With so many people stuck in their homes and an economy that is undergoing a paradigm shift, we are bound to see a lot of new players in the market in the foreseeable future. Evan Faber, CEO of Moxie Sozo, and Chuck Cotter, partner and lawyer at Holland & Hart LLP, join Elliot Begoun to give useful tips on building a brand, fundraising, and other things to consider for people who are looking to start their own business in these challenging times. They see the current crisis as a window of opportunity for entrepreneurs, especially in the consumer packaged goods (CPG) space. Founders need to seize whatever comes in front of them in terms of funding and use that to strengthen their brand. They need to focus on bringing their business to a position where it can thrive in this new economy. 

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Listen to the podcast here

Building A Brand That Can Thrive In The New Economic Paradigm With Evan Faber And Chuck Cotter

We are joined by Chuck and Evan. We’re going to talk a little bit about how things can be moving forward in this craziness and the opportunity amidst the chaos. To cover everything far-reaching from fundraising to D2C, to keeping your brand relevant to strategy in the midst of all of this. Without any further ado, I’ll let the guys introduce themselves. I’ll start with you, Evan.

Evan Faber, CEO and Chief Strategist of Moxie Sozo. We are a design and advertising agency in Boulder, Colorado.

Chuck?

I’m Chuck. I’m at Holland & Hart and I’m a lawyer. I’m working for the consumer industry only to represent over 100 brands and a lot of the acting about consumer investment funds.

I’ll start with you, Chuck. One of the things that are top of mind for a lot of people is, what are they doing right now if they were in the middle of a raise or trying to start a raise, especially those early-stage brands? I wanted to get your feedback first on the overall what you’re seeing in terms of the fundraising landscape and then anything that you’re seeing having changed term-wise.

I’ll start broad, which is my expectation based on talking to the funds that we work with is that the funds will still be active investors. Even if we have the recession that we think we’re going to have, the funds still intend to be active investors. That doesn’t mean that there won’t be a decrease in available capital, there will be. Not the least of which is there may be a decrease in Angel investment, but the funds expect that they’re probably going to be getting better terms than they have over the last decade where it’s been the most entrepreneur favorable, climate to take money into consumer companies that I’ve ever seen. It may be the same for you, Elliot.

There’s going to be an adjustment there that people have to be realistic about. There’s still going to be money available. If you are a company that’s in the middle of your raise and you have someone that’s already agreed to terms with you, stop asking for small things and get it done and get the money in your bank account. That is the simplest advice I can give on both sides because we represent a lot of brands. The number of times, unfortunately, even in this environment I’m seeing where it’s like, “Can I get this one thing more? Shouldn’t I raise a little less to minimize an extra one point of dilution?” My short answer is, take more money than you think you need if it’s available and execute.

One of the things that we’re seeing and talking to a lot of brands who may have been raising note rounds or even considering raising price rounds is to think a little bit more microscopic. First of all, identify any other sources of funding that are available from the CARES Act or even asset-based lenders if it makes sense. If they’re going to raise and you think it’s going to be a struggle, especially if you’re raising from Angels, you’re going to have to excite them. You’re going to have to get them interested in getting their powder wet, otherwise, they’re going to sit on the sidelines. We’re talking about calling tongue-in-cheek an apocalypse round where they take the 6 to 9 months that they’re going to need until things may normalize a bit more. Raising that in terms that are exciting and favorable to investors that would include potentially decreasing the valuation cap and increasing the discount and follow on rights and other things along those lines to try to get them to put their powder in. Is there anything that you’re seeing there or recommend doing or not doing?

I’ll start with the obvious, which is if your company needs money and you can’t raise money, you’re dead. You’ve got to raise the money and raising the money may mean giving things to investors that you may not have given them months ago. First of all, some investors, as I said, not necessarily in my mind the funds, are going to be scared to deploy capital. It’s uncertain and there are lots of opportunities even for people who have a lot of deployable capital. They view periods like right now as to where they can get good deals and they’re going to pick the best deals and the best opportunities for upside for their money. From Angel to fund are seeing investors shift and take that position, “If I’m going to put a $250,000 or $2.5 million at risk in this company, I may expect a little more than I used to.”

Let’s maybe talk on the Angel end, Elliot, which I think may have been where you were going. When you’re raising, call it $500,000 in Angel money, it’s better for you if you’re raising in a convertible note. Let’s say your convertible note has a valuation cap, which is the highest value that the investor will invest, and therefore the lower the cap, the better for the investor. The higher the cap, the better for the existing stockholders, the founders. If you need to raise 500 and people are willing to invest at a 3.5 cap and not at a five, the long-term impact on your business of the extra dilution is not as meaningful as not being able to execute to this period. Take the 3.5, entice the investors, and get your round done. Get the money in the bank.

