Add Creative - Episode 4 - Show Notes

During this session we are lucky enough to get to learn from Ovadia Labaton & Zach Arnold, Co-Founders of The Perfect Jean about their journey over the last few years creating a bootstrapped brand.

Here are our top 3 takeaways 🤌:

  1. Have a simple thesis and holding true to that no matter what is an amazing north star to have, it allows you to focus on the customers and delivering the best experience possible to them.

  1. LTV isn't always your friend on first purchase. You want to be working back from bringing in cashflow to the business (caveat: this doesn't work with every product) but it allows you take more chances long term if you know you don't owe money to the "bank" on the newest customer you have acquired.

  1. Having relationships with your suppliers and factories can help you get favorable financing terms and get you to the head of the line on delivery. Not enough founders focus on how the infrastructural core can deliver compounding incremental gains for the business.

This is only the tip of the iceberg so please enjoy the entire show.

[00:00:00]

Ovadia Labaton: We

Zack Arnold: had, again, as a result of our previous experience and previous failures, we had like a. Sort of a pretty, it was a well-defined thesis, we also had an idea of what we were going to do.

If selling just skinny and slim jeans, which has always started with, if that didn't work to a certain scale, we would probably it's possible. We would have, like past this business offers started a new business or something else. So like we pretty rigorously tested our thesis, which started as just a product, a price and humor, and, has developed certainly into something more, but not so far outside of the realm of our initial thesis.

And we continued to see it work. And then we, along the way, saw opportunities to introduce additional sizes, introduce additional fits, and by closely tracking the data through those releases, we've just continued to [00:01:00] grow a brand. And at least for the foreseeable future, we still see similar opportunities.

Welcome to Add creative, a new show from pencil about the unexpected ideas that have changed the game for DTC, founders and operators with focus on actionable takeaways. I'm chase Mohseni from the pencil team. Thanks for joining us. My guests today are Ovadia LABA, Tom. And Zach Arnold, the co-founders of the DVC brand, the perfect Jean.

Along this journey, we get an unvarnished look at what it takes to run a bootstrap business with these two.

Ovadia shares, his formula for KPIs and measuring success on paid marketing efforts, along with Zack sharing, the thesis that they have rigorously adhere to since they started. And our uniquely ambitious goal to be the best at what they do and not overexpand. And a lot more.

We had a good time recording this one. I think you'll be able to tell, I hope you enjoy it too.

Chase Mohseni: I'm joined today on the Add Creative next episode cue Snoop dog and Dre with the founders of The [00:02:00] Perfect Jean. So I don't know if you guys want to introduce yourselves for the audience and then we can dive in.

Ovadia Labaton: I'm Ovadia Labaton co-founder of the perfect Jean along with Zach. I focus on a lot of the paid social, the digital marketing operations and finance for the most part.

Zack Arnold: Zach Arnold, I focus more so I'm on the supply chain side. I have gradually learned a bit more about organic social media content along the way, which has been fun.

We can talk a little bit about our backgrounds too. I've been working for about a decade in the men's apparel space. Just before that I was at a failed daily deals, tech startup, and then I actually transitioned a bit into the old family business and have gradually learned a lot along the way around product, around supply chain.

And over the course of that, I kept a little bit of the sort of tech background and connections as well, occasionally investing and advising and various companies at [00:03:00] the intersection of tech and fashion and tech and apparel. And. I ended up meeting nobody at, through with, through that. So worked out,

Ovadia Labaton: My background I've been in an e-commerce and mostly in apparel for also close to a decade before that wall street.

So I collected a bunch of random skills along the way. Most recently before perfect Jean at a venture back startup called kid box which sold kids apparel in a box very straightforward. It was a very complicated business with a lot of hair. So like sharpened teeth on solving hard problems there.

And then. Decided along with Zach, we want to do something a lot easier and simpler with less hair and just uh, keeping it simple applying best of strategies and kind of marrying the digital experience that I collected with the kind of supply chain and the product experience that Zack has.

Chase Mohseni: I'm going to be really excited to dive [00:04:00] into having an apparel brand.

That's simple because I grew up in an apparel brand and it is not fucking simple.

Ovadia Labaton: You're exaggerating.

Chase Mohseni: I always like to start this off because we're, pencil is a creative company like what was the idea around the business because, and how did you get that?

Because perfect. Jean is a very specific brand, especially on the marketing side. And there has to have been some sort of brain child that you guys put together to put that idea together, or is it something that just organically happened as the company started?

Zack Arnold: Yeah, I can, we had a thesis around a superior product for a great price.

We certainly saw a bit of an early trend in stretch denim and adding comfort towards men's wear in terms of the overall vibe we knew we were going to always like lead with humor in part, because we just, we wanted to have fun doing this. And because it's allowed us the flexibility to do more on the social media side, on the ad side [00:05:00] as far as the actual like type of humor and then a lot of the mission that we embodied in part that was.

Us even being truer at ourselves and then just even receiving customer feedback and actually seeing how the ads were going. Like we were receiving a lot of homophobic anti-stretch jean rhetoric from the first ad that we ran. And we basically ran with combating that from the get-go. So it wasn't necessarily, we weren't aware that would be such like a visceral response from a certain segment of America.

But we decided to run with that because it like represented who we are and it was a lot of fun.

Ovadia Labaton: Yeah. I that's key is that we told ourselves from the beginning, it's we're not going into this with a lot of rules and we're very comfortable courting a little bit of conflict because.

The one thing you notice about Facebook and Instagram is that they're not like [00:06:00] discussion engines, they're conflict engines. So we knew that's where, like you look at the trends and politics and all the trouble Facebook's gotten into it's because of conflict. It's not because of content. So when you think about who's actually on Facebook and what's capturing people, it's just shit that they get really upset about for the most part.

And, the obvious cat photos and stuff like that. But we knew we were going to lean heavily into stuff that was like a little bit on the edge. We didn't know how far it would end up going, but we always knew that it was going to be like use Jeff's use memes, play around just, and don't worry too much about making a couple of people.

Chase Mohseni: Yeah, that's so interesting. I talked to talk to brands a lot of times and I essentially, one of my big things is don't fight algorithms, don't fight platforms, like use them for what they're good for. And so it's essentially like leaning into, like you said, it's a conflict engine. I think that's like an incredible way of looking at it.

