217: How $100M DTC Brands Actually Measure Growth with Lomi Founder, Gareth Everard

In this episode, Gareth Everard, founder of Rockwell Razors and co-creator and former CMO of Lomi ($100M+ in 2 years), explains why revenue growth can be misleading and what serious DTC operators track instead.

We unpack Gareth’s 4-lever framework for building a profitable eCommerce business, how to calculate allowable CAC before you truly know LTV, and why relying on future LTV assumptions can quietly break your financial model.

We also get into his preference for funding via revenue over venture capital, why bundling often beats subscriptions, and the launch mechanics that helped Lomi generate $3M in its first 72 hours on Indiegogo.

Mic Drop Moments

• “Being able to fund your operations out of revenue rather than selling a portion of your future outcomes to a venture capitalist, I would say, is always preferable.” – Gareth Everard

• “Revenue as an isolated variable is relatively unimportant when you compare it with something like contribution margin.” – Gareth Everard

• “I generally don’t get out of bed for anything less than 80% gross margin.” – Gareth Everard

• “If you’ve got a business that generates contribution margin and you’re not a total psychopath on your OpEx. You’ve got hopefully cashflow positivity, and that means optionality and that means you can really enjoy your life and build a wonderful business doing it.” – Gareth Everard

• 01:27 Crowdfunding Vs. Venture Capital Funding
• 03:25 Why Revenue Growth Can Kill a DTC Brand
• 06:45 The Real Math Behind SaaS vs. DTC Valuations
• 14:18 The 4 Levers of eCommerce
• 22:54 Why He Won’t Build Below 80% Gross Margin
• 26:23 Difficult Business Models
• 30:26 Is the Subscription Model the Right Move?
• 35:40 When Bundles Beat Subscriptions for LTV
• 39:50 How Lomi Did $3M in 72 Hours
• 43:48 Using Crowdfunding for Product Feedback (Carefully)
• 47:04 Contribution Margin Creates Optionality

Brad Weimert: ​Gareth, thanks for joining me, man. It’s great to see you, dude.

Gareth Everard: It’s good to be here.

Brad Weimert: So, co-founder of Lomi, nine-figure brand, Rockwell Razors, Keyto, which is spelled key-to.

Gareth Everard: Yes.

Brad Weimert: You have a crazy track record with crowdfunding, with e-commerce, and one of the things that I like about you in general is your depth of understanding and attention to detail on business, but really most things, so I’m excited to talk. As a starting point, if you had to pick one forever, crowdfunding or venture capital?

Gareth Everard: That’s an interesting question. I think the ability to crowdfund something, if you have strong enough product market fit, that means that you’re funding effectively with revenue prior to necessarily delivering a product. So, you’re effectively using revenue collected in advance of, let’s say, product or service delivery, not that services are crowdfunded successfully very often in my eyes. But yeah, I mean, revenue, being able to fund your operations out of revenue rather than selling a portion of your future outcomes to a venture capitalist, I would say, is always preferable.

Brad Weimert: So, if you had to pick one, crowdfunding’s the answer?

Gareth Everard: I would say so. I mean, I don’t know that crowdfunding is always like the right revenue collection tool necessarily, but if I can reframe your question into like funding, funding via revenue, however you can find it, versus venture capital, I would say revenue, albeit there are certain situations where, of course, venture capital represents access that revenue doesn’t. In terms of if you are in very certain verticals, there may be like prestige venture capitalists that actually going through funding with them, you’ll find that you have access to grander revenue generation and ultimately profit generation opportunities than you might have without that venture capital. So, it is difficult to paint this black or white, but in general, I would say we’d abstract towards valuing revenue over funding through external capital.

Brad Weimert: Well, a bunch of complexities and threads to pull on there. I want to get back to the crowdfunding side of things, and actually, that path that you just went down, because you’ve done both crowdfunding at a great level and also gone the VC route with Keyto. But before we go way down that rabbit hole, a couple of other quick ones. You’ve spent a lot of time direct-to-consumer online. What is an overrated D2C practice that everybody’s doing right now or thinks is great?

Gareth Everard: I mean, I think first off, something that’s very outdated, and I think is now coming into it’s being recognized as outdated, just by an economic forcing function was for a long time, there was a big focus on revenue as like a very important metric in direct to consumers, specifically revenue growth. That is important in the general scheme of like growing a business, but revenue as an isolated variable is relatively unimportant when you compare it with something like contribution margin, which, for the purposes of this conversation, will define as revenue minus COGS, like fully baked COGS, I mean like product cost, import cost, fulfillment cost against an individual order. And then within contribution margin, we will also subtract all marketing costs.

So, effectively, it’s like everything that’s left for you to pay rent, people, overhead. So, that’s how we’re going to define contribution margin. That’s a much more important number than revenue because, of course, if you’re thinking through that calculation, you could see a world where revenue growth is quite high, but you’re spending more than you’re actually otherwise making in contribution margin. So, you’re losing money, but you’re growing. And companies that did that were very reliant on venture capital to what we were talking about before.