To your point, about 6 to 9 months down the road, for the last long while we’ve looked at these bridge rounds as saying, “We only have to get you six months down the road and then you’re going to have a valuation spike because all of the orders that you think are going to be coming in will have come in or X, Y or Z will have happened. There’s almost unlimited available capital for people who are executing.” I would caution people not to make that assumption anymore. Build-in more money for more runway, cut costs as much as you possibly can because the money may or may not be there in 6 to 9 months even if you execute.

I’m going to turn this to you, Evan, because one of the other realities that I see and believe is that some of the gambling money is going to come off the table. There’s going to be more of a premium put on capital efficiency and brands are going to be required to build their tribe digitally. The eCommerce-enabled and younger brands who are trying to drive discovery, who are trying to build and improve traction, they’re going to need to look to do that in more capital-efficient ways to get to the point where they have investors interested in putting more money against their growth hypothesis. Evan, is there anything that you can suggest in terms of, how do brands begin to do that? Especially now where there’s so much noise, there’s much bombardment of information online yet at the same time a lot of people are spending a lot more time online. What can brands do strategically to begin to communicate and build a tribe?

Let’s set the stage philosophically first and that is what period of time is this for you? It certainly is a time of amplified disruption. It is also a moment of truth for a lot of brands. Taking this moment to strive through the challenges, not to look at the near term, but to look at the long game here. Although we have immediate pressures that are being placed on us, it’s pressure testing our infrastructure, brand, everything about who we are as a company and as a brand. The solutions that we come up with now will help to future-proof us for the longer burn disruptions that we face those shift economies.

Part of that is that the issues and challenges, which are maybe more longer-term are now in our face. One of those has to do with the brand that you’re going to be and the message that you’re going to tell. To begin to tell a compelling story efficiently on a D2C space, but anywhere, you have to pinpoint the point of view and the focus that you want to have as a brand. There’s a lot in your question. You mentioned the noise that’s happening in the category and how do you stand out in that? What can you say and what can’t you say? Part of that is reminding yourselves, what it is that you’re selling? I was talking to a semiotician a sociologist psychologist and we were talking about it’s not the products. You’re selling an idea. You might be selling optimism, levity and full potential.

Taking a look at your company and asking, “How hard is my product selling for me and how hard is my brand selling for me?” Oftentimes, if the product is doing too much selling and the brand isn’t, it’s where some uncertainty comes to play but the moment you know what that brand or what your brand stands for and that story that you want to tell, all of a sudden inspiration opens up. In terms of resources, when you know who you are as a brand, you have a much stronger platform to take risks from because you know your sound’s starting point instead of guessing. Why this relates back to spend is you will have to amplify your storytelling. You’ll have to push, take risks a little bit more, amplify the personality a little bit more, and amplify the message and dial in that point of view. Those are all the foundational elements.

One of the things that I want to talk a little bit about is the fact that there is a window of opportunity here. Although some brands are having unprecedented sales either online, brick-and-mortar or both. Others are experiencing the exact opposite, unfortunately there are a lot of day-to-day activities that are not accessible to the typical founder or team. There isn’t the same travel going on, sales calls, meetings and things along those lines. Inherently most people can be using this time to do things differently. It’s to take steps to improve their brands, their businesses and themselves as founders. Use that to potentially leapfrog their competition when the veil lifts, whenever we reach the new normal, which I hate this term, by the way. I don’t think either is true. I think shit’s going to change and that’s fine. I’m going to ask each of you this question and it can relate both specifically to your areas of focus, but also as general business people. If you were going to encourage founders to do something, examine something or some things, what would it be? I’ll go to you first, Chuck.

One thing I want to start with an overlay of, I’m not suggesting anyone be inhumane with their approach to their teammates and whatnot. I want to tell a story to get to your point, which is I had a meaningful Angel investor that I represent who is going to write a $500,000, $750,000 check. He dug into the company and he said, “Hold on.” They had a $1 million in sales trailing twelve and they have $900,000 in salaries. They have two founders, three salespeople, two marketing people. Not only does that not make sense to me generally as a business person and someone who himself has grown a consumer company, but in the environment, if a business isn’t looking at something like that and proactively thinking about how that needs to change, then that’s not a business I’m willing to invest in.

To me, that went to the increasing focus on profitability that even before Coronavirus the funds and Angels were pivoting towards companies that are either profitable or have a path to profitability and seem a whole lot scrappier. Instead of the, “I’ll raise a bunch of money and spend into it and hope my topline grows.” I would encourage people to focus on the profitability of your business, analyze your unit economics and make sure that your unit economics are sound. Analyze your fixed overhead and make sure it makes sense for a business of your size, etc. I would be doing that because those are going to be the businesses that attract investment money. Investors will think those businesses can get farther with less money.

