Building a Supplement Juggernaut: Ora Organic's 10-Year Financing Journey

Keith Kohler launches his new podcast "How I Financed It" with a candid conversation featuring Ora Organic co-founders Ron and Will, who share their decade-long journey from maxed-out credit cards in the beginning to sustainable profitability today.

The founders reveal how their personal motivations—Will's frustration with supplement transparency during his "junk food vegan" days and Ron's family health challenges—fueled their mission to create plant-based, organic supplements with traceable ingredients. Their financing path unfolds like a masterclass in entrepreneurial resilience, starting with $150,000 from friends and family, progressing through SBA loans, and leveraging a Shark Tank appearance to secure a million-dollar convertible note.

What makes this conversation particularly valuable is the founders' transparency about pivoting when necessary. They explain why they scaled back retail operations despite initial success, focusing instead on direct-to-consumer channels where their marketing dollars worked harder. When the pandemic dried up equity markets, they resisted the common advice to "take a hatchet" to their business, instead making incremental efficiency improvements that preserved growth while achieving profitability.

The conversation offers a wealth of practical financing wisdom rarely shared so openly. Will admits he would have "started with the finance side earlier," focusing on profitability from day one, while Ron emphasizes maintaining relationships through difficult times. Their recent equity financing marks not an overnight success but the culmination of calculated decisions, strategic pivots, and unwavering commitment to product quality.

Whether you're bootstrapping your first venture or navigating growth challenges in an established business, this episode delivers invaluable insights into financing options beyond the traditional equity path. Connect with Keith on LinkedIn at Keith Kohler1 to continue the conversation about financing strategies for your business journey.

Connect with Keith on LinkedIn - https://www.linkedin.com/in/keithkohler1/

Transcript

Introduction to How I Financed It

Keith Kohler 0:03

Hi everyone, it's Keith Kohler, your financing man, and welcome, welcome, welcome. Welcome to the premiere episode of how I Financed it, and this is a podcast that I conceived about a few years ago and now I'm excited to bring it out to the world. And, by way of background, I have worked with hundreds of companies on financing their businesses, getting them the right financing at the right time, and I've also worked with a lot of founders on helping them feel more comfortable about the management of their business finances. You could say, by summary, I've worked on lots of transactions with people and I've helped with their transformations about the way they view and think about financing their businesses and the management of their business finances. So what's the vision that I have here for how I financed it?

Meeting the Founders of Aura Organic

Keith Kohler 0:51

Really, this is about conversations and storytelling and sharing of wisdom and perspective and ideas and insights and all kinds of other things that might come up in the course of our discussions. And really I'm here to share those stories through the lens of founders for their business journey and their personal journey and weaving those together in a way that makes a lot of sense, to deliver all those lessons to our audience and you are audience of founders, of service providers of other interested people in different industries and US business owners in general. That's what I really want to do is serve you at the end of the day through the lens of the financing journey and then the strategies and the way that those and other related items and how that influenced the journeys of our founders and their businesses over the time frame from their origin until where they are today. So really excited to have you here today on this inaugural broadcast and to share with you the journey of Aura Organic and all the lessons that we're going to learn today. So please help me welcome Ron and Will to the stage today. Awesome, hey, Keith Hi.

Keith Kohler 2:15

Ron, good to see you both. Thank you for having us Keith. Yeah, so this is the new strategy today, because we're coming in from Ron from New York and Will from New Zealand. So I think, note that we have the widest variety of time ranges represented today.

Will Smelko 2:30

We do, we've got everything covered here.

Keith Kohler 2:32

We do, so we'll dive right in. And, ron and Will, when you think about the origin story of Aura Organic, can you share with us and our audience today a bit about how you got started and what inspired you at that time?

Will Smelko 2:46

Yeah, absolutely. So I'll kick us off and then we you know each of the founders have their own separate but connected journeys to how we got involved in sort of each of our passion, unique passion areas, but for me it was mainly about quality and sourcing. So at the same time, I was becoming more food conscious and you could see all this transformation happening across the food beverage out at restaurants, you could find sourcing information on things, even which farm on certain menus that certain aspects of the food came from, and definitely, going to the grocery store, you could see that, even snacks and desserts. I was a strict vegan for about three years. I call I would call myself a junk food vegan when I started, so I didn't know how to do it.

Will Smelko 3:35

Yeah junk food vegan from a nutritious perspective. So I was always. It was about what not to eat, and then it became more about what I could eat. But at the start I would find that I could get, you know, organic coconut milk ice cream that was really high quality, non GMO, and I'm like, okay, I could get this for my ice cream. But then I'd go to the supplement aisle and, being a I'm a very obsessive sort of label shark reader, right, so I read every ingredient. I'll frustrate my wife Erica, one of our co-founders, because I'll spend way too much time in the grocery store reading everything. It's like an hour and a half two-hour long journey.

Will Smelko 4:15

So she doesn't like to go shopping with me. She's very happy when everything moved to delivery. So when I go to the supplement supplement aisle, it was very difficult to find any information, right. You know, I'd sort of look and say I can't tell what this comes from. I can't tell the origin source, uh, not even geographically, but what's the? What's the source of this vitamin or mineral or protein, uh, that I'd be purchasing?

Origin Story: Quality and Transparency

Will Smelko 4:40

So I was really looking as a consumer at first to say, okay, I'm trying to be more plant-based, what do I need? I need B vitamins, I need protein, I need iron. I wanted to try to be less of a junk food vegan and more of a nutrition conscious vegan, right? So I think just those unanswered questions really sparked that journey and realizing that having a background in supply chain and product development, and more so in like the life sciences, healthcare and pharmaceutical side, realize that supply chain could be a unique strength to add to this industry and say we could source things, create products in a more transparent and more efficacious way by having higher quality ingredients and higher quality formulas that people can really trust.

Keith Kohler 5:24

Yeah, really, as I reflect upon that, Will I really appreciate again junk food, vegan. I'm not going to forget that ever, that's for sure. I appreciate the background, right, Because when we think of many founders creating their products, they might not have come from that background or that surely the efficacious ingredients the better for your products. No doubt, right. Probably all of our listeners have that in common. But when you think of supply chain broadly defined, in that angle of thinking about sourcing and traceability and all that, probably you were on trend or beyond the trend at that time, because this was 10 years ago, right?

Will Smelko 6:02

yeah yeah exactly, yeah, it was, um, yeah, we we felt like supply chain could be, could be a unique strength, right, we, we certainly felt that a lot of uh, a lot of the industry was, you know, heavily weighted towards marketing, sort of the flash, and less of the substance around the uh well, this, the ingredients that went into the product, and we wanted to flip that. We felt like if we created a product first company, it would be a more loyal customer base because the product would work better, they would feel better, and we want to take that supply chain know-how and turn it into an advantage for the business.

Keith Kohler 6:37

I love that. Thank you Will.

Will Smelko 6:38

Over to you, Ron.

Ron Chang 6:41

Thank you, keith. Yeah, on the junk food vegan part, you know Oreos are vegan, so you know you could be on a vegan diet and only eat Oreos, right? So just because it's vegan doesn't mean it's always going to be healthy. Yeah, I have a very unique story as well. You know my passion stems from I'll give a lot of credit to my grandmother. She was born on a farm in Taiwan. I had a deep connection with food. All of her sons and daughters ended up owning restaurants at one point in their lives, and so we had always been a foodie family.

Ron Chang 7:20

My family emigrated from Taiwan. They realized that their health started to deteriorate, you know, and we looked into it more and I firmly believe it was mostly diet related. You know the quality of food, how much processed food there was here in America and in general, just having a much, much unhealthier lifestyle. So really, really, I wanted to get back in touch with that. Um, you know, after seeing my uncle, he passed away from a heart attack in his fifties.

