Transcript

[Harry] Mike, I am so excited for this. I think your story is fantastic, fascinating, worrying that you actually don't need venture investors to scale to huge profitable businesses. I'm terrified for my career, but thank you so much for joining me.

[Mike] Yeah, thank you for having me. I'm super excited to be here and chat and disagree.

[Harry] Well, I look forward to it too, but I want to start with a little bit of context. So we're all a function of our histories and it means we're all running from something. Mike, on reflection, what do you think you're running from?

[Mike] I think that our past is what kind of creates the people that we are today and what I spend a lot of my time, I'm 41, what I spend a lot of my time trying to do is actually notice it, not run from it. Like a lot of my past, like life and shadows and triggers and stuff, like come up constantly. I mean, I shared with you that I grew up without a father. So the fear of abandonment is like really, really runs really deep to me. And whereas in the past, I've like run from those emotions and run from my past. My work now is kind of to sit there and take it and to notice and allow and feel the feelings in my body and then let them be.

[Harry] What is the result of the fear of abandonment? So what I mean by that is I was bullied a lot as a child for being more like Augustus Gloop than I am today. But it means that I just wanted everyone to like me. And it's led to a bad trade in leadership, which is I'm a people pleaser. When you think about like the abandonment, what's the impact of that on how you act?

[Mike] Yeah, so on the positive side, it certainly drove me. Like I was very driven to accomplish. And I think deep down that was to like make my father come back, which was never going to happen. On the negative side, in my personal relationship, I have a really hard time advocating for myself, like with my wife or with my friends, because I'm worried that they'll leave me. I've oftentimes been made fun of by my friends, where I'm like, guys, don't leave. And they're like, we're not going to leave you. Like, don't worry, you're fine. And in my professional life, yes, I think I can tend to be overly generous and overly accommodating because of this fear that like people are just going to go. And that's something that I've had to work hard on through the past 16 years of CEOing.

[Harry] What's worked in terms of actually getting through that and getting over that? Because it is a big thing to get over.

[Mike] I've spent a lot of time leading people and I've seen a lot of people come and go, whether we had to fire them or whether they left on their own volition. And one of the things that I've really focused on in this business is to make sure or to try to make sure that any person who comes into the company, when they leave, they're like, wow, that was the best career decision I made. And if I can say that, if I look at them and I'm like, oh, yeah, we hate to see her go, but now she's going to run data and analytics somewhere else. People aren't designed to work at a company forever, kind of like noticing the fear of abandonment, but then also just like not letting it hijack my day to day.

[Harry] What happens when you overestimate someone? When you think someone's better than they are and they turn out to disappoint you?

[Mike] Happens all the time. I mean, there's kind of two ways of looking at that. And one is like, can they get there? You need to help them through something. You need to grow them in a certain way. And sometimes it's just you pick the wrong person. And in that case, you just need to be open with them and part ways.

[Harry] It's about parting ways, not about moving them within the company.

[Mike] I have this analogy of a useful life meter. Your job as the leader is to figure out when people's like old parking meters, like when their parking meter is down in the red, you want to throw another quarter in it. And that doesn't mean that you like pay them more. But oftentimes you see people who fizzle out. They did great. And then they are fizzling out or they're not able to go into the job that you want them to. So there is a huge opportunity to move people around, but you really want to make sure that you're dealing with the right parking meter. Oftentimes we try to move people just to avoid having a hard conversation. Having a hard conversation is hard for people to have. If you end up just hiding that by moving somebody to a different department, you're not doing yourself the service of being able to grow by having that hard conversation. And you're not doing them a service either. Nobody wants to be a poor performer that everyone knows and just move to a different part of the organization.

[Harry] Mike, what are the biggest fuck ups you've made in hiring?

[Mike] Oh, man. Well, the biggest one that comes to mind is this was really early. This was really early custom made. We hired this guy. He was a sales guy. He didn't do any work. We were told by a restaurant nearby that he stole a sandwich. They made a sandwich and he took it and didn't pay for it. And so anyway, we're basically like, Hey, man, you're not really doing any work. Might be time to replace you. And he's like, yeah, that's fine. But when you do, I'm going to let everyone know that you hired a level three sex offender. And I'm like typing in level three sex offender. Like, what does that even mean? I don't even know what that means. And you know, it turns out that when you hire people, it's a really good practice to run a background check on them.

[Harry] Final one, and then I promise to get back to the schedule. I always find that actually the negotiation on comp package is one of the most revealing parts of the hiring process, whether it's how they approach equity, whether it's how they approach salary, bonus, titles, a big one I find revealing.

[Mike] For sure.

[Harry] You agree. And what do you find is the red flag specifically in the negotiation on comp packages?

[Mike] First of all, nobody, nobody understands their equity and negotiates for it. In my career, I've had so few people actually read the document. I've probably had like a dozen questions. And usually it's on page two of a 75 page document, right? So like, nobody reads it. And I think if you are getting a big comp package, and part of the compensation is equity, you should understand what you're actually getting because people don't. I'll just leave that at that. In terms of red flags, the other one for people who are hiring is I find that sometimes people anchor around like money. So if somebody really wants 100 grand, don't come in at 95 just because like, you want to make it like, Oh, we only had 95 budgeted like pay him 100 grand because they have that level in their head. I don't want to lose someone over salary. That's a big mistake to make where I've seen the biggest red flag. The biggest red flag for me would be on title where, you know, you're pretty clear on what you want. And they're like, well, I need to report to the CEO. And it's like, well, that's not available. Like, you're not reporting to me. I'm sorry. Like, I'm interested in this work, but like, you're not going to report to me. So title and reporting, I would say are the two red flags that we watch out for.

[Harry] You said that about kind of direct reports. And if you have too many direct reports, it obviously impacts the lifestyle and the life of the direct report themselves who receives them. And you said before, throw out your business plan. Every entrepreneur who went to business school is shuddering. And think about lifestyle design. If we kind of break it up first, why should you throw out your business plan, Mike?

[Mike] Here's the deal. There's a lot of different ways to be an entrepreneur. Tons of opportunity and tons of ways to make money and build a business. What I find most people do is they spend a whole bunch of time on like the idea, like the business plan, like, oh, here's how we're going to make money. This is what it is. I can't leave my job until I've like, actually, like, I've figured out all these things. And usually you can't really foresee what the future looks like. So oftentimes people get into a business and then they realize like, oh, this is, there's no business here. Like we're going to pivot it and we're going to do something else. Or the business that you start looks nothing like the business that you end up with. Okay. Why spend so much time figuring out the market and doing all this stuff when like, you haven't even decided what you want this business to look like. One of the lies of entrepreneurship is that you need to raise money. People think I need to raise money and therefore I need a business plan and therefore I do all this stuff. And what I try to encourage people to do is to try to take a moment. I generally say it's a three-year vision. So you look three years in the future and it's like, what does your life look like? What time are you going to work? Are you going to work? What does your office look like? Like, who are you talking to? What are the core functions you're doing on a daily basis? Did you get two workouts in? Are you hanging out with your family? Like architect a day, like think about a day. And what you find is like, a lot of people are chasing a lifestyle. They're not chasing a business. Now that's not true for everything. We're not talking about launching chat GPT or putting a rocket into space. We're talking about like entrepreneurship. And the person who owns the dog poop cleanup company is doing quite well for themselves and has a pretty sweet lifestyle. What I try to say is like, obviously a business plan is important and it's especially important if you're going to go raise venture, but oftentimes like what you start with is, or what you intended to start with is not where you end up. So you really want to get straight on like what you're looking for and then how this business can drive you to the future.

[Harry] Can I just interrupt? And we said we were going to just like, you know, have a discussion. I disagree and I disagree because I don't think you can foresee actually the next three years. When I look back three years ago, I was living a completely different life, doing different things, enjoying different modes of everything in life. I couldn't have foreseen that now I love being in an office. I always thought I hated it. I love working with a larger team. I always thought people were annoying before. I thought I sucked at collaboration. Actually I've learned to enjoy it. Like people change in ways we cannot anticipate. And so projecting a three-year vision of what we want our life to be actually could present us with the wrong life.

