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Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open ended exploration of markets, ideas, methods, stories and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date. An investor field guide, dotcom.

Patrick O'Shaughnessy is the CEO of O'Shannassy Asset Management, all opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shannassy asset management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shannassy Asset Management may maintain positions in the securities discussed in this podcast.

My guest today, our Jason Karp and Ron Oza. Jason is the founder and CEO of Human Co, a holding company focused on building businesses that help people live healthier lives. Jason formerly ran the hedge fund Terbium Capital and was a popular guest on the podcast several years ago after watching Jason lay out the vision for Humacao. My family and I became investors in Jason and his team. Rowan is the co-founder of Kobu Venture Partners, one of the fastest growing venture funds in the CPG space, which has helped grow brands like Beyond Meat Him's Vital Proteins and by.

You may also recognize him as one of the recurring sharks on ABC's Shark Tank. Our conversation covers how to think about investing in brands, what makes for a great brand? How partnerships with influencers and celebrities can turbocharge your brand, how Brand ultimately gives you pricing power, and how Rogen and Jason try to, in their words, add sizzle to the brands that they work with. I really enjoyed this conversation with two of the smartest people I know on this topic and hope you will, too.

It's a real hunt, since it's our first time chatting, I think the best place to begin this conversation between the three of us is with a bit of your background. And I'm going to go all the way back to your time at Mars working on Eminem's. Can you talk about your very first experience working in this industry and this vertical and kind of what lessons you still think about looking back on the early parts of your career?

Describe to Drake Song, because I definitely started at the bottom. I was working the morning, the afternoon and the night shift nine days straight and then you get four days off. But your body clock was completely whacked. But I was 20 years old, so I rebounded pretty quickly and I was working on the factory floor putting Snickers in boxes because the Snickers nine had not been fully automated. So I was still in manual packing and then I would have to go clean the actual machines, which obviously was a amazing job in some respects, but also didn't help with my waistline because you ate what you cleaned.

Frankly, cleaning chocolate was fantastic. But yes, I definitely learned the business from the bottom up and I learned the importance of manufacturing and inspiring operations. And then I moved into sales and marketing. And I suppose the first thing I learned at Mars is the power of brand, especially with chocolate. There's I mean, there's not much of a difference when you want to put chocolate nugget nuts together with a little bit of caramel. It's not that difficult to do.

But creating a billion dollar powerhouse brand like Snickers is tough to do. And I think the power of branding and customer loyalty, retail presence and retail impact is something I really learned. And that is kind of stayed with me throughout, and especially in the U.K., because the U.K. Mars actually dominated the retail shelf with a candy line up even more than they do in America.

What was the first episode that you can remember where you were the person responsible for some change in direction or step up in a brand image where there was some creativity behind it that you spearheaded what was kind of the first big break you had as the person controlling the direction and the brand equity itself?

I'll probably give you two experiences that actually for me that happened more Coca-Cola than at Mars because Mars I was in learning mode, let's put it that way. Coke, I went into action mode again, learnt the power of branding because you're selling sugar water, but you're doing it with a feeling and an image that sort of excites people. So the first two was when I worked on Sprite back in the day when we launched the Trust Your Instincts campaign and Sprite went from a bit of a sleepy lemon lime soda to one of the hottest sodas amongst urban males in America.

And we were doing a campaign and we had to pick two athletes and a rapper because it was all about how rappers want to be ballers and ballers want to be rappers. We had a limited budget, so we picked two guys. One guy just graduated college, I think was Wake Forest, and the other guy had just graduated high school out of Philadelphia somewhere. The woman was actually the biggest name and she was Missy Elliott. And we combined Missy Elliott with Tim Duncan, the Wake Forest guy, and Kobe Bryant, the high school graduate.

We had no idea that Tim would go on to become top 50 of all time, and Kobe had gone on to become the legend that he did. But I think with that came together, it was creating stuff that did not happen was disruption. And that's where I learned basically begin to learn, began to learn about creative disruption. Jason, I think it's probably worth updating the audience who's heard from you before last time as a long time successful hedge fund manager now is something very, very different.

Can you describe the transition from one to the other both around here, but also, Humacao, I guess, fast forwarding from then we returned all of our capital to our investors, which was a pretty significant sum. And I had decided at that point, having been in the hedge fund industry for 20 years, that my true calling and my true passion was within health and wellness. And if you remember, Patrick, I had a very difficult personal journey related to my own health in my early twenties when I was diagnosed with several autoimmune diseases, one of which they told me I would be blind by the age of 30.

And I've had to live a very specific way for the last 20 years to sort of keep all of my issues in remission. My family and I started a restaurant and healthy food products company called WHU as Inhuman back in 2012. That has turned into quite a large company now. And around that time when I was doing Q and was busy managing a hedge fund, I became fascinated with health and wellness as a megatrend. What were the companies who were actively thinking about health and wellness, doing it in an authentic way and recognizing that a lot of the most powerful, a lot of the best products were done by entrepreneurs who were really good in certain areas, but perhaps needed some experience and wisdom, particularly in the area of investing.

