Bill D’Alessandro is the Founder and CEO of Elements Brands, one of the original holding companies for direct-to-consumer brands. He has acquired or founded more than a dozen businesses with over $100M of revenue and has realized seven exits in both DTC and SaaS. Bill is also the co-host of the Acquisitions Anonymous podcast.
On this episode Chris & Bill discuss:
➡️ Lessons learned from Element Brands and owning 6 businesses
➡️ His pivot to owning Natural Dog Company and why focus is powerful
➡️ How to decide between marketing & product innovation
➡️ Insights on the pet industry and why it's huge
(3:13) - What was your strategy in 2016 and why have you totally flipped on it in 2023?
(4:57) - DTC is not a business model
(6:14) - Prioritizing marketing over product innovation
(10:36) - Was there ever a time when you thought this massive ad spend was unsustainable?
(12:23) - What’s happened in the past 18 months since Apple changed its advertising privacy model?
(14:33) - Putting brands on autopilot
(16:22) - When did you start to realize only one of your eight brands was worth working on?
(19:53) - How has your life changed after consolidating your focus?
(22:14) - Is there a way to make the Aggregator model work?
(25:46) - How big is the pet industry and where is its potential?
(26:59) - What are you going to do with this business now that you’re solely focused on the one instead of 8?
(30:14) - Why have you chosen to go into retail?
(33:18) - How do you get your product into 4-5k stores?
(35:55) - Is there any brand with leverage over Walmart?
(36:54) - What could make this move into retail go wrong?
(39:35) - What’s your approach to product packaging and design?
(42:45) - How did you arrive at the decision to launch 12-16 new products this year and how do you decide what they’ll be?
(46:32) - What needs to happen in order to get into Walmart and Target?
(48:59) - Would you get a higher valuation on your company if you’re in Walmart/Target and successful there?
(49:46) - What has podcasting done for you?
👉 Bill on Twitter: https://twitter.com/BillDA
👉 Natural Dog Company: https://naturaldog.com/
👉 Acquisitions Anonymous Podcast: https://www.acquanon.com/
👉 BillDA.com: https://billda.com/
👉 PickFU.com: https://www.pickfu.com/
➡️ Learn more about Xeal: https://xealenergy.com/
➡️ Fort Capital: www.FortCapitalLP.com
➡️ Follow Fort Capital on LinkedIn: www.linkedin.com/company/fort-capital/
➡️ Follow Chris on Twitter: www.twitter.com/FortWorthChris
➡️ Follow Chris on LinkedIn: www.linkedin.com/in/chrispowersjr/
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Chris Powers: Bill, welcome to the show for the second time.
Bill D'Alessandro:Hey, I'm so happy to be here. This is like one of my favourite podcasts and that's saying something. It's a thrill to not only be on but to be back a second time.
Chris Powers: The feeling is mutual, my man. We're going to dive straight into it. You had one of the best annual letters of the year.
Read it on the plane the other day, and we had actually been having kind of conversations on the side for the last year about some big changes you made. And so, let's start with what was your strategy in 2016. And why did you make a commitment to changing that strategy almost entirely in 2023?
Bill D'Alessandro:Oh boy.
Yeah, so there's a huge amount of grey hair between 2016 and 2023. But to kind of set the stage, maybe folks will listen to the other episode that I did with you earlier, but my business elements brands was a roll-up of direct consumer E-commerce brand. So, I had some success early in my career with one e-Commerce brand, and I thought, geez, I have a lot of systems and expertise.
Why don't I take the expertise that I had from private equity and that I developed in e-commerce, and let's roll up? Let's buy other brands, consolidate them onto a single platform and make a proctor and gamble of the internet if you will. So that was the original strategy in 2016. This was before Thresio had raised billions of dollars before the phrase Amazon aggregator was a thing.
We were sort of at AL'S brands, one of the very, very first e-commerce aggregators and really pioneered the business model actually going as far back as 2013. When I did the first acquisition, we raised some outside capital, a small amount of 3 million in 2016, which I think is what you're referring to.
When I brought out some outside investors in and I said, all right, let's go out and keep rolling up brands. We executed eight bolt-on acquisitions between the first one in 2013 and the last one that we did in 2018. And then, we operated the portfolio, and then over the last 18 months have been going through the process of divesting the entire portfolio.
And we just finished that about three months ago and focusing entirely on our largest brand, which is Natural Dog Company.
Chris Powers: Okay. And let's talk about, I'm going to go through your letter on some things, but why did you decide to do this? And we can start with, we can do things you did right and things you did wrong.
But in your letter, you actually were very humble and said there's things we got wrong. So, I'm just going to read off a couple of them. Direct-to-consumer is not a business model.
Bill D'Alessandro:Yeah. So, this is something that I think a lot of business owners, especially in my industry, delude themselves into thinking. They think, oh, because we're great at Facebook ads and we make a website and we know how to talk to people on Instagram and TikTok, like, that's enough, right?
That's enough to build a big business. That might have been true in 2010, when those skills were really rare and not evenly distributed. But now in 2023, that's table stakes. Like if you're not good at digital, you're just not going to be able to start a brand at all. It's a channel, it's not a business model. You have to have a good product. You have to have positioning that is differentiated. It has to be priced right. You have to have a good flow through, you know, profitability, margins. There are so many other things that go into a business besides just this skillset that is D two C.
You know, being able to ship a box to a house and do Instagram ads.
Chris Powers: Okay. Number two, prioritizing marketing over product innovation. You just touched on that.
Bill D'Alessandro:Yeah, so we, in retrospect, so we spent, I untold millions, eight figures, millions on Facebook ads over a five-year period roughly. Had a lot of success, and did more than that in revenue as a result of those Facebook ads.
But we had kind of tricked ourselves into saying, we can sell anything, right? Like with the right marketing, you can sell anything. The marketing is more important than the product. And so, we got really, really good at marketing and we had a hammer and everything looked like a nail. But in retrospect, looking back at the places where we had the most marketing success were places where we had really innovated in product and we were ascribing all of the success to just great marketing when in fact there was a really, really quality product underlying the marketing.