And when you’re very reliant on venture capital, and there’s a market correction where perhaps everyone all at once realizes that direct-to-consumer physical products, brands should not be valued like consumer or B2B SaaS companies, which happened. And many brands that thought that they had fairly long-term access to patient capital did not. And we had a lot of brands that thought they had product market fit and they had a lot of runway to grow their revenue, and eventually, “catch up” on the profitability, ran out of said runway, and have perished.

Brad Weimert: Well, I have, I mean, as I’ve probably said a million times on this show, bootstrapped everything in my life, and I have lots of leverage when it comes to real estate, but nothing in the rest of business. So, I have a pretty strong bias towards it. Now, that said, as I’ve talked to more and more founders that have gone the funded route, and you delineated those two things very well, which is funding with revenue, meaning that you are pre-selling customers, which is an unusual proposition in general. This is kind of unique, as far as I know, to the crowdfunding world, and we can talk about the details there. If there’s another path that you see versus taking on debt to do something or giving away equity.

In either case, you are bringing on money to grow the business for a future promise. One of the things that I find challenging and interesting is this idea of a business model being viable without margin, so you running at a net loss for the sake of the future, and maybe the business making sense in the future. And my internal bootstrap entrepreneur wants to call that not a real business model because you’re like, “Hey, you’re not making any actual money. What the f*ck?” On the other hand, it’s hard to dispute that the impact that many companies like Uber, for example, who’s run net negative forever, add to the world.

And so, I think about those things, and I struggle with them. How do you look at kind of the value of a D2C company that doesn’t have much margin, but is providing an awesome product and still moving, versus a SaaS company? Because we talked about the future value of those companies. How do you look at kind of the intrinsic value of each of those companies, not necessarily to an investor, but to the world at large?

Gareth Everard: Yeah. So, I mean, we can spend a lot of time digging into this. I think we want to separate out what you’re talking about around profitability into both of the gross margin level as in revenue minus the actual product costs, and then contribution margin. So, that’s going to be minus your product cost and your marketing costs. I think there’s actually a lot of businesses that have okay gross margin. They’ve built a product that they charge quite a bit of money for, and they can manufacture it and deliver it for, hopefully, not too much money, but it may be their marketing cost and their willingness to spend quite a bit to acquire customers, that is putting them negative or break even on contribution margin, which of course means that you’re net negative after incorporating any sort of additional like overhead, OpEx, et cetera.

So, I think when we’re looking at something like that, you could ask yourself, “Okay. Well, if we actually do have strong gross margin, right? It’s just the initial customer acquisition that costs quite a bit of money. Hopefully, a company that’s done that, but actually does have what we could objectively look at and call a sound business model underlying. My immediate assumption would be that they’ve got a strong, I’m not going to call it necessarily a subscription, but like some sort of driver of lifetime value, subsequent orders. So, I don’t have visibility into the backend of the economics of some of the companies that I’m about to give examples to on a cohort analysis basis. Obviously, some of these companies are public, but like Hims would be a good example. And then I think there’s Ro. These are like men’s health, predominantly.

Brad Weimert: The ones you’re most familiar with personally.

Gareth Everard: Oh, yeah, yeah, for sure. You know me. Yeah, I’m all up. I’m clearly working very hard to resist this hair loss. I’m not a customer, but from what you can see online, obviously, those are very expensive categories to acquire customers in. So, inherently, I believe, actually, there was like a medium article that somebody posted about Ro specifically years ago. This is why it comes up as an example that went into their economics. And if I’m remembering properly, they were acquiring customers on a price that assumed that the customers would stay around for at least nine months. They would hit breakeven on a customer acquisition after nine months. And then after that, because it’s pharmaceuticals, the margins are incredible.

The gross margins are incredible, and I imagine these are decently sticky product categories, if they’re problems that you have in terms of hair loss, or I think Ro also gets into like erectile dysfunction stuff. So, I can imagine that those are sticky enough categories, if that’s problems that you’re looking to navigate. So, that would be kind of the calculus on that side. Granted, if you don’t have good gross margins, then that’s going to be really challenging, even if you’ve got a really strong lifetime value, lifetime revenue driving mechanism, but your gross margins aren’t very strong. That’s just going to extend the amount of time that it takes for you to pay back your acquisition costs.

And maybe that is or is not possible. So, that’s why we often did see venture capital-funded D2C brands. There’s like this immediate kind of push. And if you listen to venture capitalists in the space, there’s this very frequent push to lifetime value as the driver to get to customer record level contribution margin positivity. And I’m sure within the frame of this conversation, hopefully, we can help the listeners understand that’s certainly not the only way to do it, but it is a way that makes you very reliant on venture capital because you need some sort of financing vehicle to finance that nine-month gap from when you are making a loss on the customer to when you’re profit cohort level profitable.

Brad Weimert: Well, we’re also going to have to help some of the listeners follow the litany of business terms that just got thrown out, business marketing, and e-comm terms that got thrown out. I think that before we kicked off, we were talking about kind of how wild it is that there is a massive amount of the entrepreneur ecosystem that really doesn’t have a grip on fundamental business levers and models, right, and doesn’t run a clean operating system. Part of that is that it’s easy to get lost in jargon. And also, people define terms differently in different ecosystems, environments, friend groups, even. And people just use terms wrong. So, I want to clarify some of this, but I think all of that was very well said.