[Mike] I will respond with the story of writing that for ButcherBox. Okay. So my plan for ButcherBox when I started ButcherBox in 2015, my vision was that I was in Argentina, the Tim Ferriss 4-hour workweek, right? I'm in Argentina. I open up my laptop. I check in with a few people. This is what the structure looks like. We have a thousand subscribers. I make $20 a month off them covers my nut and I'm like working on other projects. And there was a lot of detail in there, but that was like essentially the point. It was a hobby business, right? Three years after I started ButcherBox, we were like north of a hundred million dollars. I had 50 employees. I mean, we were like humming and I had failed at my vision. You know, like activating my vision did not happen. I did not create a hobby business. Although I could argue if you looked at the vision, you looked at what I had, you'd be like, yeah, what's the point of doing this? When you look at the details though, there's all of these things, all of these threads that were dead on accurate. Like the way in which I prioritize my family instead of traveling, the way in which I prioritize giving to my community or like what ButcherBox was going to represent or like how we outsource everything, which we can talk about. But one of the big keys to bootstrapping is you need to be able to outsource key functions like distribution centers. If you're building a business for a hobby, you're going to make different decisions than you do if you're building a business to go raise venture capital. The fact that I had like a vision session and came up with like, this is going to be a hobby, I'm going to be in Argentina not really paying attention. Sure, that didn't come true, but also it helped me on a path. And you never know like where the path is going to go. You're totally right. Man plans, God laughs, right? Like who knows what's going to happen in three years.

[Harry] Did that not lead to a ton of operational debt because you wanted to outsource and you wanted an ops light model that then transformed into actually you wanted a much more different model and probably a much more involved model because of the way that you were operating?

[Mike] No, I mean, if you look at our performance, so we're in the box subscription company, ButcherBox, we ship a box that meets your doorstep. We started in 2015. In 2015, box subscription companies were humming. It was like Blue Apron, Plated, Hello Fresh, like all of them, right? They all had similar models. They'd raised tons of money, hundreds of millions of dollars in some cases, built out their own like stuff like we need to do distribution and we need to like in Blue Apron's case, like we need to figure out the machine that cuts the vegetables and like everything has to be ours. And because I wanted a hobby business, I didn't want to do that. And I started by partnering with people and the difference with partnering with people like a distribution center. We work with a company that's been in business for 110 years. I think it takes a special kind of entrepreneur to think that you can get into distribution and do it better than somebody who's been in business for 110 years, like right out of the gate. That's not going to happen. So we partner with everybody. The more the merrier. We're actually moving this year. We're moving to Shopify and I'm thrilled because like I think even that it needs to be like you find the best partners, you work with them, you find the best apps to attach to it in the ecosystem, you work with them. We don't own our backbone. So we don't own the farms. We don't own the slaughterhouses. We don't own the cutting facilities. We don't own the distribution centers. We don't own last mile shipping. We don't own customer service. All of those people in a very kind of like Toyota model are running our program and we're doing quarterly business reviews and we're holding their feet to the fire and we're telling them all the things that they need to improve on and we're getting them real time information about what they're messing up on, but we don't own it.

[Harry] Does that not smash your margin? Because you have the idea that when you internalize those functions, you internalize the margins and your margins go up. Does that not really harm your ability to actually generate premium margins?

[Mike] I mean, certainly if you look at other food companies, that is the way that they do margin expansion. And we have definitely asked the question over the past year of like, okay, well, especially before this year with Trump's tax code where you just get a ton of depreciation if you take on assets. We actually two years ago started a dry ice factory. We now have two. That was one, a margin play, but two, it was like this critical component that if we don't have dry ice, we don't ship. And we wanted to like control that. There is definitely the ability to improve or increase margins by owning bigger pieces of the stack. And that does improve EBITDA because your amortization is below that.

[Harry] What is the biggest chunk out of your margins? Distribution?

[Mike] Meat cost.

[Harry] You can't do anything with that. You ain't getting no cows, man. So if we were to put that to one side, what is heavy margin that could be internalized?

[Mike] Well, I wouldn't just dismiss that you can’t improve margin and meat. One of the places where if you are a bootstrap company, you have to focus on is driving margin in everything. And so like for meat, there's like yields, right? So you cut a larger hunk of meat into ribeye steaks. There's a yield percentage. There's a yield of ribeye steaks that you get. So you might lose 7% of it. And and like that gets thrown into a different bucket. The difference between 7% and 6% or 7% and 4% are massive numbers. I mean, right now I'm looking at like we ship chicken, three pound pack of chicken. One of our problems is that unlike a retailer who has a price per pound multiplied by the package size and just charges you the customer that that's not the case for us, right? We sell you a custom box and then you add three pounds of chicken to it. So if the three pounds of chicken is actually 3.3 pounds, well, now my chicken costs just went up 10%. And if you're able to reduce that is literally like 50 bits of margin to the bottom line. And it's just like literally being like, Hey, we've now decided we're going to weigh this stuff and you're off by 10%. Please fix it. Or let's sell it as 3.3 pounds. But at least like, let's not just say it's three pounds and have it be 3.3 pounds, right? So when you start for us, we were constrained at the beginning by not raising money. So we had to be what I loved about the business was very right brain left brain. The right brain side is like, how do we market? How do we do that differently? Like, how do we market cheaply? And then on the left brain side is like, how do you squeeze every bit of operational waste out of this thing? And it's not all like, even that case is probably a bad example because the customer does benefit by getting 10% more. But like, let's negotiate the price of the tape that goes on the box. Why? Because when you're shipping millions of linear feet of tape, it turns out it matters what price you get. You know, let's not run half-filled trucks. There's all sorts of ways in which companies waste. And if you're overfunded, or if frankly, if growth is like big, big, big, you don't actually have the time to look at that stuff. And there's a ton of money to be made in the details of eliminate waste, relentless improvement, get better, get better, get better.

[Harry] There's a couple of things I really want to unpack, which is just number one, like all VCs are like, Oh, I don't like people who do like, try it out on the weekend and see if it's a thing because you need to be all in, you know, VCs talk. Do you agree with that? Or do you think actually fuck that weekend side hustle to see if it works is a good thing. Idea validation is a good thing.

[Mike] I think if you are hopping on the VC train, you need to understand that the train that you're hopping on is not one that you can get off of. It's not one that you can then build lifestyle design into. So no, if a VC who's responsible for taking other people's money and driving a return, if that VC is like, you need to quit your job and do this full time. I agree with that. Like if I was going to give someone a million bucks, I'd want them to quit my job too.

[Harry] But it doesn't mean you can't test it before that.

[Mike] Yeah. And it also doesn't mean that you can't like build a company on the side, figure it out, get to a point where you're like, okay, I've figured this out and this out. I need this machine or I need this thing. Now is the time to raise. Sure. Just make sure you're not doing it because like everyone else raises. So why don't we, I mean, that was what my first company, that's what we did. All TechCrunch wrote about was like people raising money. So we're like, Oh, to be a good entrepreneur, you need to raise money. And we just got on the VC train and that train don't stop.

[Harry] You mentioned the tape. You mentioned that the multiple elements where you have margin opportunity, that's because you had the constraint of runway because you had no money. When you raise $5 million for a pre-seed or a seed like many in Silicon Valley do and many in the US do, honestly, it's almost a waste of time optimizing for the cost of tape. Actually, as a VC, I'd say, fuck it. It doesn't matter, Mike. When you spend 62 cents or 70 cents, it doesn't matter. And it's kind of true. How do you think about the importance of constraints as an entrepreneur today and looking back at the early days of ButcherBox?

[Mike] Well, this entire business, like a subscription model, really arguably any D2C, but let's just talk about a subscription model. It's customer acquisition cost. And then there's what's called lifetime value, but really is gross profit dollars over time. How much money do you make off the person that you acquired? And so, yeah, a lot of VCs are like, don't worry about negotiating the tape. You need to worry about getting more people in the door, right? But the reality is what you need is actually a good ratio. You need to make a return on that customer. You need to make it as fast as possible. And you need to watch those cohorts go up over time. Tape is a bad example because it's really not that big of a mover, but like the price of a box, the price of a box can be 10 bucks, right? If they're getting eight boxes a year and you can shave $2 out of that thing, well, that's $16 that you can actually redeploy into your CPA and keep the same ratio, right? So all of these savings, actually, you can dump back into marketing and get more confident spending more marketing dollars because that's what's going to happen. Because what happens is you get through your first cohort of people and then your CPAs rise, especially with all the iOS changes and an election happening and like CPAs are through the roof. And the only way that you can handle that is if you are making incremental progress on one, keeping the customer and delighting them with the product that you have, but two, actually removing some of this waste so you can improve your gross margin without just like charging the customer more. Because that doesn't work. You can't just be like, well, we'll charge them more. It's like, no, it doesn't work that way. You need to find the money in your operational inefficiencies.