I mentioned this before, there’s a huge premium going to be placed on capital efficiency, which is overdue. It was trending that way. Brands have to be lean, nimble, scrappy and be able to deploy their capital in ways that drive growth and profitable growth, not that just builds bulk or builds more mouths to feed. I do think, looking and asking yourselves the hard question, “Is my team lean and nimble? Can I do more with less and can I position myself in a way that improves my ability to be more effective with the use of capital, extend my runway and attract more future investment?” The bottom line is pretty simple math. If you need less capital to get to the finish line of your business or to get to where it’s self-sustaining, those investors who put in cash are going to experience less dilution and be a lot more excited about the investment. Evan, to you, what would you be advising as people are thinking, sitting and wondering, “What can I do to move my business forward? How do I leapfrog my competition?”

Using advertising in a smart way as research is one of the most effective ways to go. We have a captive audience on digital. By leveraging, digital buys that A/B test different messages that experiment with different consumer groups that are looking to dial things in. Starting with the lower spend, dialing back to spend at first until that’s optimized and then slowly increasing where you’re seeing success. You’re not taking maybe the hot right now, just a broad mass spend to try and generate awareness, but it’s a much more strategic and small approach and then you ramp up slowly.

On the other side, when the exits occur, part of the valuation is going to come from the power of the brand itself. It’s keeping your eyes on the short-term sales that you can get but it’s also not losing sight of the longer-term messages which you need that brand to carry for you. In order to leapfrog the competition, if the competition is all about conversion, how can you bring a little bit of a higher-level message but still driving that conversion? That’s the needle to try and thread a strong and powerful brand message that ultimately will drive the loyalty, not just the conversion.

I want to emphasize something Evan said that applies in all markets for consumer products companies, which is as someone who does a lot of M&A and financings in this space, the core value of your company is your brand. At the end of the day, companies are being acquirers who can figure out how to reverse engineer most of these products, make them, etc. The core value and what people will pay for is the strength of your brand. I couldn’t agree with Evan more.

Brands are emotional. It’s something that isn’t easily replicated. Focusing on brand building and brand strengthening and connection is great. I want to come back, Evan, to something you were talking about in terms of messaging in general. I’m watching an amateur marketer and sociologist the balance that people are trying to strike in the way they communicate outwardly. You’ve got people that every message they’re doing is COVID-19-related and trying to be on-message around that and empathetic, which there’s a degree into, which it rings sincere. There are others that it feels inauthentic. There are others that seem tone-deaf to it or are using this moment to be focused on making discounts, selling deals, doing whatever and that doesn’t work. How do you figure out your brand messaging for a moment in time like this that is unprecedented? How do you figure out what your voice should or shouldn’t be?

There are brands that can extend life for people and there are brands that make that life worth living. A lot of the brands in the CPG space tell stories which make life worth living. I would look at it in part as a Venn diagram, look at all of the issues and concerns which COVID-19 is raising. Look at all of the stories and messages which your brand inherently tells and stands for and define them if you haven’t. The happy medium, so to speak, in the middle, would be to directly or indirectly use the themes that your brand stands for to articulate, how people should navigate COVID-19.

For example, if your brand is selling levity, keep the levity going. It’s not just levity in your brand world but it’s, “What are people going through? How can I provide levity? How can I provide that uplifting spirit to that?” If your brand is about wisdom, if that’s what you’re selling, it’s the same thing. What are people going through? What people are going through is dynamic and it’s going to continue to change because we’re still in the adjustment period for a lot of people this is going to be a marathon and not a sprint. It’s not just what you want to say but watch as people’s needs change and then ask yourself, what does that overlap? Where do I have the right to speak? It goes back to what you’re truly selling and what you’re truly standing for. Indirectly overlapping your brand’s themes onto it. It’s not much in your face, but it’s bridging people where they are and showing them a way out.

That’s hard to figure out. I like the concept of doing it in a Venn diagram and trying to figure where that overlap is. The thing that I would add to that and disagree if you want to, I know Chuck will want to because that’s how he rolls. It’s okay to experiment right now. Imperfect action is better than no action. I know a lot of people are fearful about messaging in a way that doesn’t ring appropriate for the times. I will encourage anyone to try. Try to do it from a position of authenticity and do it from the way your brand normally speaks and would speak in these times. If your message doesn’t ring, then you adjust and you can adjust but you don’t want to be invisible during this time. It’ll hurt your brand.

Imperfection is important because imperfection is vulnerable and perfection is human. Perfection is the brand that try and dance this perfect dance and try and be everything that consumer wants. It doesn’t ring true. Imperfection in personality, in our messaging, in showing our humanness will connect. We talk about this with voice and tone and personality. Oftentimes, we ask to describe your best friend. Elliot, how would you describe Chuck? Chuck, how would you describe Elliott?

I’d rather do that.

I can’t do that. We can’t do that on a show or webinar.