Fundamentally, I think what I heard was the reason that some direct-to-consumer physical products get evaluated like SaaS or did is because certain classifications, certain groups of products have reliable reorders, or we think they are, and you call that sticky, aptly. So, SaaS platforms get valued really highly because once you start using software as a service, at least in some categories, the switching cost is really, really high. So, people tend to be stuck on that platform for a long time, which is why Salesforce has historically been valued so highly, which is why HubSpot’s valued highly because once you start using it, your business is built on it. So, the likelihood of you leaving is pretty low.

Similarly, if you have a problem getting hard, you’re going to buy ED pills for a long time, or which is the example that was used. Or if you’re losing your hair, you’re probably going to keep buying that pill for a long time. That said, most businesses that calculate subscriptions count on, and this is a very overarching generalization, but count on subscriptions dying after three to six months. And so, certain categories might last a long time, but nine months seems like a wild amount of time to bank on the average subscription to last when you’re looking at calculating LTV. So, lifetime value…

Gareth Everard: Yeah. We are relying on my flawed memory of a medium article many years ago, but I recall it being approximately nine months at the gross margin and the acquisition costs that were true at that time, which I’m sure are vastly different now.

Brad Weimert: Anybody that listens to anything anywhere in the world right now and doesn’t fact-check and just regurgitates the specifics as if they’re gospel is a ridiculous human. You have to fact-check the specific if you actually want to drive down that path. But the general concept, I think, is what’s of value in this situation, right? So, it’s not the specific model or the specific business. It’s the general model that I think is interesting, which is, how much is your customer going to be worth total in their lifetime? And you can spend some portion of that to acquire them, but you need to be able to pass that acquisition cost to actually make money. And in this case, the example was nine months, which is a long time.

How do you think about calculating lifetime value? And so, let me actually back out and tell you why I’m saying this. When you start a company, you don’t know the lifetime value of the customer. All you have is conjecture. And maybe you can benchmark it against existing companies that are out there, but you don’t know. And so, how do you think about establishing the lifetime value of a customer, what you think they’re worth, in order to figure out what you can spend to acquire them on the front end?

Gareth Everard: Yeah, it’s actually predominantly an exercise of reverse engineering. So, would you be comfortable if we perhaps start at the beginning?

Brad Weimert: Let’s do it.

Gareth Everard: Okay. So, lifetime value is the fourth lever in a framework that I use for all of my businesses that I call the four levers of e-commerce. I have no idea if I came up with it or if I read it in a book. I have no clue. At this point, it’s just how I run everything. I have no recollection of where it really came from. It’s just developed over the years. So, we’ll get to lifetime value. It’s number four of four, but first, I’m going to always look at, okay, so there’s something that’s going to come into fruition or a new offer that’s going to come out within a company that I’ve already got rolling.

So, lever number one is offer/AOV. So, that’s going to be the product itself, how it is presented to a customer, whether it’s a standalone product, perhaps a bundle, and what’s the average order value of this presented offer. And then that average order value is going to have an associated gross margin to it, right? So, let’s pretend that, for my razor business, I could have a $100 razor and that the landed and fulfilled COGS on that razor is exactly $20. That means the gross margin on my offer/AOV for this new $100 razor is so the AOV is $100, and the gross margin is $80, and I’ve got like this well-defined sort of set of initial variables for my experiment, for my container.

So, my second lever is going to be CVR, conversion rate. That’s very important. So, we’re going to have some amount of traffic going to the website that houses this $100 razor offer that generates $80 of gross margin every time it is purchased. So, let’s say that for every 100 visitors to my website, a fairly normal 2% of them convert. So, that means that for every 100 visitors, I can expect $160 of gross margin to get generated, right? 2% of 100 visitors is two. Two transactions is $200, which generates 80 times 2, $160 of gross margin.

So, now my third lever is going to be traffic affordability. That’s fairly easy, actually, to calculate. And within a hypothetical where we assume 100% of the traffic that I’m sending to this $100 razor offer is paid, which it’s unlikely to be the case because there’s all sorts of organic ranking and now there’s LLM search and all sorts of stuff. But let’s assume that within this experiment container, it’s 100% reliant on paid. Well, that means I know that within the 100 clicks that I need to send to my website to make $160 of gross margin, I can afford to spend up to $160 to send that traffic in order to be breakeven or contribution margin level positive. So, I’ll probably pick a number lower than 160 so that I actually have real contribution margin on the bone in order to cover OpEx and new inventory purchases and all that.

But I would ultimately calculate my traffic affordability based on my CPM, so my cost per 1,000 impressions. Now, I recognize we’re mixing up numbers here. Now, we’ve got CPM, which is a thousand versus a hundred visitors, so please bear with me. Obviously, if we have a CPM of 20, then the cost per 100 clicks is 2, but cost per 100 clicks is not a metric that is presented in any paid media platform. So, we’re stuck with CPM, cost per meal. Apparently, the French got in on that. And then once you’ve got your CPM, you’re going to have some sort of click-through rate, right? And some percent of those impressions, let’s say, it’s $2 per 100 impressions. Some percent of those impressions are going to turn into a click.