[Harry] Help founders understand CPAs is a cost per acquisition. Why do they increase over time? Because a lot of seed companies pitch me and they go, it's $8. And I go, that means nothing. And they don't kind of understand. So why do CPAs go up over time?

[Mike] Yeah, so your early cohort of people, the early adopters, those are going to be your most loyal people and the cheapest to get. And then you're moving into other spheres of people and other buckets of people. And so like for us, we started ButcherBox with claims-based meat, grass-fed beef was our thing. And there was a huge market of people in the US who already were predisposed to buying grass-fed beef, but didn't know where to buy it. And so we use an influencer strategy and an interesting strategy to like, go get all of those people. But once you've gotten those people, and by the way, it's like 2% of the United States are predisposed to eat grass-fed beef. If you want to keep growing, what do you do? You have to actually like create a market. And so then that becomes like, it's not just like, oh, they're searching for grass-fed beef and you put up a Google ad and you get them to your site and you sign them up and it costs 30 bucks. It's like, oh, we need to run like a brand campaign around like all the benefits of grass-fed beef. And that just costs a lot more money. And so over time, you see these businesses, CPA goes up and up and up and up. We have one of the challenges of a subscription business is you get into this paradigm where you have so many subscribers. And even if you focus on churn, like a pack of hungry dogs, even if you focus on churn, you're going to churn people. And so you get into this scenario where you're losing so many people, it's hard to add them and the CPAs are rising. So your business over time just gets worse and worse and worse.

[Harry] How do you advise founders on calculating CPAs? Because your caps vary by channel is best way to show CPAs.

[Mike] I think that the easiest way, which is like low lift, is to take all of your marketing expenses for the month. So when you see your P&L and it's like, we spent this on Facebook and this on Google and this on whatever, take all of those costs and divide by the number of people you signed up. Some places, some PE shops want you to then load in your marketing spend as well. Now, that doesn't help you decide to deploy more dollars towards Facebook versus like Google, right? But it does help you understand in the aggregate what happens. Because what happens is like somebody's on Instagram and they see a thing and then they like decide to search for it and then they forget about it and then they go directly to it. And like a truly functioning attribution model is really, really hard to build.

[Harry] It's almost impossible. There's scientific data that says almost an average of seven touch points with a brand leads to a conversion. So it's like, well, was it the Facebook ad at four or the Instagram picture at seven, which led to the conversion?

[Mike] Right. Instead of going down the road of like, oh, we need somebody to measure this day in and day out. No, just divide by the number of people that you signed up and that's your number.

[Harry] We're going to make this the best fucking show ever because it's going so deep, which is going to help a lot of people, I think. I think one of the things that I find interesting is channel spread and difficult for founders. They try to be everywhere. How do you think about channel concentration and where to deploy dollars and lessons from that as you scale ButcherBox?

[Mike] So I have an analogy of wildcatting for oil, probably not how wildcatting for oil works. But when you go out wildcatting for oil, you have a small, cheap shovel and you just dig some holes, right? You think this is going to be a fertile ground and you dig some holes. You want to make the hole small. You want to make the holes cheap. You want to make the holes rapid. When you start seeing oil bubble up through that hole, time to build the rig, but don't build a huge rig. Don't like get the, you know, the massive rig, get a small rig. Maybe you hire one person and that person is going to be responsible for extracting the oil out of there. And then it's like, wow, we think there's a lot of oil here. It's like, cool, build a bigger rig. You basically build and build a build. At a certain point, you bring in the fracking technology and you're trying to extract all the oil possible from the thing. But you, as the founder, don't really want to go wildcatting until you make sure that that rig is being manned, that somebody is on that rig, that they're actually working harder on it than you can before you move. So for us, our first thing was influencers. We started with a Kickstarter campaign where we raised $215,000 in preorders. We reached out to all these, like anyone who had ever mentioned grass fed beef on Twitter. And we were like, Hey, we're launching this company. And one guy, this paleo doctor from California during our Kickstarter campaign was like, this sounds like a cool idea and tweeted it out to his audience. And we just saw a flurry of, of people sign up for the Kickstarter campaign as a result of that. Really, we still do it today, but over the next two years, we focused on influencers and anybody who had written about paleo diet, the importance of grass fed, the importance of treating animals right for like your own personal health, reached out to all of them, sign them all up as like affiliates where they would send an email to their audience and then get a commission every time the person's box came to their door. And we didn't even move to really anything else for two years because it was so fertile and such a big market. And frankly, we didn't have a lot of money. So we also paid people on a residual. It wasn't upfront. So it was a really great cash conservation technique for us.

[Harry] So what a residual meaning that they got paid on monthly completion of payments.

[Mike] Instead of paying somebody like, Hey, we'll give you $10,000 to sponsor your email. We would say, Hey, send an email to your audience, have them click on this link, which is like your unique URL. We'll do a special offer for your audience. And anyone who signs up will give you like, call it $15 or $20 a month. Every time they get a box, you get $20. You know, again, this is like one of those, like, what are the core decisions we made as a company? And like, how did it end up because we didn't raise money, we didn't have $5,000 to pay this person to send an email. So we're like, Yeah, sorry, we can't do that. We can do this. And what happened was we kind of stumbled into this really interesting moat where other competitors have come along. And the people who talk about ButcherBox don't really want to write about anybody else because they'd be messing up their income stream. And so we just built this community of people who were early on grass fed, they were the ones really pushing that and we were able to sign them all up in a very short order, which was like really the zero to 100 million was influencers.

[Harry] So 100 I was gonna ask that was my thing. You said two years in, that's pretty much all you did. What revenue was that when you decided to add new channels?

[Mike] We went like Kickstarter in a little bit. So we did like 300 grand the first year, 5 million the second year, 33 and then 105. In between the 33 and 105 is when we did Facebook.

[Harry] So I had Kip, the CMO of HubSpot on the show. And he said, you need one channel really humming, you get 50 million in revenue, and you need two to get to 100. So pretty much correct.

[Mike] Spot on.

[Harry] Yeah. Okay. So talk me through the second expansion on channel. And how did you know it worked? Because I think the other thing is people continue with a channel that doesn't work for too long.

[Mike] If you're not funded, it's hard to do things that don't work. You got to start with small budgets, figure out what's working, be open and honest with like, is this working? Is it not working? When we started, certainly for the first year, maybe two, we wanted to be what we call the box one profitable, which means like we're going to ship a box and we're going to make a margin on it call it $20 or $25. We need to acquire that customer for cheaper than that box, but then the margin because otherwise you're upside down, you can't make any money. So you start with that constraint, which is a lot harder to do these days. Like if I was starting a company now, it would be hard to do box one profitable. I'm sure it's out there, but it's hard. It's changed the types of people who can start a company like this. You know, the influencer market has changed. The social media market has changed. Like there's a lot of change that's happened. You run box one profitable, then you can shy into box two. If you put it on a credit card, you don't have to pay the credit card for 30 days. So you can actually pay for that customer after they've got two boxes. And we know the percentage of customers who are going to get two boxes. So we did not have the luxury of having things not work because we had to make sure that our CPA was under box one.

[Harry] This is what I think people forget about margin, which is the higher the margin that you have, the more you can spend to acquire that customer.

[Mike] Absolutely.

[Harry] It's a beautiful thing. I don't know if you've ever read it, but I'll send it to you if you haven't. But it's a beautiful economic study on the manufacturing of Dr. Dre headphones and how their high margin status means you can spend a lot of money on sports athlete endorsement. Sorry, I'm going in the weeds. What were your margins then at the beginning and what are your margins today?

