Ep. 59 – Jeremy Smith on the Future of Brokering Part 1

DECEMBER 1, 2021

Dr. James Richardson:

Welcome to episode 59. One of my interview with Jeremy Smith of LaunchPad about the future of brokering in CBG. Welcome, everybody. This month, we have a special treat, which is a two part interview with Jeremy Smith of LaunchPad USA, and if you don’t know who Jeremy is and you haven’t heard of a retailer called Costco, then shame on thee. But Jeremy, thanks for being here.

Jeremy Smith:

Thank you. Glad to be here. I’m probably the first guest you’ve ever had that can only talk about one subject really, which is Costco.

Dr. James Richardson:

I’m a fascist host. You pegged me right. I’m one of those guys. Jeremy, let everybody know just briefly who you are and why everybody should have already heard of you, if they haven’t.

Jeremy Smith:

Well, they probably shouldn’t have heard of me because the brands are supposed to be the showcase of what we do. It’s not the Jeremy Smith show, it’s the brand show. So we’re about brands, as to where a lot of brokers are about themselves, and so my goal is not to build the best relationship with the buyer because I don’t work for the buyer. The only time … I always tell clients, “It’s the only time I receive money from Costco is the rebate check that I get on my Costco credit card.” But that also means I spent money with them. So I don’t work for Costco, I work for the brand. I think that that’s a big difference between us and why we’ve been so successful. We like working with entrepreneurs and founders like you do. We built a reputation for honesty and integrity, and we don’t bullshit our clients. We’re going to tell them, “This will be hard. Or we think this will be a little bit easier.”

Dr. James Richardson:

I’ve spent two years observing Jeremy. He’s made the cut of high integrity, which is how you get on this show.

Jeremy Smith:

Thank you.

Dr. James Richardson:

As you see reflected in all the guests and I don’t have a lot of guests and that actually explains why. Jeremy, I am so excited for you to take my open ended question, the next one, and run with it for my listeners. I trust your version of this story. What the hell went wrong with the broker world in CBG? I’ve never heard of a class of stakeholder more maligned.

Jeremy Smith:

Well, I think first of all, there was this myth that the brokers created that they have great relationships with the buyers. Most of the buyers, especially at a retailer like Costco, you’re not going water skiing with these people or taking them to the Super Bowl. What people get confused is, I always reference and now he’s in the news everywhere, Alec Baldwin, because of the sales movie he did years ago where ABC, Always Be Closing, which basically, ABC, Always Be Closing really stands for listen to me, I’m not going to stop talking for 45 minutes. I’m not going to listen to you, the buyer, I’m just going to talk and you’re going to love my presentation and you’re going to buy my product.

Jeremy Smith:

First of all, the Costco buyers, that’s who they want to meet. They don’t want to sit with a broker for 45 minutes and listen to the broker talk.

Dr. James Richardson:

Oh my God.

Jeremy Smith:

And it’s sort of like imagine if you bought tickets to go see Denzel Washington and he rips out the script and just sits in a chair reading from the script, you’d be more excited by listening to somebody read Green Eggs and Ham.

Dr. James Richardson:

Yeah, exactly.

Jeremy Smith:

So why are you allowing your broker to do it? And the other issue is no one does any damn rehearsing in the industry. A buyer … Who’s your typical broker? “Bob, we’re all set for the meeting. Meet me 15 minutes outside the Livermore office at Costco in the Bay Area before, and we’ll go over a couple of things there.” That’s the strategy. That’s the rehearsing that goes on. And so what we do that’s different is we talk to the client, and say, “Okay, these are possible subtopics that the buyer will bring up in the meeting. Let’s talk about how you’d respond. I’ll play the buyer. You go ahead. I’ll ask you, “Why is your product so expensive?” And what’s your response going to be?””

Jeremy Smith:

So the first time we let the client go through and then we refine it and we say, “Well, if you say that, that’s going to open you up and the buyer’s going to say, “Well, when you get your costing all fixed up, come back and see me in five years.””

Dr. James Richardson:

Oops.

Jeremy Smith:

So we do a lot of rehearsing because we don’t ever want to ask a question in a meeting.

Dr. James Richardson:

Oh, I know.

Jeremy Smith:

That we don’t already know the answer to.