And I'll give you an example to make it tangible. We owned a laundry detergent brand called Rocking Green. And when we bought it, it was a cloth diapering-focused laundry detergent brand. And what we saw is, you know, for one, they were doing terrible marketing, but for two, this isn't a cloth diapering detergent brand.
This is a specialty detergent brand. So, can we fork it off into other spec types of specialty detergent? And one that we launched was called Rocking Green Platinum Series, active Wear Detergent. So basically, the target market was all the women out there that wear $150 Lululemon pants, right?
And they want to wear them to the gym sometimes where they also want to wear them to happy hour and they don't want them to smell like the gym. And we found that, you know, a lot of the other detergents on the market did not have a high enough enzyme content or the right enzymes to really get that funk out.
If you wear the same shirt to the gym too many times. It becomes only a gym shirt, right? It can't leave the gym, right? So, we created a detergent that addressed that problem and we crushed it on Facebook ads. And what we were telling ourselves was, boy, what great marketing, and we did have great marketing.
We got these fish tanks that were all glass. And we would take people's clean laundry and we'd put them in the fish tank with a scoop of the detergent and let it sit for an hour and the water would just turn like this disgusting brown, you know, as it pulled all their ammonia and sweat out of their clothes.
And that was great marketing. But at the end of the day, we had a differentiated product. That category did not exist in 2017 when we launched that product. Now, tide has a product in that category. Woolite has a product in that category, right? The big guys saw what we were doing and chased us.
And so, the reason we had success was we had great marketing, but you can't market a crap product and I in retrospect did not value that highly enough. And when we needed to grow or needed to do the next thing, I was thinking, what's the new marketing campaign? Not what's the new type of product innovation we can do to really push the market?
Chris Powers: There's so many things you said there that I didn't know that people still used cloth diapers. That seems like why would you do that? But apparently there's a market. But my real question is how would you know in the moment, that it was product over marketing or is it always something that you could see in hindsight?
Or is there a new muscle that you've built whereas you're kind of building this next business that we'll talk about in a bit, you'll know it's the product that's doing well, not necessarily the marketing.
Bill D'Alessandro:So, they always go hand in hand. If you have a bad product, you will see it in that your marketing return is never going to be great like you might do okay, and you'll always feel like you are climbing uphill if you have a bad product in good marketing, right? Because you're essentially trying to trick people into buying something crappy, at the root of it. But if you have a good product, even like decent marketing will perform really well, right?
The product is this massive tailwind behind the marketing. And if the marketing has to pull a giant boulder of a shitty product, it's going to be expensive and it's not going to convert well. But if the marketing is being pushed by a great product, the marketing's going to look great. So, you can see it in your ROAS.
But for us it's about going forward at Natural Dog being a product led company rather than a marketing led company. So that means we're going to launch 20 new SKUs. I can tell you more about how we're going to do that without losing our shirts. And in the past we would think about it as we're going to launch 20 new marketing campaigns this year.
And the product set was kind of static, so we really flipped it on its head.
Chris Powers: Okay. And then one more thing before I move on to the next one. I think the last time we recorded, which was probably over a year ago, I think it was, as I recall it was right when Facebook or Apple had changed the game on Facebook.
So, I just have a couple questions on that, one: was there ever a time, like while you were building this business since 2016, you just said you spent tens of millions of dollars on Facebook ads, where in the back of your mind you were like, man, this just might not be sustainable. Like the game has to change at some point?
Or was the philosophy amongst all these E-comm businesses that could happen, but it'll probably never happen? So that's question one.
Bill D'Alessandro:Yeah, so like any mania, right? Like no one ever conceives that the bubble is going to pop during the bubble, except like the one crazy guy in the corner shouting at the clouds and nobody listens to him.
So, but honestly though, the thing I will tell you is the Facebook ad Bonanza essentially would have continued forever there was the external force that stopped it was Apple deciding to get tough on privacy from a business strategy point of view. This wasn't like a financial markets mania where it's just sort of all built on animal spirits, right?
And then as soon as the cracks show up, it all falls apart like the Facebook algorithm, pre iO S 14 five was the best ad delivery system ever invented in the history of the world, period. The most accurate, the least wasteful, delivering the right ad to the right person at the right time of the thing that they're most likely to buy.
Phenomenally magical product, maybe never to be equalled again. So, there was a sense that it was great. There was not a sense in the D to C world that it could all come crashing down.
Chris Powers: Okay. Then the second question is, now we're a year and a half into what was a change? What's happened in the last year and a half?
Are things back to normal? Have people developed new techniques or everybody just found different ways to do it? Like what's the status of that all today?
Bill D'Alessandro:The theme of this podcast should be ways in which Bill was wrong.
Chris Powers: No, because we're going to get to it. We're ending this on how you're right. Because where you pivoted to is very, very right.
So, anybody that's made it this far, this story gets a lot better.
Bill D'Alessandro:So, one of the things I was wrong about when we recorded last year is that apple sort of had the opening chess move and I basically said, look, Facebook is a trillion-dollar company. There is a ton of market cap riding on them.
Not quite a trillion dollars, but multi hundred-billion-dollar market cap business. There is hundreds of billions of dollars of market cap riding on Facebook, figuring out how to make the next move, and that this is going to be a chess match that plays out over a while. Punch, counter punch, etcetera.
What I did not see is that the huge behemoth that was Facebook essentially got KO’d on the first punch. Like they had no counterpunch and apple just blew out both their kneecaps on the first opening move and almost checkmate. Now it's not quite as dramatic as that, and I think people who follow Meta and Facebook will tell you they just totally failed the counterpunch and I did not see that coming.
So, the state of Facebook ads today is that it is a little bit better. Facebook has spent the last year doing things called modelled conversions where they're basically trying to guess in the dark. A lot of first party data providers have popped up to send data back into the Facebook algorithm to restore a fraction of the visibility that was lost.
So, it has improved a little bit. If you're a stock market person, you might almost call it like a dead cat bounce. You know, it crashed the efficiency of Facebook ads and then, it’s popped a little, but not even close to where it was. So, brands are moving much more toward the old school way of measuring marketing mix, which is as percent of revenue trying to do omnichannel attribution, and there's a lot more fuzziness in it than there was before.