[Mike] The way that we talk about the business is actually what we call dollars per box. And I learned this from the head of operations of Omaha Stakes who helped me start the company. And he's like, you should just be worried about dollars per box. What does that mean? A box that leaves your distribution center, how many dollars are you making off the box? The gross margin percentage doesn't matter nearly as much. It obviously drives your dollars per box. But I think the most important thing for people who are starting these companies is to think about dollars per box. I invest in a lot of these companies. I advise a lot of companies, kind of box subscription companies or D2C companies. I don't think you can make a go of it if your dollars per box are under $30 per shipment.

[Harry] Wow. That's $30 you make per shipment?

[Mike] Yes. And that's in a subscription business. Because right now it can cost $140 to $150 to acquire a customer. That's a five month payback. Yes, higher margins absolutely helps. And in our space, in the meat space, you know, you're competing against grocery stores who they're not large margin businesses. We started at $20 a box is what we were trying to make. Every shipment, we were shipping out of one facility in Wisconsin. Every shipment that went to the West Coast, I think we were losing money on because it was like a five day ship with 35 pounds of dry ice. We could only ship on Mondays and it would get there the next Friday. But we knew we were going to open a West Coast facility. It was just a matter of getting enough volume to get the attention of somebody on the West Coast. And so as soon as we made that change, maybe our average went from $20 to $25, just like that change alone. And then you just march up that number.

[Harry] Okay, so you march up that number, starts at $20. What does the dollars per box look like today?

[Mike] Depends on a whole bunch of factors, but let's say like north of $50.

[Harry] Okay, so we have $50 then say there. How do you work out? Ultimately, we want to get to our payback period as well. But how do you work out your LTV? Because we don't have that much data in the early days as very variable rates of churn. What have been lessons in terms of how to figure out LTV accurately?

[Mike] Well, your LTV doesn't matter as much if you say we need to be box one. Well, it doesn't matter at all if we need to be box one profitable. It doesn't matter as much if you're like, hey, by box one or two or three, we're profitable, right? It's 100 day payback period or whatever that is. Then your LTV doesn't matter that much, right? Because you're taking a bet that after three months, which in subscription businesses is generally like where you lose a lot of people, you're taking a bet that like you'll keep some of them and they'll keep paying. So the way to look at it is really like how fast can you pay back your customer acquisition cost? Oftentimes, people get into trouble with customer acquisition costs are going up. It's like, yeah, but we need to do this. We need to dominate the market. And it's like, yeah, but it's unsustainable. It doesn't work. You're not going to make any money doing this. What we all pay back is at the beginning. The day that they purchased, we'd made money on them.

[Harry] Are you box one profitable today?

[Mike] No, that'd be fun. No. Is it a mental challenge for you?

[Harry] And is it a mental challenge that founders will have to overcome going from box one profitable to accepting actually a four month payback or five months? How did you get over that?

[Mike] You get over that because by that point, you've seen enough game tape to know like how your cohorts are doing. So what do they look like after a year or maybe you're starting to see after two years and you start to see the return profile, then it makes all the sense of the world to invest in our business. So we were profitable. So if I don't deploy a dollar and it drops to the bottom line, which obviously we want a healthy amount of profit for a whole host of reasons, but if I don't deploy that dollar and it ends up as profit, Joe Biden's going to take the 50% of it 50 cents on the dollar. Okay. That gives you even more motivation to redeploy it into marketing where at least I can see a return, a two X return or three X return. You see this return and if you think about it, this is what I love about subscription businesses. It's such an interesting securitized investment because it's over hundreds of thousands of people or tens of thousands of people that you're signing up, you know the return profile, you know the things that you're going to do to improve the return profile by negotiating the price of tape or whatever else you're going to do. And so it just becomes like a really interesting investment.

[Harry] Box one profitable was, what do you all pay back today?

[Mike] They're like five months.

[Harry] What are the single biggest moments of churn in a customer's life you've seen? Is it after the first box? Is it a year in?

[Mike] The first three months are the most important. It's where you can build a habit. We ship meat in the mail frozen and generally that meat goes into your freezer. One of the challenges we have is people, at least in the US, they think about their freezer as a savings account and their refrigerator as a checking account. So because of the defrosting issue, we actually have a customer who needs to get into a pattern. So for us, the first 30 days, this big churn 30 days, gets a little smaller, gets a little smaller. If you get them through that first 90 day hump, you have a customer who will stay with you for a very long time. And so we do a lot of work trying to empower our customers and our members to cook awesome meals at home. Interestingly, we actually see a huge amount of churn right after people purchase. So there's a whole cohort of people like who don't want a subscription. And so they sign up and then they cancel. They literally cancel right after signing up and they get that one box, but they don't want to have a subscription. Blue Apron used to force people to receive the box before they cancel. It's like, oh, you can't do that yet. You have to like wait until you've received the box to cancel to like kind of make it a little more hard to do. We don't do that. We just allow people to cancel. The next big hump is when they receive that first box. If anything goes wrong or if they just don't like it or they're like, this isn't worth it, then they cancel. And then the next big hump is on day 27 when we send you an email saying, hey, we're going to bill your card in a couple days. Make sure to add these different specials and whatnot. That's the next big hump.

[Harry] I never get why people send that email. You're basically reminding me that I'm paying for a service.

[Mike] Yeah, I mean, we didn't to start with. The problem is that you get an influx of customer service complaints because people are like, I didn't remember I was on a subscription. Please don't send me this box. I'm going to do a charge off of my credit card. So you really like piss people off. And if you have a product that is actually providing value to the customer, like we talk about margin, but really margin is just a measure of like how much value you're providing to the customer. If you provide something that like the customer likes, you shouldn't have to be scared about letting them know that you're going to send them another box. We believe you should be open and honest about that, especially because you're just going to get a bunch of charge offs and a bunch of customer service nightmares that you could avoid by sending an email.

[Harry] Help me out then, Mike. I'm an investor. I look at many consumer subscription businesses. What is like good, really good, amazing for churn numbers on like one month and one year?

[Mike] Churn wise, for a long time, we were about 1% churn per week, and that we thought was really good. So that means every week, you know, if you have 100,000 subscribers, 1000 of them are leaving, and it means you've eroded in the course of a year 50% of your revenue.

[Harry] I'm an enterprise software investor. I've just thrown up in my mouth.

[Mike] Oh, yeah. Well, yeah, no enterprise software is totally different than that. Totally different. You're looking at something a lot smaller than 1% a week. The enterprise software model, which is similar to the model of box subscription or any direct to consumer, you want to march them up in terms of how much additional stuff they're putting into their box, right? So over time, you satisfy some of your churn or you change some of your churn by your really good customers adding more to their box, which just and getting boxes more often and whatnot, right? Churn dynamics in enterprise software sound way better than the churn dynamics in direct to consumer.

[Harry] What has really worked for you in terms of that AOV expansion? AOV for people listening, average order value or like basket expansion? I'm sure you do the same. What's really worked for you in driving per order up?

[Mike] Yeah, what's great is what's worked is also very much in alignment with what our customers looking for. And that is super well priced deals above and beyond your box. So you get your custom box from us, you get your six cuts of meat in it, we have like a whole member deals and a whole catalog. And those things are priced to beat retail. So we want you to go in there and be like, Oh, I'll pick up one of those and one of those and one of those that has worked really well for AOV. And oftentimes the retailer is doubling the price that they buy for wholesale, the general rule if they buy like, you know, chicken breast for $3.99, they're going to sell it in the store for $8.99, we find that we can provide a better value to the customer than they can get at the grocery store.

[Harry] When you see me kind of fade out of screen, it's because I'm literally writing notes. Businesses that I love are those that have pricing power with scale. I always like businesses to get easier over time, and many don't actually.

[Mike] Yeah.

[Harry] When you think about your ability to get pricing power over time, how do your cost per meat cut change with quantity? Does that change much?

[Mike] Yes, it changes a lot.

[Harry] What does that actually look like?

[Mike] So meat is all about efficiency. So somebody who's cutting like a pallet of ribeye steaks is going to charge you one price versus somebody who's cutting a whole truckload of ribeye steaks, not to mention if you have distribution centers and you need to take those ribeyes across the country, it costs the same to run a truck half empty as it does to run it fully full. It's the same price. And so where you get a lot of efficiencies is your runs are bigger, you're moving trucks around better, and logistics is a massive number, just moving stuff around, not to mention your pick-pack ship operation should be cheaper, the boxes that you're purchasing should be cheaper with scale.