You would start with reliable and trustworthy. Point being, it is the faults and it is the great virtues that make somebody interesting. It’s true for brands. It’s not the vanilla, trust, reliable and transparency. Maybe you are a little bit overconfident, maybe you are a little brash or a little blunt, but having your imperfections and showing your vulnerability is a big strength as a brand.

That almost sounds like how we relate to people in the sense that it’s not just okay, but a bonding experience to be imperfect, but it’s never okay to be insincere.

That’s pretty impressive for a lawyer. That’s almost bordering on human feelings. That seems out of character for an attorney. To that point, brands are a part of our lives and our brands need to be a part of this moment in time because they are alongside us and we should be doing that like people, they’re imperfect. I’m going to flip to the negative and talk about it. We see things that are going on and I’m wondering if you are seeing anything that causes concern, things that you think brands or founders are doing wrong at this moment in time? I’ll start with you, Evan.

I’ll tell you a lot of the brands we work with, it’s hard to answer that question because I see them doing a lot of things right. I’m hearing in a lot of the discussions, even the brands that are worried about the future still recognize the importance of pushing through it. I would say in general, focusing on the challenges more than the solutions or letting the challenges or problems drain your ability to keep that optimistic drive, which is at the heart of your company, especially if you’re a founder. Letting the problems and challenges focusing on them too much. We need to take a challenge and take a problem as we would of weights. You lift weights, we get stronger, but then we don’t tie that weight to ourselves and walk around the day with that dragging behind us because we would be fatigued. Recognizing the challenges that are facing the brand and business, but putting the energy around that moment of experimentation that this is a unique moment to try things that haven’t been tried before because we’re in a paradigm shift. Everything is influx and it is a great moment to future-proof yourself in certain ways because the disruptions at hand but also try new things. Consumers are showing up in digital at a faster rate. It’s accelerating that timeline a little bit. That high level.

How about you, Chuck?

What are they doing wrong? It’s hard to say with perfect clarity because this is new for everyone. What people are doing wrong, I may end up being wrong, but I’ll share it anyway. Where I see entrepreneurs not rat reacting with sufficient speed and courage to the idea that things are different. The environment is different. My personal perspective is this isn’t going to go right back to normal and 2 or 3 weeks or a month whenever your quarantined ends. You could see that played out with founders who dug their heels in on demanding the valuation for their company that they would have gotten six months ago.

Not moving forward with fundraising they truly need, as a result. You could see it with people not wanting to make hard choices around expenses. There are two different motivations there. In each case, you may have to make a hard decision, but the motivation in the latter tends to come from the right place, which is there are negative impacts on others from making those hard decisions. Whereas the first one comes from people not recognizing reality or being reasonable about the fact that their company is probably worth less than it would have been with the exact same numbers months ago.

I’ll add to it a few others. One is inaction, being paralyzed by giving into fear and not doing anything or playing the “Woe is me.” Everybody has a new set of circumstances here. Those that find steps that they can take to move forward are going to be the ones that make the great advances and those that do nothing, retreat or shelter their businesses in a place like their families, it isn’t going to advance the business. That’s one. Along the lines of what you were saying, Chuck, but saying it slightly differently is confusing the difference between being nice and being kind. While everybody should work and aspire to be nice, you can’t kind, you can’t always be nice.

Now is the time where you will have to make some difficult decisions. That difficult decision requires you at that moment in time, not to be nice, but it’s giving that person the opportunity to make the next step. It’s keeping the rest of your team able to be gainfully employed. It’s positioning you and your family to be able to succeed, then that is being kind. As well as also being aware that you’re going to have to make non-economic choices to protect your team and your workers. That may fly in the face of revenue, but you need to do that. The third thing is that we’re having many of these. These are the best ones to be on by the way. If you’re not on this one, it sucks to be you. There’s much information, which is awesome.

The industry is galvanized and is trying to share information and we’re hearing whether they’re sharing stories of how they persevered through challenges, whether it’s deep, meaty, specific information on the CARES Act or whether it’s these informal conversations. The risk, however, is that you’re being fed this information and you’re drinking from a fire hose and you feel like you have to do all of these things. What I would encourage brands to be doing is don’t try to do everything. Pick the one or two things that you feel you can execute well and try it. Set specific objectives or measurements to know whether that trial is working the way you thought it would and give it enough time to do actuate before you make decisions. If you try to do too much, you’ll end up doing nothing and being ineffective.

One last thing there is, don’t look two weeks from now. Don’t look a week from now. There are going to be actions that you take that are important that may not manifest in a meaningful way either revenue-wise or even changing the course of the business for many months but you still need to take those steps and be taking those steps. To try to navigate on a daily basis when the information and the world are changing on a minute by minute basis is in my opinion, a fool’s errand. I’m going to jump to a couple of other questions.