Chris Powers: And this isn't what you got wrong. These are lessons learned. I mean, this is value that I got a ton out of, and I think everybody else will. So I continue to go through them because they really interested me. The next one was trying to put brands on autopilot.
Bill D'Alessandro:I think the next one together, which is the way we structured our business was that we structured it like not a HoldCO.
Right? It's like, yes, it was a holding company, it held all the brands, but it really was an operating company. I was operating CEO of eight brands at once. And the mistake we had we made here was that these brands were not big enough to each justify a couple million dollars a year of a management team overhead at the brand level.
So, me as CEO of the HoldCO and my leadership team as leadership team of the entire company was trying to run eight businesses at once, essentially. And so we kept having to make human capital allocation decisions, attention allocation decisions, because we couldn't do all the things all the time.
And so more than once we made this decision to what we said out loud, we're going to put that brand on autopilot because it was a smaller brand or it was, you know, oh wait, we'll let it go sideways. It'll maybe deteriorate five to 10% over the next year. But then we'll come back around to it and fix it.
That does not work. Right? So we basically spent years with our hair on fire, like running around playing whack-a-mole, right? While brands decayed, while we did not pay attention to them, but we did not buy big enough brands that I could actually be CEO of a HoldCo. And what I should have done is bought bigger brands.
And when I say bigger, I mean two to 3 million of EBITDA are larger, install competent management teams at the brand level. And then I should have focused myself on being CEO of the HoldCO making capital allocation decisions, acquisition decisions, and managing the managers. But instead the business we bought were too small, so I had to help run them.
So that is my advice to aspiring HoldCO people is buy bigger businesses.
Chris Powers: So now we're going to move the conversation a little bit. So all this is happening, I think you've said you at one point you owned eight brands. There was one superstar that was starting to emerge.
When did you kind of start getting a gut feeling? Because I think you kind of say it in your letter really nice, was obviously there was a decision that was made, I think it was with your board, but when did you start getting this feeling of man. We sure are wasting a lot of energy and we can't focus on our shining star.
And how did you get to that decision that we're going to make a really pivotable decision in your business, which is sell seven brands, keep one and go all in and kind of abandon the old, maybe HoldCo model. That takes a lot of wisdom. It takes a lot of maturity, it takes a lot of humble pie and I think there's a lot of folks out there that have these type of decisions lingering in their business and it's easier to kick the can down the road and not do it.
So we're going to move the conversation to how you made the decision and then we'll talk about all the beautiful things that have happened.
Bill D'Alessandro:We bought Natural Dog Company at the end of 2018. I would say within a couple months after the pandemic hit in 2020, it became clear that this brand had legs.
Huge legs, you know, 10 x, 100 x legs. But I'll tell you, like even going into the acquisition, right? We only raised 3 million, you know, we were essentially funded by profits and debt, so we were doing progressively larger and larger acquisitions. So Natural Dog was the largest acquisition we'd ever done.
It had multiple millions in EBITDA. And I will tell you even within a couple months of running the business. Every lever is longer, right? I mean, especially in e-commerce, right? You write an email and you send it to a million people or 10 people, it takes the same amount of effort, right?
You run a Facebook ad and you spend a thousand dollars on it or a million dollars on it, right? It's the same amount of effort. There's just so much scale in the business model, and similarly in a larger business, you get a point of margin back, oh, it's actually worth it, right?
You get a point of margin back in a business with a million dollars in sales. So, within a couple months of owning the business, it was obvious that this lever was longer. But during the pandemic, 11 million people incrementally got dogs during the pandemic.
And also everybody was obviously inside buying everything on the internet, and we were in a dog e-commerce business. So, it was kind of the double tailwind. So we just had an explosive 2020, and I forget who to attribute this to, but I did not come up with this, but someone said that every time your business doubles, all of your systems break.
And in 2020, All of our systems broke. I don't just mean like technology systems. I mean like SOPs. I mean my ability to manage the business broke, right? Like the way that I kept tabs on everything broke because Natural Dog got so big and complicated, so much was going on. You know, the other businesses were growing too.
They were e-commerce businesses, it got too complicated. Everything about the business broke. Every time your business doubles, it's all going to break and you've got to reinvent it from scratch. And it was at that point that we started to say, is it really worth it to reinvent all these other smaller ones or should we just try to hold onto this rocket ship, that was Natural Dog.
Chris Powers: Okay, so you're at the board meeting and the decisions made that you're going to sell off seven and you're going to put all your energy into Natural Dog company. We'll talk about the pet business in a second, but let's just talk about from your experience, how has your life changed? And the key word here is focus now that you can be hyper-focused on something as you're now looking back again, because I think there's a lot of people in business that get scattered pretty quick.
You get shiny object syndrome or whatever it may be. Walk me through like what your life's like now at the company, what's going on now versus what you were dealing with a year ago before you made this.
Bill D'Alessandro:Yeah, so Chris, you don't have to answer me, but I don't know if you've ever been in a bad relationship or I don't know if people listen, have been a bad relationship.
So, when you're in it, you know, you're like, well, this is just how life is. Right? And you kind of downplay the misery and you focus on the good parts, but like you're just always operating in this low grade level of misery, but you don't see it. It's so hard. And then you break up with the person and then either you're together with someone else later, or even you just get some space and you're by yourself.
You go, oh my God, that was terrible. Like it was abusive and like, you couldn't see the force for the trades and all that. And that's how I feel about the HoldCO model. I'm the type of person who loves to win. Like I have to win. I'm driven for success. You know, running eight businesses at once is very hard, but I was not the type of person to kind of fail at that.
And I failed in plenty of ways at that anyway, despite not wanting to, but I kind of was trying to hold it all together and I felt like, some days Atlas with all willpower, trying to hold it all together and that took a lot of psychic energy effort from me.
And so now though, so we have over the last 18 months ran seven simultaneous M&A processes and divested the entire rest of the portfolio. So that's done, that was a whole separate level of complexity and holding it all together. But that's done. So, I have been CEO of just Natural Dog company, not elements brands now for about four months.