[Harry] How much cheaper does it get on the actual, if we think about the biggest point of margin compression, which was the meat, how much cheaper does it get when ordering at the scale you are now compared to the early days? Is it 20% cheaper?

[Mike] Yeah, we brought in a meat guy a year and a half into the business and we're like, here's what we're doing. And he's like, the price that we were paying for a pound of organic chicken, I can get three pounds for the same price. You want to do that? We're like, yeah, we should do that. I mean, we were paying way too much. People were definitely taking advantage of us until we found this guy, Mike, who came on board and really helped me become a meat buyer.

[Harry] So that's 70% the fuck. That's pretty great.

[Mike] It's amazing what people who know what they're doing can actually do to the business.

[Harry] In terms of like cohorts, what to you looks like really great cohorts? What are the attributes? What are the key features? When you look at yours, what concerns you? How do you measure cohort health?

[Mike] Yeah, that's a great question. To be honest, I think that we don't do a good job at this as a company.

[Harry] Because you haven't raised VC money.

[Mike] Yeah, exactly. I mean, if we had some VCs in here, we'd know how to do things.

[Harry] Dude, I'm right here. Right here.

[Mike] We tend to look at things in the aggregate, and it's a mistake. Oh, we signed up X number of people this month, or like this many people cancelled per week. And we're not thinking like, hey, this is like a stream of our best people, like they should be treated this way, or we should be doing this for this cohort. We're pretty behind in that area. We know that the best cohorts that we can get are referral cohorts. And in terms of like where we want to go as a company, and in terms of where we want to focus as a company, in terms of how do you get value out of these things, you hit this point with subscription businesses where it's really tough, which is where we are. I think referral is your way out. Use our members to help bring in other members.

[Harry] How do referral code acquisition customers differ from alternative acquisition customers?

[Mike] Yeah, so referral customers tend to perform really well. I think it's like an additional box in year one, and they stay for longer. The only customer that's better than that is like a paleo keto influencer related customer.

[Harry] Let me go back a step. We've seen D2C funded to the hills over the last few years, and New York branding agencies have made a fucking fortune. Well done then, by the way, you make money and selling picks and shovels is clearly the right thing. Have a generation of VCs just burnt a load of VC money on these D2C companies?

[Mike] Boy, it's looking that way. You look at these businesses, even the ones that like are the darlings of, you know, like, I don't know, like Warby Parker or Allbirds.

[Harry] How much are they like Allbirds? Okay, I'm doing this like live.

[Mike] Yeah, do it real time. It's going to be a number.

[Harry] Allbirds market cap today. Do you know what it is?

[Mike] Probably 300 million or something.

[Harry] Half it, 183.

[Mike] Okay, and then go to Crunchbase and what did they raise?

[Harry] How much do you think?

[Mike] 250. I could be wrong. I don't know.

[Harry] 202.

[Mike] And if you look at their financials, I don't think they make any money. I don't think they've ever made money.

[Harry] What about hims? No idea. What are they trading at? Trading at 2 billion.

[Mike] Wow.

[Harry] Not bad, hey? And they raised 230.

[Mike] It's a little bit better. When did they go public?

[Harry] A year and a half ago?

[Mike] They actually kept their value too.

[Harry] Final one, because I am enjoying this. What about Warby Parker? Where do you think they are?

[Mike] Oh, last I looked, they were like at 350, but that was a couple of weeks ago. Let's say 275.

[Harry] 1.15 billion.

[Mike] Oh, wow. Way off.

[Harry] Yeah.

[Mike] They must have done something different. The biggest problem is the no-brainer acquisition channels have really dried up. And I do think they're out there. It's actually more creator slash influencer related than it's ever been before. Those are the people that can really build something big, fast. Look at MrBeast or...

[Harry] I get you. The trouble is, are we seeing the internalization there? MrBeast has MrBeast chocolate. KSI and Logan Paul have Prime. If you're really good and really big, you internalize it yourself.

[Mike] What do you mean you internalize it?

[Harry] MrBeast largely will now only promote MrBeast products.

[Mike] Right. Exactly.

[Harry] And so actually the ability to have mass influencer strategies with the big names is gone.

[Mike] It's gone, because they've actually... Same thing with these nutritionists and influencers that we used. Then they were like, wait a minute, I can just launch my own protein powder, or I can just launch my own vitamin set. And it's dried up.

[Harry] I think that ButcherBox is a media company. And the reason I say that is because I think you should do steaks in the weirdest places in the world. And you should do challenges or media. Cooking steaks on Mount Everest. Cooking steaks in the Guatemalan rainforest. Cooking steaks underwater.

[Mike] I like this.

[Harry] And actually capture the world's imagination with the weirdest places in the world you can cook a steak. A submarine in the trenches of wherever James Cameron's filming the next Avatar movie. That is cool. Not Gordon Ramsay doing a masterclass. Capturing the world's imagination of where steak can be cooked.

[Mike] That's amazing. I love that. Don't mean to cast shade on what you just said, because I think that's really awesome and creative. But just for your listeners who are thinking about raising venture capital, what you just said, Harry, is actually totally on the table for a board meeting. So you're in there, you're like, here are all the things we're dealing with. Your VC comes in, maybe they've looked at the deck, maybe not. And they're like, you should do this. And you're like, great, let me write that down. Let me get back to you.

[Harry] Was I a real VC that way? It's like you're dealing with all of the things that you have to do. And then I'm like, you're a media business. Go to Mount Everest and cook a steak.

[Mike] I think you're right. We actually sponsored a crit bicycle team because we're like, we can't just do what we're doing anymore. We're too big. So we'll do about $600 million in revenue this year. Like the old tactics, like we're just going to blanket Facebook and do influencer. It doesn't work anymore. Like we need a new oil field, so to speak.

[Harry] How do you think about brand marketing? You mentioned the cycling there. I don't. Yeah. I don't like it. Honestly, I fucking hate it.

[Mike] Last year, we spent eight and a half million dollars on brand marketing. And anytime I asked the question of like, well, how do we measure this? Like, how do we know if we're doing well? It's like, well, there's like a lift and it's like, well, how does that equal dollars back to us? And what happened was that eight and a half million dollars, eight and a half million dollars, a lot of money. You basically just destroy your customer acquisition to lifetime value. Oh, there's no payback. And for a highly measured, let's go negotiate the price of tape kind of person, very hard for me to be okay with that. And so we now look at...

[Harry] And then I tell you about the media strategy that I shared, and that would probably cost $500,000. And so I think companies too often lose their creativity, spend on billboards or cycling teams, sorry, and don't turn into a media house for a quarter of the cost.

[Mike] Yes, I totally agree with that. And I think there is absolutely something there in terms of media. We need to jump from what we're doing into a larger dialogue. And that really is my job to go figure that out.

[Harry] What about million dollar meat? Okay, every quarter you give away a million dollars to the person who cooks the single best looking piece of meat. All you have to do is submit seven pictures of your ButcherBox meat in that quarter on social and tag us and tag two friends.

[Mike] Love it.

[Harry] A million dollars. Can you imagine the person who wins? That if you get someone who wins, all your local newspapers will be talking with a massive check that says ButcherBox million dollars. You're going to get insane free local press. You're going to get every single person in the whole fucking town hearing about Linda who won that ButcherBox. It's going to cost you half of that brand marketing. You're going to see such better performance.

[Mike] That's amazing. That's a good idea.

[Harry] I genuinely should be a CMO.

[Mike] Yeah, shit. What else you got?

[Harry] I got a lot. I really also enjoy it. What have like, when we look at the cohort of companies that you're with, your Blue Aprons, your Hello Frashes, all of these big names, what did they do wrong?