Ron Chang 7:53

Um, multiple strokes in the family. Grandmother, uh, father, both had strokes. Grandfather had quadruple bypass heart surgery. Um, everyone's suffering from diabetes or prediabetes and heart heart surgery. Everyone's suffering from diabetes or pre-diabetes and high blood pressure. You know it was. It's truly a pen. You know an epidemic here in the States where, yeah, obesity and all of the diseases around it are severely, severely affecting all of our quality of life and longevity. So with all of that, I decided to go to culinary school with the mission of bringing healthy, tasty food to our communities. And when Will approached me with this idea, I thought he was crazy. I'm a food guy. I'm like, hey, I don't do supplements Of course he was crazy.

Ron Chang 8:39

Supplements or snake oil. I don't do this synthetic stuff.

Ron Chang 8:42

And when he showed me that hey, yes, traditionally and a lot of the mainstream supplement companies have these really terrible and you know, if you truly knew the supply chain of it, you would never put that in your body. But there's a better way to do it, right, you can do it from organic, plant based foods, right? That's when it really really hooked me. And, as you can imagine, if you're concentrating spinach and kale and trying to trying to take that in a greens or a smoothie or protein, it might taste like you just won't along with your mouth, right. So he really did need a, a flavor, expect at the time expert and try to help with the, the customer experience to really make the product really palatable and enjoyable for the mainstream. So that's how I got hooked on the idea and came on board. And now it's 10 years later and unfortunately, I'm still working with Will. It's been a wild journey and an extremely rewarding one at the same time. And it's been a wild journey and an extremely rewarding one at the same time.

Keith Kohler 9:45

Ron, I really appreciate you kicking off with that very personal story because it's interesting in my career and, of course, I got into financing because of my own diagnosis of gluten intolerance, celiac disease, right, and certainly a lot of my motivation and the way I'm attracted to purpose-driven founders like the two of you is because, yeah, it was me solving something for me. I wanted to help with financing because I could help gluten-free companies have access to capital, et cetera. And yet I find then in talking to founders and that gluten-free space and now you and others that I come across, these are the most powerful motivations. And I'm sorry, ron, that you had experienced an extreme amount of family health issues, right, it's oftentimes I hear from founders that maybe it generations, right, we're experiencing these chronic diseases, or likeliness to have these issues is astonishing, right. And it's exciting when you say and I can do something about it, and that's a real Genesis of your journey, both in the culinary school and with right, exactly no, right.

Will Smelko 11:04

Exactly.

Family Health Motivations and Mission

Keith Kohler 11:05

No that's awesome. I really appreciate that introduction and so kind of what we're doing and how I financed. It is once with that origin story and now that you had this basis for launching a company, let's start that journey of how you decided to finance it right. And so here you've figured out hey, we've got to launch this product, we've got to bring it to market. What was your original thinking behind? What was the financing I needed to go and get and how did you go about getting it?

Will Smelko 11:32

Yeah, yeah. So you know, we went to the people closest in our network that we could think of. So we went to some professional investors that we knew from past experience and just from our networks, and then friends and family as well, so a combination of both. We just kind of did a broad outreach and I think the um, the key thing was ultimately when we started making prototypes of products. You know it's, it was uh.

Will Smelko 12:00

It was harder at the stage where we were just shopping around a piece of paper with a business plan and an idea, unproven founders in a big competitive category going around asking for money. It was certainly a challenge. And once we started we just kept working on the business right. So the funding wasn't immediate per se. It took I can't even remember it was a long time ago, but I mean at least several months of work on the business. So we would do some outreach, not get much traction on the financing yet, and then say, okay, let's put our heads down and keep working, let's just keep making progress.

Will Smelko 12:38

And once we really had the first prototypes, after securing some manufacturers doing some R&D, that really changed everything so we could bring those prototypes to meetings and I think that lesson still holds very true today that the investors who are most engaged are the ones who really want to engage with the product. They want to get the samples, or the best ones will say no, no, no, please don't send me samples. I want to actually pay for the samples, not just receive free samples of product. And it's a pretty good filter for figuring out who's really serious, because the ones who really want to actually try the product, see if they like it, see if it works for them, turn out to be the ones who end up investing.

Keith Kohler 13:23

Yeah, I really think that's a really critical point for everybody in those super early stages, right, until you have an MVP, minimum viable product and hopefully, a most valuable player at the same time. We hope they're both there. It's hard, right, because you said how do you invest on? And again, the popular story and the lexicon and the mythology I'm creating crazy words of the Silicon Valley traditional narrative we hear of is oh, he invested and she invested because of what we wrote on the back of a cocktail napkin at some event, right? Well, that's not the case with product companies, I think. A lot of right, because you have to get to some product that someone can taste and experiment and play with. So, ron Will, as you're doing that product but you're still incurring expenses, right, was that your own contributions in the beginning, your own savings?

Will Smelko 14:12

Yeah, it was. It was a lot of credit card debt. There wasn't much savings to speak of at the time, so it was a lot of credit cards. What little savings we had. And yeah, I mean it was tens of thousands of dollars at the start, just risking it and putting it out there in the business on our personal expenses until we could get some capital in the door. But yeah, it was. I mean, even to pay for R&D and get some of these manufacturers to take us seriously and spend any time prototyping some of these products, yeah, they would. Yeah, they would want to charge an upfront fee, a lot of them, uh, to try to cut a couple thousand dollars even, which at the time, for us was an enormous amount since we were just self-financing it yeah, and ron in that time in particular as in that self-financing period right between you yourself savings credit cards except some people use 401ks if they've had them in other settings.

Keith Kohler 15:05

It sounds familiar, right, ron? What were your kind of thoughts at that time? Were you like, holy shit, is this all going to fall apart at one moment, or no? I know we're on a good path. What do you recall? What you were feeling at that time? Sorry it cut out a little bit there, but um, but you're asking how it felt at the start of the business, in that first period, in that very startup phase, when you know it's all you and nothing. Oh my gosh.

Ron Chang 15:32

Okay. So in the beginning it's a lot of just adrenaline, right, because you're embarking on this new journey. I mean, we were cost cutting everywhere. Will and I shared a bedroom. Everything we could do to save the company money and minimize our personal expenses. We were doing and yeah, it was. You know, when you're launching headfirst into a new idea, into foreign territory, yeah, and everything's just extremely exciting, right, and you kind of have to use that adrenaline and use that excitement to really just be as productive as possible. And yeah, I think that's just how we got through. That first year or two was really just pure like hey, we have to make this work and we're going to make it work and fight through whatever obstacle that we face.

Keith Kohler 16:24

I really appreciate the adrenaline and that excitement because, yes, but it didn't cloud your judgment or give you any unreasonable expectations or thoughts, right? I mean? And I think that's what can happen with a lot of founders they're so sure that they have the greatest thing in the world and they may or may not have it, or they can be fooled by the excitement, the possibility of the futurism of this is what's possible, and yet would you say that you balance that between the excitement and having your feet on the ground and executing and focus.

Ron Chang 16:56

You have to have.

Ron Chang 16:57

You have to have both.

Ron Chang 16:58

So I liken it to, like, you know, steph Curry and some of these guys at the top of the game, right, like they sometimes do have to be unreasonably confident in themselves, right, and there is that leap of faith, but, at the same time, completely agree, right, if you're completely, you know, if you don't have the skill or the talent or the will to back it up, then you're just a crazy person, right, and you're not going to get anybody to take you seriously.

Early Financing Challenges and Strategies

Ron Chang 17:25

So there is it's a tough balance to hit, but you have to truly believe in what you're doing and, um, you know, really, to convince other people, especially if you're fundraising and things like that, you have to truly believe it with your heart of hearts and show them that you're the person to to take it to market and to be the one to succeed. Um, uh, but yeah, at the same time, everything needs to be grounded in reality, and I think you know what Will has been able to do is always surround us with grounding mentors, right, people that can really tell you, that have the experience, that have the networks, that have the know-how to say hey, like, hey, yes, you know, that's an amazing idea, but did you consider X, y, z to get you there right? These are the steps that are needed to actually succeed. So, yeah, it's a tough balance to strike, but one that's very important.