And let me tell you, it is absolute bliss. I do not know it is relative. I mean, there are problems, right? And everything, but like comparatively, I have one eighth, the stress, right? Like there's a baseline level of stress of running any business out there. And if you run eight businesses, you will have eight times that amount of stress.
So I am feeling better. And then we can talk in a little bit just the level of focus it has enabled is incredible.
Chris Powers: And before we get into the level of focus, all these other aggregators that are just now raising all this money to kind of venture out and do what you just got out of doing, is there somebody out there that's going to make this wo rk?
Is it a problem where you can throw enough money at it and it eventually works? Or like, what's your opinion on this whole new generation of aggregators that got in the market that are kind of doing what you thought would work in 2016?
Bill D'Alessandro:So we could do a whole episode on the aggregator business model and the flaws and the pros.
There's a lot of aggregators out there about, about 13 billion was raised to roll up e-commerce brands, but with a specific focus on Amazon centric brands. The mistakes that have been made are many. The big ones are these one in their rush to deploy 13 billion. They bought a bunch of garbage.
And so, they own a bunch of brands that are not brands and they're having difficulty scaling or even maintaining. I know of an aggregator, they bought 20 brands in a year and all the stuff was sourced from Asia and they were like, oh, great, we'll put it all on the same boat.
Okay, well yeah, but it's all in the same factory. It's not all already at the same time. And then all the supply chain stuff that everybody's experienced during Covid. So they had 20 parallel Asian supply chains, all of which were impacted in varying ways and were totally messed up. So like the level of complexity, the level of technical debt in a lot of these aggregators is off the charts, I think it is possible to win. I mean, if you look to some of our most successful consumer products companies in the world, the Proctor and Gambles, the Unilevers, right? Like they are aggregators in some way, but why is Proctor and Gamble good at what they do?
You know, they focus on a category. Their health and personal care so they can start to understand those categories. They can start to understand the manufacturing supply chain. They can start to get some synergies there. There's some synergies in the marketing. You don't have to be completely schizophrenic in your marketing and jump from a young marketing to a young 22 year old who buys Bluetooth headphones to.
You know, an older woman who buys cloth diapers and is cares about organic, right? There's just so different. So there are some aggregators out there still that are doing well because they have focused on a category. I think there will be some winners. I don't think this is like a tech business where one winner takes all, but there will be some winners, but there's going to be a lot of capital destroyed and it's already happening.
I mean there are so many aggregators out there. I'm seeing past the hat rounds, people trying to raise equity. It's not there. People trying to raise debt, it's not there. We are in the early innings of what is going to be a pretty massive consolidation slash implosion of the aggregator industry. So I'm out, so I got out.
Chris Powers: We're out. That is one thing we got, right? We got out on time and when I say we, I mean me and you. We're in this together.
Bill D'Alessandro:Thank you Chris. Sometimes the music is slowing, you don't want to be the last one at the party.
Chris Powers: I just have to ask, it's totally off topic, but what is the marketing campaign for cloth diapers?
Hey, if you don't like easy to use diapers that you can throw away, but love doing laundry and everything else, you should buy it like these. What is the pitch on a cloth diaper? I don't get it.
Bill D'Alessandro:Well, Chris, you would be unsurprised to nut to learn. I think that you were a terrible person, and you were killing the planet with all of that garbage.
And also, that all of the chemicals in cloth diapers are terrible for your children. You can imagine the demographic that these products cater to.
Chris Powers: Got it! That makes more sense. I wasn't thinking that. Okay. Back to focus on the business. So stress gone. We're all in on one brand.
What are you focused on, man? Maybe let's, just before that, let's talk about the pet industry. So you talked about 11 million new pets. To the extent you want to share how big you think this business can get or how big the industry is, can you just throw out some things to think about of how big this pet industry is and where it's really headed to set the stage for what this business could possibly become?
I could quote like huge tams for you. Right? But that would be boring. So more viscerally, the way to kind of quantify how big the pet industry is, is there are more companion pets, meaning dogs and cats. So there are more companion pets in the United States than there are children under 18. So by that measure, the pet's market by headcount is bigger than the children market.
And by children, I mean kids under 18. Right. So all of the miners in the United States, there are fewer of them than the number of dogs and cats total in the United States. And the dog's market is significant, multiples bigger than the cat market partially because people tend to spend more money on dogs, and also because there's more of them.
Chris Powers:Okay, you're all in and you're focused on this. What are you going to do to this business now with all this extra attention that you think is going to create a success?
Bill D'Alessandro:So maybe the best thing to do is to give folks a couple examples, right? So before I'm trying to run eight businesses at once, you have to delegate a lot of things.
And you sort of accept that things are done good enough because you just got to move on to the next ball. We at National Dog Company introduced I think four new products in 2022. We're going to introduce 12 to 16, maybe even 20 in 2023 because I can focus on it. Our whole supply chain team can focus on it, and our marketing team now has the bandwidth to launch that many products.
There are countless areas, so when we sold the last brand, I said, okay, I'm taking a tour of the business and I basically with a white sheet of paper, I said from scratch, I don't care how we do it, how should it be done? Every single area of the business, it took me three months, I pretended I'd gotten hired.
I pretended I was a consultant where I was an outside CEO, and it was my first day on the job and I had been hired to take over a Natural Dog company and I needed to learn how it was done and how we might do better. I found so many things. We cut probably a million dollars of SGNA over that three.
Some of that was headcount, but a lot of it was like tools and process that we did not need. I took a critical eye at the packaging, which I'd always thought was good enough. We're rolling out by the way four to five thousand retail doors, here in about 60 days in q2, and we have been an e-commerce company.
Right? So when you think about product packaging, On the internet, it doesn't need to do a lot of work because right next to it is a whole paragraph and bullet points about the product, right? There's a product display page that can help you sell the product, but when you take that same product and you put it on a retail store shelf, it's got to totally stand alone, right?