And out of that, you can derive, ultimately, the cost per click. And if we know that our cost per click, sorry, or clicks, then we now have defined the cost of convert overall 2% of those clicks turn into a conversion, and every single one of those conversions is a $100 AOV that generates $80 of gross margin. We can actually calculate how much we expect to make per click, even if we want at a general contribution margin level. So, then we can reconcile that with whatever our day zero contribution margin generation target might be. And that brings us to actually answering your question around lifetime value. Perhaps if there’s no way within our industry and within our ability to make paid ads, or blend paid ads with organic traffic, there’s actually no way to be day zero profitable.

Well, then perhaps we might look at, is this a product that’s going to generate with very high certainty additional orders on a high percent enough of customer records that we’re going to reach overall contribution and hopefully net margin positivity? And so, I’m actually going to calculate my desired lifetime value, or how I’d be thinking about lifetime value. I’m more of a rolling basis. I’m not going to actually start with that just to kind of fully answer your question. I’m going to observe how LTV expands and what I can do to improve LTV, whether it’s introducing subscriptions or coming out with accessories, perhaps for a product or like incentivizing gift purchasing if someone really likes a product. Or purchasing additional units of something for their own household, or like if someone has second households, purchase them for second households.

There’s many different ways you can apply lifetime value, but I think that if you assume going in that, “Hey, this is going to be reliant on someone purchasing this product for X amount of time,” with that X potentially being a really high number, you’d have to go in with an extremely high degree of certainty that you’ve got the product market fit level to be certain that you’ll hit those numbers, or else you might end up with a problem. Well, yeah, you might end up with a big problem in terms of a large gap between the contribution margin you’re actualizing versus what you assumed in your lifetime value reliance of your financial model.

Brad Weimert: Okay. So, a few things here. First of all, for all the people that were just like, “Holy sh*t, I can’t do that math in my head,” I’m sure we will make a YouTube clip out of this that breaks down the math and has pretty pictures and all that…

Gareth Everard: You can do the traffic affordability math for me, too. I lost myself a little bit there, so I know it checks out, but I couldn’t do it.

Brad Weimert: I have all these finance friends, and they break down lending and funding options, and I’m just like, “Bro, put it in a spreadsheet for me. I don’t know what the f*ck you’re talking about right now.”

Gareth Everard: I could do it in a spreadsheet. Let me know if your editor really gets lost, I’m happy to make a spreadsheet.

Brad Weimert: So, short answer is rewind that or check the YouTube channel. But the overarching message that I got there was, and I want to ask you some questions about it but was back into what you can spend for the first purchase. And so, use the term day zero profitability. And I think what that means is, what can you spend to make sure that whatever you spend on ads, you are breaking even immediately, which then allows you to continue to spend money on ads. And if you don’t break even on your ads, then you get into the position of what we were talking about at the start, which is what is the lifetime value of the customer?

And if you have money in the coffers, if you can spend more, and you can say, “Hey, well, I know that month two, we’re going to convince this person to buy another 50%, right? So, if they spend $200 the first time, they’re going to spend another $100 later, the lifetime value is going to be $300. I can spend a little bit more on the ad on the front end. But your point was you don’t know that on the front end. You don’t know what the lifetime value is going to be. And so, you look at that and consistently reevaluate that as the company grows. Was that the…?

Gareth Everard: That’s right. So, I call it my allowable CACs. So, my allowable CAC expands as the aggregate lifetime value gross through the life of the company growing.

Brad Weimert: Okay. So, the other question is, how do you approach finding these numbers on the front end with a brand new product, brand new business?

Gareth Everard: How do we approach, like determining what we might charge?

Brad Weimert: Yeah. You’ve got average order value, which you could just guess at, or just set a number and say, “I expect to sell one per order.”

Gareth Everard: Well, I generally don’t get out of bed for anything less than 80% gross margin. So, like that’s a good place to start. So, this will be determined a lot by manufacturing costs, so we can do the work to get our manufacturing costs as reasonable as possible. And then you just kind of price accordingly. My personal target is the 80%. I have launched stuff with less, but yeah, generally, I’d be interested in 80% fully baked gross margin.

Brad Weimert: So, that’s a great takeaway for anybody that’s trying to get into physical products at all. It’s very easy to think, “Oh, I’ve got a 50% margin,” or “Oh, I’ve only got a 30% margin.” When you look at restaurants, we’re down to like a 10% to 20% margin or whatever. Physical products direct to consumer, you’re leaving 80% because the cost of acquisition of those clients is super high. Generally, is that the main reason?

Gareth Everard: Yeah. Generally, I would say that when you’re operating in, like look back on the products even that I’ve created within the direct to consumer portion of my life, which is what I guess we’re talking about specifically on this podcast, but like I’ve had a hand in creating an adjustable safety razor that we patented globally, which is great, but like ultimately it is a razor that uses a very old-timey kind of razor blade, and it’s for people who otherwise get like ingrown hairs or have very sensitive skin, like it’s not a massive total addressable market. Then beyond that, we launched a ketogenic diet breathalyzer, under obviously a different brand, Keyto, that you mentioned.