Keith Kohler 18:21

Let's explore that just a little bit more for the moment, and we'll come back to it as we weave the rest of the story. So, prawn, you just mentioned about having mentors early on, right? Was that something you knew you wanted early on and like, for how long was it just the two-man show? And or when did the other co-founders come in and when did you start engaging with advisors in a way that made material sense for you?

Will Smelko 18:46

Yeah, yeah, so we started with multiple co-founders, so that was always a factor. So, like Erica, our chief marketing officer and she's really the brains behind the Aura brand she was. Her background was in finance and fine arts, so you know very, very mixed background. So she brings the business and the creative side, and then Sebastian, the co-founder yeah, you know very, very mixed backgrounds, so she brings the business and the creative side.

Will Smelko 19:08

And then Sebastian the co-founder yeah, it is. And so Sebastian the co-founder, he was focused on the technology side. So, especially when we were launching, nearly 10 years ago now, as a Shopify business, amazon business, that technology background, especially for the D2C side, direct-to-consumer side, was really helpful and valuable. So it was really nice to have a core team, as I mentioned, with very different skill sets and interests and backgrounds. And then, pretty early on, we started layering in different advisory expertise. Advisory expertise what, like one I can think of, was in retail. So it was a total you know mystery box for us. We had no idea what we were doing. So we really tried to reach out to our various networks and ultimately, I think that's probably how we got connected.

Will Smelko 20:01

Keith is an amazing retail advisor in the early days to try to absorb and learn as much as we could. This woman named Linnea and she actually recommended a conference that I went to, that you were at, and that's where we initially met. Sure in San Francisco.

Keith Kohler 20:18

Was it 2017 or 2016? I forget the exact date actually.

Will Smelko 20:22

Yeah, maybe 17,. Yeah, yeah maybe 17.

Keith Kohler 20:25

Yeah.

Will Smelko 20:25

So so, so we, you know those, those, you find that those early. As one of our other early early mentors and advisors said, right, you need to find the right ponds to swim in and you need to really understand who are the, who are the players, who you know, who can, who's doing what in the ecosystem, and surround yourself with those people so you can really stay up to date on the latest of what's going on and learn faster, learn at a faster rate, kind of cut down a lot of that entrepreneurial learning curve time and pain by surrounding yourself with good, smart people in different areas. So that started pretty early. Good smart people in different areas. So that started pretty early.

Keith Kohler 21:06

Yeah, and one of the. I really wanna witness you both and make this important point. You expanded your net widely to look for these resources, and this was even before. In today's consumer packaged goods environment, we know that there are a lot bigger, very visible networks out there with a lot of resources, either through spreadsheets or much more white papers. There's a lot more written and visible resources, even on LinkedIn, on other organizations that you see, as with the Expo West community, like Startup CPG, naturally Network, etc. All those didn't exist when you all were starting. So you knowing you needed to spread your net out wide, it was harder to find those people right, but I'll bet it wasn't hard to convince them to say, hey, can you give me some guidelines? Can you participate in some way in helping growing the business?

Will Smelko 22:01

Yeah, great, great people. That's an important lesson I'm glad you brought that up For anyone who's starting a business. Don't be afraid to ask for help, because the really great people out there. They take a lot of satisfaction and joy out of helping others, especially early stage founders. And it can be intimidating at first to just go to some of these people who are very successful in their own right and very established and ask them if they want to spend time on your company or spend any time helping you, but you will be amazed at how the great ones are really willing to. It's amazing where they find the time Some of these folks who are sitting on multiple boards and helping all these companies and have their own day job but people find time often to help people who are just getting started.

Keith Kohler 22:48

Yeah.

Will Smelko 22:48

I think we would all agree with that.

Keith Kohler 22:50

We live in a very generous ecosystem, absolutely, and there's generational transfer of knowledge we're seeing right Like the original OGs from 70s, 80s, 90s, they're now at a point where they're excited about transferring as much wisdom and knowledge and love and care and concern to all of the younger founders to help them on their journeys. And so, going back to the financing a little bit, ron, well, you did the savings, the credit cards, all everything. Did you go all the way in? Did you have a little bit left over before you got to that point where what was the first outside financing that came in?

Will Smelko 23:25

Yeah, no, it was. It was uh all pretty much all in Um and, and so we were at the end of our end of our line, uh, so to speak, on on how much capital we could, we could source. So the timing was good and then we ended up raising a very small round, uh, but it felt big at the time $150,000 round from a few, like I said, friends, family, professional investors, kind of whoever we could find at the early stage. We raised that round and that was the key capital to get things going really, to place those first purchase orders, to get the packaging and the branding across the finish line and that early budget to get launched on some key platforms and and get the product and the brand out there to market and when you both recall that time when you got that 150k right, that's a big deal.

Keith Kohler 24:17

It got you to a certain amount of probably you knew that that could get you to some level of proof of concept right that exactly years and others would like your product. At that time, at that super early stage, when you recall your conversations and like why did they say yes or why did they say no? What was the main reason people said yes?

Will Smelko 24:38

Yeah, I think a lot of it really comes down to especially at the early stage, just conviction around the founding team and the, the people that they're backing. Uh, you know the like I mentioned, the prototypes and the product is really helpful. Of course, they have to believe in the idea, uh, unless they're really just doing it as a favor. But that's not, that's not ideal. You know you really want people who, yeah, they're going to be from your network and they're really making a bet on you and the founding team that they believe in, but you want them to have passion about the product and be excited about the idea. That's going to be the best fit, right. So, you know, ultimately, without much proof of concept though they're, they're looking at the team and making an assessment and saying do I believe that this team is not only has the right skill set and and passion?

Will Smelko 25:26

and energy for it. But are they going to be resilient, right? So when they they inevitably get kicked in the face a few times, which or you know several times which is going to happen is this the right team? That's just not going to pack it up and and say, ah, let's move on to something else. We were hoping for a quick buck and and a fast exit, and you know, yeah, no. So I think they just want to know that you're going to be in it for the long haul and really weather the inevitable storms and challenges that come. You know, ron, as a hat tip to you too.

Keith Kohler 25:58

I don't think there was any chef-inspired supplements at that time, right With a chef participating in the formulation and the sourcing.

Ron Chang 26:06

Yeah, not that I knew of at the time, that's for sure. Yeah, it helps to have a very unique position in the market, right? It just adds to the believability that you have a unique and a winning strategy to enter the market.

Keith Kohler 26:20

That was awesome. So you got that first 150, right, and then also the SBA loan came in right as an initial period.

Will Smelko 26:29

Yep SBA loan and that was a little bit after the very start, but it's still in the early days. That was a major-.

Keith Kohler 26:35

That was the next financing right.

Product Development and Retail Expansion

Will Smelko 26:37

Yep, that was the next financing. Yeah, to get that SBA loan through helped provide that next level. Again, the way it works out in the early stages of the company it's typically feels like right at the last minute, or from the founder's perspective, after the last minute, right, you're kind of again at the end of the rope and you're saying where's this financing going to come from? We need this to come in and you know, usually a week or two or a month after that, something, something ends up working out, and that was in that case.

Keith Kohler 27:06

the sba loan was the next step for us yeah, just as a side note for every all of our listeners and viewers, sba loans are possible at the super early stage uh, even before a company is profitable, and especially at 150 right. 150 and below is a magic number. A lot of it can depend on, while you're looking at them, at the character of the co-founders. It's very aligned with what equity people are thinking, because they're betting on a future outcome, not past performance. And so at that small level of SBA lending and whether it's through an SBA lender at a bank or a CDFI, community development financial institution or other people that are looking at things similarly, so much of it has to do with big C character, and big C character in the absence of this was your first time in this business. It's not like you did three other supplement companies and had exits. But they're looking at credit score, they're looking at your professional background, they're looking at do they believe the deck in the same way an equity player would, right, and so you got it and thank god now.