It's got to do all the education and all the selling on the package because it doesn't have the luxury of a product display page right? To contain it. I looked at her packaging and I was like, oh my god, It doesn't do any selling. This packaging is terrible. We're about to roll out at 4,000 to 5,000 retail doors and it's going to flop because if you see this on the shelf, in some cases you didn't even know what it was.
What the product was. As I said, I didn't have the resources to put really capable folks, at the brand level, and I was too spread out, so I hadn't caught this. So in November I rang the alarm bell and we redid the packaging for the entire brand in under 90 days in time to ship our largest retailer that who's shipping this week.
And I will never know the counterfactual. Because we didn't roll out the garbage packaging and then upgrade it. But just based on, you know, some of the preliminary tests, focus groups and stuff we've done, I think we probably doubled sell through on the product just by updating the packaging. And had we rolled out with the garbage packaging, who knows, it might not have moved through and we might have gotten kicked outta retail, but because I had the bandwidth to actually go deep on that project, now I think we're going to do quite well.
Chris Powers: When you watch Shark Tank or something like that, the sharks are always like, don't go into retail. Only sell online. So my question to you is, why have you chosen to go into retail?
Bill D'Alessandro:Well, I think that advice from the Sharks is probably sensationalized bit for television. Fair enough. But so the thing about retail is it's like going to the Super Bowl and betting your life savings that you're going to win, right?
You wouldn't just walk into the Super Bowl, like maybe you would play high school football first, and then college football, and then play in the NFL for a while, and then you would show up to the Super Bowl and bet your life savings that you could beat Tom Brady. That's kind of what retail is, because when you go to retail, you have to be perfect.
You have to have the packaging dialed in, as I just touched on. You have to have your positioning, and your pricing dialed in. They are going to charge you all kinds of fees and marketing support and co-op and bill backs and all this stuff. You have to be able to ship it. Oftentimes a retailer give you a two hour window where your truck has to show up and if it doesn't show up, they're going to hit you with a bill back.
Meaning a fee. A charge. So you just have to be so dialed in to go to retail. I mean, Walmart is famous for bankrupting brands. Like people go to Walmart and if it doesn't sell, like this is a thing that people don't realize about retail. You take a consumer product to mass market retail, big box retail, you think you're done.
Oh, great. I just got a million-dollar PO from Walmart. Right. Send your product to Walmart. It's on the shelf. If it doesn't sell, Walmart will gather it back up off the shelf. Every single unit that does not sell and they will send it back to you and ask for a refund. So your job is not done at retail until it moves through their register, right?
Which is very, very different than most people assume. Like, oh, I sold this product to Walmart, shipped to them, I'm done. And then they spend the money and then nine months later, Walmart comes back and it's like, you owe us a million dollars. And people are like, I don't have it. So that is why retail can absolutely burn you, because if it doesn't move, you have to take all that product back and it's usually not sellable and you absolutely lose your shirt.
So before you go to retail, you have to be totally dialed. And a great place to get dialed is scaling first online.
Chris Powers: Okay, so the dumbest question of the episode, what are the upsides of retail then? If the downside is bankruptcy at Walmart or just all this chaos, why go through all that? What are you wanting out of that that you can't get online?
Bill D'Alessandro:Huge, huge scale. So to give you an idea, 15% of total retail sales flow through e-commerce. Which means 85% of total United States retail is still offline. Like this is skewed because there's, you know, grossery is a huge category as predominantly offline, etcetera, right?
Some categories have higher online penetration, but the fact of the matter is there's still massive, massive volume running through all these retailers and bring it back to the Facebook ads where Facebook ads have gotten so much more expensive, right? You can kind of dodge the Facebook ads tax, you can dodge the Amazon platform tax.
Now of course, the retailers will tax you in their own way, right? But it's a new channel you can drive massive, massive scale. And profitability if you know how to operate.
Chris Powers: Okay. So, when you're going into four to 5,000 stores, do you hire like a broker, an agency that kind of gets you placed everywhere? Is that somebody on your team? How do you start in four to 5,000 stores?
Bill D'Alessandro:Well, you don't start in four to 5,000 stores. You start in one or two stores. So, the way we built it is, you know, way back in 2018, we said, it's basically like a concentric circle, right? So, imagine like a bullseye.
And in the center of the bullseye is what's called independent retail. So Power's Pet Store. If I can get Power's Pet Store to carry the product and Power's Pet Store is selling it through. Right and it is moving it. And I can see how many units, Power's Pet Store is turning, and the customers love it and they're coming back and Power's Pet Store is happy with me.
Now I can go to the next pet store and the next pet store. And so you prove the product in independent retail. Cause independent retail is easy, it's low stakes, you know, they pay up upfront and there's no return to vendor. There's none of this stuff, right? So you prove the product. Independent retail, which involves learning, oh Jesus, not selling.
Like is it the packaging? Is it the product? Is it the price? You know, what is it? So you iterated independent retail, which is what we did. We scaled up to 1200. Doors of independent retail. So 1200 powers pet stores all across the country. And we did that by cold calling, smiling, dialing those pet stores.
And we did some trade shows, but like for the most part it was smiling, dialing. The other thing that'll get you there too is spend a lot of money on direct consumer Facebook advertising because you know, Chris Powers, who owns Powers Pet Store also has a Facebook account and he probably owns a dog. So eventually he's going to see all of your ads, right?
And reach, oh geez, I'd really like to carry that at Power's Pet. So we did that first. 1200 doors of independent retail. And at that point the regional chains will start calling. So you know the ones they got 30 doors, 50 doors, 80 doors, right? They'll start seeing it in the independent pet and they'll say, this must be working.
And they'll start calling. You can call them, you don't have to just wait for them to call, but you kind of proven an independent. And that's the next circle of bullseye is the regional pet. Right? You prove it there. And then the next is pet specialty, PetCo, Petsmart, you know those types of places, these specialty stores, but big box nationwide chains, right?
So same thing, you sell it in there and then the outermost ring in the circle is what's called FDM or Food, drug and Mass. That are your targets, your Walmarts, those types of places like the most undifferentiated, the broadest stores. And you don't want to go into those places until you're absolutely sure you can burn product through at PECO and PetSmart, right in special. Nationwide specialty. So that's where we are, we're at Nationwide Specialty.