I started spending a lot more time on companies, both public and private, in that area. And then ultimately the culmination of all of this was we created a holding company called Human Humacao, and the idea was to take all of my learnings and mistakes and wins over the last 20 years and try to create a next generation holding company where the entire ethos and the entire mission is around allowing people to live healthier lives through what they consume, whether it goes on their body or in their body, or even if it's technology.

The ordering as an example, which I was an early investor in that helps people understand their own health in a way that we weren't able to do a decade ago. So that's sort of the last year and a half we've been building human co, we've acquired two brands and we're building a third brand from scratch that is going to be in the frozen space. And our goal is similar to Rowan and Cavo in the philosophy, which is where Rowan and his partner Brett have become good friends over the years with us because they're two of the finest people we see in health and wellness consumer space.

But unlike a fund, we're doing it as a holding company structure where our intention is not necessarily to sell, it's to build a next generation house of brands similar to companies that have done a spectacular job over the last 50 hundred years, like Mars or Mondelēz.

I'd love to talk now for a while about the dimensions of a good brand, and I'd like to know how and how you describe chocolate, a nugget in caramel or sugar and water like that sort of commodity components that are used to build these things in order to talk about health, too. And those aren't the most healthy snacks, but the importance of brand is paramount. So let's start with investing in a brand. So something comes to you. What sorts of things that you might see would get you really excited if you didn't build it yourself?

Personally, you're seeing it for the first time.

I'm not that smart. I wish I would have built some of these brands myself, but then I'd have a fancy house like Jason.

But I find smart entrepreneurs.

So what do I look for? I look for a founder that has a real story. I look for a product that has a real need in the marketplace and it's causing a degree of disruption. So I'll give you a few examples by I want a drink of flavored beverage America love favorite beverages. Yes, lightly flavored beverages are out there. But people like full flavor in America just it's how we as a nation, Japan, different, but nobody wants sugar.

But then I also want to add ingredients. So how do you deliver to me a product that's great, that's low in sugars, that's not artificially sweetened? That makes me feel slightly better about myself. But I was an example that did that. I saw the brand early doing a million dollars in sales. I love the vision of the founder and I felt that there was a real need in the marketplace for this product to disrupt the giants that are sugar sodas.

So, again, it met the criteria that I felt that if we put the marketing machine behind a real product with a real consumer need and a smart founder, we can turbocharge that to the promise that.

So what does that machine look like once you've identified those potential characteristics and you've backed something? What is the accumulated marketing machine, which I assume is sort of informed by all the lessons you learned in all these brands and investing and building? What does that machine then do?

First thing is, team, I've had my fair share of failures. So you kind of learn from those successes almost. But one, let's get a solid team. One of my former business partners always say he looks for a combination of IQ and IQ, because when you're building a brand, it's not just straight IQ. When you're designing a search engine for Google, it's just straight IQ. I don't think you need a lot of IQ driving around, but when you're doing brand building, both sales, marketing, cetera, you need someone to balance that to who wants the right team makeup.

Secondly, I look at route to market and retail strategy before I look at branding, even route to market and retail strategy. Then I say, does the chassis match the engine? If it's got a Ferrari engine, I hope to God it looks like a Ferrari. A Ferrari engine in a Pinto chassis is you've got a problem. And I've had some of those brands, by the way, the minute we changed up the packaging to match the engine, the brand took off before anything else even happened.

Retail distribution with great packaging and a quality product gets you a long way. And then once you've got that machine going, then you start turbo charging with influences, marketing, outdoor, etc. But you don't put all that ahead of team route to market retail strategy and packaging. All that has to be the turbo charge, not the foundation.

What is the retail strategy piece? That's the only one that I'm not really sure I understand. Well, what are the options for retail strategy and other options that you prefer or think or make for more interesting potential outcomes?

It's horses for courses. So let me explain what I mean by that. Again, the world has changed today. So when I say retail, I'm aging myself. I should really use route to market plus the word retail. So route to market means any modern brand today has got to have a strong component, i.e. from the get go or you build into it right quick. The second thing then is which retailers do I go to and how? And without giving you the full playbook, who's going to pay for it?

When I give you the milk free, the key is you've got to pick the right retailers in the right markets to build your momentum. And not always take the biggest retailer with the biggest range, because you might well be too early for them, not product life cycles and consumer acceptance of brands has accelerated rapidly. So what was true 10 years ago is not as true now, but it's still true. So I think route to market customers and markets is critically important, as you brand, Bill, because one in 10 Americans influences the other nine.

And you've got to get to that one in 10 in order to build your brand momentum, because if you get to the wrong one in 10 or you try and get to all 10 without a brand cachet, you will fail.

I can give you some concrete examples around this, too, because I think this is something that we did with you where I'd say most of it was intentional. But we also had just some good luck and some good learnings on how it happened. Rowan is dead right that the world has changed a lot in the last 10 years. And when I was an active public investor, I studied brands for a living. And I was always fascinated with why does Apple command a significant multiple to Samsung multiple premium, even though Apple's technology has always been inferior to Samsung's?