Keith Kohler 28:08

It's also true at that time. You know banking now is a little tighter, right, I would say. At that time it was a little bit more wide open, so you benefited from that timing I'm. So I'm saying to everybody now yes, it's a little harder, but it is still available, particularly if you've got a lot of strength to talk about credit score, experience, other things, founding team and advisors all of those can play into it. So there you go, you've got that, you're on your way. You're growing your company. When you think about how you use that money in the beginning, how did you choose to use it? Was it channel development? Was it marketing? Describe for me a bit about that mix and how you got that to fuel that first stage of growth.

Will Smelko 28:49

Yeah, so a combination. So, especially at the early stages, we have to do a little bit of everything. So a lot of it was marketing, but we also did new product development. So we launched with three products and we expanded pretty quickly to now about a 30 product line, and we expanded pretty quickly to now about a 30 product line. But early stage we really tried to roll out more new products that we felt would be helpful to our customers, that they were looking for. And then, yeah, I mean just really looking to build the brand. And so between marketing new products, brand building like doing events and a little bit of channel expansion, which that more so started, I'd say, after the first couple of years when we began going to some of the major trade shows and getting a lot of inbound demand from some various retailers, then the capital requirements started shifting towards making sure that we could satisfy the retail requirements as well.

Keith Kohler 29:52

So right. So that even was a change from maybe your original hypothesis, right, about how you'd be growing the business, that you're out there, you're in the market. People start to show up, right, like perhaps the retail trade was not where you expected to go, but they came to you right Saying, hey, we're interested in your products, not like you were doing an outbound pitch. They knew that you had something special and that was mainly vitamin shop, right.

Will Smelko 30:11

Yeah, vitamin shop, air One, some of the really great natural grocery stores out there, yeah, we, you know it's. It's kind of a funny, funny story. So when we went to our first expo, it was Expo East, and we decided to display at Expo in the organic section. And it wasn't really a strategic choice. It was kind of funny because after we did it we started seeing all these supplement companies move over to the organic section. But we were just looking at the map, we didn't know much about what we were doing and we said, we felt like our brand is a better fit for organic.

Will Smelko 30:45

We don't really feel like we, you know, associated with a lot of the synthetic or more artificial supplements, and we sourced most of our ingredients from plants and food and organic wherever possible. And so we were over there, kind of on our island from a supplement company perspective, and ended up winning a Nexty award at our first show, for it was a Best New Product Award, and at the time, honestly, we didn't even know what was happening. We didn't know that there were even awards that the show handed out. So, you know, the group came over with a trophy and, I think, a camera crew as well, and we're sort of like what's? What's going on? What is this?

Will Smelko 31:21

you're in the headlights definitely, and that was amazing. I mean, we're super grateful for that, that experience and that certainly opened the door for a lot of retailers to start reaching out and saying, hey, we, you know we saw this, or we said we, yeah, we saw the award and we saw you guys at the, at the trade show, the organic section. This was so interesting. We'd love to carry the product.

Keith Kohler 31:45

And another thing that you did is okay so you have the organic section right and you thought, okay, maybe we're part of this, like you had many ways that you could have identified yourself right when you think about and we don't fit, or it doesn't fit into one specific little tight, cute box that sometimes either retailers or consumers want to put us into right. And you even looked and, ron, you were developing the products, for this too is into beauty and being a fresh area that maybe was as not as much discovered. So perhaps your thoughts on when again, you're proliferating your SKU count right and you're making a lot of choices and I know beauty was one of them and I wanted to talk a bit about how you decided. Now you have the money right, you're making money. You got the 150, the other 150. What was next on the financing? And then how did that fuel the product development and then the evolution of the channel strategy?

Ron Chang 32:41

Yeah go ahead, ron, yeah, ingestible beauty definitely became a really hot product category for us. You know, it really started with Aloe Gorgeous, which was our vegan collagen builder product, and we just saw how incredibly fast it was growing right. And we saw, you know, we just saw an opportunity in the market where, you know, people realize that beauty from within and you know what you ingest and what you, what you put inside your body, actually reflects on. You know what comes out Right your skin, your hair, your nails, all of that. So it was really just kind of realizing that there was this, this new way to think about things and new way to market things and um, so we came out with a line around that, um, what I wanted to, what I did want to mention for all the founders out there, is that, um, you know, knowing your strengths and knowing your brand and knowing your team is extremely important in deciding these factors, right, um, because you know in hindsight you could say we expanded too fast and, right, you have a limited amount of resources.

Ron Chang 33:52

There's a camp that would always say, oh, you should focus all your resources on one product, right, and be known as a brand for one thing Now. Or you could be like us, where, hey, we have this whole brand story, this brand ethos, which allows us to launch a lot of different products. Right, there's no one right answer. Right, you have to look internally for that one and really see not only what you want, but obviously, where are your strengths? Do you have that one product that really is, you know, to?

Ron Chang 34:22

You should pour all your resources into that one product, or would it be better to kind of spread your, your resources out and and try to launch new products and new channels? And you know all of the expenses that go with it? Right, hiring a sales team and all that is quite expensive. So, yeah, that that is something I mean every brand is struggling with those decisions to this day. But, yeah, that that is something I'm. I mean, every brand is struggling to uh, with those decisions to this day. Um, but, yeah, that's, that's just something I really wanted to mention, that that's a very important strategic decision to make. So don't make it lightly, and really think it through in terms of, uh, what, what is the legacy and what is the what's the? What's the winning strategy for you and your brand?

Keith Kohler 35:07

I think that's a really good point. And you said hey, we, perhaps we expand it too fast, right, but you knew you had a great brand. Everyone told you that. Everyone loved your design and your packaging. And I saw, and obviously they knew what you were doing was efficacious. You were responding a lot to customer requests, too. Weren't you like say could you do something like this? You were listening a lot to customer requests, too. Weren't you Like say could you do something like this? You were listening to your consumer early on.

Ron Chang 35:29

Absolutely. And I'll say one more thing about retail, because we were listening to retail buyers, right, and they were saying, hey, you know this XYZ, we would love a product in this category. Remember that's one buyer, right. And ultimately you need to market to the end consumer and make sure that those are those are things that they actually want, right? So I would say there are several times that we've listened to a buyer from a retail category that that perhaps maybe didn't translate as well as everybody thought it would directly to the consumers, right. So, especially in CBG look, where retail is going to be an important part of your strategy most likely Know that once you've sold it to the buyer and the retailer, your job's not done yet they are relying on you to also drive consumer demand to their stores. So just remember that and that's something that you have to keep in mind that, hey, your job's not done. Once you sold it to the buyer, you have to still convince consumers to go to the store and get it.

Keith Kohler 36:33

That's such a great reminder because it's a dance, isn't it Right? Here we can have like a trade push strategy and a consumer pull strategy. And how do you work those levers Right? Because the buyer is the gatekeeper. They have to approve it and bring it in and, as you said, it doesn't stop there. Okay, I got one, okay, great, it's just going to ship it and then a miracle occurs, right, and suddenly it just starts flying off the shelf. So how did, when you think about that expansion, you know, how did you handle it? How did you continue to say I'm gonna handle, I'm gonna delight the buyer, I'm gonna delight the customer as you're growing in that sector? And then, if you can comment too, through that growth, what was the financing also that accompanied that phase of that expansion?

Will Smelko 37:21

Yeah, yeah. So I think to Ron's point you ultimately have to decide who or what you're going to put at the center of your universe, and that could be the retail buyer, that could be the category itself right, we love protein, we love this right, you could sort of put product at the center.