Chris Powers: Okay, so you're not at Walmart or Target yet. Is there any brand out there that has leverage over Walmart? Like when you think of Proctor and Gamble are some of the biggest, like is there any brand that Walmart plays nicer with?
I'm assuming the bigger you are and the more leverage, but is everybody at risk with Walmart or is it just the people that have a smaller product that barely get in.
Bill D'Alessandro:Yeah, I would say like when you think about the Proctor and Gambles of the world, right? Walmart is not going to not carry Tide like Walmart has to at a certain scale, Walmart has to have your brand. Or Walmart's customers are like, what the hell are you doing? Right? I can't get tied to Walmart. So I think, at a certain massive scale, brands can kind of get to this sort of mutually assured destruction where like the brand very much needs Walmart. Like if Proctor and Gamble lost the Walmart account, that would be devastating for them.
But similarly, Walmart sort of has to carry Tide and gain and you know, all the other P&G products. So you sort of end up with this sort of multipolar superpower. US-China type of relationship where they hate each other, but they depend on each other, et cetera.
Chris Powers: As you are anticipating this four to five thousand store rollout, what keeps you up at night that this is going to go well?
Like what could make it go wrong, if you go, don't do X, Y, and Z over the next few months before this starts happening.
Bill D'Alessandro:So there's a couple ways you can screw up your retail rollout, way one is the product is garbage doesn't sell itself and customers see it on the shelf and just don't pick it up. So we spend a lot of time making sure the packaging is to a point where I think that box is checked.
This is another thing that blows people's mind about retail. You can roll out to say 1500 Petco stores. You can ship boxes to Petco dcs, or 1500 Petco stores, and then a month later, if you walked into all 1500 Petco stores, you might find that your product is on the shelf in half of them. And your buyer's going, well, you know, we expect you to sell X number of units per week.
You're only selling one half x number of units per week. This doesn't look so good. And then you find out the reason you're not moving is because you're not even on shelf at half the stores. What happened if you go in all the stores and by the way, Walmart and grocers are notoriously terrible for this, and I don't know if Petco's bad about this, I'm not picking on them, but many, many retailers are terrible at getting product from the back room to the front on the shelf merchandise on shelf.
I mean, who works in these stores, right? Like I don’t know if you've ever been in the back room in a grocery store, it's like complete chaos. Maybe there's four units on the shelf and somebody buys them and they don't get around to restocking the shelf for a week. Even though they got plenty in the back, right?
So there's this massive slippage between what's at the store and what's actually on shelf or even what's at the DC, the distribution center, and what's gets shipped to the store, and then what gets shipped to the store and what makes it to shelf. So you remember as a brand, if they don't sell it, if you sell to them and it sits in their back room for six months.
They'll send it back to you. It's on you, right? So you as a brand have to care that that product makes it to the shelf and gets merchandised the right way. So it is even available to be picked up off the shelf. And this is the thing that I had to learn from. Luckily, I have wonderful advisors and got this advice pretty early, but you actually, there are Hold Companies.
Now you pay to go into your retail doors and make sure the product is on the shelf. And if it is not, they have contractual relationships with these retailers to go in the back room, grab it and put it on the shelf. And what you'll do is like, you can't do every peco, but you'll send like a statistically significant sample of Pecos and if they find a big enough problem, then you make a stink to the buyer.
Chris Powers: Yeah. They do that in real estate too. You can call it shopping, but you can hire people to go in if you own multi-family to go pretend like they're touring an apartment and see how the service is and how the property managers are. They're kind of undercover. Okay. One more question then I want to talk about the 12 to 16 things you're launching.
When you realize that branding and the packaging sucked, what happens from there? Do you hire an outside consultant and say here's the product we're selling, design us the best thing that could catch somebody's eye and they would immediately know how to do it. Like, what's the process you went from having terrible packaging to great packaging.
Bill D'Alessandro:Oh boy, that's a whole other podcast you asked. You asked questions. It could be whole lot podcast episodes, Chris. So I'll try to condense this into a short answer. If you just hire a consultant, design your packaging and expect them to go into a dark room and come back and hand you your packaging, you're going to be very disappointed because they don't understand your brand.
Like in order to design good packaging, it's not about just brand and feel, especially packaging that sells at retail. You need to understand. Chris, if you go to any store and you are shopping for a brand of granola bars, like how are you choosing? Do you care that it's organic? Do you care that it's high protein?
Do you care that it's grain free? Like what are the unique differentiators of Powers’ granola bars that make them any different? And guess what? If the unique differentiator is not on the front of packaging, it might as well not exist. So you need to first think about kind of positioning and you go, how are we different?
And also what is the consumer looking for? So you've got to sort of blend this, like what are the table stakes in my category? You know, what are people who are shopping for dog probiotics? You know, what are they looking for? And then also, and you want to have that in the packaging, so you kind of check the box.
And then you've also got to ask, how is my dog probiotic different? And you got to have that in the packaging too. So you actually have a shot against all the other ones. And the best way to do that is competitive research is see, you know, pull up your top 10 competitors and hopefully they're not stupid.
Some of them probably are, but hopefully not all of them. And you look and you go what's on their packaging and ask yourself if I were on the shelf with these 10 other things, Why would somebody pick mine out? For a short answer, that's how you do it.
Chris Powers:And do you hire focus groups or anybody to, you know, walk down an aisle or something and see if it actually worked?
Is there a way to know that it was the right packaging before it hits the shelves? Is there something that's some metric, or is it just a gut feel? Hope this thing works. We feel good about it.
Bill D'Alessandro:I mean, obviously you can formally pull your friends and loved ones, right? But they're usually not representative.
There are some tools. There's a tool called pickfu.com, P I C K F U, where you can basically upload two of anything. And like ask people like which do you prefer and why? And you can get a larger dataset. It's like basically hot or not, but for anything, I don't know if you remember that website hot or not from way back in the day, but like pickfu is basically like hot or not for anything.
So you can do that. I mean it's on scientific, you can do focus groups. They tend to get very, very expensive. So there's a bar in our town called Skip Town, which is like a dog bar. So you like go down to skip town with like three versions of the packaging and go, we're giving out free treats.