[Mike] I mean, the story I heard about Blue Apron when they opened their New Jersey facility and they insisted that like all the software that runs like all the machines is custom. Like we're going to build it ourselves. It's like, you know, the sales guy's like, okay, but like this works in thousands of factories across the world. It's like, no, it's not good enough. We need it better. And the story I heard is that there was a time where boxes were piling up on a conveyor belt that was 40 feet up in the air because of some sort of like, Oh, it's going to be a lot more efficient. The problem was they couldn't even get the boxes. Like they were piling up. They couldn't even get the boxes down because they were 40 feet up. They didn't know how to get up there. So their orders are not going out. Big freaking mess. And they spent hundreds of millions of dollars on this facility. I see that a lot, both in that scale as well as on smaller scales, where it's like in order to do this well, we need to do it ourselves. That to me, if I were an investor would be a big red flag because there is oftentimes a company that yes, are you giving away a little bit of margin? Sure. But you don't have to worry about that as like something that you're worried about. A lot of founders try to boil the ocean really fast by worrying about everything at the same time. And that just is not conducive in my opinion to one, having any sort of life outside of the company. And two, to actually building something that people want to support. It seems like that D2C model of like, we need to own it all ourselves and in-source it like it doesn't work.

[Harry] What's the biggest resource allocation mistake you've made? Like you said there about people spending it on the warehousing and actually kind of the tooling. When you review, what do you like, I can't believe we spent money on this.

[Mike] Ah, I mean, brand is up there.

[Harry] Sorry, actually on that, as a result of that, you just cut brand marketing to zero, then you're like, listen, I have no idea.

[Mike] Well, kind of what happened was certainly in the P&L, it was cut to zero. But who knows what's happening like in the acquisition bucket now, right? Because everyone knows that Mike cares about brand spend. So like sometimes people can massage the numbers a little bit to hide some of the stuff that's happening. What we've tried to do is to make sure that the marketing dollars that we're deploying are defensible, that they have like a ready line to some sort of money. And it can't just be like, oh yeah, we're going to hope for the best. It's really like, how does this turn into something better?

[Harry] Which channel really didn't work? Brand marketing is like a bucket. But when you look at Facebook, Instagram, YouTube, TikTok, influencers, all the different channels you have, which one really didn't work?

[Mike] The out of home being like billboards and bus wraps and that type of stuff. I think you could argue, though, that we didn't give that a fair shot. But that would be the worst performing thing that we've seen.

[Harry] You don't have the luxury of giving in a fair shot. That's the hard thing I find. And that's something I don't like with bootstrap businesses in your model, which is like, bluntly, content takes a long fricking time to work in a lot of cases. Blogging takes years before you really see the compounding advantage of SEO. You don't have the luxury of that time to keep going and keep allocating towards it in a bootstrap model.

[Mike] Well, you actually have all the time in the world because there's no one breathing down your neck so you grow faster. If you're willing to take some time...

[Harry] You can't literally afford to keep spending on it.

[Mike] But interestingly, if you think about the dynamics we were talking about with marketing, every marketing dollar you don't spend generally for these companies is profit, right? So you've got your gross margin and then you've got your cost to do business. And then you've got what's left over, marketing and profit. So if I'm like, I can't deploy dollars fast enough in a certain area, generally those equal profit. So you can go slower and oftentimes you have to. Like the number of people who have told me that we would be growing faster if I took venture over the past like five or six years, although I've just been a broken record of like, not interested, not interested, thank you very much, not interested, which is a whole thing, you know, going back to like, what was I running from? I mean, one of the things I was running from is I had a pretty bad experience raising money in my first company. It was pretty like traumatizing. And I didn't want that experience again. I wanted something different.

[Harry] Well, I mean, it would be different, mate. They're throwing money at you. It's very different to the first time you went raising money. I heard about it on other shows.

[Mike] It's very different until you don't hit your numbers. And then it's the same story.

[Harry] Oh, yeah. We're jumping around here. So with the generation that did get funded, do they fizzle out and die? Do you acquire them? Do they turn into lifestyle businesses? Where, what happens?

[Mike] Yes, we are a buyer. We would love to find distressed subscription, ideally perishable shipment businesses. We are looking for them. The big thing that happened was, again, we started in 2015. At that time, Blue Apron had raised like a $2 billion valuation round. It was the toast of the town. And then in mid 2017, they went public in like July of 17. And by December of 17, they had gone from like $140 to like $40. And all the money for box subscription companies dried up overnight. And so some people are like, Oh, don't you wish you raised money? And like, actually, I think we'd be out of business if we raised money, because we would have raised money in 2015. When it was hot with big valuations, we probably would have raised again. And then when all the money would not had had to build a profitable business, and then all the money dried up and everyone sold and the market was empty for a few years. For us, that was amazing because Blue Apron stopped advertising the 150 Blue Apron lookalikes stopped advertising. That's when we ramped up Facebook and kind of were able to capture more people.

[Harry] In the times when they're flush with cash, and they're spending it driving up CPAs for you, do you try and compete with them? Or do you go fuck it, we can't play a game where we're competing against them in this world. Let's go where they're not.

[Mike] We find that our buyer is actually very different than like the Blue Apron buyer. Blue Apron buyer tends to want like all of the ingredients pre packaged, and we just send you the meat. And so what we find is somebody who's like a little bit more confident in the kitchen or wants to get confident in the kitchen and wants to follow their own recipe rather than have the recipe sent to them. But generally, for example, in an election year, everything's starting to get fired up about the election. That is a time when CPAs go way up. Yes, you have to have like a different strategy, you have to be thinking differently. It's a really tough time to be running DTC right now. Between Apple's changes, making iOS changes, where Facebook performance like really went down quite a bit. You know, TikTok is interesting. But like, I don't know anybody who's doing well on TikTok who's like, holy shit, TikTok is like where it's at. I see a lot of people like hopeful because there's a lot of volume, but I haven't seen people like really crush it. So there's not really like a new exciting thing. I think it's just having your ear to the ground. And when it comes, it comes and then exploiting it when you see it.

[Harry] Is ButcherBox the biggest in the space?

[Mike] Yes. Then there's Omaha Steaks, a direct-to-consumer, it's been around for 100 years, direct-to-consumer, generally a gift-giving and holiday business. They might be bigger than us. The last I had heard, they were around $600 million as well. But maybe during the pandemic, they went way up.

[Harry] My question to you is, okay, you're at $600 million. Let's say growth continues, world continues beautifully brilliantly. You're at $900 million. Let's give you a nice revenue bump and say on revenue multiple, you're worth $3 billion at that $900 because respectfully, revenue quality is not as good as enterprise. Yep. It's consumer subscription business. Yep. And this is the best of the best. Is this whole market even VC-backable? If the one crown jewels is best?

[Mike] At $3 billion. Yeah, I don't think so. I'm not sure it's a VC-backable model.

[Harry] For every consumer VC, please shed a tear at that moment.

[Mike] Yeah, certainly don't fund anyone who's trying to compete with us. That'd be nice.

[Harry] Did you sell any secondary along the way though?

[Mike] No.

[Harry] Why not?

[Mike] Well, we can talk as deep as you want about this, but the minute you sell secondary to an external investor, now I've got someone breathing down my neck telling me what to do. Now, there's a difference between me selling secondary and people in my company selling secondary. So what we did, which is probably crazy, but it's how I started the company. We create this company and again, we didn't raise money, but my early people, I gave away equity like candy. Everyone gets equity. To date, virtually everyone has equity. And so we have these people who started out. And my first thing I said, and this was a mistake as well. I said, company's only worth $750,000. So it's like, oh, you're going to help me stand up the meat thing. It's like a $75,000 engagement. Like, cool, I'll give you 10% of the company because this isn't going to be anything. It's just going to be a hobby. Big mistake. Basically, what we've done since 2018 is we've run a tender every year where we do a valuation, a 409A valuation, we get a share price. And the company says, hey, we'll repurchase people's shares. We also allow people to purchase shares, but really it's more people trying to sell their shares. And so we deploy some of our profits into share buybacks, essentially. We've done that over the past, like I said, four years. We're actually not doing one this year because when the tide goes out a little bit, it's like we should stop just like throwing money on the street and keep it in our bank account because we want it for a rainy day. But we have not done the go raise outside capital. And I think part of that has to do with like my whole philosophy here, which is I'm not focused on the exit. Like I'm not trying to sell the company. I'm not trying to go public. If you look at companies or brands in food, the ones that have become really big, they kind of have a similar makeup, which is they're closely held, family controlled, and like a hundred year plus holds. At least in this country, you look at like the General Mills and the Campbell's and the Tyson's and the Purdue's and like the Hershey's, the Mars, like they're kind of all similar. And I don't know if that is, if we'll be lucky enough to actually be able to operate a company for that long or whether frankly, I will be able to keep my attention on this because I don't want to operate this thing for a hundred years. But where we stand today, I'm really excited about that. Like, what is 25 years of this look like? Like, where are we in 25 years?