That was kind of at the peak of the burgeoning interest in keto before the pandemic happened, which I would argue substantially dropped interest in keto. And now we’ve kind of gotten back to a point where I think interest in the ketogenic diet is sort of normalized, for lack of a better word. And then the other brand that I believe we’re talking about is Lomi, which is a home composter. So, it’s a little bit bigger than a toaster, a little smaller than a microwave. You pop up in the lid, put in food scraps, push a button, and it turns it into like a material that is effectively like plant nutrients, so you can feed it to your host of plants or your garden. You’ll notice all of these are fairly niche products.

They’re not necessarily things that anyone was apparently going around dinner parties, going up to a friend and being like, “Oh my goodness, Brad, you know what I really need in my life right now?

I’m envisioning a machine, a little bit bigger than a toaster, a little smaller than a microwave. I can pop up in the lid and put in the food scraps after I’ve cooked for the day and push a button and turn it into things I can feed to my plants. Like, no, these were really interesting, novel creations that many brilliant people, like beyond myself, got together and like created using scientific method and experimentation and then like harnessing of a bunch of different atoms and manufacturing playbooks to create something that actually does what it says on the tin. But to like spread the awareness and interest of said products into the general market is quite expensive.

And in general, I would say in direct to consumer, you’re kind of in this crucible of other people in the same boat, so the industry as it were. Like direct to consumer, what I’m going to define is like a subset of retail, right? You’re talking about the retail category and there’s subset of online retail. Then there’s like DTC, sort of like Shopify-esque, online retail. And then there’s a space that I’ve chosen to particularly play in, which is like novel products with average order values between $100 and $500. Historically, that’s where I’ve played when I’m doing D2C e-commerce.

So, that’s a very like specific subset. And I would argue that many of the operators in that space, they know that they have to abstract to fairly high levels of competence around marketing. So, the result of that is marketing costs within these sort of like novel consumer goods categories tend to be relatively high. So, you have to leave “quite a lot of budget room” for customer acquisition, typically.

Brad Weimert: Well, again, a thousand questions to go down here, paths to go down. But let me, since you brought this up, you’ve got this what you define as a kind of narrow category 100 to 500 bucks unique products that don’t necessarily have a large market yet or you’re unclear on the TAM that solves specific problems that maybe people don’t know they have, like creating a magic dirt machine, Lomi. Why is that the path that you go down when you want to create a business? Why both direct-to-consumer e-comm and why the headache or the burden of creating a brand-new unique product? What’s the goal?

And the reason I’m asking that is because it’s a very difficult path to have a totally unique product that you manufacture yourself, that you go out and market yourself. There are tons of ways to create businesses that are sort of lookalikes that can make you money. And that’s the path for most entrepreneurs is what’s the lower barrier to entry. You threw up a whole bunch of roadblocks to get these things off the ground. Why do you choose that instead of an easier path?

Gareth Everard: Yeah, it’s a very fair question and one that I ask myself increasingly, more frequently. I think the answer is, I did it because it’s what I knew for a very long time. And it is like what I do disproportionately have context on, but I think there is perhaps the pleasure, the opportunity of like getting older and hopefully, fingers crossed, a little bit wiser, is you do actually begin to learn that there is applicability of what you’ve learned into other categories.

So, you, I mean, you and I have known each other for years. You’re my friend. Like, I’m sure you’re able to kind of sit there and say, “Well, Gareth, of course,” like we’ve had conversations not dissimilar to this. It’s like, it’s not surprising to you, Brad, to be like, well, these models are applicable to other categories, but if you’re day-to-day doing what I’m doing, you may not necessarily, unless you deliberately step back and take a look and say, okay, what have I learned? And like, is that actually applicable outside of just what I’ve been deploying my time into?

Of course, the answer is when you do do that, you realize, yeah, for sure. So, we’ve talked about three examples of products I have historically started. If we had to look one or two years into my future, if we’re doing this podcast again in two years, my suspicion is there would be very few additional consumer physical products launched, right? Like, just given there is a lot of complexity and once you do have a handle on the quantification systems around the things that make consumer physical products work, you realize, well, that’s great. You’ve actually been playing in one of the arguably more challenging gladiator arenas in terms of bringing a marketable asset to market.

And there’s perhaps other ways to explore, leveraging these business models in a way that is like both cashflow friendly, which direct to consumer is not, it’s terrible for cashflow, as well as profitability-wise, something that doesn’t necessarily involve– and CapEx, like all the R&D that goes into it and then waiting for inventory to come in. Yeah, and the margins are just, they are actually tough. You can decide to do 80% plus gross margins, but that doesn’t mean that it’s easy. It’s very difficult to get products to a point where they make 80% plus gross margin, let alone 75% plus.

Brad Weimert: Yeah. Well, I think, I want to be clear for the sake of myself and anybody listening, which is that the underpinning of my question was, there are easier ways to make money. Basically, it was the fundamental. Now, there’s a select portion of entrepreneurship that will make the argument that it’s not just about making money. And I think a lot of the time, people find that later or explore that later in their entrepreneurial journey, which I do believe is also absolutely true, and its impact and its creativity and its uniqueness, but it is just much more difficult to create something that’s truly unique, that is brand new, right?

And so, when you look at the most impressive entrepreneurial feats through my eyes, they are the things that are totally unique that people drive into a totally new space and actually create. So, I have tremendous respect for it. Also, there’s a lot of those things where I’m like, what the f*ck? No chance am I doing this right now. my business is complicated enough, and I think I forego physical manufacturing, expiring goods, overhead storage, shipping, et cetera, et cetera. So, yeah, lots of respect for it.