It's the same thing as don't [00:07:00] fight what Twitter is good for. It's good for certain things. It's not good for certain things. Like the DTC space is just let's be conversational and it's fun. Don't try to be too serious in the brands that do it. I think we know some of these brands are just have fun with it and lean into what to what makes sense.

So that's, yeah, that's a really good call out. I'm curious Like going in with all of the knowledge that you had, because it's a little bit different, so there's, the 24 year old who starts a clothing brand and then there's people who have a decade of experience as we say, making business.

And and what was that like in terms of kind of the expectations you had about the difficulty of the business and what was unexpected uh, that you ran into and then what were some of the things that were maybe easier than you thought they might be?

Ovadia Labaton: That's a good question. I can, I think I would flip it a little bit.

We didn't go in thinking that anything would necessarily be specifically easy or hard. We just had expectations that there's going to be punches and we damn well better roll with them.

Zack Arnold: And we failed a lot before that, like we knew our stack in part, because of. Like Tried everything [00:08:00] and mess around with it.

And a lot of it didn't work previously, process

Ovadia Labaton: of elimination is a powerful uh, but yeah, it's we knew what to expect. So there's a lot less nerves about, oh, there's a warehouse issue. Oh, product is late. Oh, we had a bad couple of days on Facebook and you just understand that. And we what's it called?

Who is that guy? Nasim, Taleb, the guy who did black Swan has an important concept called anti-fragile. And we thought about that. Not like explicitly, but just saying let's make sure that nothing specific is going to be able to sink us or cause a huge amount of stress. So build in buffers, keep things simple.

Don't expect any like major unlocks by installing a single app. That's like stick to the core stuff and make sure you're doing it well. And everything flows from that. And it really flows from a great product, like in the end of the day, You don't have a good product, that's it?

Chase Mohseni: The days of dropshipping and and building a business off of that is, is [00:09:00] gone.

Zack Arnold: Also, like in terms of things that were unexpected too, like we, we basically launched this business into the pandemic. We've really started running ads, January, 2020. So it was ultimately nice that people wanted like stretchy, comfortable clothing. That's still looked a little bit more formal than sweatpants on their zoom calls.

Cause otherwise we might not have ever gotten off the ground.

Which was great. It was also like a great time to like bond with a lot of early customers and develop. A bit of a relationship over social media that has persisted and that's actually resulted in some of our employees, which is amazing.

But then the other thing, obviously, the recent supply chain issues are heating everyone. Again, we have a good amount of experience working with our factories from, previous business working in the industry. It's still nothing quite like anyone could have expected. Just in terms of [00:10:00] container rates.

If you have to transfer trims between countries lead times, it is very hard for anyone to manage. So if you're struggling with that, I would say, just continue to do your best and try to address demand the supply demand equation as best as possible, but it is undeniably a nightmare right now.

Chase Mohseni: Have you had to have you had to throttled down inbound traffic coming to the site? Because if we convert too much, we will have over orders that we won't be able to fill in the interim or is it like, okay, we know that if we hit this threshold, cause it's always, it's like the chicken or the egg, but it's also like revenue, let's go.

And so I'm curious, are you just taking the over orders and saying look, we'll take the hit on margin and pay the extra freight to bring it in faster and we'll say okay, we know that the product is amazing. And so we'll make it back on second, third purchase. Cause we know that kind of like the LTV and payback period will give us kind of room on that or is it like, okay, we've got to just stop having people come [00:11:00] into the site.

Ovadia Labaton: I don't think we ever stopped, but we definitely throttled traffic based on ROAS. I wouldn't say throttle, I would say just we tune our ad spend to a ROAS number. So if the ROAS is dipping, then naturally we pull back and a lot, like we've done a bunch of analysis recently about what's our role as against our number of SKUs in stock.

And it's a pretty much the most direct correlation, like as more and more SKUs go out of stock. The ROAS drops, which is. Patently obvious and a lot of ways. So as long as the ROAS is there, we'll keep selling and we'll keep capturing people coming in, who we know we can email later. We try to not think about LTV.

So if you think of it, because LTV is like a cash question, all of a sudden you're gambling on the future, maybe not gambling, but you're betting on the future. So if you think about what you were just saying, which a lot of people do Hey, you're going to spend more to bring the goods in.

So your cost of goods goes up, reducing your cash ends. You're not [00:12:00] selling them as fast as you where you're waiting for order two and three. So you may not have enough money to pay for the goods. And then you may not have enough money to do the marketing you need. And you're waiting till orders 2, 3, 4 for that payback.

And unless you have a shitload of cash, That can get very stressful. And

Zack Arnold: it's different too. Cause like we're not VC funded. We don't like, we don't need to hit certain growth projections. We're gonna run the business, how we think it should be run. Obviously that's different for people in different circumstances.

But that's how were managing it. Like we just want to run a business that's functioning properly. And if it hits tough times, we want to be able to survive.

Chase Mohseni: I'm really curious about that, because I think that flies in the face of marketing Twitter. And I love it cause it's it's almost can we get the first purchase profitability? How do we actually do that? And then, we'll deal with them like in their life, their lifetime value, or just repeat purchases later on.

So I have two kinds of questions before we dive into the [00:13:00] deeper stuff. One of them I have an answer to because you guys gave it to me. But what keeps you guys going? This is, you're talking about some of these lean times and some of the supply chain stuff.

There is a lot of headwinds. Whereas when the pandemic started, I think a lot of DTC companies had a lot of tailwinds that really helped them in terms of what was happening. And for every tale when there will be a headwind eventually, like how do you guys deal with it as a team?

Ovadia Labaton: I don't have a brilliant answer to that. We have fun with the brand. Like it's not a big grind because the brand is fun and it's an expression of ourselves without being too like, crazy about that. But it's not a brand that we feel like puts us in a box so we can have fun with it.

And I'm sure Zach's the same. Sometimes when we're writing marketing copy, you're sitting there and saying this is ridiculous. I'm making jokes for a living like this is silly and that's good. We also know. We have an asset that is valuable. So it's worth putting time into. And I think the last thing is we don't, this is going to sound weird.[00:14:00]

We don't have like overlord of bosses, like VCs. So it doesn't, it's not like hyper consequential. Like obviously it's a business. We have employees, we need to make payroll, all that stuff, but it's not like we have to have a board meeting every three months where we have to report bad news. If there's bad news, we talk about it.