[Harry] How much of the company do you own today, my friend?

[Mike] North of 70.

[Harry] North of 70 percent. So if someone came to you and gave you a billion dollar offer in cash today, would you sell?

[Mike] No.

[Harry] Not for 700 million in cash?

[Mike] Yeah. So this is the problem I always have is like, there's not a letter on my desk right now. So I can be on this podcast and be like, yeah, no, hell no. But there's not a letter on my desk, right? If there's a letter on my desk, obviously at a billion dollars, I would be thinking long and hard about what I wanted. But the question is like, okay, great. You go bank $700 million. You can do whatever you want for the rest of your life. Cool. What are you going to do? I'm going to like literally erase my whiteboard and be like, what's next? And what? Chase this? This has grown and has grown me in all these ways. And I feel like I have the ability to impact a totally broken industry, which is meat. You sell the thing at the very moment where it's starting to deliver the things that you always dreamed of for what?

[Harry] How transferable are the skills you've gained with ButcherBox to alternative D2C consumer subscription companies? If I gave you vitamins, if I gave you any, you could switch segments and sell vitamins. Anything else?

[Mike] And yes, I do a lot of investing and advising in companies that are not perishable, but are some sort of subscription. And it turns out I can be pretty helpful. So I do think it's somewhat transferable for sure. And I do believe that the D2C economy is kind of falling apart right now. It already has or is about to. And what we're seeing is more and more distressed companies that raised right after COVID, you know, had their 24 months of runway, are trying to tighten their belts, but really there's not a lot of excitement. And they're generally smaller than they were at the tail end of COVID. We're seeing a lot of banks pick up stuff. And it just, it seems like a good time for us to put our hands up and say like, hey, if you got something and you're interested in coming to work with us, like we could maybe make something work.

[Harry] So I've got a couple of burning questions and then we'll do a quick fire, I promise. How does a recession impact your business?

[Mike] Not well. I would argue that the people who are our members have already been part of somewhat of a recession. The only thing we have to look at is like 2007, 2008. In general, when there is a recession, people in terms of the meat quality that they're looking for, they're willing to take a step down in the quality of meat. So if you're like, I only buy organic, it's like, oh, I lost my job. Like organic, I'll do free range, right? So people will trade down on the claims, how their meat is raised or how their food is raised. It's true for like organic blueberries. It's true for everything. We are seeing that data as it relates to the overall food spend in this country, but we are not seeing like a run for the doors at ButcherBox. If anything, I think post COVID people really wanted to focus on their health and wanted to focus on having great like restaurant quality food at home. And now what we've seen is a lot of our customers are like, well, I save money by not spending $75 on a steak at a steak house. I just cook this steak here for a lot cheaper and better for you.

[Harry] Are you fighting against veganism and climate change? I always think you want to surf in the right direction with the waves.

[Mike] Yes.

[Harry] And this seems like we're surfing head on into the tsunami with the rising number of vegans and climate change concerns.

[Mike] Yeah. What I like to say, we agree with vegetarians and vegans. I agree. The main complaint is that the meat industry is broken, that there's a ton of suffering for the animals, that there's a ton of suffering for the environment, that there's a ton of suffering for the farmers. And I agree with that. Where we differ is I believe that animal based protein is part of a healthy diet and very few people can actually live a healthy diet on a vegan diet or a vegetarian diet. And so for us, it's like, if you're going to eat meat, which by the way, most people do, if you're going to eat meat, how do we transform an industry that is totally broken? And how do we make a product that people don't have to feel guilty about eating? Because in this country, for most of the meat that you're eating on a day to day basis, if you only knew, there would be a lot of guilt associated with the type of product you're eating. Yes, like there is still a obviously like animals, even in our program are killed. So they have like one bad day. But what we want our brand to stand for, I call it like the Patagonia of meat, like we want you when you buy from ButcherBox to know that we obsessed over every detail possible for that piece of meat to make sure it had the best life, the farmer was treated the best, the environment was treated the best, the workers in the supply train, we've actually thought about it, we've tried to move it forward. And this going back to like holding this company for a while, the industry is like so in need of disruption that oftentimes, like you need a super long time horizon. I'll give you an example. It turns out in this country, if I wanted to go and figure out the food safety protocols of like a slaughterhouse of like a harvest facility, like how do they handle food safety, super easy, I can have someone there today. It's like no problem. There's a whole bunch of people like they'll come in with their checklist and they'll figure it out. If I wanted to do the same thing, the same audit at the same facility, but I didn't care about food safety, what I cared about was worker welfare. How are you treating your workers? How many have gotten injured? Is there any child labor here, undocumented labor, like really what's going on here? There's nobody. There's nobody in this country that I can hire to go in and third party audit these facilities. It's crazy. I mean, if I was creating t-shirts in Bangladesh, I could have fair trade in there like in a very short amount of time. Why? Well, because nobody wants to open that door and see what's behind it. I just feel more and more like...

[Harry] Why is that? Is that because the donating parties are too strong? Is it because lobbyists helped me understand that?

[Mike] I mean, I think it's one part customers actually giving a shit.

[Harry] You think they don't give a shit?

[Mike] No, they don't. The customer, what they care about is themselves far and away, then the animal, then the environment, animal environment kind of go back and forth. And then way down here is the farmer and not even like the workers in the supply chain are like not even a consideration for most. They don't care. And we believe that in order for meat to actually continue, people need to care. We need to put our dollars towards actually changing the system because there's too much suffering. It's too bad. People cared for a hot minute during COVID when people were unfortunately dying in processing facilities, but that attention is long gone. People are like, whatever. The average American spends 13 seconds in front of the meat case. 13 seconds. They don't have time to figure out what's what. And then it's something like 40% of people don't even touch their meat. They like open the bag and they're just like, ugh. And I use that as like an analogy of like, how many people actually know what's happening? And it's very few and very few people care. We care.

[Harry] One final thing, and then we're gonna do a quick fire. I love Gordon Ramsay's Kitchen Nightmares. Okay, I'm admitting it. I love Gordon Ramsay's Kitchen Nightmares and Taylor Swift. All right. I know I'm a modern day great.

[Mike] Great. Both great.

[Harry] Thank you very much. Gordon hates frozen food. He's like, oh my God, frozen, frozen, frozen shit and throws it out. I was taught that frozen meat is worse.

[Mike] Yeah, no. What happens in the freezing process, especially with grass fed beef. So grass fed beef tends to be like a little bit more tough. There's less fat in grass fed beef. So what happens in the freezing process is you can actually like break down some of those cellular walls and make a more tender product, which is what a lot of people associate with health. So if you're talking about beef or even pork and chicken, freezing is actually helping the quality of the product rather than hurting it. The other thing that's amazing is from a food waste perspective, there's not a lot of food waste in your freezer. You can have meat in your freezer for years. I mean, we recommend you cook it tonight so that we can send you another box, but you can have your meat in the freezer for a very long time and not degradate quality. You heard it here first.

[Harry] It was sponsored by Gordon Ramsay.

[Mike] Fuck you, Gordon.

[Harry] That'd be a great title. Okay, I want to do a quick fire because I could talk to you all day. So I say a short statement. You give me your immediate thoughts. Does that sound okay? What's the single biggest piece of BS wisdom in startups today?

[Mike] You're not working hard enough if you're not working 365 days, 24-7.

[Harry] All right, we'll leave that for another episode because I think you're wrong. Pitching Reid Hoffman on network effects.

[Mike] Oh, yeah.

[Harry] What's the story here?

[Mike] Yeah, well, we went out to Greylock to convince them to invest in custom made, which they said they would if we moved out to California and worked for the CEO that they were going to place into the business. Part of that was a phone call with Reid Hoffman, who is a general partner at Greylock, and he asked us like, so I don't understand what are the network effects here? I mean, the story is that we had no network effects, but we did our best to cobble together some sort of like, yeah, this is how it all fits together. And he's like, uh-huh. And that was pretty much the end of it. And they ended up not investing, but we were able to raise money in Boston, frankly, by people who were a little pissed off that Silicon Valley was trying to take two entrepreneurs and put them over in California.