Is Tesla worth more than all the other auto companies combined and still has significantly less revenue than them? I've always been fascinated in what is a brand and there's a lot of kind of marketing 101 or textbook definitions of defining a brand in terms of its sort of intangibles. But for me, a brand really means to me that if you turn off your marketing engine and you're not splattering the consumer with reminders of buying my product, buy my product, buy my product.

Do they remember you? Does it last does it last in different cycles through generations associated with feelings? Do you have nostalgic thoughts about certain brands? And everyone does. And ultimately, brand equity is about pricing power and it's about repeat and it's about a warm association with it where you have a feeling that makes you feel better in some way about yourself and why you're consuming it. In the case of Apple, Apple really targeted in the early days, it was the creatives who wanted to feel like they were able to create more and better by using Apple than if they were using a generic product as it relates to the retail strategy.

What we chose to do with you because. Q Chocolate was our first retail product and originally it was in the restaurant and then Whole Foods was our first customer in the first many years. It was my brother in law, Jordan, my wife and me who were the only investors in who, and we didn't have outside investors. And the reason for that was because we didn't want to compromise on the brand integrity and the brand guardrails. We never wanted an investor to say to us, why don't you use this inferior ingredient?

Because it's going to improve the margins. We wanted to be fanatical that we were the most fanatical consumers. If other consumers recognized that we were borderline insane about the standards that we held ourselves to, then we were hoping what calls the one in 10 we call the fanatical few. We were hoping that the fanatical few would recognize our enthusiasm and strictness. But as the brand was growing, we had a lot of retailers who wanted to take on our product and we were faced with a difficult decision, which was do we get easy sales in places that may compromise the authenticity?

There's a reason you never see Shanelle on discount and there's a reason you never see super premium brands like Airmen's or frankly, Apple is very rarely on discount. And there's a reason behind that. There's a logic if you oversaturate the consumer too quickly with the brand that you're trying to build as being authentic and iconic, it loses that luster. And we had to make some very tough decisions that had we had a lot of certain types of investors who wanted to have a quick exit.

They would have been very angry with us and said, what are you doing? How could you say no to a new store? We had gas stations that wanted to put our chocolate in there. And I think at some point that might be the right market. But we wanted to have a very clear strategy of which retailers and which places would be available. And even now, the demand for WHU exceeds the supply. And in some ways that's a negative because we've delayed our potential revenue growth.

But when I think about it in terms of brand equity and staying true to why we created you and why we're now doing this with other brands, I think the retail strategy, which Rowan and Brett have mastered in terms of not oversaturating too quickly and making sure that that organic brand love can build in a way that feels natural and real, I think that is the real answer to that.

What are the biggest mistakes that you've both seen maybe running in companies that you've invested in, where you worked in marketing? And Jason, maybe companies that whether it's you or some of the other portfolio companies that humacao, what are the biggest errors early in the brand's life cycle that you've seen people make one week or junior team?

So they rely on either people that have known, which is in some ways. Good, you want a degree of trust, but in many respects bad, if they don't have the right skill set, you comes back into play. You want someone who will charge the Mountainview, someone who believes the brand. So in the early days, you definitely want brand missiles, but you also want them to understand how to grow your business. You've got to combine this.

So when you have a weak or weakest team, that's problem number one. Problem number two is gross margins. You better have good gross margins or get to them real quick, because if you do not, you're going to continue to burn money. And if you don't have a line of sight, at some point your investors and I've been one of them will end up losing faith in you. And it's the deal that we have lost money on a generally a pretty good in terms of 80 90 percent winning versus 10 percent losing is because the gross margin issues, they didn't get to good gross margin quickly.

What is good gross margin in this category?

I'm so used to the software world where it's insanely high. What is good gross margin in the physical CPG world, you kind of want to be north of fifty percent.

See, the price we're able to get for your brand is one thing obviously to differentiate on and off. And then secondly, what can you make it for? If it costs you a little more to make what you can charge a premium price, then you own great. Great. It just the worst case scenario is when your manufacturing is high, but you can't charge a premium price and you don't have elasticity to raise. That price is when you get in trouble.

When did things change from the kind of early story you told Ravon about effectively commodity products with extremely strong global brands on top of them?

I'm thinking Coca-Cola here, sugar water to the market, caring much more about the actual ingredients. The product itself, of course, the brand, too. But it seems like there's been a pretty notable shift away from a willing acceptance of just kind of undifferentiated core product and towards consumers caring more, especially the fanatical view about what's in the product itself. What has caused that change? When did it happen?

Well, I mean, first of all, I don't think it's undifferentiated. These guys would argue that products are very differentiated, but I think they were differentiated, in my opinion, predominantly on marketing, branding, feeling they weren't differentiated on nutrition and function combined with taste. I think that what's happened is the access or the democratization of information. Before, you didn't know what you were eating or drinking. There wasn't enough data out there. And remember the early 90s when everyone said, OK, guys, the big problem is fat.

That's the major problem. Who cares about sugar and carbs? And you had the emergence of snack. Well, that one, Noya, those are delicious.

What's a delicious no fat. That's the good news, guys. Bad news loaded with carbs and sugar. I would trade fat for sugar all day, but I would be the size of a house. It was really a lot of which today we have it another round. There was a lot of let's call it a fake news. But today there's a lot more information out there. And you Millennials and Gen Z or Gen Xenos we call would have really embraced in a big way better for you products.