We deal with it, figure it out and move on. It's it keeps things a little bit lighter. And we don't have we didn't build a massive team, so we don't have this massive stress of like, how do we keep everyone else food on the table? That, there's something nice about that obviously.

But a lot of these brands and companies got really big, really fast, have such a headcount. It just creates another thing to distract yourself from. And it's not so clear that it's a creative. But we built it in the way that worked for us, not according to a formula that works for investors or whatever, everyone on the Twitter side.

And

Zack Arnold: I think also just as a supplement to that, like the data, even when it appeared like other D to C [00:15:00] brands were already hitting tough times, the data has always supported our vision and continued growth thus far. So at no point have we seen something that's looked like particularly scary and that's, a lot of that just has to be attributed to the product.

The people who we work with for content and creative our customers and, clearly we built something that people are responding to and the data continues to back that up. Even when times appear to be getting tougher.

Chase Mohseni: Yeah. That's yeah. That's super fascinating. I think that's, it's interesting because, obviously you read any of these sites or you look at your, you look at your Robin hood at all the D to CS and everyone is getting hammered.

And I think we're entering the era of being profitable and that's the, that's the goal. And I asked myself a lot of the times, like, why wasn't that always the goal a hundred percent? Why are we growing these businesses? And I know [00:16:00] it's okay you're building for the future, but essentially using.

Software principles for like apparel doesn't make sense, right? The tech multiples don't make sense. It's a completely different type of asset because technology can always be commoditized, right? There are certain things that are that, the company's own and are proprietary versus your brand is really your brand and your creative, or really the only things that are proprietary to you.

And so like you have to focus on that and everything else from a financial standpoint needs to be built on like a, Hey, if everything goes wrong, can I still survive and build this thing? And so I think you guys are, yeah, you're doing it exactly right. I'm sure a lot of people actually get a lot of value out of this, specifically this portion that talks about because.

It's not how we've been taught for the last 10 years to do things and all of us. So I talk about a lot with iOS and everyone's talking to me about tracking because a pencil and like, how do you track the incrementality of people's look, man, you've got addicted to this data [00:17:00] building like a brand and you have to essentially get eyeballs.

You need to hit a ROAS, target all of those things. But if you're obsessed with the platform, doesn't show me this number. Like you're always gonna have that problem and it's going back. And we'll never be as good as it once was. Which, because ads, all of this stuff. It's not a linear path.

People shopping tendencies are like, Adam's exploding, right? It is exploding across the universe in multiple ways. And so I think, yeah, what you guys are doing is right. So I want a bit of a diatribe there.

Ovadia Labaton: No it's on target. Like people forget that you're not advertising with with an ad unit and a bunch of spreadsheets.

There's a human being behind that. You have to literally convince to buy something and that's been the same damn thing for the past thousand years or whatever I'm being dramatic. Levi Strauss was not built with the fucking pixel and Nike wasn't built before there was a pixel. [00:18:00] They did like TV ads and you didn't really know how to measure it.

And yeah, sure. It was harder, much harder. You needed a lot more capital and you need it to be really focused on product and understanding customers and Facebook cut a lot of that out which was a great service. Look, it created a huge boom, but people misunderstood that for. Advertising is a dollar in a bunch of levers being pulled and, was there behind the curtain and dollars out, but it's not that you actually have to convince someone.

And if your ad unit is foundationally good at convincing someone to perform an action, does it matter whether Facebook report there's a sale, you get a sale and it's that simple doesn't mean that it's easy, but still pretty simple. The principles of advertising have not changed. They've just been refreshed lately after iOS 14.

Chase Mohseni: Cause it got harder. Yeah, for sure. For sure. I as long as your Stripe is a slam and that's all that really matters. So that's all we care about. You said something really funny. This is a total tangent I'm going to go on. And there's that old show from [00:19:00] like middle two thousands called Rome.

I don't know if you guys remember that show. Yeah. So they had this guy in this square he would tell the news of the day and at the end he would always have a sponsored piece of content. And it was like, by the local baker and go check it out. It's that's exactly how it was being done.

It is literally, that is just the Facebook ad in the middle of the square in Rome.

Zack Arnold: Yeah. Except we hop up into the crowd and start speaking to the

Chase Mohseni: yeah exactly where that guy, right? Yeah. Yeah. So you guys answered it pretty much, but I like to answer it to have a baseline here. So I'll tweak it a little bit.

It feels because you guys have been working on businesses for, decade plus prior to starting the perfect Jean, that it was almost. The fear of the first kid and all the things that go into that was gone. And it's second kid comes. It's we'll survive.

I wonder how you feel like you're like, okay, I've just I'm battle-hardened so it doesn't feel nothing feels as scary. As as that [00:20:00] is,

Ovadia Labaton: battle-hardened a little extra, a couple extra bucks in the bank account, a little more than sure who the hell says that 24 year olds are supposed to be running huge businesses.

That's not normal. You're not supposed to be like running massive businesses on the regular when you're 24 and don't know anything. Yeah, there's a little bit of earning your stripes, not to be silly about it by any stretch, if you're 24 and got it. Great. But just because you think you saw someone wearing something on the street and you're like, oh, I can make those clothes.

That does not mean that you know how to run an apparel business complicated. We learned the hard way. It, I also

Chase Mohseni: wouldn't

Zack Arnold: recommend People right out of school, getting into direct to consumer apparel is the first thing. If you have no experience or no connections in the space first of all, as we know, the multiples aren't necessarily there, the funding never really was there to the same scale as other businesses.

So the expectation that you could burn lots of money, make mistakes, grow a business along [00:21:00] the way, that's all fallen apart. And we, we that would be the case in the first place. If you were able to, grow a business, close to breakeven, continue to raise VC capital fine.

But if you're going out there and you're burning in the multimillions of dollars growing a quote unquote brand,

Ovadia Labaton: I love that. Like

Zack Arnold: a brand. I don't, I still don't know exactly what that

Chase Mohseni: means

Ovadia Labaton: either. Is it a logo? Is it a color palette? That's a Brian, that's a color palette. It's a set

Chase Mohseni: of rules.