All you got to do is tell me which one you prefer, you know, and you maybe mix those three and you can design a thing where you mix it in with all your competitor's packaging and see which one gets picked the most, et cetera. But there's no scientific way to do it. You just got to get opinions. All right.
Chris Powers: Okay, you said you're launching 12 to 16 new products. There's thousands of products out there. One, did you pick that we want to launch 12 to 16. How did you arrive at the decision to how many you were going to launch? And then I want to talk about how you knew what you were going to launch. What was the process you go through to decide these are the 12 to 16 things we're going to focus on?
Bill D'Alessandro:So, we kind of put new product dev into three categories, and I'll kind of order these from easiest to hardest. The first easiest would be what I'll call like new sizes and colors. So for example, like we have a wild Alaskan salmon oil. It comes in a 16-ounce and a 32-ounce. We also have glucosamine. We don't sell that in a 32-ounce.
I read the Amazon reviews of the 16-ounce glucosamine, and there are all these questions about, geez, I really wish you came in a 32-ounce. That's easy, right? Let's start selling a 32-ounce. You can do this if you're doing apparel. This is different colors. you know, different flavours, different scents, like just basic variations of the stuff you already sell.
So different flavors and colors is like the easiest way to do new product dev. And the best way to do figure out which ones is just to read your reviews or to look at which ones your competitors are selling. The next category of product dev I'll call kind of like, you know, line infill. So look at our dog supplement man versus other dog supplement brands.
We don't sell a probiotic. Everyone else has a fricking probiotic. It's a crime that we do not have a probiotic, right? You know, we have a ton of customers that know, trust and love our brand, and if they want to buy a probiotic, they got to buy it from someone else. So we need to fill in that gap in our line.
So we're launching a probiotic next month. Right. And then you'd think about, you know, you look at all the competitors and you talk about how can ours be different and better. But that's how you say, okay, we need a probiotic. And that can create a lot of SKUs, just the basic size and colors and then also like filling in your line so you're competitive with everybody else in the market.
That can create a lot of new SKUs. And by the way, these are also ordered from like least risky to most risky. So then like the final category, which is most risky and hardest. I'll call it transformative innovation. So this is like a totally new product category. This is Henry Ford saying if I asked the public what they wanted, they would've said a faster horse.
So like Henry Ford, I'm going to give them a car. And they don't really know they want it. And that's the hardest thing to do. I mean, that's the thing that I think founders have to do. You have to know your market. You have to try to see around the corner, you know, you have to ask yourself that where is my market going to be in five years and what are the trends in my market and how can I get ahead of that?
And that's hard. You can hire that out to an agency.
Chris Powers: So on your 12 to 16 SKUs, if you had a percentage to the three of those, are any of them going to be transformative? Are they all in the first two buckets?
Bill D'Alessandro:Yeah, I think we're about 20% sizes and colors this year. We're about probably 60% line infill, just to be broad and competitive, and then about 20% transformative innovation.
So for us, it's sort of like a bell curve. The transformative innovation bets are expensive. They have generally longer dev time, and higher MOQs. They can fall completely flat if you're wrong. So, it's a capital allocation decision to do transformative innovation. Whereas on the sizes and colors side, the pretty sure bets, but they're not really big bets.
You're not really expanding your tam. So, the nice thing about line fill ins is relatively de-risk because you know your competitors selling all these products, but it brings you into larger tams. Because you don't have a probiotic, people are buying probiotic. Now you can address the probiotic market, right, which already exists, and you don't have to speculate, but on the transformative innovation side, you're trying to enter new markets that may not even exist yet.
So, you’ve got to temper that.
Chris Powers: Okay. Last question on the pet to get to the next level, I guess to get into the Walmarts and Targets, what would you have to have happen to then move into that category? What would be considered, like we succeeded at four to 5,000 stores. Now we're moving up chain and do you have to move up chain? Is it inevitable if you're successful?
Bill D'Alessandro:You don't have to move up chain, you can do major, major volume in specialty retail no matter what the category. But if you wanted a move up chain, you've got to show velocity at your specialty retail. You've got to show that SKUs can stick on shelf for a while, a year or two or three at specialty retail.
And then you've got to execute the expansion into food, drug and mass, you know, the Walmarts of the world without pissing off your specialty retail, you know, because I'll just use my example, like Petco's going to be pretty salty if suddenly Walmart has all the exact same SKUs that they have.
right? So, there's like this Walmart stigma. Walmart especially gets painted with it, and others don't have the problem. But Walmart gets painted with this all the time. And I think it's partially because their legacy of always low prices and under kidding the competition and kind of the perception of Walmart as this sort of lowest common denominator retailer, et cetera.
You know a lot of brands say, oh, we don't want to be a Walmart brand. Right. Especially retailers say, we don't carry things that are in Walmart, right? Because if we just had the same SKUs as Walmart, they're going to underprice us and they're everywhere, and they're better than us and we're outta business.
So, we got to have some sort of selection that Walmart doesn't have. So, all that stacks up to, you have a bunch of succession, special retail, you want to grow your business, and then you want to go to Walmart. And all your specialty retailers who are a huge part of your business say, pass.
Like if you go to Walmart, we're dropping you, right? And so you're like, well, shit, how do I grow my business? How do I keep everybody happy? And the way brands usually do it is coming up with totally unique SKUs for Walmart. So, the pet specialty people have something that Walmart doesn't have.
You know, and Walmart's got something that cannot be directly compared on like dollars per quantity, like ounces or eaches or something in price. This is the exact same way you go to Costco if you're selling a small bottle of Gatorade at Harris Teeter or at any kind of grocer, and you sell a three times bigger bottle of Gatorade at Costco for the same price.
Your grocer's going to be pretty upset with you because you can easily do that pronounced math. But if you sell a totally different form factor or a bottle type that you can't get, it becomes kind of different in the consumer's mind and in the chain's mind.
Chris Powers: If you go to sell your business or somebody's valuing you from an enterprise value perspective, do you get more higher valuation if you are in Target, or if you have been successful in a Target or a Walmart or a Sam's or something of that nature? Or does it really matter?