One quick thing, we’re not going to do a CARES Act deep dive here, but if you’re eligible for the payroll protection loan and you may not be eligible if you took venture money and they have certain negative, veto rights, which is a separate topic we get into. You should take that money and you should apply it quickly because it’s going to go. If you’re eligible for that loan, it’s as close to free money as we’re going to see. Go get it before it’s gone.

Do it. Take that action and at least fill out the paperwork and don’t tell yourself you’re not going to qualify, you don’t have time or it’s not that much money. Every dollar helps and Chuck is right, it is the closest thing that you’ll ever find to free money. I would encourage everyone to do it. I’m going to change a little bit more towards future-looking now. There are a lot of changes. Some of these I believe are seed changes that are not going to walk backward. I’m curious for both of your perspectives, what do you think has changed or is changing that is likely to stick when we come to the other side of this? I’ll start with you this time, Chuck.

I think people’s behavior around cleanliness is going to stick. For example, the long-term demand for things like hand sanitizers is not going to go back to what it was pre-Coronavirus or products that legitimately can claim to boost immunity and so on, even that sentence is packed. Things around keeping yourself healthy, changes that we’re seeing now for those types of products, there’s going to be a long-term increase in demand for those products.

Evan?

I would build on that. This whole thing reminded people of the importance of natural products and products that had the genuine health and wellbeing of their consumers at heart throughout the product development and their messaging. People have discovered them and they’re discovering how powerful they can be. A lot of that will be residual. A lot of the digital transformation that’s occurring will stick. More people are being introduced to digital grocery shopping and delivery and all mechanisms around that front. Digital commerce and your ability to speak through eCommerce and through digital are going to remain higher importance coming out of this than it was going in.

Some other changes, some of them are cool. More and more meetings with buyers and activity are going to be done this way. That will save wear and tear on families, on people as they travel on the environment, which is cool. I also believe as I said before, that some of those gambling monies coming off the table and capital efficiency are going to be a premium. Discovery is going to be driven more for young brands through D2C, even digital B2B, and alternative channels. I would encourage anyone who isn’t building a brand that’s eCom-enabled to rethink that, and make sure that they are building a brand that is eCom-enabled. It doesn’t mean you have to be ambient because I do think both the cost, the economics, and the logistics on refrigerated and frozen D2C is going to continue to evolve, come down and be more accessible.

I also think that we’re going to have a little bit more of an awareness of the price of our busyness and the impact of living a life as we do, which is we’re filling every possible moment and slowing down is not a bad thing. Maybe appreciate that a little bit. Continuing with that lines of questions, in terms of activity in the marketplace. A lot of the people here are likely to be either earlier stage brands or other service providers. What are you hearing from some of the larger brands, funds and the people who may have a broader view of the global market as to what’s happening, where there’s an opportunity, where there’s a concern, what’s being told? I’ll go with you, Chuck, first.

I’ll start with the funds. I’ll go negative and then positive. A lot of the funds, it lines to my point of view. I believe this is going to be a deep recession, if you judge it by how much the stock market retreats? How much unemployment goes up? This isn’t going to be a short-term blip they’re acting accordingly. On the positive side, it goes to capital flow. A lot of the funds I’m talking to, let me take a step back so people who are on, who don’t understand how these funds work, get it. The funds get capital commitments from a bunch of other funds, rich people or institutions, and that’s the size of their fund. Let’s say I have a $200 million fund that I opened in the last 1 or 2 years, I may only have invested $15 million of it. I have another $185 million to invest.

If I don’t invest it, I won’t earn all the upside, which is why I started a fund, which is called carried interest, which is the profit on the investments. I’m going to deploy that capital. I have a meaningful personal incentive to deploy that capital. They’re looking at this time as an opportunity. In the next 6 to 18 months, they’re going to deploy meaningful capital into a lot of the best companies. The idea being, by the time these companies are ready to sell, they will be out of the recession. Valuations will rebound. Yet we would have gotten into these companies at recession pricing and they would have been scrappier because of the recession. All of which impact a higher return for them. The positive is that the funds are going to be active in our particular space, the consumer product space. That’s why I’m here.

Evan?

A lot of the larger brands by their sheer size, they’re taking a little bit more of a defensive posture for now. That frees up the ability for the smaller brands to continue to make moves, continue to take risks and to stand out, especially during this time. Speaking back to the importance of not just doing nothing but dialing in your message and amplifying it in a big way. That’s given the nature of the sheer size of the company and how fast these brands move. Heading into all of this, we saw a letter go out to the CEOs of the top companies that were underlying the importance of sustainability. We’re seeing a lot of the larger brands focusing more on sustainable messaging and putting some capital behind it to reinforce those initiatives. We’re likely going to see that momentum going and this could be another long-term change that has occurred. Consumers are almost demanding a soul from the companies that they do business with. Coming out of this, larger brands are going to have more of that story to tell of the sustainability of consumer goods, which a lot of the smaller brands have championed for a long time.