Maybe because I see some of the parents take you to it, maybe because the marketing, maybe because the influence of strategy, maybe because the packaging, maybe because they don't want to be eating their parents or grandparents products, but they have driven the growth of the better for you functionally nutritionally superior products that still taste good, because in America we're not going to sacrifice taste and they've driven that momentum. And I think covid has actually probably helped accelerate that even more.

It's one of these things where I don't think there was a single moment in time or a single event that you could point to and say that was when it turned out. I think most trends follow an exponential curve where they build really slowly. And then as that foundational base increases, they accelerate in a convex fashion. And I think with this, I kind of compare it to the scene in The Matrix, where once you're aware of how unhealthy a lot of modern products are, and I don't just mean food and beverage.

I mean, I'm talking also about personal care, household products, things that are in the environment once you're aware of it. And I think a lot of people think it's a conspiracy theory. The science around a lot of the toxins in modern living is indisputable. The illnesses, particularly with America and other developed countries, we are literally sicker than ever at a time when we are the most financially secure, at a time when we are exercising more than ever, at a time when we spend more on health care as a percentage of our income than in human history.

And we're still sicker than ever. There's no dispute among scientists who are studying this that. Modern living using some of the older approaches to producing products, which, again, was a 50 year culmination of basically public companies getting pushed and bullied by their shareholders to increase margins, increased shelf life, increased distribution, and to do that. And it wasn't their fault in the sense that I don't think there were many companies that were outright malicious. There have been a few, but most of them were just trying to make more money.

And in doing so, they substituted real ingredients for chemical ingredients because real ingredients have variability and chemical ingredients can be made in mass, mass, mass, mass scale.

And I think a lot of consumers are now aware of all this. And I think the younger generations, millennials and the Gen Z, there's almost a pride and a badge of honor in how they live and the choices that they make. And I think when they see that they feel better, they look better, they sleep better, they perform better. I think when they see all that and they recognize that big public corporations in general didn't always have their best interests in mind.

There's been a growing skepticism over the last 10 years and it's become viral where everyone's becoming more aware of it and they're willing to spend more money for trust, authenticity and quality. And I think that trend is going to continue for the indefinite future because the health outcomes are indisputable in terms of how much better it is for people's health. And even if you're spending more today for higher quality food and products, the amount that you save in the long run by avoiding health care and sick days, all those things are more than worth it by being more conscientious about what you consume on a daily basis.

You both mentioned the importance of finding and appealing to the fanatical few, the one in 10 that influence the rest early on in the brand's life cycle. How do you know who those people are and where to find them? It seems like it would be a different group. The few would be different in each brand's case. What have you learned maybe early on, starting with you, about identifying those people and appealing to them?

Zero chance, I can tell you that, because that is like asking me for the Coca-Cola formula. I can tell you how the Coca-Cola product tastes. You've got to figure out the different means by which to hit that target audience. The single biggest one, obviously, today is digerati. So based on your products as different people that have followings and reach and then the issue within that is defining loyalty and influence. So two people can have a million followers.

Each one of them has greater influence and impact than the other. Your magic solution is going to be figuring out which one has more of that, because I can send you out to Instagram and you'll find me ten thousand people with followings of one hundred thousand or more. What we have done at Cafu is build a really strong network of outstanding which influences actually influence and impact versus those that simply reach. And I think the same thing applies to people with blogs and the same thing applies to the digerati, does the reach, and then there's influence and impact.

And I think you've got to do either the right partners trial and error or insight build up a database of the people that you think can be that one in ten. You're never going to get it right completely. But with a limited budget, I've got to make sure that my million dollar budget gives me ten million dollars of impact, not a million dollars of impact, because one to one is no bueno. One to ten is bueno.

We've talked about this in the past and we have a data science effort at Humacao where we try to using data, figure out this question. I think unfortunately there's a lot of art to it and we've spent a lot of time thinking about this. And oftentimes they're not famous people. What they always are is authentic. They always are true to their story. Because what happens is, is that you have a lot of I can give examples without giving brand names and so on.

Certainly know some of these where you had a top ten celebrity promote a product. And it didn't really help consumers have very good bullshit meters and people could see that that's not how they live. That's not authentic. They just got paid four million dollars to do that. Whereas if you have somebody and I think some of the success of you as an example is if for the people who know my brother in law, Jordan, and the people who know me, they know both of us are literally insane with how strict we are and how we live.

And that's a positive in a negative. But if you want to know and be confident that we spent the time as founders in making sure that the. Had these certain guardrails, you know, that we did that, and I think with Apple, people knew that Steve Jobs did that, they knew that he was it safe. If it was good enough for Steve Jobs, it was good enough for them. And I think the most important people out there who are ambassadors or influencers or endorsers are the ones that the public can look at and say they really walk the talk.

They live that way. They understand it. The reasons for them starting that company and making that product were authentic and not just about making money. And I think that's the underlying thread of all of this, is the entrepreneurs who do it because they care about the craft and they care about why they're making that thing more than the money. And the money is just sort of a benefit of doing it. Well, those are the products that are epik, the products that are built to make money never or epic.