While we’re talking about difficult business models and the levers that make them easier or more difficult, I have heard you argue that subscriptions are a product of the– the term that I saw used was venture capitalification of consumers. And they’re not added all the time because they’re of value. (A) what does that mean if that resonates with you? (B) what products actually deserve to have subscriptions and which ones should never have subscriptions, but are often tacked on?

Gareth Everard: I mean, that does sound like something I would say. So, I believe you that I said something like that. What I mean or possibly meant by the venture capitalification is I don’t actually believe that necessarily all products that– and by the way, I’ve seen this in terms of like companies that I advise or like, have co-founded or whatever, and conversations with venture capitalists who, bless their hearts, I believe they truly believe that they’re being helpful.

But the kind of the default recommendation does go along that lever number four, LTV that we talked about, when, at the end of the day, what we’re all talking about is a company that will generate contribution margin. I would argue without talking numbers specifically, like Rockwell Razors is a company that sells a safety razor and then blades that are very cheap, way cheaper than any of the cartridge razor companies. We don’t make a tremendous amount of money on the actual blade refills themselves.

The company is just very well optimized to derive the necessary contribution margin to operate as a going concern on the first order when someone orders a razor. So, I’m not advocating that that’s “a venture scale business.” It’s just a very sound business model. Venture capital is looking for expandable TAM, something that they can make as they need to, like they need to have a shot at making a 100 times plus return on the equity that they’ve put up into a business.

So, I think a strong way to kind of adjust for that is businesses that do have long LTV potential. And I worry that sometimes the only way to test for is their long LTV potential is to almost like force it into a business model, which has, in many cases, I believe led to the subscriptionification of shampoo companies or plants companies. I mean, we’ve all probably seen Instagram ads. I don’t need to list all the examples. We’ve all seen Instagram ads for different companies that are offering a subscription for something that you’re like, hmm, I don’t necessarily need to subscribe to that.

But they may get you in with offering some sort of monthly discount in exchange for subscribing to something, like that’s fair. You’re asking me what do I think that needs a subscription? I think it really depends on the person. I think subscription, like the utility that subscriptions offer does kind of abstract towards maybe helping with forgetfulness. So, I don’t know, maybe like kitchen towel and toilet paper and stuff that you kind of go through often as a household. Like if you’ve got kids, just like food for your kids, stuff like that. Like things that just get gone through pretty often. Maybe if there’s, I guess, set rate that you go through certain food staples. I don’t know, I’m trying to think what else. Like those are things that, just on a high utility level, you’re going to…

Brad Weimert: Yeah. Let me back out and double click a little bit and just talk business model relative to subscription. So, you mentioned plants and then you mentioned shampoo. Shampoo, you go through, hopefully plants, you don’t kill routinely enough to keep buying new ones.

Gareth Everard: Oh, there’s other kind of subscriptions. Maybe it’s like a discovery kind of subscription. Maybe you’re subscribed to a curated book list or a curated plant list every month. And now you’re subscribing more because of like the curation value of the person that you’re purchasing this subscription from. The shampoo, I gave that as example of like, you might not necessarily need to subscribe to that because you may not know that you’re loyal to that shampoo yet.

I would say there’s also variability in terms of the amount that you might use shampoo, right? Like if you’re traveling a lot and you’re not actually bringing your too big to go in your TSA bag shampoo, then you probably don’t need to subscribe to the show or you’ll be inconvenienced by subscribing to this shampoo. So, this is what I mean by, I think it’s different for everybody. But yeah, if you use the exact same amount of shampoo five times a week every single week and you never travel and you’re exactly where you may and you’ve found your brand, it’s the perfect brand for you, you never want anything to change about the product, then yeah, go ahead and subscribe to that shampoo. If you find that like saving yourself 10 seconds a month is high value, go for it.

Brad Weimert: Well, I think that the– yeah, look, as a consumer and as Brad, I find many of the four subscriptions irritating as f*ck. Also, as an entrepreneur, I had a conversation with Stu McLaren the other day, who is a sort of known to be a subscription guy, previous Beyond a Million episode. And he spends a lot of time talking about memberships and subscriptions and the power of them if you can figure them out.

And so, while I find it irritating for somebody to push me into subscription, my assumption is that from a business model perspective, even if the subscription only gets another half a month, you have upsold something. Now, from a business model perspective, I appreciate that additional 50% to the top line. But when I look at kind of creating the win-win-win across the board for the vendors involved, the business itself, and the consumer, I don’t know if that’s the right win.

So, looking at Rockwell Razors, you just mentioned that you have very little revenue coming from the subscription to the blades themselves. How do you then build a stable company? And you kind of glossed over and said it was very well optimized, but is that product quality, is it instilling rituals of the consumer? Is it the marketing? Is it referrals? Is it community? What are the levers you can pull on outside of subscription to drive LTV or to drive consistent purchase behavior of the consumers if you don’t have a subscription or don’t get a…

Gareth Everard: Yeah. So, first off, we’re very disciplined on the day zero acquisition. So, we’ll never even remotely begin to approach a situation where we’re acquiring a customer at a lower than our target contribution margin. Beyond that, I do think if you go through places where I, as like a participant in the market, know people to spend a lot of money on a large quantity of some particular good.