I’ll share what I’m hearing. I’m hearing a few things. One is the resounding bang of the drum around SKU rationalization. I’m hearing a lot of the bigger brands taking a hard look at their portfolio and not focusing and holding onto their tail SKUs. Letting those go. That’s carrying forward to the distributors and the retailers. There’s a recognition that there was an over skewed position and that breeds inefficiency. There wasn’t enough room on trucks and shelves for products because there were many. There’s going to be some pressure about SKU rationalization, which means that for earlier stage brands getting the yes is going to get harder because they’re going to take on fewer SKUs and fewer brands. I’m also hearing from some of the larger brands, the same thing that they think this will be a downturn that lasts for a while but money will still be here. I do think as an overall that this sector and in particular natural products will outperform about any other sector in a recession.

I’m thankful every day to be in the space that we’re in if we’re going to be facing an economic downturn. Switching to another question, entrepreneurship in general. There are a lot of questions back and forth. I heard a conversation and I won’t tell you my opinion on it yet because I don’t want to influence yours, especially you, Chuck. What does this do to the future entrepreneurs and to founders and new brands coming into this space going forward? What does this downturn and what does this moment in time do to that? I’ll start with you, Evan.

There’s going to be risk aversion as people are shoring up their own security but what is going to do is uncover opportunities that we haven’t yet discovered. It’s easy to see the societal disruption that’s occurring. It’s harder to put a pin on the longer-term cultural disruptions that are taking place. We’re starting to discover what the new consumer needs are. As those change, and as those evolve, it’s going to create whole new needs, markets, and things, which need to be served as society has shifted. We need to weather the storm, but that’s not going to shut down our imagination and creativity as people. We’re going to continue to have these ideas and we’ll watch as new opportunities arise to create demand, new mark, a new category or deliver in a category in a different way. There’s going to be a little bit of a lull, but then it’s going to awaken possibilities, which we’re starting to see emerge.

Chuck?

We’ll see a lot of entrepreneurship from the people who are losing their jobs because it’s a lot better than doing nothing and people will have the energy to start a business from desperation. I keep pounding the same drum, but businesses will focus more on unit economics, profitability and being scrappy and they have over the last decade. That’s going to be to the overall health of those businesses and their long-term prospects. We started to see a lot of entrepreneurs over the last little bit who thought they could start a company and sell it in 3 or 4 years by raising a ton of venture capital. Trying to get distribution, getting a bunch of trials and pushing sales. That model is going to decrease and people are going to understand they’re in this for the long haul and they need to build a long-term sustainable business.

My personal take is that if you look back after the Great Recession, there was a big surge in entrepreneurship. Partly it is because people had to invent their own jobs. A big part of it is that it takes getting shaken out of your nest before you’re willing to take a risk like this. It’s a lot more challenging to quit a good, comfortable job to start a business with all this uncertainty. When you’re sitting at home thinking about what’s next and one of those options is going back to another unfulfilling job, a lot of people will jump in. I wanted to bring this up because I feel strongly that this is a cautionary tale for anyone reading. There’s going to be a wave of entrepreneurship that comes out of this hardship and they’re going to be focused on everything Chuck said.

They’re going to be digitally native. They’re going to be scrappy. They’re going to be focused on unit economics. They’re going to be focused on bringing things to the market without the need for a lot of outside capital or in big dollars. If you don’t start thinking that way, if you as an entrepreneur, as a founder, don’t begin to question your business and be able to ready yourself for what I believe will be a wave of new entrepreneurs, then you might get passed by. You’re caught in the middle, caught between not being big enough and relevant enough quite yet in retail and not being scrappy and nimble enough and capital efficient in order to play against those.

Using this time to ask yourself that question and thinking through, how and where do I reinvent myself? It’s a perfect time because our question came in that I mentioned that the cost of perishable and eCommerce may be reducing. Can I speak a bit more about this? It is because there are more and more service providers coming to solve this. I don’t know if anyone has read, but even Amazon is got this concept they’re calling the Mothership, which are mass warehouses that have refrigerated and frozen capabilities. There is also the growing 3PL solutions providers who are getting more and more effective.

In my opinion, it will never be on par with ambient. In my mind, we’re going to reach a time or for the right consumer, the motivated consumer for subscription models. It will make sense and we’re seeing it in things like surprisingly ice cream and where people want their comfort food delivered at home and just in functional foods. A question for you is if you are virtually sitting in front of a founder and looking at her or him and being asked to give good counsel, what would you be advising them to be thinking about, doing, questioning, considering at this moment?