Oh, if you throw up a website and the thing is, so I've done this experiment before where you're like, okay, I'm going to just go do this. I'm going to take four hours. And I'm going to see if I can sell something off an Instagram ad. So you go and you use one of these, like things that will print things for you.

And obviously margins are shit. You're not making money off of this. It's just an experiment. So you go do it, you make a website, you go and you make an Instagram by some followers so that it looks like legit do 10 posts. So if someone clicks on it, it's oh, this is a. Brand make a logo on Canva and and go throw up an [00:22:00] app.

I have done this three times just as experiments to baseline against pencil stuff. Three times I've done it each time in four hours. And I, each time I have sold like 10 things, not profitably, but it's not hard. To make it, it's hard to make it work. Cause he's oh fuck that. I like spent double what I got back out of it.

And so it's okay, now you have to source, all the, all the supply chain stuff you deal with Zack, which is like that margin, those two, $3, change the complexion of your business by having those things, shipping costs in the right place, changes the complexion of your business.

And so doing it that way, the way I did it, like razor thin margins, you're spending on ads, you're competing with all these people and you haven't done any of the real hard work.

Zack Arnold: No, definitely. I think that's exactly right. And I think that's also an analogy for what.

Certainly what was happening in the DTC VC world. But there is a concept that if you spend enough [00:23:00] money, you can sell a decent amount of stuff. There's a direct correlation between ad spend and sales. It's ultimately what you're saying. You need to build some functional businesses, not like a growth machine..

Chase Mohseni: It's funny because obviously coming from tech, we talk a lot about how do you build a growth engine? And I think it's almost build the functional business layering on all of the tactics that build a growth machine should come second. It's the same thing. Like Facebook ads paid advertising is not the fire, but it is the fuel that can make a fire, 5, 10, 15 X bigger.

You have to feed

Zack Arnold: The beast when it's already fighting. Ready?

Chase Mohseni: Yes, exactly. You don't send a fighter to fight Tyson fury. After he's only fought five fights, he's got to have twenty-five fights or that guy's just going to tear him apart.

The market is the exact same thing. The market is Tyson fury, and it's going to just, it's going to tear you apart. Cool. So I'm going to go like deep down a little bit more here.

We've talked about a little bit of this, but like you guys started into the [00:24:00] pandemic. You were dealing with a lot of those.

You dealt with a lot of the issues since the pandemic is quote unquote over what's the, what big idea has really changed the business over time for you guys? Or has there been a singular thing specifically?

Ovadia Labaton: It's a good question. I don't know. Maybe you disagree. I don't know that anything's radically different from what it was and be one like different shore.

We're using more advanced tools. We're tighter on analytics than we were, but it's not that different. We have more washes and more product they will be has gone up. Like maybe one of the biggest things is that an input costs and completion shipping costs are up. So how do we react to that? We're trying not to raise prices.

So we got into testing the discount codes a lot, and we're a little bit tighter on discount codes for better or worse. I don't know, practically different though. We

Zack Arnold: had, again, as a result of our previous experience and previous [00:25:00] failures, we had like a. Sort of a pretty, it was a well-defined thesis, we also had an idea of what we were going to do.

If selling just skinny and slim jeans, which has always started with, if that didn't work to a certain scale, we would probably it's possible. We would have, like past this business offers started a new business or something else. So like we pretty rigorously tested our thesis, which started as just a product, a price and humor, and, has developed certainly into something more, but not so far outside of the realm of our initial thesis.

And we continued to see it work. And then we, along the way, saw opportunities to introduce additional sizes, introduce additional fits, and by closely tracking the data through those releases, we've just continued to grow a brand. And at least for the foreseeable future, we still see similar opportunities.

Like we're [00:26:00] launching a slim thick spec and a boot cut Jean, those like our two next launches. And we see plenty of opportunity there both because. We see it in the market and customers are requesting it directly. So all along, we're like we're being very responsive and trying to test as much as possible so that there, aren't huge surprises.

The supply chain issue has been a pretty big surprise, not in terms of it occurring, but in terms of how severe it's been. But otherwise in terms of the core fundamentals of how we think about the business again, it's it's a consistent feedback loop and we're just slowly moving forward and hopefully like our theses continue to work somewhat towards our expectation.

Chase Mohseni: I think there's two, two questions that dovetail off of that one's a little more tactical. One is like macro, how did you actually run these experiments? Did you go and say, look okay, we're going to allocate this amount of personal [00:27:00] capital to go and build a few specs.

We're going to have a website and we're going to just go throw it at the wall and see, or was there some people do white door tests, right? They're like, okay, we're just going to have a website with some pricing. Casper famously did this with the rent, some Google ads. And and just to see if people were interested in having a mattress in a box come to them.

Zack Arnold: Yeah, I'd say, it started with market research that wasn't necessarily directly related to pure testing. Again, like I still had that background in the apparel space.

I have a good idea of what's selling in the market. We had a good concept of what, like other D to C brands were doing both right and wrong. So it started there with a bunch of research. And then in terms of the actual, like budgeting and metrics and implementation of the thesis, like Ovadia can talk a little bit more about that.

Yeah.

Ovadia Labaton: It really started with a hundred thousand dollars like an internal round and we have not taken on a penny of capital beyond that. The reason that worked is because [00:28:00] the first thing that we started with was a product, a website humor, and a good unit economics. So we knew that as long as we sold, whatever it is, 1.2, five genes, and the return rate was less than 20%.

We were going to make whatever on each transaction and that works. So it was, that means we knew that as long as the blended ROAS was more than 1.5 or whatever the hell the number is, we knew that we were positive cash and that gave us runway. So as long as the return was there, we had almost no other overhead, like really, $5,000 a month in the beginning maximum.

So as long as we could sell 10, 20, 30, $40,000 of jeans, we knew that we had a business that could create cashflow. And then the side of it, where you get in trouble is obviously on the inventory side. And because the inventory is an internal an internal purchase from the parent company.

The structure is not so relevant, but it's [00:29:00] basically a parent company. So it's a little bit more flexible than if you're just contracting with the factory. And it also means that we have much better communication about what do we need to buy. Can we overbuy at certain points? If we're a little short and when do we make the payments and stuff like that?