Will Smelko 37:46

Product is at the center, you know ultimately, we just decided to put the customer at the center and we felt like that was the best, you know, the best learning, the best way we could continue to drive a sustainable business, uh, with great loyalty. And, as, as ron was was getting to, I, you know I, we learned that I, we really don't love, uh, the retailer-led innovation. Right, and you know, the retail buyer oftentimes is looking for something different, what's different, what's new, what's unique.

Keith Kohler 38:11

Well, that's kind of their compensation can actually sometimes be based on that right or just the feeling like, wait, I'm bringing a new toy to the sandbox, in comparison to the other buyers who may not have an innovation pipeline like you could have provided right, right, exactly right.

The Shark Tank Effect and Growth

Will Smelko 38:26

Who may not have an innovation pipeline like you could have provided right, right, exactly right. So yeah, but we find that the customers, ultimately, they're not necessarily looking for what's new, they're looking for what's better, right, and that's not exactly the same. And we take a what's better approach because you know customers will reluctantly buy the same in our case, protein powder If that's what's available, they'll pick it up off the shelf of the retail store they purchased from and keep buying it, but they don't really love it. And that doesn't mean that there's not space for another protein powder. It just means that there's space for a better protein powder, better tasting, cleaner formula, better texture, right, and so yeah, we just decided to focus on the customer, what they're looking for, and that would guide the strategy.

Will Smelko 39:13

So we stopped doing any retail-led innovation and really pulled back and focused on saying here's what works for us, here's what we know customers are looking for and here's what's selling online. And if that doesn't fit the retailer strategy, that's great, that's okay's okay, because ultimately it's not going to work out well if we're trying to launch new, completely unproven products to customers in that retailer store. We really want to focus on what's worked well for us, every other touch point and prove that out first, and the financing for it. It coincided with a time where we were very fortunate to get on Shark Tank in the early days of the company, around early 2017. And that created a lot of exposure and buzz and we were able to raise the next round of financing off of that and that was a huge momentum turning point for us and we raised just over a million dollars in a convertible note financing around and off the back of the Shark Tank appearance and that was part of that. Financing went towards expansion and various channels, including Amazon and direct-to-consumer, but also retail.

Keith Kohler 40:32

Yeah, so as you were raising that million, a Shark Tank is known to give a great bump on a company's website, right? So your direct-to-consumer sales off your website, I imagine you got that right. And now that you have those data points, all the different metrics that we know and love that come from your own shopify card, and all those other things now you have enough to say, okay, now let's take it to the next level, right? And so for the two of you and for the other co-founders now it's like okay, we can expand both channels, right, retail and direct to consumer, and you raise that million to to do both effectively, right?

Will Smelko 41:03

yeah, exactly yeah, okay.

Keith Kohler 41:06

And then going back to what you said, and then you got to this certain point where you're like, wait a minute, we're not too sure about retail, right, and tell us about what happened at that time.

Will Smelko 41:19

Yeah, ron, you want to take that one.

Ron Chang 41:21

Yeah, you know, this goes back to my comment earlier where you have a limited amount of resources and you do have to make very strategic decisions to say, hey, are we going to continue to pursue these channels and sync the necessary resources to be successful, or are those resources better off focused in some other area that perhaps is more high growth, more margin, more profitable? Right, and we, you know I think we had a few VP of sales hires it just it never took off. The way that we wanted to write that we that we, you know wrote that. You know that we told investors, hey, like you know, we're going to raise this money and it's going to just skyrocket us, um. And we kind of learned that lesson that, hey, just cause the retailer, uh, wants it and buys it, it doesn't mean that it's going to sell, right, um, and something another for other CPG companies to really watch out for is, um, you're on the hook most often if, uh, they're going to place a PO, but if it doesn't sell, you have there, you have to buy it back, right.

Shifting Away from Retail to D2C

Ron Chang 42:30

And after a few of those painful instances, we realized, hey, maybe retail isn't as profitable as we thought it was initially and and yeah, you know, it ultimately came down to what is the best way for our customers to find us and for us to deliver the message to them right, and we realized our D2C channels and D2C marketing is by far the best way to educate consumers and have that direct relationship to really make them fall in love with our brand. Right, as opposed to, say, relying on training floor staff that might be turning over every year or two and making them be our brand ambassadors, right, or? Um, you know and I'm not saying that's right doesn't work, because I actually think that that strategy worked extremely well for us. Um, for vitamin shop. I think that's why we were so successful with them. Um, you know, we got to go to their national conference in Dallas. We did a whole presentation to all of their, their store managers in every one of their locations.

Ron Chang 43:35

You know they had a little booth. Everybody came up to us. You know this was right off the back of Shark Tank, so there was kind of this organic attention on us and people wanted to know, learn about us, right? Because they thought, hey, you guys are doing something unique and special, let me learn about them and you know and of course, hey, anytime you can go and say you know, we we rejected Mr Wonderful people, people love that and then people remember you.

Keith Kohler 43:57

Right, so you've honored to that right, ron, yeah.

Ron Chang 44:01

Yeah, so. So I think there's always a time and place right. I think we just reached a point where our D2C marketing was just so much more efficient than our retail marketing, and that's where we decided hey, you know, it's actually perhaps more beneficial for us to actually divest from retail folks on D2C and I'm sure retail will be something in our future again but as of right now, we've found that it's more profitable and better for our time and resources to just focus on other channels. Now yeah, go ahead.

Will Smelko 44:40

And just quickly I just want to tack onto that, to the point Ron's making, that the math really needs to help guide that decision at a certain point the split of the pie because it really depends on your category.

Will Smelko 44:51

So I just wanted to highlight that, like, if you are in a category where 95% of the purchases happen in retail, then you know you could be the one to totally reverse that trend and drive all this extra demand. That doesn't exist yet online, but odds are you're going to need to make it work in retail because that's where the dollars are, and I think for us, the math clearly said there are hundreds of millions of dollars of runway online and, as Ron was saying, everything's a choice. When it comes to focus, focus is so important. We could choose to become a top 10 Amazon brand in the US and protein, like we've done, but that also pulls away from becoming the top protein brand in Whole Foods, for example, right, and so we just had to choose what's the more profitable channel, where's the runway and what do we think we're better at. And we ultimately decided we could do that better online and the rewards and the profit and the margin would be significantly better for us at this current time. But yeah, ron, sorry to interrupt.

Ron Chang 45:50

Oh, I'm so glad you brought that up right. A lot of this is category dependent and I'll give you guys broad strokes, right, supplements and beauty. The margins are great enough that you can pay for one-off logistics shipping directly to consumer. If your product is fast moving CPG, you're selling gum, right. It's gonna be a lot harder for you to have to make the margin to cover, you know, to cover shipping, to cover Amazon's fee right, to cover all the overhead that you need for DTC and also the marketing right, the customer acquisition costs that maybe you do need retail as your main driver, right, you just have to ship in pallets to make your unit economics work. So again, yeah, it's very customer dependent, sorry, it's very unit economics and math dependent. So I'm glad Will brought that up. I was in the middle of saying something.

Ron Chang 46:42

Oh, one other thing to back it up, just so people kind of know what how financing is done in, at least in tech, most often, right, is that what you're looking to do?

Ron Chang 46:57

This is the general formula is you raise around, you give up.

Ron Chang 47:02

Maybe raise a round, you give up.

Ron Chang 47:09

Maybe you know around 20% equity and that that that funding is supposed to last you about two years, at which point you raise another round, you give up another 20, 25% and you do it like three or four times until you're almost, you know, and by your fourth round you should be at a big enough scale where you have some kind of exit strategy, right?

Ron Chang 47:24

So that is like the traditional way to fund a tech startup is hey, raise around, get enough runway for two years and then raise another round in, you know, in 18 months, because it's going to take you six months to close. Right, we've done it. And I think CBG does have a have potentially more leeway in doing this, in that if you can find a way to become profitable and use SBA and use kind of other debt instruments, or you use bridge rounds, right, and kind of push out the kind of equity rounds, you have a chance to say, hey, I don't need need to do a price round every two years, I can stretch it out and I can make the company more and more valuable.