And so that's where I think it comes down to things we think of, like Steve Prefontaine and Nike in the early days, clear alignment of the celebrity in that case and the brand and kind of what it stands for actually than the last part.

But you're missing, which is very relevant today. It was brand, it was function because Volman was the function. The waffle shoe that was designed by Barwan for prey is what gave him the grip, and that was functional superiority, which is a big part of what Nike is trying to do throughout their career. But it's always been that athletic apparel, it's a lot more than food and beverage where people are looking for what can your food and beverage do for you, sort of in addition to this need for alignment between the influential person or entity and the product, which I think is so interesting.

It makes a ton of sense. Ron, how have you seen the role of celebrity change and the impact they have and the importance they represent for building and growing brands over the course of your career?

Is it three things. One, I like to have celebrities in general, not always the case to help turbo charge a brand versus save a brand or carry a brand. There's a big difference. Brand has momentum, brands got great product brands, cool celebrity comes in turbocharged it, similar to what Jennifer Aniston did on Smart Water or 50 Cent on vitamin water or Justin Timberlake on Bye Bye was a great brand doing well. Justin helped Turbo charge it, so that's one too.

I think authenticity is critical. And as Jason mentioned earlier, there's a I won't name celebrity, but there's a particular beverage brand out there that signed arguably one of the top ten names in America. If anybody want to name that name, everyone in the country would know that name. Great person. But almost there was no brand fit. The brand fit, wasn't there? The product was kind of lagging. And I think that celebrity did it because they liked the product, but the product was mediocre and that person would have had to carry the brand did not work.

So authenticity is critical. And so some celebrities have actually founded brands. And so that's where the authenticity comes in in a critical fashion that it's got to feel real. When Jessica Alba did honest company, that was real when Jennifer Garner did Once upon a Farm that was real. And you can see that in the consumer testimonials, in the feedback and the PR. But you can also see where it's fake, where celebrities just get attached to a brand and audience is bullshit.

Meter goes up pretty high. So I think that turbo charge one picking the right celebrity to fit and three, authenticity. And the big three for me.

Patrick, I think there's something else that's really important to touch upon, and I'm not sure we hit it yet. But when you have a good brand and you've all experiences and I certainly I'm very attuned to my own feelings and my own emotions when I experience a product or a brand. But when you experience a good brand that you love, it leads to more consumption and not just necessarily of that individual product, but of everything that that brand does. Think about different industries, call it attach rates, but think about it with Apple, how easily they were able to get people to buy an iPad when they already had a laptop and they already had a phone because people loved Apple and they loved everything that Apple made, that it increased your affinity and your desire to just buy whatever they make.

There's not many brands that do that well. And I think what Jobs did amazingly well, and this is why Rosen and I hit it off many years ago so much, because I've interacted with lots of entrepreneurs and lots of VC managers, but most of them look at products from an investment perspective and they look at it from a kind of almost a science engineering perspective. They don't look at it from a feelings, a storytelling, a emotional perspective, because it's hard to quantify that investment.

Folks tend to want to live in the quantifiable realm and not so much in the. Qualitative emotional feeling realm, because they think that sort of voodoo or lovey dovey or whatever adjective you want to use and I always come back to do they make epic shit. I don't have a fancier way to describe it. You can tell that there are a lot of companies on their fourth or fifth iteration of a product they get to. Yeah, it's good enough.

Let's launch it. I don't want to spend more money. I don't want to iterate 20 times. I'm fine. This is good enough. The market's going to like it. We've got a good plan. We've got good marketing. Let's just do it. You as a consumer, if you consume a lot of that stuff, you could tell, you could tell it's not epic. And when you come across something epic, it's rare and you feel it, you touch it.

You look at it and you experience it. You're like, holy shit, this is epic. And that is something that's hard to quantify. It's hard to describe, but you know it when you have it. And that's what I think a lot of big companies are missing. And I think because a lot of times I get questions like, can't everyone start stuff? Can't everyone create a beverage company or a chocolate company or this or that? And the answer is yes.

And I think, frankly, everyone can probably create a computer company at this point because there's just so low cost now to make things in a third party fashion without having to buy factories. It's just really important to touch upon that, Patrick, because I came from the highly analytical, highly left brained world of everything has to be quantified. And as I did more and more case studies on companies and brands, I just kept coming back to. Like you, Patrick, I started off as a quiet and I was always fascinated with how do you quantify brand equity?

I really go deep into this area and I just find it fascinating that it's very hard to do.

I want to talk now about a couple of things around distribution and then how many of these brands are young. And while I'm sure big and growing, probably still not on the scale of some of the enormous brands that we open the conversation with. And so I want to get to that ecosystem a bit. But to begin, I want to ask a question about distribution, which is, Ryan, you mentioned at the end of the lifecycle, perhaps once you already have a good product and it's already somewhat successful, is when you pour fuel on the fire with big endorsements or the distribution of a celebrity or influencer.