It's a huge advantage. It's like a cheat code basically.

Zack Arnold: Yeah. We functionally get 120 days financing terms. Oh so that's a big advantage. We came in with those factory relationships, so that part was like a big factor around it. Those are things that are very hard for any like new entrepreneur or anyone entering a space for the first time to negotiate.

But I would still recommend if you are entering a space for the first time and somebody who works in that space or you have friends that are in a space like that is something that. I can get a business off the ground that might not have ever gotten started. Getting financing terms, working with a great supplier.

Those are crucial [00:30:00] elements of what we do. And I think like certainly a critical element of anyone trying, if you're trying to start a brand today in the DTC space, if you don't have that pre-existing relationship, I think it's going to be pretty tough.

Ovadia Labaton: Yeah. It's almost a non-starter. We've spoken to a bunch of founders who are like, oh yeah.

I called this factory and that factory, and I really liked the product. Some of them actually get off the ground and sell some stuff. And then they hit a wall really fast because the factory stops producing. You have COVID stuff they're late once or twice the quality changes. And they were just unaware that making clothes is not as simple as saying to a factory.

I want this, but change the pattern. What put this button there. There's a lot that goes into making clothes. It is not simple. I know very little about it, frankly. And I know more than enough to know that this is a very specialized skill and if you're planning to make clothes or anything, make sure you're partnered with, [00:31:00] or you yourself are serious subject matter experts.

Like I'm a big believer in partnering with a supplier manufacturer. I think it just gives you so many advantages than just starting out on your own.

Chase Mohseni: Yeah, absolutely. Like coming from that world both my first my first business experience out of grad school. And then like in living that if you're only as good as your partners, when you're your manufacturing partners cause you can't deliver on time, your margins get shot by freight DTC is obviously a little different, but that's more your relationship with your consumer get shot. If you're doing wholesale, your relationship with your with your retail partners. Destroyed and decays. So it absolutely, that's a really good call out. One thing Ovadia, you said also, I think was really fascinating was you're trying not to you're trying not to raise prices and I'm curious if it's because it's for the consumer, like you want to make sure that they're taken care of and you want more people to have the perfect Jean and that like this price makes sense or you feel like it's an inelastic consumer in terms [00:32:00] of the price.

If you raise the price $3, it would change kind of the throughput of conversion with the consumer base, if you're targeting.

Ovadia Labaton: I think it's honestly, Zach is firmer than I am about not changing the price, but I think he's absolutely right. I just got a little more nervous quickly.

Yeah.

Zack Arnold: So a little bit of both. I think that, we've seen a lot of competitors, like raise prices out of the. And obviously costs are going up. I was like, everyone's aware of that a lot. And I'm not opposed to necessarily like raising the price a little on new and better product, but we have this core offering at a price that I believe is correct for direct to consumer e-commerce like we, we had always intended to sit below a lot of the competition claiming to offer, like claiming to knock out the middleman or, claiming to offer a superior product at a better price.

Like we want it to sit below the majority of those players. And I [00:33:00] think we do somewhat have a bit of an obligation to continue to do that. And I think it will provide us more upside in the longterm. And again, we have a functional business that allows us to do that. So like I'm pretty firm on it.

I'm not a hundred percent, but for the time being like I don't think our prices are going anywhere. Yeah.

Ovadia Labaton: And I think that it's very significant that you have an, maybe not an obligation, but you have a responsibility to not raise prices unless you utterly have to. And it's our responsibility to fight for pennies to make sure that we don't have to raise prices.

Honestly. So the last two months, we've both shifted a little bit of what we're doing. We actually hired someone to help with ads so we can focus on some of the operations stuff and make sure that we're getting absolutely the best shipping rates saving. We just changed something, see whatever 35 cents a package on return rates.

Okay. It's $50,000 a year. [00:34:00] All of a sudden. That's a price change. We're switching a platform from one to the other $70,000 a year. And that might mean a little bit more work for us, but that's what we're supposed to be doing. So every time the money, you don't have to raise prices,

Zack Arnold: We find other way while there is continued demand and like right now, we're not fully in stock, we're not going to air gates to meet that. Like we'd rather maintain our price, then go ahead and have all these extra costs to meet monthly revenue numbers. If we believe the core of business is functioning, there are other ways to save that money.

So like we worked super hard on all those other little things to try to maintain the, our core

Ovadia Labaton: price. It's not glamorous. It's a lot of annoying spreadsheets sometimes and negotiations, but shit that's business. Yeah. My, I grew up in a middle Eastern community. That's how that's, how you do it.

You fight for pennies.

Chase Mohseni: That's how it works. We brought you to the choir over here, man, you make big business. You have to fight every nickel. Every nickel [00:35:00] matters. When it's scaled orders and year long, I think what you guys just said is super inspiring and really important. For everyone to hear is if you're dedicated to your customers, you will do whatever you can to make good and make sure that they're taken care of.

What does that mean for your guys' kind of repeat rates? So a lot of you talked about being like trying to be profitable on first purchase. How often are people coming back and buying extra different products from you guys? What's the regularity and frequency of that.

Ovadia Labaton: So B this is a little bit specific to pants, but because free shipping free returns, free exchanges. So the real first purchase is about finding. You find it on the first try, great people are then coming back within two to three months to buy their second pair. But a lot of what happens is there's some 25% of people will either return or exchange the first pair.

And what happen is a very fast, second purchase at one size up or one size down. [00:36:00] So that's a very obvious indication that someone is just finding the size and then it's, it's right now, or a repeat rate closes in on 40% of of customers. Like it grows nicely. It's not dramatic.

It's not a reasonably that needs to be replaced every two weeks or whatever. When people need pants, they buy pants. And there's something sorta nice about that. But I don't know if someone needs a pair of pants every three months, six months or 12 months, but there's a very good chance they're going to buy another pair of perfect jeans.

So like as long as we're building up the customer base the repeat purchase rate is all a creative and that's really where you were, where the business profit comes from. And that's what lets you spend a little bit more on, on advertising to just get to a breakeven or a small profit on your first order.