Ron Chang 48:11

Before we have to say hey, we are worth X amount and give up a bunch of equity. So yeah, I just wanted to put that little piece out there.

Keith Kohler 48:21

Yeah, that's perfect, ron, and I think a lot of people will resonate with that because they might have friends in the tech space where they might hear about these particular journeys of what raising funds look like. And it's also true in the tech space. There's a lot less options for debt financing, principally because they're not going to have the assets that are financing that's based on assets or just the availability based on financing that's based on assets or just the availability based on preference. Out there in the world, right Again, consumer financing has 20 that I identify in my book. Tech has a lot less, maybe six or seven. So, going back to that and paralleling like, hey, you knew you had to do bridge rounds, you need to get creative with other working capital financing out there. When you go back to thinking beyond, when you raised that million and you're executing on your strategy, maybe on retail for a little bit direct to consumer, then we might do a lot less on retail. What was the financing that went along with that and what was the mix that you put together?

Will Smelko 49:19

Yeah, so after the million dollar round, Mm-hmm.

Will Smelko 49:22

Yeah. So then we just kind of kept staggering different rounds as we really needed it. So we would do a price equity raises and then a convertible notar safe round and then a price equity raise, convertible notar safe round. So really, as we came up upon certain milestones or got to the next big opportunity, right. So whether it was future, more expansion, or we had certain products that were trending heavily and we wanted to expand that marketing for those products, then we would do another raise and I'd say it's pretty. The only thing is it's pretty exhausting.

Will Smelko 50:00

I think there's something very nice about just being able to raise a much larger amount of money at one time, to kind of Ron's point, that can last two to three years or more.

Will Smelko 50:14

The idea of raising every 12 to 16 months. The benefit is it preserves a lot of the business, right, because you're not over-raising a lot of the business, right, because you're not over-raising. So if we had gone out and raised a much larger amount of money, the founders, the team, the dilution effect on everybody would have been significant, right, if we're trying to raise $5 million at the early stages, somebody would have wanted 25, 30% for that. Right and the way we're able to run the business. It definitely we lost a lot of sleep and it's tiring and it does pull you away from actually operating the business, but in the end you you're able to minimize dilution, not just for yourselves but for your early investors as well. I mean that's really important, right you? Just you want to make sure that the early early stage people, that everybody benefits and still holds a significant stake and they don't get over diluted as well, and the way we've been able to raise incrementally has really helped achieve that.

Keith Kohler 51:13

So we didn't over raise per se and I think another thing too, if you don't mind me exploring that too, is, in a journey like yours, that's now over 10 years. Right, my observation and I think you can share this as being relevant to you is those who are with you in that very beginning, right, either investors or capital providers are not always the right ones at these later stages. Right, because the numbers get bigger, the notion of risk can change and migrate, both in your company and both in their personal lives. Right, because they might have been in a better position as individuals or as organizations, as family offices. And I wonder if you can talk about, when you think of that, that migration too. It's like hey, they weren't ready to help us at this point for X, y, z reason. And what were some of those reasons why the yes or no's got different as you move through that journey?

Will Smelko 52:09

yeah, yeah, I think that, um, you know a lot of the early stage people. They, they, they will want an exit right. Their timeline or horizon could be five years I mean some of the longer focused people 10 years um of, and that's part of expectation setting. You really want to nail that down up front as well. It's important to be clear with your investors because if you do have some early stage investors who are expecting a two to three year exit timeline and they're one of the first investors in and they're getting into CPG, that's a pretty unrealistic expectation and they're going to end up being disappointed and that could create conflict. So it's really important that, as you're bringing investors in at each stage, you have that conversation around what their exit timeline and horizon looks like ideally and you can be honest about what your plan is for the business and where it's going. So, yeah, certainly, I think a lot of the folks who are early in our business so, yeah, certainly, I think you know a lot of the folks who are early in our business are there.

Keith Kohler 53:07

They're at a point in life where, yeah, I'm looking to retire and you know what's the exit plan, or family things or health things could have changed, right?

Will Smelko 53:14

Exactly Right. So yeah, so we want to find new investors to bring into the business and provide a great exit for the early stage people, and those new investors have a different horizon in mind. So some of the early people might make a significant exit on their money 10x or more and some of the later stage people they're looking for a 3 to 5x return, maybe over 5 to 7 years, but not necessarily another 10 to 15 years. So just having the clarity around expectations for each investment stage is super important.

Ron Chang 53:51

One thing I also wanted to mention was you know, just because we took outside funding doesn't mean your business has to right, and this kind of goes to knowing yourself.

Navigating the Pandemic and Capital Drought

Ron Chang 54:02

I think this is the first thing I would say to any founder is hey, what, what kind of lifestyle and what kind of legacy and day to day do you want to have? Right, because you know, I would say I almost got, I almost wanted to get in the business because I wanted to be my own boss, right, but as soon as you start taking money from other people, be my own boss, right, but as soon as you start taking money from other people, you're you're really working for other people at that point, right, and so that's something to really take into consideration, right, and and and just figure out what, what exactly do you want? And so, but yeah, you know we're talking about this, this strategy to kind to keep equity and keep the ball rolling and use inventory, asset-based lending right to kind of get you to the next level. And that's where Keith and having a great financial advisor comes in play, because they're going to help you kind of map that out, if that's what you're looking for.

Keith Kohler 55:18

I appreciate that, ron, and when you think about it, is in your journey as a company and as individuals. The pandemic was a seminal moment, right? Because now, all of a sudden, the equity markets go dry and insane and, as you alluded to Will, the amount of time that you were spending having to do things was pretty significant, and then also, you had to look at other alternatives during that timeframe, and so it forced you into becoming creativity and a bit more short-term or otherwise focused on that in order to finance the business during that time. So curious if you can talk about that moment and what are the pivots it forced you to do.

Keith Kohler 56:05

And we've lost Will for a moment, but I'm sure he'll come back.

Ron Chang 56:07

Looks like we lost Will. I can take that question in the meantime. So the COVID was definitely very double-edged Overall. Macro-wise, it definitely froze capital markets in the long run. Right, I would say there was a flurry. Right, government printed a lot of money. There was still. There was actually a lot of growth in certain categories and supplements and kind of anything that had to do with kind of health and home.

Ron Chang 56:33

Fitness kind of exploded during COVID, right, because everybody transitioned to working out at home and eating at home and you know doing all that. So there was actually an uptick for a while in terms of brand acquisitions in that period. So there was a period where, you know, equity actually came in and came into the market. On top of that there was also a lot of government grants, right, you know idle PPP loans, all that stuff. So for a little bit and especially if you were in a in a industry that kind of benefited from COVID, it actually worked, worked out pretty well.

Ron Chang 57:12

That being said, the overall trend definitely went down right and capital raises and equity, I would say, definitely started to freeze, especially once the Fed rates start to rise. So yeah, I mean honestly it's to go from a, I would say almost a golden era of capital right, where raising on the dream and raising for your business, you know, historically was probably quite easy, and going into a more of a recessionary economy, um, it was extremely challenging. Um, and I I'm gonna pass it. I'm gonna pass it to will, because he did an amazing job navigating through these last you know three, four years. It's definitely been the most challenging for us from a financial and cash kind of management standpoint. And Will, you know, just never, just always persevered. He never took the easy route and kind of just said, hey, we'll take a down round, we'll just get the money in, we're just going to dilute everyone, just so we can finally sleep at night. I think Will, and yeah, I'll pass it on to Will.