I’m 32 now. For my entire, like I conscious, mature life, the place that I’ve heard people be most happy to buy a large quantity of a particular good is Costco. I think Costco is a phenomenal example, right, of like, you do have the inconvenience of you need to go to them. Although I understand that in some territories, delivery is getting fairly robust with Costco now.

But what they’re offering is very reliable quality. Like, you know what you’re getting for the most part, and they’re offering a genuinely massive f*cking discount. Like, they’re offering really good value and you know who likes good value? F*cking everybody, whether you’re a very high earning household, whether you’re a lower earning household, everyone likes good value. So, my instinct, if I could wave a magic wand and implement whatever I want in any companies that I have sort of like operational level control over, this is something that I’m working towards in the companies that I do have that level of control over.

But I’m interested a lot more in like Costco-esque representations of lifetime value, as in, hey, do you like this beard oil? Do you like these razor blades? Do you like this shave cream? Why don’t we give you six of them for the price of like three or two and a half? Rather than, hey, do you want to subscribe? By the way, now we’re only shipping to them once instead of paying USPS or UPS or DHL or whoever, six times to deliver stuff. It is genuinely win-win-win.

So, my instinct is that that’s going to be longer term, a much bigger win, and you’re going to capture more contribution margin and you’re probably going to capture it sooner. So, in terms of time, value of money, we don’t have to finance that acquisition cost for so long, whether that’s done with venture capital, which is this historical model, right? Like, if it takes nine months to pay back your erectile dysfunction or like hair loss pill company, you’re going to have and you’re a new company or a startup, like you lose money on a general basis, no bank’s going to offer you credit. So, you’re relying on venture capitalists to finance that acquisition. And it takes nine months to collect the revenue.

Whereas, I mean, I don’t know if, for those companies, they can necessarily send a nine-month super pack of erectile dysfunction pills and hair loss pills. I have no idea if that’s legal or not or if customers would even be in on it. But I do know that for something perhaps more pedestrian, like shave cream, you can certainly send a larger quantity and just let it rip.

Brad Weimert: Yeah, I love that. I mean, I like the general idea of, at the end of the day, somebody is financing the product. And when you sell a bundle up front versus a subscription, a subscription, your business is financing that over time, and a bundle, the consumer is actually paying for it up front, so they’re financing all of it up front. And it also allows you to…

Gareth Everard: And you can reward them with an enormous discount and they feel fantastic. You’re very happy. You’ve gotten a phenomenal payback period on your capital invested in inventory and you may have put yourself in a position where you’re less reliant on external equity capital. And if you’re fortunate enough that your business is profitable or on track to be profitable, you may be approaching a reality where you can access very affordable debt capital instead of dilution via external venture or private equity.

Brad Weimert: I love that. Okay, let’s back out to crowdfunding. So, you’ve had some phenomenally successful crowdfunding campaigns, starting with Rockwell, which had a bumpy start in a couple ways, it sounds like, and then Lomi, which did more than 7 million on the Indiegogo campaign, 3 million in the first two days. What stayed consistent in those two launches and what was radically different?

Gareth Everard: Well, I knew a lot more by the time that we did the Lomi campaign. I started Rockwell in 2014 when I was 21 and Lomi was in 2021. So, I learned quite a bit more, about myself, about business, and about actually the mechanics of the platform as well. The platforms are quite straightforward. I’ve had more experience now, I would say, with Indiegogo. A kickstarter kind of since 2014 has adjusted a little bit more to be kind of a place for gaming and media type projects.

You can kind of get a sense where if you just go to their homepage, like right now, you’ll generally see a lot more reference to kind of media and a lot of game-type properties, which is not necessarily the industry that I play within. But Indiegogo has quite a robust technology product category, which is, I guess now what the last couple campaigns, Keyto and Lomi, that I’ve launched play into. They’re fairly straightforward incentive systems and that like, these are platforms that allow you to, like, they’re a platform with an audience and a payment processing method that allows you to process a payment far in advance, far more in advance of shipping a product than perhaps like Stripe’s terms of service may allow you to do or Stripe’s native terms of service might allow you to do.

So, when you bundle those two things together, you’ve got audience that could be interested in something for pre-order and you have like the payment processing infrastructure to facilitate a pre-order. Now, I’m sure you’re the expert. There’s a bunch of other ways to facilitate like payment processing in advance of shipping something. But this has been bundled into a website that one can visit and purchase products. So…

Brad Weimert: Yeah. By the way, the footnote on that is the reason that happens is because the terms and conditions of buying something on one of these fundraising platforms, basically is you might not get the product. And so, you are funding the project, not making a purchase of the product. And so, the terms and conditions around being able to dispute that charge are very different than if you were to say pay for a product, and then the delivery was just going to be in nine months. The terms and conditions on these platforms is you’re going to pay for a product and maybe you get the product in nine months.

Gareth Everard: Now, that’s an excellent point because, of course, people still get, and I think probably rightfully so get pretty upset in the cases where there isn’t product delivery just because the nature of most of these projects is like to signal a radical degree of confidence that the product will be delivered, which is, of course, sort of part and parcel with trying to attract the pre-orders themselves.