Dr. James Richardson:

Yeah.

Jeremy Smith:

And then lastly, brokers are so interested in driving and talking in the meeting that what happens is there’s always moments of when a good question gets asked by the broker or the brand and there’s awkward silence, and the client or the broker will then interrupt the buyer and not allow the buyer to respond, and you never get an answer to that question because they’re uncomfortable with silence. We’re very comfortable in that. I’ll sit there for 30 minutes with the buyer to get that answer because we need the answer to that question.

Jeremy Smith:

And one time, I got the presentation before the meeting and I said to the VP of sales, I said, “Have you timed yourself doing this presentation?” He said, “No.” I said, “I just went and did this.” I said, “I went through your whole presentation. It’s 36 minutes.” A Costco average meeting is one hour of which the buyers are usually 10 to 20 minutes late for. So he said, “Oh no, don’t worry about it. I’ll breeze through it.” So we go to the meeting, he goes through his presentation. He’s down to the final two pages. And the buyer says, “Time up.” The buyer said, “I got to go. I got another meeting. You just spent 45 minutes reading a PowerPoint presentation to me. I’ll get … That’s the end of the meeting.” I said, “If you can’t say something in 10 pages or less …”

Dr. James Richardson:

Oh my God.

Jeremy Smith:

“You shouldn’t be at a meeting. You don’t know your brand.” And I said, “And I know that’s not true about you.” No one can tell the story of the brand better, hopefully, better than the founder of the company. It’s an important relationship that needs to be established at the beginning, and if you have a broker that says, “We don’t allow clients to come to the meetings.” That’s your first step that it’s time to hang up the phone and move on.

Dr. James Richardson:

So one of the things that I’m very confused about, that I think confuses my listeners too, I would imagine, is that if the ideal situation is that you are learning how to be a very good salesperson for your own brand, right? So you’re opening up the meetings more or less yourself as the founder, and that’s what I preach because if they suck at that, I mean, there’s a real problem. And I do meet people who don’t work on those skills at all, and they instead spend all this time trying to find the perfect broker, master broker, national broker, whatever, that’ll set up essentially an outsourced sales team.

Dr. James Richardson:

And I’m confused as to what the hell the value would be of having a bunch of outsourced people essentially work for you part time, when shouldn’t you be building that capability internally? And if so, what is a brokerage doing if you have a good sales team? That’s the question that confuses me.

Jeremy Smith:

Well, there’s a simple answer to this. When you’re starting off and your resources are tight, a broker can be a very good option for you in the beginning, but most companies transition when the business builds. So you’re talking about a company that’s usually under $5 million in sales. So their resources are stretched, you can’t build … Let’s say they’re going to pay you 5% commission. You can’t build the sales team for 5% of costs.

Dr. James Richardson:

Right.

Jeremy Smith:

In that situation, finding the right broker can be a huge asset for the brand to start with knowing that plan B is to transition at some point to you handling the business yourself, and also, the broker may not be the best firm to teach you how to sell because [inaudible 00:08:03] about it is some of them have no clue that they’re bad at what they’re doing. You really have to be able to figure that out.

Jeremy Smith:

But one of the other problems and this falls on the brand side is that too often brands call their buddy at another company who’s already successful. And says, “Well, you’ve had a lot of success at Costco. Who did you use?” The first problem with that, your buddy is … Let’s say he’s got a frozen food product and you’re in snacks, that broker may know nothing about the snack category.

Dr. James Richardson:

Yeah.

Jeremy Smith:

But you just assume because you trust Joe and Joe is a great guy and Joe tells you how great they are, but if they don’t know anything about the snack category, then why are you using a frozen foods brand broker to try and take you into the snack department? You shouldn’t be. That’s sometimes the challenge that comes up.

Jeremy Smith:

There’s another issue too, and that’s how brands go about selecting brokers because the first question they always ask is, “Well, what are your relationships like with the buyers?” Yeah, you think they’re going to say to you, that they’re going to tell you the truth that Sandy, they have no relationship with, and Dave just loves them, but we can’t get anything in with Sandy. They’re going to tell you the same … That question can get asked a thousand times and the answer is always the same, “We’ve got great relationships throughout Costco. The buyers switch all the time and so we know everybody at Costco. That’s not the problem for us, even though I’ve never represented a snack brand in the history of the company, we know the category.”