Keith Kohler 58:30

Yeah, and if I can just do an interlude, like many founders, right, with that sudden change, kind of overnight, you had your backs against the wall a bit right, because you're executing on your growth path and you're hoping that the capital a lot of it was there to support it and then you were hoping that what was next would be there. And now the chaos happens, right, the capital markets dry up. It becomes incredibly hard on the two of you and your co-founders and, by extension, perhaps your early investors, to say you know, what are we going to do in this difficult capital environment? It's a degree you know sharing. Fine, you had to go somewhere else. Right, you knew that equity was not the place.

Keith Kohler 59:10

But when you think about how did you, when you think of managing through that and you're right, will you showed up in an outrageously resourceful and resilient way, even though the no, the no, the no was a persistent part of your daily routine. You were spending a lot of time on this To the degree you feel comfortable. Share with us again about, like, what were you forced to pivot to and what did that feel like during the pandemic years? And now that you're on the other side of that, we can move into concluding by sharing about what you needed to do to get to this healthier state that you are now.

Will Smelko 59:44

Yeah, yeah, absolutely so, it was. It was definitely a challenging period from an equity market perspective and you know you can tell you have to read the writing on the wall. When you get on a call with even advisers or other investors and before they even hear the pitch or want to hear anything about the product, they say, oh, you shouldn't be raising right now, like, if you don't have to raise right now, don't try to raise right now. Right, and you know, starting in I don't know early 2022, maybe your mid 2022, you would hear that a lot. So, before even talking about your company, when everyone is telling you, if you don't have to, don't do it Right, then that's a that's a clear sign and just say this is going to be an uphill battle and you could try to fight the uphill battle or you have to pivot the business model, and I think in our case it was a.

Will Smelko 1:00:31

It was a really helpful turning point where we, like you said, keith, we were executing the business exactly how we had planned capital. Those investors, there was a time in the industry when they said why are you, if you're profitable, you're not trying to grow, right? We heard that feedback.

Keith Kohler 1:00:53

We heard all the feedback right.

Will Smelko 1:00:54

So what are you doing? Yeah, what are you doing with-.

Keith Kohler 1:00:55

What's wrong with you that you're not just focusing on the top line? And who cares about all the red ink?

Will Smelko 1:00:59

Exactly. And then it became profitability is everything. Then it became growth and profitability. It's a you know when. Usually, by the time you're hearing this, it's already too late. And then, and then, if you, if you're in the, if you're in the game long enough, you just become super frustrated. You just say, ok, whatever, we're just going to do what makes sense for the business, we're going to make sure we build a sustainable, growing business, and that's what we did. We just focused on profitability, we focused on cash flow, we leaned into specific products and our best sales channels that were delivering maximum return on our investment, and we took the business from not profitable to very profitable in a relatively short period of time, and it's continuing to grow right, and so I think that circumstance helped drive that very incredible change for the business. And then, of course, things always change, and so I think it's important for and now capital's available and the business looks different, right In terms of having profitability and, in a great situation, a great foundation.

Will Smelko 1:02:07

Well, I think we met a lot. Am I back?

Ron Chang 1:02:10

You're back yeah.

Will Smelko 1:02:13

So I think a key lesson and Keith knows this better than anybody, right is there are multiple options and it's amazing how many founders and businesses don't realize they think equity is the only model, because that's what you read about all these big equity raises, right? Well, there's, of course, debt, and then Ron mentioned some other types of within debt and equity. There's multiple types, right, there's convertible equity, there's PO financing, there's SBA loans and then there's just being a profitable business. So I think you have to look at each situation and step back and kind of map everything out and say here's what's going on in the equity universe, here's what's going on in the debt universe, here's what's going on over here. These are all the options available to me.

Will Smelko 1:03:01

How much? What's the bare minimum I really need to raise and pressure test that and say do I actually need this money or is there a profitable cashflow positive way of doing what I'm trying to do? If you need to buy $600,000 worth of machinery because you're doing a custom built product, yeah, that's going to be hard to do on your own. You need to get financing for that. So what's the best path to do that? But for a lot of companies you will find that you know what, in the end, you really don't need as much money as you thought, or in some cases, you don't need any money at all. Right, if you, if you really pull back and pressure, test your assumptions around. Can I do this profitably from the start?

Keith Kohler 1:03:43

So that's a bit contrarian because you can still hear in pop during the popular or the larger narrative that, hey, you raise more than you need, right. But it's also true that to support your strategy, what you had to do is you had to know your numbers really well. You had to be very precise on understanding your cash flows and your cash requirements, and so you were in a position to say that and believe it because you knew how your numbers would flow. So you know, really it's quite remarkable with dry, sure, you had some painful moments of some of the debt was good and strategic and some of it was difficult because things happen right and you had to manage through that and yet you never took something without knowing that what it was going to do for you right or how it was going to bridge you to what's next.

Keith Kohler 1:04:29

And I think a lot of the dangers of what I call inbox financing, of where you press a button and it appears in 24 hours, is sometimes founders and more at the early stage, because they're still learning and they should never judge themselves harshly in that period when they are learning. But the good news of you have with your time in business is, yeah, you know what your cash flows look like, there's a certain predictability of your D to C metrics so that if you're taking money great money, or sometimes hard to take money at least you knew where it was getting you towards right. And so here the pandemic equity dries up All of a sudden. Hey, everybody, it's capital efficiency, not grow the top line, and that's easy to say and make a strategic pivot. But for any company, especially larger companies, to move that ship around it's not like it happens overnight.

Keith Kohler 1:05:19

And yet you would agree you had to make hard decisions right. You would agree you had to make hard decisions right. And I imagine some of those hard decisions were hard because, again, introducing this, you all had yourselves putting money into the business. You had friends and family with significant businesses. I wonder if you can talk about that a bit, about. You know those timeframes were hard and now again, I'm sure you're feeling a bit more positive about that. But the friends and family and and nearby non-institutional money that had to be play a role in your thinking and how you may have felt during that period.

Will Smelko 1:06:10

The transition was definitely difficult, but we wanted to do it in a different way than, honestly, was being advised to us from some areas. I know when things get hard in the market, there's a tendency for general market advice to overcorrect right. Take a take a hatchet to a business and say if funding's drying up in this ecosystem, you need to cut 75 of your costs overnight. You know, shrink the team down, do this, go to bare bones, go into skeleton mode, whatever they call it. Right? Um, we felt like that was that that would be a death sentence, right, and so it was going to be a lot. It was going to be much more difficult and, ironically, that sounds scary and hard.

Achieving Profitability and Future Success

Will Smelko 1:06:44

My opinion it's actually easier than than doing what we did, which is incrementally sort of every month and every quarter, looking at where can we be more efficient, because we didn't want to crush the business's growth, and so we were able to pull back on marketing spend and advertising over time 30 to 40 percent, and still the business grew right. And the only way we're able to do that is by taking that incremental approach to everything and looking month by month and not overreacting and saying we have to cut everything overnight or else we're going to lose the business. To that second point. The pressure is there because of friends and family and early investors. You know there is a significant amount of stress that comes with that and you want to say we not only want to give people a great investment, we want to return the money period right.

Will Smelko 1:07:37

We don't want to lose money. We want to get a great outcome for the early investors.

Keith Kohler 1:07:41

So that's yeah, yeah, Ron your comments on that too.

Ron Chang 1:07:47

Yeah, I mean, we'll navigate it beautifully. But even that was, I think, very intentional right, because, look, we could have pulled back, become profitable and just kind of been a smaller, almost you know lifestyle business, right. But we had so many investors on our cap table that none of them it. Yeah, it would have been terrible managing those we would have. We would have lost all of our investors, right, they would have been like, hey, okay, this is not what we signed up for, you know, and and we could have done that.

Ron Chang 1:08:19

But, yeah, there was, the goal was always hey, we can't axe all of our top line right away, otherwise nobody's ever going to fund our business ever again, right? So, um, even that decision was very intentional, right, and and done, um, done in a systematic way, um, but yeah, I mean, if you're, if you're a startup and all you have are family friends on your cap table, you know, maybe you should just turn into a family business, right, and just say, hey, okay, we're not going to go and try to be this huge business, but we'll, we'll make a good living. And, um, you know, we won't deliver a hundred X on somebody's investment, but you know, we'll pay them back over time and they'll they'll get a decent investment. You know, return on their investment, right um so there.

