Made It with Connor Tomkies

[00:00:00] Dan Reich: We were doing really, really well then slowly, but surely we started to get really bad customer complaints, things like this isn't the product we bought or it's damaged to the point where some of the complaints were so bad, there were things like, we're going to come after you and we know where you live and it was pretty specific.

[00:00:16] Narrator: Hey, co founders, welcome to made it with Connor Tompkins, a podcast where we meet with badass entrepreneurs who've successfully exited their companies, discussing everything from the wins and losses of [00:00:30] entrepreneurship to the next steps after the exit to not miss out on these exciting stories. Be sure to subscribe wherever you get podcast.

Let's dive in.

[00:00:41] Connor Tomkies: Hey everyone. I'm here with Dan Reich. He's a four time serial founder and he has done a lot of fantastic, tremendous things. And. I said, I wasn't going to do an intro for you, Dan, and I just went right into it. How are you doing? That's good. Good to see you. I think I can't help myself, but it's cool, man.

You, you sold two different companies [00:01:00] to two very different companies. I just want to call it the tool that you sold to PNG and then you sold another company. so Spinback sold to BuddyMedia and then it sold to Salesforce. How did that happen?

[00:01:10] Dan Reich: Yeah. Yeah. The Spinback story was pretty wild.

It was just. About 2010 at Spinback, we were helping online brands and retailers measure how much money they made from Facebook at a time when every brand on earth knew they needed to be on Facebook, but didn't know why or what they were trying to accomplish other than maybe they needed and wanted a bunch of the thumbs [00:01:30] up buttons and likes.

[00:01:31] Connor Tomkies: It's like someone told him at like a business conference. You have to be on Facebook and they're like, fine, I guess.

[00:01:37] Dan Reich: For sure. For sure. I mean, literally, that's what was happening. And. In the beginning, it was a lot of media companies and I mean, individuals, as we know, college kids, especially, and then brands started to get on there and the brands sell products and they wanted to see how their products , were performing and translating on social media and what that meant for their sales.

And that didn't exist. So we built. The technology to [00:02:00] facilitate that sharing of products and social media. And then subsequently the measurement of those sales and of those sharing activities. And so it was me and two buddies from college. We were building this company. We were, you know, mid 20 something year olds, and we were really gearing up to A proper venture round of financing.

And we met with a bunch of firms and in particular, we ended up pitching a first round capital, which we got rejected from part of the reasons we got rejected [00:02:30] were we were, too young to be doing. B2B enterprise sales, and we didn't have a specific type of experience sales guy and we didn't have any enterprise customers.

And so over the course of a couple of weeks, months, we basically did all of those things but then We just showed up at their door unsolicited and said, Hey, look, we did all the things you said we couldn't do. And we have another term sheet.

Are you sure you're not in, let us get back to you. And so I remember they called us later that afternoon and they're like, okay, we're [00:03:00] going to, we're going to give you a term sheet. We're going to move forward. But what happened in parallel is we knew that Facebook was gearing up to go public and maybe two to three quarters.

And we had built really robust. Analytics, but we didn't really have a big customer base. We didn't have distribution. We didn't have a lot of the table stake tools that brands were looking for, which even before measurement and revenue and commerce tools, they were like, just help us have a page in presence on Facebook.

And so there was a company at the time that [00:03:30] was the leading B2B platform company in that ecosystem. That company was called buddy media. And so we were discussing a partnership with them and then quickly a partnership conversation became merger. Conversation. And so we found ourselves in a position to decide to move forward with the signed term sheet with first round capital or to move forward with the merger acquisition with buddy media.

And we said, you know what? We think Facebook's going to go public in two quarters for probably around a hundred billion dollars. And that's a really unique moment in time for a really kind of [00:04:00] generational company. We wanted to be a part of that window with the right. Team and we felt like buddy media plus spin back would be one plus one equals 12.

And so we did the merger and about 13 months later, Salesforce acquires buddy media, after Facebook went public. So that was the, spin back story and ultimate landing into Salesforce.