But yeah, at the end of the day, these platforms, they do have some sort of built-in audience. They reward you massively for audience that you send from outside the platform in the first 72 hours of a launch. So, what did they like really, I know we’ve only got a couple minutes left, so I would say if I bundle up everything I’ve learned from raising 150,000 Canadian dollars,  on the very first Rockwell campaign, which I think if you convert to American, is about $62 in a button. So, versus like more than 7 million American freedom dollars on the final campaign, the Lomi campaign, then yeah, I would say that there was just a learning about the mechanics of the platform that they reward you with organic platform level visibility for driving lots of people from outside of the platform in those first 72 hours.

So, for Lomi, that’s exactly what we did. We were super ready with this, like 500,000-person email list to drive to the Indiegogo platform the minute that it went live. And it was very sophisticated kind of tiering around like who would get the email first and who would get access to all these different VIP level pricing. So, that drove those $3 million of transaction volume that you’re referencing kind of in the first 72 hours or so.

Brad Weimert: I love that. So, I mean, that’s a huge takeaway and I think it’s a really valuable takeaway for probably launching on any platform, period, which is if you have the capacity, even if you don’t, if you put together a plan to drive as much energy as possible to a dedicated platform quickly, the platform is going to reward you by showing it to other people on the platform.

Gareth Everard: I mean, yeah, as long as it’s a remotely smart platform, that’s how it should be architected.

Brad Weimert: And I would mean by a platform, LinkedIn, Facebook, TikTok, Instagram, et cetera, which would be the corollaries here. So, most people, if they’re launching a product, they’re not using a crowdfunding platform, then the same thing is going to be true, right? If you have a social post and you manage to get a sh*t load of external traffic to that post to engage with it, it’s going to signal to the platform, hey, people will comment here for this. Yeah, this is something people want to pay attention to. Let’s push it.

So, you’re 3.3 million in the first two days, a lot of that for Lomi, a lot of that came from external sources that you drove to it. And then once it hit there, the rest of the Indiegogo platform got to see it because so…

Gareth Everard: Yeah. We must have been on the front page of Indiegogo for like the entirety of the campaign. I don’t think there was a single day that we weren’t in like the top five and we were number one for like most of it.

Brad Weimert: What do you think? So, one of the other things that I find interesting about the crowdfunding platforms from your perspective, first and foremost, you hit it from the beginning, which is you look at it as consumers financing the growth of your company versus going to an external party to finance it. So, purchases, actually, financing it versus external parties, which you don’t have to give away debtor equity for. How do you look at the crowdfunding platforms as an opportunity for product market fit and for research on the product itself?

Gareth Everard: Yeah, I mean, I think you can do that, right? You’re going to have all these individuals who were kind enough to kind of buy in before the product actually exists that you might be able to collect kind of like non-critical path feedback on the product before it launches. But I think it’s going to be challenging if you’re not actually sure where you’re going with the product to crowdsource that feedback while also crowdfunding. So, I think you probably want to be at least 80% of the way there on the product.

And then any gaps that you need to fill in, yeah, you certainly have people who I would argue are more bought in than the general public in terms of giving you actionable feedback on kind of filling in the final details around bringing that product to fruition. You also have to be careful around these not being changes that are going to put your production schedule way, way out of WAC, because now you’re not delivering on time to these people who’ve very kindly given you revenue in advance of the product actually even existing.

Brad Weimert: Spoken from a man who did not have a great production run on the first project.

Gareth Everard: In my first one, when I was 21, big mistakes there.

Brad Weimert: So, tell me about a razor you created that might have devastated the faces of half of the purchasers.

Gareth Everard: Well, I think, actually, because I’ve got to hop in two minutes here, so I’d just say if you really want to know, you can Google, there’s VentureBeat. Hopefully, that publication still exists, but VentureBeat and I think there’s how my kickstarter blew up my life. And then you can Google my name, or Brad’s going to put it in the show notes. I’m just realizing that’s how podcasts work. You can put a link there.

Brad Weimert: I love that. I will do that. Okay, well, in the interest of time, what advice do you have for new entrepreneurs starting out today?

Gareth Everard: Contribution margin is absolutely everything. You can do kind of whatever you want. Just make sure that you’ve actually understood your business model contribution margins, the most important number, I would say. And if you’ve got a business that generates contribution margin and you’re not a total psychopath on your OpEx, then yeah, you’ve got like hopefully cashflow positivity, and that means optionality and that means you can really enjoy your life and build a wonderful business doing it.

Brad Weimert: What is a belief that you had about marketing when you started that you’re embarrassed about now?

Gareth Everard: I think just that it was hard. Actually, it’s all math. It’s all quite easy. Like, obviously, you need to incorporate some sort of visibility into how, like consumer psychology, and I think that you can learn that over time, but it’s substantially more quantifiable than most people think it is.

Brad Weimert: Gareth, I appreciate you carving out time, man. It’s always good to talk.

Gareth Everard: It’s always good to talk. Good to see you, dude.

Brad Weimert: You too, man.

Gareth Everard: Okay. Have a good one.