Bill D'Alessandro:It's funny, it kind of depends on the buyer. Some buyers will go, yes, like I want it to be as de-risked as possible, right? The more that you've shown they can work in these channels, the less risky it is. But some buyers, if you really believe this if you're a buyer and you kind of can get them drunk on the opportunity and the potential, you can go, look, we're having all this success and we're not even in target yet.
And that's where a good investment banker is really your best friend.
Chris Powers: All right, my man. We've covered a lot. We've covered lessons. Learned the pet industry, building this business. I kind of had one more thing to kind of bring it home that's totally unrelated to what we just talked about, but you have a podcast too, and so I would just be curious to hear, I really haven't asked you this in a while, like what has it done for you, your career, is it just fun? Or how do you think a podcasting is kind of like a tool that you have now added to your war chest of opportunities?
Bill D'Alessandro:For folks that don't know our podcast is called Acquisitions Anonymous, and it's myself and Michael Girdley and Mills Snell, which by the way, Chris, you got to get some co-hosts.
That makes it way easier. You’re carrying all the water yourself, man. So, what we do is we review businesses for sale twice. It has been a blast. I would say one of the biggest things I've gotten out of it is just like great friendships with those other two guys. But Brent Beshore from Permanent Equity says that content is a way to scale conversations.
So, you know, you and I are having a conversation here, and we have the same conversation over a beer and a bar, right? And you and I would be the only ones that participate in that conversation. But tens of thousands of people are going to participate in this conversation because they hear it on your podcast.
And that scales conversation and its scales reputation. So I find that a lot of people listen our podcast. So I will reach out to people and they will recognize me. It's this instant credibility indicator, you can get a DM back or an email back from a lot more people. It also gives people a reason to get into contact with you. It makes you top of mind.
If you're very clear, for us, this podcast, everybody knows that you buy Class B industrial real estate in the Southeast. And I'm sure even if the deal flow is not common and they haven't mentioned the podcast, it keeps you in fort top of mind, so I've seen a lot of ancillaries from that. The last thing I'll mention, and I'm sure you can corroborate or maybe you can't, and I need to learn at your feet. Podcasting is not a great way to get rich. I don't know if that's been your experience directly anyway, I agree. It's just not like we have some sponsors on Access Anonymous and whatnot, but like, I think Michael did his, did the math and he make $30 an hour.
Chris Powers: I would say this, if you're just tracking dollars to the P&L of the podcast, it might seem that way, but if there was a way to calculate how it has shown up in other areas of business or your life. You could make an argument. It's unbelievably profitable. And I would say, the way I look at it, and I talked to David Sin a lot, the Founders podcast and a couple of the other big podcasters, and you see like what Joe Rogan's done, you could make an argument.
It's still very, very, very early. There's a lot of attention that podcast ads are doing really well for folks that are advertising on podcasts to the tune of a great pot like we've done with Juniper Square or somebody where they're selling 30-$50,000 software packages. If the podcaster or as the host is intimately involved in that product, it can be huge.
Or you look at Joe Rogan, he was a part of on it, they just sold on it for like 400 million and he made an extra 200. So as we think about profitability, yes, you're right. If you're just looking at selling ads, and that's like the only way to measure it right now, it's early. But when I think long term about what could happen with being involved in businesses or where advertising could get to if you get enough views or that they scale really well.
I mean, I think Joe Rogan has like three or four people full-time on his podcast, like largest podcasts in the world. It's almost better than software if you can grow it really big. And so, there's a lot to be hopeful for, but I am with you still playing the game of like, we got to get these ad dollars up.
Bill D'Alessandro:You mentioned Juniper Square, who I'm sure has sponsored this episode. The cool thing about having a podcast that overlaps in your business niche, like I think you use Juniper Square for the fund. So, you can endorse it and say, this is great, and they sell $50,000 to pop.
Same thing for us, an acquisition anonymous, like we can send leads to a bank who originates multimillion dollar loans, right? So, they don't need accounting firm who is tens or hundreds of thousand dollars a year in revenue from a new client. When you have a B2B audience, I think the ads can get more lucrative.
So I think there's going to be kind of like too rough. I'm oversimplifying business models for podcasts. You can have like a, what I'll call niche. I mean the real estate niche is still huge, but still a niche, right? Like where you can scale conversation in a niche, B2B products, you know, professionals practicing.
And I think those can work really well in scale reputation phenomenally, right? In your industry. And then there's like the Joe Rogans like in this other bucket that I'll call like mass market podcasts that. Audiences that are orders of magnitude larger, right? Like anybody can be a Joe Rogan listener.
But then the traditional brand advertisers come into play. Like Coca-Cola could buy an ad on Joe Rogan's podcast and it actually makes like he is a legitimate celebrity superstar because of his podcast.
Chris Powers: Well scaling reputation, I often say it is similar to what you just said, it's scaling trust. I very rarely meet a stranger. Podcast episodes do really well in search, so if you Google somebody that's been on my podcast, very often, that podcast episode ranks really high unless they've been written about a lot or they have some type of celebrity status. And it's just a great way to meet people and have fun.
So it's been a hell of a journey and maybe I do need to get a co-host one day, maybe Johnny will join me or something.
Bill D'Alessandro:It's fun. You did very well because you asked me offline, what were some of the tricks to our podcast? And I said, we have one rule. Which is that we never prep in advance.
Yeah. And so, I appreciate that you required less prep for me this time than you did the first time I came on, which hopefully means you're just winging it a little bit more.
Chris Powers: I am, if you saw my notes on my computer, it's literally like three sentences. Some people I prep a little more for, but like you, one thing you got me was the more entertaining that I can make these episodes. It's as much about learning as it is about entertainment, and I've taken that really seriously since we talked.
Bill D'Alessandro:I try to sell stories. I try to make it tangible like people don't want to go to class.
Like you can go audit a class down at your local community college for that. Like, people want to be entertained and also learn something on a podcast.
Chris Powers: Bill, thanks again man. This was awesome.
Bill D'Alessandro:Of course, bud. Thanks for having me.