut through. And so, but we've seen, I mean, we still see that the. rates and CPMs are high. And, and, you know, when Procter and Gamble's marketing mix looks a lot

like Bowling branches, that's an indication of why pricing isn't moving down. It's just everybody's kind of centering on paid social, paid search, you know, nobody's buying over the top TV anymore. They're buying connected TV, right? They're buying, you know, everyone's buying much smarter. So, the smart money is just just jamming up together and and even at times where you've had a pullback in the economy I think that you know if I'm in if I'm in Facebook shoes right I think they've held as much as they can their baseline from a pricing standpoint and and you know what we all have to pay um so as cacks are are going up right it's it's something that that we feel just as much as everybody else um but you have to rely on your brand at that point that's where word of mouth has to

become a meaningful channel. And I think the companies that have gone public and had so many challenges and can't make money, it's because they felt that building word of mouth and building brand was going to be this binary thing or this switch they could flip at some point. And it was never there. It was just they were buying their growth. And suddenly that growth got too expensive and their model went inside out. We've been lucky we've never been in that spot. Building a brand is building a great product that connects with a consumer so much that they talk about it, which is what net promoter score is kind of the foundational basis of. Absolutely.

Do people say negative things about your brand? To say positive things are your brand, are they indifferent? And I think a lot of folks were just like, okay, let's pour some gasoline on this log. And it was like, okay, that's going to leave you with a charred log as opposed to like a little bit of a slower approach and winning over customers one at a time, making them loyal because the product is just undeniably good. Yeah. And there's just a really big lesson to iterate on the product. Are there like fake or synthetic or new fibers coming out that will in material science be better than cotton?

You know, it's interesting. There's been a big push around bamboo, you know, and people call it bamboo. It's rayon, right? I don't know if you know,

rayon is bamboo. But it's now being marketed as, as this sort of sustainable fiber. And, you know, it doesn't hold up as well. I think that some of the interesting advancements I'm starting to see is around dyes, right? And so, you know, dyes that can actually hold color but are made from vegetables

and fruit and things like that. Seeing, you know, there are definitely some interesting tech materials that I've seen. One's made from coffee grounds and blended with cotton as an example. The problem doesn't feel real good. But you have to assume it's going to get there. And so these are things that we look at, you know, a lot from an innovation standpoint where we're putting, you know, we're now at a point where we're trying to invest and lead the category. So how do we think about silk in a more sustainable way? How do we think about, you know, different fibers and different materials that can provide, you know, a customer and added benefit?

But the truth is, like, our sheets, you will get tired of our sheets before they burn out on you, right? Like, and, you know, and that's anybody that's using a super high grade of cotton and there aren't a lot of companies that do it. Frete being one, us being one, you know, most of the. DTCs, they're using very low-grade cotton. Most of the big bucks retailers are not, they're not investing in the raw material. But that's what's amazing about cotton is cotton gets better as it breaks down and it takes

forever to break it down. So that's what is she gets softer. 50 washes, 100 washes? 100 washes. We're not even sweating. Wow. Our products. And actually, we literally just did a study because we do it all the time and sort of look

at, you know, Misty's like a little master tinker there. thinks about weaves and weave structures and things like that to get, you know, how can you get just a little bit more durability out of it? So how you spin the thread has a lot of an impact on how strong it's going to be and how soft it gets is how it breaks down. It's a little microscopic fuzzing you get on your sheets that sort of, you know, over time. So, you know, what makes a product breakdown, when you see something wrinkle resistant, those threads are coated in formaldehyde. That's what makes it wrinkle resistant. And these chemicals break down. what's naturally so great.

So I do think that in Patagonia is another great example. They're sort of like, don't buy the sweater advertising as an example because they're like, just use the one you have it and it'll last forever. And you use really good materials. And you don't screw them up. It's amazing how well they'll do for you.

This has been an amazing hour. Thanks so much for taking the time to explain supply chain, marketing, everything, things going on with inflation. The sheets are amazing. got the two great nights sleep on them and so continued success I have another 11 bedrooms to do

I'm proud slash embarrassed to say I got two houses that are five bedrooms each so I got like another bunch of betting to buy so I need to I need to put in a major order here

hopefully I can get a discount code at some point from you don't give it out on the air but man I need a friend of Scott code if I'm going to be doing this many rooms I got to ski house to do. We'll hook you off. But in advance, thanks for getting my kids to college. Yeah, yeah, yeah. Of course.

Of course. And so how many how many washes for these? They 200 washes, you think? 300 washes. What's the lifespan before you should replace them? Is there like some best practice? You know, I think you're probably getting to 100, 150 washes. And I mean, it's not really going to break down and fall apart. They will last. The best thing you can do, though, and it's a, it's a natural material, right? have two sets. Yes. And let them actually, let the raw, let the fibers relax between uses. And that's, that's really one of the keys.

Don't like, don't use fabric softener. Don't use things that, that will break down. Gentle cycle. You don't even have to use dental cycle. You don't have to baby them. But something like fabric softener makes the product worse. Like, like just, you know, let it, let it naturally soften. And I, I will put our sheets up against anything on the market in terms of how they feel.

And I'm glad you, they feel great right away because by 10 wash. You walk into our retail stores. We have them up on the wall. Here's what they feel like at 20 washes. And, you know, and just let people feel it. How's retail works for you? Is that like, because it was supposed to be, oh, we'll never have retail. And then I guess retail collapsed and these spaces were super cheap and people recognize your brand.

So it's just too juicy not to do it. Is it profitable or it's a break even kind of marketing expense? We do like 20% for a wall. You bet done all of our stores. Yeah. I mean, you know, and this isn't like heavily adjusted EBITDA. Like, I don't really. I don't play the traditional DTC math.

But it's like profitable if you don't think about all your expenses. But yeah, so they do really well. We actually just opened a store in Houston two days ago. Do you do them as like micro stores like Tesla does where they're very small and you're basically using it as an onboarding for that or are they big stores? No, they're small. So, you know, anywhere from 1,500 to 2,500 square feet. Oh, yeah, micro.

And so and with that comes a lot of, you know, it's where our customer service really shines. we'll actually deliver the product to your house. We'll make your bed for you. Amazing. People come in and again, people don't think about how to, it's very easy to make a sad looking bed. It's hard to make a spectacular bed. And so they'll work with our folks, bring photos of their bedroom, and we create an

entire look for them. And, you know, it's a chance to touch and feel everything, see all the colors in person. Our category, again, is still like 60, 65% in-store purchases. So it's a place we have to be. Yeah, it makes sense. What are they called bricks and clicks, I guess? Yeah, exactly. Or clicks and bricks or whatever.

It's sort of the guide shop model in a way, if you think about it. What's the guide shop model? Well, like, where you can come physically see all of the products. We don't even inventory all of the products there, but we'll overnight it for free to your house. If it's not there. And nobody wants to carry it anyway. No, it's like seven pounds of fabric walking around the mall. It's not fun.

Yeah, just ship it. Yeah, for sure. All right, brother. Great job. and everybody go check out some bowling brand sheets and we'll see you next time on this week in startups. Bye-bye.