Do you think we'll start seeing it in the opposite direction where the starting point will be an existing distribution channel and that products will sort of be tailored to some unique new influencer account or some celebrity or something like this, so that the product sort of reverses itself. Given the direct to consumer nature of influence these days, Glossier is a good example. Or Oprah. This is more of like an activist thing, but Oprah's involvement in Weight Watchers or something like that, where it's really the story of a pre-existing if I understand, gosh, you're right that there was this enormous audience before there was an enormous commercially successful product versus what would typically be the other way around.

In my opinion, there's a slight chance of that, but generally, not really. Generally, I believe there's influencers, for example, who had influence and then created a product off it. So Kylie Jenner had influence and then create iconic cosmetics. And so for a lot of money in the beauty world, there are a lot of influences that are creating beauty brands through that influence and through that DNA. But it's not to do with distribution. It's a distribution of media in that media has allowed them to create a celeb platform around themselves.

And then now using that platform to monetize around brand creation versus random entrepreneur X, creating a product these people already have built in momentum through their insta fame, but they still have to create a product that consumers want and need.

Jason, I'd love to talk a bit about now getting back to some of the quantitative stuff and just the brass tacks of building a business and earning a great return on it to aspects of return, fundamental actual sales and earnings and then some multiple attached to it. And I think what's so interesting is the wide range of multiples that we've seen in the space. I think you mentioned me once costumey goes sold for, I don't know, twenty five times revenue or something crazy, whereas probably most food and beverage would sell for lower mid single digits multiples.

Talk me through that side of all this. Obviously, there's a lot of big strategic acquisitions from the big players. So I want to talk about what drives that revenue multiple in a brand in this space.

Ultimately, everybody who's a buyer is economic in some way. So ultimately there has to be some derivation of why does this have a significantly higher multiple for the same revenue as something else? And I think when a strategic it was a strategic who bought Kazami goes, I studied that one because it was so fascinating to me and how quick it got to where it got. But even with private equity, there's always an economic rationale to how you get to these multiples, which is really optionality towards some future cash flow.

And I think what makes a great brand and in the case of cash, amigos. They had unprecedented key performance indicators around alcohol, and obviously a lot of it was intentional in terms of how George Clooney and his partner set that up and how they built a lot of the stuff that Rowan talked about earlier in terms of the brand loyalty and the cult following. But what a strategic looks at. And I've had many conversations with many strategics, these large companies, many of whom are public, about why they buy smaller brands and they're looking at distribution potential.

You have to remember that these large incumbents have had a very difficult time in creating authentic brands in-house that resonate with today's consumer, which is why Roon has such a great business, because Rohana has been able to identify as venture capitalists brands that the large strategics are going to want and need to complement their current portfolio. These large strategics have huge distribution trucks, logistics. They have access to all the retailers they think about. If I buy this brand and they're in five percent of the stores that I'm currently selling my stuff in, what's the probability that when I put this brand on my trucks and put it on the same shelves as my other brands, what's the probability that it sells well and what's the probability that it increases in sales on a per store basis?

And so they're doing probabilistic calculations about fit and what will consumers think? And on the other hand, they're also trying to measure how do I not harm this brand? Because it does have this authentic origin story of a founder that didn't come from a big corporation. How do I make sure that that origin story stays intact? And there have been plenty of really authentic homegrown brands that have been acquired that have grown substantially since they've been acquired and done it in a pretty good way.

Ben Jerry's has been owned for a very long time by Unilever, and that's grown massively over the last decade under Unilever. Maybe the brand equity is less today, but the certainly the value of the company is a lot greater. And there have been plenty of other brands like Ani's. Mannie's was bought by General Mills and he was very authentic as a better for you started with really mac and cheese. But it's turned into a broad snacking platform and it has become the growth engine of General Mills over the last eight, nine years.

I think the reason why some companies trade for much higher multiples is because there is a belief that they have better pricing power, they have better what some companies call extensibility. Or let's just take Osam, which is Patrick's fun. If somebody was looking to acquire Osam, they would think about could you create more products? And how well will consumers or active investors want to consume more of Sam's products? And it's the same thing. And it comes down to the quality of the brand and the consumer's belief in the extensibility and the quality and the future quality.

So in the case of consumer goes, there was a belief and it was an outrageous multiple. It was Diageo, I believe, paid. There was a belief that they could, with their distribution in their trucks and their bars and everything that they distribute to, there was a belief that there was significant demand for costumey goes everywhere and that they would literally, at the snap of a finger, be able to quadruple their sales with their distribution. And that's a function of the brand quality versus a no name brand that people wouldn't ask for when they go up to a bar and say, do you have customers?

It's a triple kapara that Jay Gossipmongers delivered three things. One brand caché, which is what Jason is talking about, take the brand cachet to it delivered and alcohol. Does this ridiculous gross margins say you're selling revenue's fifty million, but really a gross contribution is forty million. When someone says you're selling for twenty times revenue, you're going to be selling for twenty five times net contribution, which is a lot more palatable. But alcohol is such massive margins and COSO Amigos did it through a smart, smart, smart influencer strategy without spending gobs of money on some of the marketing machines that are the alcohol brands.