Part of that would be asking who a brand serves. A large majority of that is your audience and your consumers. The other big piece of it is your workers and your internal team. A tremendous brand lines everything up beautifully. It lines up your internal operations with your external communications. Looking at the systems, culture, and the way that your brand decisions are affecting your internal team. How your values are driving your decision making and how your purpose, mission, and vision are being tested? Are they working for you? We visited the core strategic language of where you are and seeing if the theory is lining up with the actions that are taking place. Is it improving the internal team and making them stronger, and is it delivering the right message to the right people? If not, now would be a great time to focus on them because they’re being pressure tested, like never before. You can create diamonds in a lot of ways by focusing on how your brand is translating internally and externally because a lot of your success is going to ride on your team’s ability to rebound as well after this end to carry you through it. I’d be looking at the implications there.

I tossed this question out to Evan when you walked out, so I’ll do it to you too. If sitting virtually across the table from a founder who is looking to you for general advice, what they should be doing, what they should be exploring, considering, what wisdom would you share with them?

I’ll lean away from specifics and lean towards the general, which is to create a business that’ll be here in two years and they’re going to have to decide based on their business what that means. Maybe a lot of, thankfully, and CPG, a lot of businesses going to be able to continue to grow and then over the next two years and take venture money and whatnot. Their number one priority is to keep the business alive. I would be telling them, “Look at everything you need to do. Don’t assume unlimited capital is still there. Keep your business alive.” Given we deal with brands with one caveat, which would be in a way that’s consistent with your brand, if you have to destroy your brand and keep your business alive. That was a hard one, Elliot.

Let me rephrase it slightly and I’ll throw it back. Let’s start with you in particular, Chuck. There are a lot of these webinars going on. There’s a lot of conversation, there’s a lot of advice and people sharing about how they persevered. Regardless of all of this, they’re going to be some of you whose brands don’t weather this storm. It’s unfortunately true and not to be a naysayer or to be a downer, I also think it’s important to acknowledge that. How and where, Chuck, do you draw that line if you’re advising a founder? What signals need to be flying or showing themselves for you to consider advice that reduction?

I’ll give you a hypothetical example. If you have a new line extension or new products that you were going to come out with that you’re in love with but which don’t have great unique economics, kill them. To the point you made earlier, if you have seven employees and you can’t keep the business alive unless two of them leave, unfortunately two of them are going to have to leave. You’re going to have to do what you need to do to keep your business alive. If you have a big venture check that you’ve either taken or can take, then great. I’m not talking to you. I’m talking to the people who are going to have trouble keeping their businesses alive. To your point, there are going to be some products and businesses which die, and the callous commentary I have around that as some of them should die. They were built for a non-sustainable economic model where there’s an unlimited inflow of capital to grow a business, which itself is not profitable or sustainable.

Similarly, with advertising, it is incorporating a smarter data reporting, setting up the backend of websites to track the flow of your audience. Knowledge is the savior in terms of protecting your efficiency and has been brought up multiple times. The new breed of brands that might be emerging from this will be an efficient one. Setting up your data infrastructure to collect and optimize data from the website and making sure everything is integrated into a central location so you can make smarter, more informed decisions about whom you want to target and how you want to target them is well-worth the time.

To me, there are some hard-fast rules and where to draw the line. I had some tough conversations over the past weeks. To Chuck’s point, if your unit economics means that every one of your items sold ends up being an investment, then stop selling those items, even if it’s all of your items. I’ve had a few people say, “I’ve lost all the dollars I’ve given away and free fill,” so be it. That’s a sunk loss already. You’re going to be much better off walking the business back and living to fight another day, than doubling down on what was already a bad investment. If your unit economics are telling you that every dollar after a trade, after all of the magical deductions that are taken by distributors is not yielding any positive contribution margin, then walk that business back and retreat. Start and live to fight another day.

The other is don’t put your own personal financial health at risk. I’ve had a lot of people reach out to me and say, “I’m thinking about taking out a home equity loan.” Everyone has their own risk tolerance. I’m not telling you what’s right or wrong, I’m telling you personally that I would never do that. I would never encourage anyone taking a significant personal financial risk in an environment with much uncertainty. If you are a good entrepreneur, the right brand and the right product will find you. You’ll be able to reinvent yourself. Most entrepreneurs are serial entrepreneurs and they’re going to come back and reinvent. If you damage yourself beyond your ability to recover or if you put your family at risk because of your belief in your product, you should be asking yourself the hard question, “Is that smart?” If you can’t ask yourself that with objectivity, then reach out to people in the industry who can offer you that. Ask for real feedback, no bullshit, “Tell me what I should be doing?”

Elliot, I do want to add. You said but I’ve interspersed it with a lot of focus on business economics and some negativity. We are blessed to be in the CPG space right now. CPG is historically recession-resilient. It is especially recession-resilient when most people are consuming more products at home than out. As long as you’re not a luxury price product, we’re going to be in good shape relative to virtually everyone else. We should all be happy about that or feel blessed is probably the better way to say that.