[Harry] What have you changed your mind on in the last 12 months?

[Mike] How to eat better. I've really embraced fasting as a way of life, and that has changed dramatically in the past 12 months. I see you shaking your head.

[Harry] You fool. It's like, how restrictive windows. Fine. It's not great. It's actually bad for muscle depletion. Scientifically proven. It's painful.

[Mike] I'm talking about longer fasting than intermittent fasting.

[Harry] Oh, God. How long are you fasting for?

[Mike] Well, in October, I did a seven day fast. That was pretty fun. I typically do a 36 hour fast once a week. Longer than like just intermittent.

[Harry] Are you married?

[Mike] I am.

[Harry] You chose the two most painful things to engage in in life.

[Mike] Agreed on the second.

[Harry] Your wife won't listen. It's fine. Tell me, what's the most painful lesson you're pleased to have gone through

[Mike] This year have really, as we talked about at the beginning, I've held a lot of fear of abandonment my whole life, and I've actually come to grips with that quite a bit. And it's been a huge lesson of the year that I've been happy to go through, where I've had to, in some circumstances, stare down what it would be like to be abandoned. And I've been like, I'll be fine.

[Harry] Did you see a therapist? Did you do psychedelics?

[Mike] Yes. Yes to all that. Yeah. Which one worked? MDMA journey worked tremendously well for abandonment.

[Harry] Wow. That's awesome. Tell me, will Trump win?

[Mike] Probably.

[Harry] Do you think so?

[Mike] The problem is, who is he going to run against? I guess Joe Biden, right? We all have to.

[Harry] What about DeSantis?

[Mike] I don't think DeSantis. I mean, what would have to happen is the Republican Party would have to have a backbone and be like, no. But what they want is somebody who's electable, and they know that Trump is electable. And despite all of the drama and all the issues with Trump, he progressed a whole bunch of conservative initiatives that people are willing to hold their nose and vote for the guy. I do think he has a very high chance, certainly a high chance of getting the nomination. And then if it's like Joe Biden, like, shit, I think he could beat him this year.

[Harry] Is Trump good for your business?

[Mike] Some of Trump's policies, certainly on the tax side, were very helpful for the business. I think Trump in general, not helpful for the business. A huge distraction, a huge amount of like social unrest and concern. But from like, hey, were we able to depreciate the dry ice machine super fast and like offset our taxes? Like, yes, we were. But honestly, I don't think the other side is much better.

[Harry] 2020 VC cheers Trump dry ice on you. What do we think for that title? Solid attention grabbing. This is unlike any show you've ever done before. Tell me, what's the one word you'd have on your tombstone and why?

[Mike] I like the word onward from a tombstone perspective. I'm really, you know, fascinated by what's behind dying in this body. Where does my spirit go from there? I don't know. That might be a tough word for my kids to see every time they go to my side. Like, all right, well, onward, you know, get on with it. Maybe love would be a better one. But onward is what came to mind first.

[Harry] Tell me, what would you most like to change about the world of VC? Like, do you like VCs, Mike? Or do you just look at them and think you fucking time-wasters on Twitter who just pontificate tell me to cook steaks on Mount Everest and sit and do podcasts? Like, you can be honest.

[Mike] I know. Like, I look, so I LP in funds. Like, I think VC as an asset class is interesting, a great way to expose people who are interested in like getting small company exposure. Like, I think VC and honestly, for the VCs, I mean, between the fees and the carry, it's like a great business to be in super low overhead, super high margins, a great business. If I could change one thing about VC, I think it would be that I don't think most founders think before they start raising money, they think that they have to raise money in order to build a successful business. I just wish they didn't. I wish we could like and I know some VCs are like, don't raise from us if you're not into, you know, getting on the VC train.

[Harry] But I think that it provides security. If you think about it from the founders perspective. Oh, great. If I raise, I went to Stanford, I worked at their table or Twitter or wherever I worked. Great. I can pay myself for 24 months, relatively okay salary, safety.

[Mike] Totally. And you know, I recognize that that's really important to some people. And I think there are ways to, for example, get fired and collect unemployment for that year and like take a reduced salary and like figure it out. And I think there are things that you can do. But if it's like, Oh, I need the safety. I have got a young family at home. I've got a mortgage to pay. Like, I need the safety. Like, okay, that's fine. First of all, don't come and say you think this is the last round you're ever going to do because that's not how it works. Like you're going to be on the VC train and the VC train runs fast and like you're on that train. Also, the great thing about VCs is that they can provide a lot of external knowledge because when you're running these things, you tend to be doing it alone. And it's really nice. Like I have a board, not because I need one, but because like, I really miss the days of VC where people would come in and beat the crap out of me and I'd have to defend myself and then be like, Oh, you're pretty smart. Like, cool.

[Harry] Who's on your board? You could choose your board. That's a very luxurious position.

[Mike] Yeah, right.

[Harry] Who did you choose?

[Mike] The most interesting character on my board is this guy named Gary Loveman, who is a Harvard Business School professor. He also was the CEO of Caesars Palace. Caesars brought him in at first as a consultant to help them figure out how to basically use loyalty as a way of getting people into the casino. Then he became the COO and then he became the CEO. So Gary's claim to fame. He was the architect of using like loyalty cards in a casino for the first time. And if you think about a casino, like when you're losing money at Blackjack and a waitress comes by and asks you what you want to drink and then you order and then it takes a really long time. By that time, you've like added a couple more hundred dollars into your giving it to the dealer and started to lose that money too. It's not by chance. They have architected an experience from end to end using data and using behavior to keep you playing. I like to think that our mission of getting people to be more successful in the kitchen and eat healthier is a little more noble than getting people to gamble. In the mix, it's like the same thing, right? It's how do you delight people? How do you use data to suggest like that perfect moment where you want to do something or we talk about building the Caesars Palace of meat here. Very lucky to have him on my board.

[Harry] Penultimate one, if you were to choose an influencer to promote ButcherBox, who would it be and why? I would say Arnold Schwarzenegger because, you know, he kind of came out as like, I'm eating more plant, but definitely eats meat. The quality of the meat is really important. Everybody in the United States knows him. And if he was to say that ButcherBox was his choice for high quality meat that he could trust, I think it would be amazing.

[Mike] I think a Mike Tyson, you could have the caption because they ran out of ears. I mean, I really want to go on the Mike Tyson podcast. Like that's a dream of mine for the year is to be on hot boxing. So if anyone knows how to do that.

[Harry] Listen, we have many, many hundreds of thousands. Who knows? You might get an email. Final one, my friend. It's what is it? 2023 now. It's 2028. You said about lifestyle design three years out. Let's do lifestyle design five years out for you now. What do you want?

[Mike] For the business or for myself?

[Harry] Both.

[Mike] So I'm really enamored with this idea of running this to a billion dollars in revenue. Also, I think like at a certain point, I'm probably not going to be the guy running this on a day to day basis. I don't know if that's happened in five years. I think we'll be north of a billion in five years, but I'm not sure I'll be like, okay, I'm done. I want to go work on something else. We'll see.

[Harry] Does it get easier over time?

[Mike] It gets different. It doesn't get easier. You know, as soon as you have like product market fit, which is really hard to get. And my first company, we didn't, we never got there. You just have new challenges, right? The challenges don't end. And I think like in it becomes a journey of self discovery, you're showing up and what is driving me to like not sell tomorrow and to be like, I want to keep going. You start to realize how your decisions have much deeper, especially if you don't, if you haven't raised money and you're kind of like, nobody's telling you what to do. For me, it just gets very different, like the conversations or the things I'm working on and we're 215 people. And that is also not something to mess around with either. I miss the days of like a dozen people who I could just wag my finger at and…

[Harry] That’s an insane revenue per head though. 3 million. Mike, was this show what you thought it would be?

[Mike] This was the most enjoyable podcast preparation and research that I've been on. And I, you know, I was on how I built this. I was on some other podcasts and then I was amazed that like, what are we on? Like podcast 2697.

[Harry] This is content. It's a long game.

[Mike] I mean, shit, man, that is incredible. You've almost got that 10,000 hours of like, I'm sure with everything in you, you know, you can tell when someone cares about telling your story or like asking you questions to help you tell your story versus just like, all right, I didn't really read anything and let's get going.