Do it again. Back to authenticity. It was a triangle offense, Cosa Amigos. Everyone knows about George Clooney because he was the face. Most people know about Randy Gerber because of who he is, the Crawford. He was the operational brains behind because he understood distribution with to market. But the sort of unheralded guy who is the third amigo of Costa Amigos was Mike Melman. And it was Mike's distribution strategy and Mike's connection to influences that really allowed the brand to build that rapid momentum.

And to Jason's point, the brand cachet that then was turbo charged with Clooney. That meant that when you went to a bar and you were confused. What tequila to order, because tequila is now in vogue, liquor, you would no longer order patron because that's now waivered, you would order Don Julio, but now the cool kid on the block became Costa Amigos. So you've got to be able to bring quality product. Interesting story, brand cachet in at the same time to capitalize on what is already growing trend that they didn't do but was tequila.

And now you have a winning formula. But it does all boil down to brand cachet because there were a hundred other tequila brands that were not bought and they could have got a damn sight cheaper. But to Jason's point, they knew the velocity of Costa Amigos could be replicated as they expanded the distribution. So overpay, which is a brilliant sematic with Diageo, overpay for one that you know is going to be a winner versus underpaying for ones that you can get cheaper.

And it's exact conversation that Jason and I had with a friend of ours recently, which is where things go wrong a lot, is when either bigger companies or roll up brands try and bottom feed. And when you bottom feed for cheap stuff, you will get stuff that is not a winner. I would just add to that that what we do at human cargo and what Roon does cavo we're very hands on in terms of when we invest in a company and we've had plenty of mistakes and learnings over the last decade in both public and private companies.

But there are a series of variables in the same way that you look at quantitative investing. Patrick, there are a series of variables that dramatically increase the probability of success around building brand equity. And what we do every day with the brands that we control or invest in is we work with the founders. If it's starting with what we kind of deem is A, B plus or B, we will work with the founders to get it to an A..

On these and other variables where we think that their pricing power will be better, the brand equity will be better. There's this belief with most v.c and even smaller private equity, there's this belief that v.C investors just sort of spray and pray. They bet on lots of stuff and they have a few, 20, 30 baggers and they have a bunch of zeroes.

And there are some people who do that and they'll have 50 investments and start to really pay attention to any of what we do. And from what I understand, what Rowan and Brett do is we take a much, much more hands on approach. And a lot of that has come from the amount of time and effort that they have put in to adding. And this is a term that Ron and I use in a positive way.

But the market, I think of it as a negative. I think it's a wild, positive sizzle. And Rowan has spent a tremendous amount of time on adding sizzle. That's what made Apple what it is. That's what makes it what it is to these brands. There's a process around that that does increase the multiple and does increase the brand equity or any of those variables.

Jason, things that we haven't yet discussed, the things that sort of bend that trajectory.

We actually created an in-house agency at cover called the Uncommon Agency. We've got a really smart lady who heads it up for us, the uncommon agencies. What gives us the edge? Because that's what helps our portfolio companies get their edge. And that's what Jason's talking about. And sizzle to me is a bad word if there is no stake. So when you get an empty, sizzling hot plate with no steak, it's kind of a no bueno. But if you're getting a great state that is sizzling Wolfgang's, then you're on to something.

And we always invest in brands that have stake and then we help those brands develop that sizzle. And that, to me, is the ultimate winning formula. You have to have steak. And every brand Jason's mentioned, whether it's Tesco, Apple, you've got to have great steak and then you add the sizzle on. That's your brand cachet. That's the X Factor. That's what gives you pop culture connection, and that's what gives you human connection and loyalty.

What categories, especially in the health and wellness space, do you think are the most ripe for disruptive new brands? I think everything I think beverage hydration is huge, you've got billions and billions of dollars and products that are kind of useless and nasty for you, and it's like a big bucket of money that's just kind of leaking. And it's never going to get plugged. It's not going to just disappear. It's going to be leaking billions of dollars that could be leaking.

I think you've got snacking and disrupting snacking to deliver plant based snacking is huge. I think nutrition is being redefined. I give Nestle a lot of credit. I think they're one of the smartest strategists out there in terms of their understanding of the importance of nutrition and human performance and body defense. I think personal care and what people put on their body is super big in terms of why people are changing opinions and changing up their skin and beauty regimen and personal care regimen from the brands of yesteryear.

And I think that human performance look at peloton, you look at managing your body and tracking it is going to be a big thing at the moment. People track Instagram like Hawks because that's your image. They're going to want to track that actual body performance, which is kind of a big bet. That's Apple making. But it's not just Apple, but a bunch of other players are making out that how do I treat my body fitness and wellness and how do I monitor that?

And when you look at a brand like Calm, that's a meditation app with over a billion dollars, people are going to spend more time on themselves in a much bigger way than ever before.

Just to add on to that, I think this concept of personalization, this concept of permitting yourself to be a little more selfish in the sense that if you're not taking care of yourself, you're not doing any good for your employer, your family and everything around you. And I think if you go back 20, 30 years, when I was growing up thirty five years ago, there was this incorrect assumption of wake up at five a.m., go to bed at 11.