That's what funds the rest of the

Zack Arnold: yeah. And also like where to date we've been very much. And we will continue to be very much focused on our core product, which is a pair of jeans, right? Like [00:37:00] we do have some other supplementary products because they're great products and we intend to increase AOV, but like we have yet to run like any real ads for those products everything's arriving through the gene.

And that's where we're foundationally going to grow our customer base, by adding a few more of these new fits, making sure we have a wide assortment of socks. And then we'll continue to slowly introduce new product here and there, but we're very much focused on being the denim destination and doing that.

So it's great that we're getting the repeat purchases, but we really are just building that foundational layer in part to like first, make sure our ads perform the best. And then secondly, make sure you have the repeat purchasing power.

Chase Mohseni: You find that having that kind of rigorous focus has and going for depth, not breadth.

Yeah. First of all, I'm sure when you talk to other founders, it's a little antithetical. Cause everyone wants to have a lot of stuff that they can market and all of that, but that it [00:38:00] allows you actually to do. Better on the thing that you're trying to accomplish, which is Hey, we want to increase AOV.

We want to create a repeat rate and we're not focused on getting people into other products. We're just focusing them on getting into this product, loving it and buying more of that

Zack Arnold: 100%. We also have the advantage of that. We chose like a core commodity as our primary product. If you look at the percentage of men that own a pair of jeans in the United States, you're addressing most of them.

Chase Mohseni: So if they don't, you don't want me to want to know them. That's a that's.

Zack Arnold: So our audience, theoretically is every man and not even that, like women too, there are plenty of women that buy our product as well. We're not marketing our brand towards women, but there are women who buy our product.

So like it's easy for us. Once we saw that the data that the core two products were performing to really hone in and focus there and grow that. So there's not breath per se, but we do have [00:39:00] more inseams and more waist sizes than any like mid tier brand or any like non Levi's effectively. Like we're going from 26 inseam to 38 inseam and 26 waist to 52 waist

so we have a lot of breadth. It's just not different products. We're just making sure we're addressing the full extent of our applicable consumer.

Chase Mohseni: So almost the total addressable market is enormous and it's instead of, and this is like a, nah, I'm sure non-technical term.

It was like almost total addressable in seams and like different things that you do. It's that's my new, that's my new thing for for jeans specifically.

Zack Arnold: Yeah. W so when in stock it appears that like our percentage. Of sales that are quote unquote bigs sizes, but it's 40 waist and above is close to 20% of sales.

So like people are forgetting a huge part of the market because they don't want to deal in that space or it's too [00:40:00] expensive. And they're wrong to do

Chase Mohseni: Yeah. It's funny. You mentioned that I was having on our first episode we talked to a founder who's whose beauty brand focuses on gen X women.

And he's no one focuses on them and they have the most, they have the biggest wallet size and they are more loyal than millennials and gen Z and gen Z. And it's interesting because you're talking about 40 plus waist size I'm sure because you're giving them something that feels premium, feel stylish and is comfortable, which is what generally all men who are bigger are looking for , it almost means they're going to spend more with you because

you're giving them something that they can't find.

Zack Arnold: There are so few options out there. And there honestly, there just should be more, but there aren't, they're not

Ovadia Labaton: there. It's hard to carry a lot of SKU's, but it's not by any stretch, an unsolvable problem because the market's there and people really appreciate it when you solve their [00:41:00] problem.

And this one's we didn't go into it saying, oh yeah, we got to have the most waste sizes, but it became very clear, very fast that there's demand for it. So why not make it? You don't have to put in an order for 10,000 size 38.

There's a buyer for it. And they're very loyal and often a little bit older, by the way, older.

Zack Arnold: They're also actually more accommodating to if they like the product, they want to work with you to improve the product because they don't have as many options. If you can find audiences like that, you'll have a sustainable business.

Ovadia Labaton: When you respond to the market and the market gives you more and more feedback, the second you just tell someone we listened to you and we actually did it and made the product you want. They're like, wow, this is great. It's awesome. And you feel good about it? It's good to feel good about things.

It's nice.

Chase Mohseni: I'm always fascinated. When you talk to people about, feel like everything has been done, there's no blue ocean. And then every founder you talked to, it's dude, there's blue ocean everywhere. And yeah, I think that's [00:42:00] really fascinating. This is like multiple conversations where we're like, oh, Just open your aperture and turn a little bit to the left.

It's oh, there are just people who need you, if you would listen, which leads me into like channel distribution. Like how do you, how are you guys reaching people? I know about uh, you and I have dealt with Facebook, Instagram ads. Are you the standard stack? Hey, we're doing Facebook, Instagram, Google tick talk, or are there more things?

On the acquisition side, obviously retention is another thing, but are you, how are you guys looking at that currently?

Ovadia Labaton: Where cautiously testing new channels? I don't think we're obsessed with diversification. I hate to say this on some level, we are a Facebook, Instagram and paid social business.

But that works if you want it the right way. No harm, no foul like sorta like saying in the eighties, your catalog business, like that's a bad thing. No, it's totally fine. If it works. No problem. There's nothing wrong with that. We're testing into YouTube a little bit. We're testing into tech talk, which has been very hard to get like [00:43:00] working.

We'll play around with some TV this year probably, but in the end of the day, all of those things are the similar ad unit. It's a funny, goofy video ad that is compelling for someone to say, this is a stretchy Jean. Awesome by it trust that's it like it shouldn't require Facebook's targeting algorithms to convince someone as long as the creative is good.

So we have a pretty good amount of confidence that we can make those work. Yeah, sure. We're going to have to tweak it. We'll have failures, whatever, but the core ad unit, the core of ad. Yeah, it works. And then the product comes and it delivers people go, wow, this is actually comfortable. It's actually stretchy.

And it works.

Zack Arnold: And then we re-engage with continued funny, goofy email primarily. So like for us, because of our product email and organic social, our primary like community building type tools we'll look into other options for that too. As [00:44:00] we progress and as we grow out. But I do think fundamentally we're still using the core set of platforms to get that customer in, but then, we're continuing with that voice and re-engaging them both like on the site itself because of like our PDP and the homepage.