Keith Kohler 1:09:03

So there's no one right strategy um that you can prescribe to everyone yeah, I think that's an important point and for a lot of our listeners and our viewers. Elliot beagan, a great industry colleague of us, is not everybody has to be a rocket ship right now. There has to be rainbows and unicorns and we've lost will again, but that's just the way things happen in premiere episodes. So we're going to roll with it right and there can be great businesses that become profitable and can spin off adequate returns for investors and adequate returns for the founders, and not everybody has to go that way.

Keith Kohler 1:09:38

And what I really want to witness about what you did, will and Ron, and, by extension, the alignment you had, was it took.

Keith Kohler 1:09:45

Well, I was just saying about what I really want to witness about the two of you is there's no one way to do it and you clearly took a unique path, probably unlike anybody I've seen in this timeframe and trajectory over your time in business, and I think, to the two of yours credit, it took a lot of courage. You were often probably the only voice in the room saying we're doing it this way because we believe in ourselves, we're quite sure of what we're doing, and then at times that had to feel like I'm sure you felt attacked and probably there were some voices raised from time to time or making you feel like uncertain, and yet you've persevered and what we know is because you did make the hard decisions and because you said, hey, we are going to manage the profitability. You got to that point and now you're at a point where things changed. And do you want to provide the last part of the story about what was the recent financing that now got you to where you are and what's next?

Will Smelko 1:10:44

Yeah, yeah, so and sorry for the Internet issues out here.

Keith Kohler 1:10:48

It makes it fun and interesting.

Will Smelko 1:10:50

The, the yeah. So we were able to secure some great equity capital from an incredible lead investor investor, and you know this is the result of the business is now in a position where, again, we did the hard work to to get a fast-growing, profitable um business that is in a position to produce a lot of cash and a great brand with great, great fast-growing products, and it could feel like a, you know, overnight success, but it's very, very much, you know, brought 10 year, 10 year 10 year.

Will Smelko 1:11:31

Exactly, but really the last, the last two to three years, yeah, I would say you have to accelerate out. I think if you panic and you spin the wheel and you freak out and say the industry's equity is drying up, this is a problem, then you're not really an attractive business for financing. You kind of have to accelerate out of it and say we're going to go deeper into product, we really believe in what we do and we're going to put this business in a position where ultimately someone looks at it great investors and say, wow, like, this company is not only in a great spot, but they're also resilient and investors love to see that as well. And so, yeah, we've really, really fortunate to get some, some great equity financing in the last couple of weeks and that's kind of the end of that phase, you know, in the start of a really bright next chapter for the business.

Keith Kohler 1:12:16

And, happily, alongside that, the right debt financing to write. So it's that combination of you went through a lot from that whole trajectory of the startup putting your own money on the line, believing in that, getting the friends and family, getting the growth, financing rocky roads right. Between pivoting between or sorry, rescaling the business between the different panels you could be in retail versus direct to consumer Patchwork quilt of the other types of financing you could get to get to this point. Equity dries up. You had to scramble even more, but you did it and you put more of yourselves and your families on the line.

Final Reflections and Advice

Keith Kohler 1:12:58

Really, there was a reason I chose you all to be the first, because this long-term look at what your financing journey has been and how the strategic journey has either led that or been as a result of that is a tremendous lesson for all of our CPG founders over this time frame. And to conclude our discussion, I think I'm going to start this tradition with the how I financed this. When you think about that whole journey, just in a brief way, what are you most proud of? And secondly, when you think about that whole journey just in a brief way, what are you most proud of? And secondly, when you think of this 10-year journey? What would 2025 ron and will tell 2014 ron and will as that advice, and so, ron, I'm going to start with you I love this question.

Ron Chang 1:13:42

Um, the very first thing, I would say, the thing I'm most proud of is, you know, I never compromised on our values and the relationships that I've had coming into this have only become stronger. Right, I think. You know, I think the most devastating thing for me would not be to, you know, lose investors' money. It would be if, like Will and I's relationship fell apart, or if my relationship with my investors fell apart, right, which, maybe, if you lost some money, maybe my fault, but but at the end of the day, for me, I would say, you know, having strengthened our relationships is definitely the most, most proud thing, I would say, for the for the last 10 years.

Ron Chang 1:14:23

Um, as for advice, I think the most, uh, helpful and the most wide applying advice I would say is learn to love, to be uncomfortable, um, and understand that the journey is, is the goal. Like, if you can't love, um, if you don't, if you don't, if you can't see, at least in the moment, it's tough and I agree, there's many times well, we'll know as many times I'm a terrible person to work with because I'm just stressed out and um and all that, but, but I always reflect on it and realize that, hey, this is this makes everything worth it so much more. Right, the harder something is, the more rewarding it is. And the only way you become an expert, the only way you last 10 years, is if you lean into it and you know.

Ron Chang 1:15:18

People say time on task is what makes you an expert. Right, they say 10,000. It's not just time on task, it's time on task with feedback, and it's time on task with feedback, and it's time on task that's always challenging you, making you more uncomfortable, so that you're learning and you're getting better. Um, so, yeah, learn to love the journey, learn to to choose the path less taken, um, choose the path that's more uncomfortable and that is growing yourself, your business and your relationships. And, um, as long as you that do that, I think you're going to come out of the journey happy and successful.

Keith Kohler 1:15:50

Thank you, Ron, for that commentary, and your wisdom Will over to you for the last word.

Will Smelko 1:15:54

Nice, yeah, I think just maintaining conviction and the quality around the product over the lifespan of the company I'm most proud of. I think there are lots of opportunities to potentially people cut corners, save margin, reduce the product quality. I think we've kept product front and center and we've kept the quality as the most important factor consistently over the years and I'm really proud of how we've done that. And then the lesson would be I would have told myself to start with the finance side earlier in the business. I mean really obsessive focus on profitability and cash flow and margin and really understanding the numbers at the start versus maybe the product and the marketing and making that as equal or core of a pillar. Because I think there are always ways if you pressure test to do something more profitably or even profitably generally, and if you start with the numbers, you can help really, yeah, create a more sustainable company where you need less capital from outside parties.

Keith Kohler 1:17:00

I just wanna let that ring in the room a little bit right. So thank you both, ron Will, for really your generous gifts of showing up today. I just want to let that ring in the room a little bit right. So thank you both, ron Will, for really your generous gifts of showing up today in service and in contribution for our viewers and our listeners, and really proud to have worked with you both over these years, have witnessed your journey of business and professional growth. As we know, it always hasn't been easy, but indeed what you've both shown to me again and again and again is you said it your resourcefulness and your resilience. You've managed through some really hard times and times that can sometimes feel lonely or tough, and yet also you've had many causes for celebration and victory because you know you run a good business, you know you have high values and integrity and you know you have a damn good, world-class product.

Keith Kohler 1:17:47

Just to conclude our discussion today. First of all, thank you, of course, to the both of you for being here and Will. I know being abroad is at its own internet challenges, but thanks for rolling with that and for being a trooper as well. Really so grateful that you decided to join us in this premiere episode of how I Financed it. I hope you enjoyed today's discussion. If you'd like more of this, please join us on future episodes, where we'll be having really terrific deep and broad discussions and conversations with founders about their journeys, their business journey, their personal journey and how financing played a role in it. Really, I'd love to connect with you as well outside of this space, and you can reach me on LinkedIn. My username is Keith Kohler1. So please reach out to me on LinkedIn. I'd love to connect with you there and learn more a bit about your journey, and I look forward to doing more with you and growing this over time. Thank you so much for joining us.