There was a glorification of workaholism. And for a long time that was the American work ethic and it was glorified. And a lot of people got very unhealthy and had very problematic relationships with their spouses, with their kids, with their own personal health, because there was sort of this view that you have a duty to just work until you die. And I think in the last 10, 15 years, there's been kind of two prongs that have changed that.

One of which is that the science is out, that humans need eight hours of sleep and that there's nothing cool about sleeping five and a half hours a night, which I used to do. And it made me very sick. And that you're not going to be good to anybody if you're not mentally balanced, if you're not healthy, and if you don't feel good every day. And I think there's been some negative aspects that have come out of that, where there have been some people who felt overly entitled to just spend all day meditating and not actually working.

But by and large, I think it's been a good realization that taking care of yourself is valuable and it's important and it's not selfish. And I think this idea of personalization around everything, personalized nutrition, personalized tech is going to be a megatrend because we all are different on the inside in terms of some foods are inflammatory for some people and some foods are not. And some products create issues for some people and some do not. And the advice of everyone should follow the exact same guidelines we know is not true.

So personalization, I expect to be a huge theme going forward.

Last question is around before closing. Thought is how scalable some of this is into huge public businesses. It seems like the story often has been. You gave the Ben and Jerry's example or the Andy's example young upstart brands that followed the trajectory. We've talked about ad nauseum here, but then ultimately get acquired by one of these big players and their distribution advantage and their kind of centralized services when the day they win a lot of the dollar return that's created by these brands.

Do you think that that will change in the future? Do you think we'll see more independent peloton like stand alone public brands from these more modern stories?

I've had a lot of conversations, Patrick, with some public executives about this. The issue within consumer packaged goods or health wellness historically has been that to be authentic, you have to be small and that as you get big, you start taking on methods where you're, quote, selling out. It's very hard to be big in consumer and still have the authenticity. And historically, for the last twenty years that has been true. But if you look at other sectors, that's completely not true.

Apple is literally the largest company in the world and they still have probably the if you measure their brand equity, it's probably. As good as it's ever been and it has not lost its cachet as it's gotten gigantic from 2001 when it was a 500 million dollar company on the precipice of bankruptcy, and Tesla's obviously gigantic and still has the brand cachet. Think of Nike. You do have plenty of examples of gigantic companies that have been able to preserve their brand cachet and their authenticity.

But it hasn't happened much in the consumer space. And so I think it is, of course, doable. I think a lot of larger companies need help and they are attached to some old legacy businesses that were selling unhealthy products. And it's very hard when 90 percent of your revenue is unhealthy stuff and you're trying to spend organizational time on the 10 percent, it's better for you or healthier stuff. You think about how a public board has to operate.

It's very difficult. But Teletypes, a great example where peloton last I looked was, I don't know, thirty five billion dollar company.

I think the future is going to be that there will be some large, well-run public companies that are in this space that we're talking about. And I think it just requires some newer people and some newer methods. But there's nothing in the data and there's nothing in that sort of sample set that says it's not doable.

Is there anything we haven't covered, Ron and Jason, about what you think is kind of most interesting about building these brands that you'd like to share with the audience?

In closing, I'm going to just refer to the last part of this question that you raised, which is a little bit where the brands of tomorrow are being developed today, especially in food, beverage and personal care. And the difficulty that the brands of yesterday have is the lack of functional nutritional superiority. So let's take the Nike example Jason used. Nike today is not the same shoe that was Nike when Prefontaine wore it. Is the Coca-Cola today the same as a Coca-Cola from that same era?

Yep. Yes.

There's no evolution for Pepsi Cola, Coca-Cola, Frosted Flakes or brands. There's no product functional evolution. Nike has been evolving it every day since Phil Knight started the company. It's not like they're starting to functionally improve their products. Twenty, thirty years in where food and beverage is different. And I think the brands of today could well be the brands of tomorrow that are being developed is because they're coming in with functional superiority. And if you have a strong foundation and base and you continue to innovate with functional superiority and performance, I think you have much greater long term sustainability because your DNA is that of evolution, not a DNA of a static brand.

I love that. Such an interesting place to close the concept. It's not just brand, it's also the evolution of the product itself. Steak and the sizzle. I love it real. Hendry's has been on before, so he's already been subject to my traditional closing questions. So you get to take the out of this time. The question is, what is the kindest thing that anyone's ever done for you?

I'm going to go with the best thing someone did for me. Your whole podcast is really about Learning's was actually firing me from my last job in corporate America. And what that did was it didn't feel very kind at the time. But ironically, both the people who were at the top of the company when I got fired are actually super close friends of mine today and actual guys that I would do business with and guys that I would respect. But by then pushing me out of what was not my destiny, it really helped me to define the future for myself and allow me to become a venture entrepreneur that I am today.

It was only a matter of time that I would last in corporate America, but they did me a true service by pushing me into the world of entrepreneurship and the brands of tomorrow, which I don't think I'd have taken the leap for myself. I love that.

Well, guys, this has been a welcome departure for me from my extreme focus on software and hardware and technology lately into something that everyone can relate to. I've learned a ton in this conversation. I really appreciate the time you've given us today. Thank you.

Thanks. Thank you for your time. Appreciate it, buddy.

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