There's a lot of humor there but then again through email and then again, through organic. So we will,

Ovadia Labaton: we try to make sure that if we're giving a distance. At least read what we put a little effort into, make a little funny, and then you get a discount. So like as long as you're keeping true to it and the emails don't feel repetitive and silly, and we want to surprise people here and there and just be ridiculous.

And I don't know, we should be laughing when we're writing these stupid emails. If we're giggling, like that's probably a win. And like sometimes we get blow back. We did one with Trump wearing khakis. Oh my God, did we get hate now? Like it really was not intentionally an overt political statement by any stretch.

Trump looking like frumpy [00:45:00] and in khakis. And we made fun of him and we didn't think that was a big deal. And we also made fun of Thomas Jefferson, George Washington, and three other presidents, Kimberly on our team came up with the idea and made them it was hysterical. Oh my God. People were so angry.

People were like, we're never buying from you again. And then I checked like a week later and the guy bought two pairs of jeans. I was like, all right, whatever.

Chase Mohseni: What's your guys' like tech stack. Are there like, four or five different things you guys use to run the business that feel like almost you could not remove them or are there you continuously experimenting with new tools?

Ovadia Labaton: We're pretty standard Shopify.

Klayvio postscript for SMS, although we might switch to Cleevio for us and us to keep it simple. I think the real push is to keep it simple and not try to play with every little toy that someone emails you about. We use a couple of things that I think are interesting and very critical.

North beam for attribution, I'd say [00:46:00] if you're not using something like north beam to give you an alternative attribution take you're missing out on some very big opportunities. That tells us a lot about how our Facebook and Google and Tik TOK interact and just gives us another angle to look at the world from we did invest in it.

We liked it enough that we invest so

Chase Mohseni: full disclosure.

Ovadia Labaton: And Zach found this software called which he can speak to more, but it's basically an inventory planning and management tool, which is really cool and helps a lot with like how much do we buy?

What skews and stuff like that.

Zack Arnold: What size? Yeah, I probably personally in terms of my side of it, like I use like VO Kendo plugin, and then single-line the most, as far as my analysis for inventory planning and just comments on products, and product reviews. So that those are really the tools that I use to help, to analyze the buys and whether any modifications need to be made towards products.

But singular is real. They're growing out [00:47:00] what I think will continue to be like an awesome platform just for inventory management and inventory assessment and even inventory quality.

Chase Mohseni: It's so funny. On our side we talked to so many people about paid and essentially not the foundation of what make paid work, which is everything's Zack that you're talking about.

So this is just gold for anybody to get, because it doesn't, it's like back of the house front of the house, but it's the foundation of the house actually,

Ovadia Labaton: right? Yeah. Yeah.

Zack Arnold: A hundred percent. Like you're going to realize if they're. Flaws in your product or modifications that need to be made from the customer feedback and from inventory and selling performance.

Like it's a combination of those two things. Those are like, those are the foundation of any business. If you're getting those things right, like you can likely figure out what to do on the ad side. You can experiment more. If you have a sound product, you have the right inventory assortment, you're selling it for the right price.

You have that [00:48:00] foundation. And the only thing you have to figure out is how to draw people in. That's a better problem to have than a flawed product with a flawed supply chain and not listening to your customers. It is

Ovadia Labaton: impossible to sell something that someone doesn't want or that you don't have in stock.

That is like

Chase Mohseni: basic. How many people do you find when you either give advice or talk to them and you drill down a little bit, essentially fall to that latter portion, which is like flooded inventory, flood product. Don't listen. It like, it's essentially they're in their own echo chamber about their brand.

Is that happened more often than you would think?

Ovadia Labaton: Yeah. Yeah. I would say most of the founders that we talked to who are struggling is usually because they won't acknowledge that their product is undifferentiated or they wound like they haven't really understood what's happening with their supply chain and how to manufacturer versus everyone usually blames their ad performance.

But there's really something else

Chase Mohseni: [00:49:00] going on pretty

Zack Arnold: typically. Yeah, I think it's also, yeah, I agree. I think it's also fundamentally pretty hard to like, do a lot of products very well, right from the get-go. If you're selling a collection and you're not like driving your ads through a particular product that, you do very well.

I just think it's harder. I don't think it's impossible. I just think it's very difficult at an early stage of a business to become known for doing everything well. Like I just think that's a challenging endeavor. We do, we know we do one thing really well and hopefully we're going to do the next thing really well.

But first we spent, two and a half years, three years basically like working on this one thing. And there's a big market for it, which makes it. It makes it a bit easier if you're choosing a more niche market, it might be tougher, but you can't do everything well all at once and it's even, it's hard to market that way too.

Chase Mohseni: Yeah. I couldn't agree more. We have we [00:50:00] learned this just through trial and error about trying to have, try to do everything and it's no. Do the one thing that, people call you about or DMU about that's the thing. And then once you have done that and you can, you feel confident about everything else, then go do other things, but make sure you're exceptional at the one thing that, that people care about most.

So I'm curious where this is going to close off this section. You guys alluded to it in terms of adding like slim thick and some of the other things, which as a slim thick, very excited about what's the big, what's the big idea for where the business goes?

Zack Arnold: I'd say there's no big ideas. Again I think it's the same thesis, we're going to incrementally do jeans better. Like I

Ovadia Labaton: think,

Zack Arnold: yeah. I guess it's a big idea, right? If you look at the denim industry, you have Levi's and men's doing I don't know, $3 billion and no one [00:51:00] else has really close. Just to take a really small portion of that market would be amazing. So that's like a pretty big

Chase Mohseni: idea. That is the big idea.

Zack Arnold: I

just need to take a little bit of their market. That's a big enough idea for us.

Ovadia Labaton: Yeah. How long did it take Levi's to get this big?

Zack Arnold: That, I don't know. I don't know what their revenue track has looked like, but I'm sure it took a long time to get to the size of their

Ovadia Labaton: a hundred year old company.

It took a long time. Yeah.

Chase Mohseni: I'm really chopping a wall too. If you remember. It was like 10 years ago, they brought in like a new CEO and CMO and they were able to reinvigorate the brand and actually take it to like where it's at today, which is, I remember it was like Levi's was like Wranglers for a long time.

Like it wasn't cool. You couldn't buy like something cool. So they came back in a major way.