Dr. James Richardson:

Stay tuned on December 15th, the second part of my rousing interview with Jeremy Smith of LaunchPad will go live. So subscribe to Startup Confidential on your favorite podcast platform. Be safe out there.

Ep. 56 – The Emerging Caste Hierarchy Among Founders

OCTOBER 15, 2021

A pattern has become more clear during the pandemic. And it’s disturbing to me. Capital is flowing ever more to a caste, an occupational class,  I’m calling the professional operators. These are teams with prior industry experience or ‘CEOs’ with ‘fancy’ BigCo resumes installed by bankers to replace the founder.

What’s most disturbing about the latter is that it is almost always a female founder shunted to the side and turned into a ‘head of marketing.’ Often, these founders appear to be happy not running a business any more. They didn’t get into to become CPG operators. 

In this professional operator caste, the interests are biased towards the timelines of institutional investment firms. The latter want ‘adults’ at the table. Not industry ‘kids’ smiling way too much at the trade show booth. Wall Street LPs are behind the curtain and they aren’t that concerned with building brands or brands built on fans, to be more precise.

Pump-and-dump business building keeps happening because buyers still go for these businesses. They just rarely last or grow when built improperly. They aren’t connected to long-term cultural trends or doing anything compelling enough to sustain HH usage over years and years like Kind bar.   

But, then there is the much larger mosh pit of boot-strapped companies with no real industry experience per se. Most will never get institutional investment offers. But some who do walk away from them, because they can see they will lose control. Not all get offers from the mature firms who treat founders well. 

You know what though? Increasingly, there are consumer brands started by scrappy, very smart folks without industry experience who simply work hard to learn what they don’t know. They professionalize themselves by admitting what they don’t know and getting specialized help as needed. They take total responsibility for analyzing and improving their performance.

And the folks that do this well are becoming Phase 4, 8-figure companies without any institutional capital. More and more often. Yes, they have seed money and yes they do tend to obtain angel investment from somewhere at some point.

Some examples are: Dude Wipes, Ithaca hummus, June Shine kombucha, Dr. Squatch Soap…heard of them?. When I can tell the full story behind Dr. Squatch some day, I will and it will blow you away. As well as every 65th floor PE/VC punk out there who listens to this podcast. 

I am finding more and more of these companies who grow very far without venture capital or institutional investment, and it should give you hope that you can control your company and grow it with sporadic private raises. But you have to be incredibly committed to professionalizing yourself rapidly as you grow. 

This is like a second adolescence, one for adults. Because it’s painful to make tons of mistakes, learn and move on without losing belief in yourself. I get it. 

One of the benefits is that you are NOT having to deal with the supposed expertise of institutional investors, or the ventriloquist CEOs they like to install in lieu of you. 

If you honestly are sick of running your business, though, finding a reputable institutional firm to basically take it over is perhaps the best mental health decision you’ll ever make. But you will most likely net far less money than had you retained control, simply because your equity will get diluted and shrink in absolute size. It doesn’t mean you won’t make millions. Several people have. 

But, if you really want to run these kinds of businesses, you can make far more in the end and use those earnings to have even more impact on the world, including through philanthropic activities many of you orient strongly to anyways, if you only had the money to generate impact.

I say this to encourage more of you new to the industry to commit heavily to the professionalization process, so that you have choices as you scale. So, that you are not raising money in desperation, and cave to aggressive terms. 

Ultimately, by professionalizing your organization and behavior, you will attract the interest of the good investors, should you want their involvement, later on up the Ramp. 

In Episode 17, I discussed what Professionalization means for most early-stage founders new to running any business, let alone a fast-growing one. This is not about being polite in mixed company. It’s something more difficult.

Yes, it’s not for everyone, but it’s part of the process of retaining control as a founder. Otherwise, you may choose to let others scale your business. Just don’t make that decision because you found the process of professional development too daunting. That’s a lousy excuse. There has never been a better, more democratic access to expertise and resources needed to professionalize yourself in the world of consumer brands. 

I’d bet on a brand in 500 stores with 10,000 emails than a brand in 3,000 doors with 1,200 emails, half of which come from one-time DTC customers.