One last question and then I’ll toss out something for you to throw any wisdom bombs down on the group. In terms of trends, anything that you’re seeing or believe is going to continue to grow specifically over the next 6 to 18 months from what you’re hearing and seeing? I’ll start, maybe that will make it a little bit easier. To Chuck’s earlier point when we talked about our heightened awareness over hygiene and personal wellness, any products in that space that are personal wellness, immune, sleep, stress, personal care products that promote the same thing. Those are all going to be things that drive business and drive more interest but curious as to what you are hearing or thinking. I’ll start with you, Evan.

As was mentioned, virtual connections are going to play a larger role and that will continue. We’ll see an increase of more entrance into the natural product space as people see the opportunity for short and long-term health products. That will push companies to have to figure out how to further differentiate themselves. Those would be too.

Companies like Vive Organic, the wellness shots, or CleanWell have seen huge upticks in sales and they’re going to continue to see huge upticks in sales, maybe not quite what they’re seeing, but because consumer behavior on the sector products is going to continue. Other long-term trends coming from this, back to scrappiness. People are going to realize they can be scrappy to the point of interconnectedness and travel. You have to have every meeting in person or fly all over the place. I do think we’re going to see a lot of full wellness products as well. People who want to take advantage of the wellness, the increase in wellness demand with products that are not truly what I would anyways consider a wellness product. There will be a lot of that crowding into the market as well. Some people will need to differentiate themselves from those products.

I’m going to do one last round here. Evan, I’ll start with you.

To recap some of the points. Being a source of strength as a brand and not taking such a defensive posture but looking at how you can be strong for both your internal team and your external community. Tying that source of strength back to what you own in the market and what your brand stands for is essentially important and pressure testing. The core drivers of your business from a communications and cultural standpoint are going to help set you up for future success and future-proof you in certain ways.

I’d like to end with some encouragement, which is some of the strongest brands have been built through recessions. The opportunity to create a connection with your consumer is meaningful during the anxiety and uncertainty caused by a recession. The ability to create a strong set of business fundamentals becomes a necessity during a recession. Do all of these things as opportunities. There have been an incredible number of brands that have built during a recession and when the recession ends and the economy rebounds, they are a great success and exit stories.

I remain and maybe even more bullish about this space than ever before because to everyone’s point that we are blessed and lucky to be in the space that we’re in because we are relatively recession-proof. I do also think that people begin to naturally become more insular and they’re looking for comfort. They’re looking for wellness, for things that give them the confidence and the peace of mind that they’re desperately wanting. It’s super important to be on point to that and authentic and thinking about that as it relates to products. It doesn’t always have to be wellness outwardly as we talk about wellness products. Part of wellness is emotional wellness and there’s nothing that is more tied to emotional wellness than what we consume, what we put on our bodies, what we feed our pets. All of that is aligned with that. You can message and be aware of that. The other is that now is the time to look for the opportunity amidst the chaos.

The reality is, it’s going to be tough sailing. There’s going to be dark days, but to Chuck’s point, many of the companies that we admire, whether they be in the CPG space or in general or companies that came out of a tough period of time and left forward. They did that because during that tough period of time, they didn’t lose their way. They didn’t retreat. They didn’t stop. They took action. Whether that action was imperfect or not, they still took the iterative steps to move their business forward and make something happen. When they emerged, they emerged stronger, better, and ahead of their competition. I would encourage everyone to be doing the same. Evan, if anyone wants to reach out to you, learn more about you, buy a similar hat or whatever, rent your cabin out on Airbnb when things are normal, how do they do it?

Moxie Sozo is grounded and has experience in CPG, natural products for many years. You can reach me at Evan@MoxieSozo.com. It is the fastest way.

Chuck, how about the same for you, how do people reach out to you and your team and maybe a little bit more about your team and what you do?

I want to give quick blood from Moxie too because they’re great and a lot of our brands use them. I want to say you should reach out to Evan. We are a big law firm or I run the consumer product. It’s a group, my team only works with consumer products, companies and funds. Anything from trademark, regulatory and SBA. We close 50 to 70 ventures and how many deals a year in the space. We do ourselves more than lawyers. As a result, we understand the space. We can be advisors. You can catch me at CACotter@HollandHart.com.

As an aside, if anyone wants real insight information on Chuck, let me know. I’m happy to fill you in. Everyone, thanks so much for reading. Chuck, Evan, thanks for doing this with me. We’ll do a couple of others in the coming weeks and we might circle back and revisit as we all navigate this time. I appreciate it. Everyone, have a great day.

Important Links

• Moxie Sozo

• Holland & Hart

• Evan@MoxieSozo.com

• CACotter@HollandHart.com

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