Zack Arnold: Yeah, that's

totally right. And I think to date, there are still some things that like, they have so many fits Levi's has 45 different fits. Yeah. [00:52:00] We're going to have, we're going to have six fits and that's a ton of like toss that's a ton.

And we do think we're addressing the vast majority of the market with that. And I don't know if that was an issue like earlier on that they decided to just continue to introduce new fits and they, they garnered loyal customers and then they don't have the ability to take it away. But we think we can reach like a pretty decent market share with just addressing those waist sizes mentioned those inseam sizes and six core fits.

And we'll use that to take X percent of Levi's share, which we have yet to decide on.

Ovadia Labaton: 80 to 85%.

Chase Mohseni: Yeah.

I think a lot of times there is a certain amount of like incumbent information that comes with Hey, we've been doing this for a while. We have these fits, we're just going to keep these fits. And it's even if they're unprofitable, it's like we'll just have them because the customers are loyal where they, you can push them into other things.

Which is another thing another thing entirely. Okay. So this is the last set of questions and it gets a little [00:53:00] more into your guys' thinking about stuff. And so I really love I really love this one. It's what's the best piece of advice that you guys have ever received.

Wow.

Ovadia Labaton: Wow. That's a good, interesting question. I don't think,

I don't know.

Zack Arnold: I think it's applicable here.

Chase Mohseni: It was, yeah.

Zack Arnold: It was directed towards a whole different thing, but it is what it is what we do. We do lots and lots through all of this. We do lots and lots of small tests. So while we had that core thesis, it continued to work. Like we, we understand the need to continue to experiment.

I think that's honestly probably the most important thing.

Ovadia Labaton: Just iterate and move.

Chase Mohseni: What's been the best. What's been the skill that's served you each best in life.

Ovadia Labaton: I think for me,

Honestly, the two things are writing, like being able to write well and [00:54:00] express yourself which seems to be a little bit of a dying skill. I'm just older. So like it was focused on and

Chase Mohseni: I learned

Ovadia Labaton: cursive in school almost 40, so yeah, they didn't have iPhones and shit when I was born.

But yeah, I'm not that old. I'm kidding. But the, I think spreadsheets also like spreadsheets are a way to tell a story. It's not just about numbers and calculations. If you can tell a story. And by that, you can describe a certain reality on a spreadsheet. You can really force yourself to track it.

So I think a lot and spreadsheets not in a super wonky way, like everything fairly simple, but being able to manipulate a spreadsheet and tell a story in a spreadsheet, I think has been incredibly helpful. And just to understand what the numbers are saying and the spreadsheet makes sure you don't get lost in an average, it means that you have a thousand rows.

Each one means something and the average might tell you one thing, but there's a lot happening in between them. So learning how to clean the data, analyze it, [00:55:00] all that stuff, that's as layman answer as I can get, but I guess I'm a little bit of a spreadsheet

Chase Mohseni: nerd. Very helpful.

Zack Arnold: And then, yeah, and I think it's I think the most important skill I've developed as just a valuating who to trust and then being able to put your full trust in those people.

I have a lot of like weird creative and ad ideas and stuff, and all along, like early on, I would pitch them frequently. And then, like our ad team would be like, just let them just let us

Ovadia Labaton: handle it. And

Zack Arnold: I was like, go ahead. What you do is working. My crazy ideas are better left for organic and social where people can just have fun with them.

They're not meant to convert. And it's the same thing. Like also working with Ovadia, our relationship. I was an investor in Kickbox. That's how we knew each other. It was primarily through dialogue around that company. So I think it's just like finding the right people to work with around you and being able to trust their decision-making.

Okay.

Ovadia Labaton: If either of us disappear for a couple of [00:56:00] weeks, the business continues to run, like

Chase Mohseni: without a lot of input. And I think that's incredibly value

Ovadia Labaton: valuable, and I think Zach's was much better than my spreadsheets to be honest. So yeah, but

Zack Arnold: I would be nowhere without his love of

Chase Mohseni: spreadsheets. Yeah.

I love this. I love this. This is good. You guys see, this is why you guys came on, so you guys could compliment each other.

Ovadia Labaton: But that's really important. It's like you have to all the agencies you work with and all the consultants and all the people, we actually know them all personally, like we made a point for that, that the ad agencies have our credit card and can spend insane amounts of money.

And we have to trust that they're not being idiots about it. Nothing makes me happier when they go, Hey guys, we're pulling back ad spend because performance isn't there. Yes,

Chase Mohseni: I trust you. You've done the right thing. Yeah. I was just talking to your boy Barry, like an hour ago. Yeah,

Ovadia Labaton: we'll definitely, I'll give a shout out thesis.

[00:57:00] Thesis testing runs our ads and landing pages. They are amazing. And I say this, but nothing to gain except they're awesome. And if anyone's having trouble with ads and landing pages, you should call them

Chase Mohseni: also use north beam. Also use north beam

Ovadia Labaton: also buy perfect jeans.

Chase Mohseni: I have two final ones.

One is a much more tactical and I think personal is what would you tell a younger founder or operator about what they should be thinking about? And we've done like this whole hour has been essentially that, but if you could distill it down into one, like one or two sentences, what would be the thing you think.

Zack Arnold: I'd say just talk to some older founders, both successful and unsuccessful. The unsuccessful mobile ones might be more important than the successful ones, but that would be mine.

Ovadia Labaton: Yeah. Leave your ego out of it. Talk to a lot of people, got a lot of bits of advice and make sure you understand your business inside and out every angle of it and [00:58:00] be really soft and flexible about what you think you need to do versus what people's advice is and what the data's telling you.

And just feel free to make adjustments very easily and freely because in the end of the day, you're in these businesses to sell stuff and make money and that's

really it. Yeah. Keep that as your guide post.

Chase Mohseni: . Guys, this was yeah, this was kick ass. Thank you for taking the time. Uh,

people are going to be really lucky to just gain all your insight, et cetera,

Thanks for listening to this episode of ad creative from pencil. We hope you enjoyed our chat and learn to finger to that can help you grow your business and think more creatively. If you have someone you think we should interview. He hit me up on Twitter.

Also a small favor. If you could please share and review this, we want to make sure as many people see this podcast and are able to learn from my guests as possible. Until next time. Add some creativity into your life. . Thanks

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