[00:04:19] Connor Tomkies: Dan, how old were you when this happened?

[00:04:22] Dan Reich: I think I was about 25 or 26.

[00:04:26] Connor Tomkies: Yeah, I don't think I knew what merger was when I was like 22, [00:04:30] 23.

I think I was like trying to figure out how to piece everything together. Right. Did you ever go into like a conference room and then like people thought that the, chief operating officer, the main sales guy was like the CEO and then you're like, Oh no, I'm over here.

[00:04:41] Dan Reich: Yeah. I mean, it was a, it was a funny time for us because yeah, we were certainly young and post merger with buddy media.

We all took on pretty. Big roles and responsibilities that, at scale, working with fortune 50 and fortune hundred and 500 companies. So. It was really, really fun moment in [00:05:00] time.

[00:05:00] Connor Tomkies: That's pretty cool. The first company you started was in high school though, right?

[00:05:03] Dan Reich: Yeah.

The first real and legitimate and incorporated company I ever started was in high school. It was a business that was basically an online e commerce site selling wholesale urban apparel. So think. Rock aware, Sean, John, Apple, bottom jeans. Rewinding the clock a little bit earlier.

I was enamored by this thing called the internet growing up. And so this website [00:05:30] eBay popped up and I was scouring eBay, tinkering and playing with the whole thing called the internet and eBay in particular, and I ended up finding wholesale bouncy balls. So I would buy them online wholesale, and then I would resell them in school out of my locker for some crazy markup.

The whole school saw me doing this because it got to the point where I made a bunch of money and then got tired doing it and I would give them all away for free. And so chaos would ensue in the hallways, bouncy balls flying everywhere. I ended up getting suspended for.

creating terror , basically, in the hallways of these [00:06:00] projectiles.

[00:06:00] Connor Tomkies: So they, they found someone that pointed to you and they're like, this is the bouncy ball guy that's causing problems in our hallways.

[00:06:06] Dan Reich: Exactly as my brother likes to joke, I was the bouncy ball businessman in high school. Like some people were selling candy bars out of their lockers and I was selling bouncy balls.

Funny enough, one of my co founders that I did spin back with, he was doing something similar, but instead of bouncy balls, he was thinking bigger.

He was doing it with, I think, sneakers. But I think it was going to like the malls and buying a bunch of the most sought after Nike [00:06:30] sneakers and then going on eBay and reselling them or in reverse. But that period of time, there was a lot of people doing things like that, right?

Like the internet came around, you could buy stuff, you could sell stuff. And so a lot of people were looking for an angle, including me. That wasn't my first real business. I would say that was one of my earlier hustles among many. What then happened is a friend of mine in high school.

Took notice of this. And he said, Dan, it looks like, you know, this internet thing and you know how to buy and sell goods. My father's friend has a business [00:07:00] where he is a wholesale buyer of this urban apparel. And he might be interested in partnering with us. So that he could procure the inventory of product and you could, and we could potentially sell it online.

Maybe we should go meet him at the Jersey shore, which in hindsight was totally like a foreshadow into this isn't going to work and don't do business with people from the Jersey shore, which is kind of where I'm from. So nevertheless, we were 18. We hopped in the car. We took [00:07:30] a trip down to see the sky and he had a really shitty warehouse. But for me at that age, I was like, Oh my God, there's, this is a really cool business here and there's product. And I might be able to start my own company. In short, we started a company where we were selling urban apparel, Rockwear, Sean John, Apple bottom jeans.

I built the e com site and would get up at six o'clock in the morning. We'd turn on Yahoo ads and Google ads. I'd go to high school. And then while I was in school, I'd have my customer [00:08:00] support and service rep. Take all the orders and fulfill them. And by customer service rep, I mean, my mom, like literally set her up with the computer and a credit card processing machine in one of the rooms in our house, and then I'd come home and I'd reconcile the orders and the ad campaigns and I'd rinse and repeat and that partner down at the Jersey shore would do all of the fulfillment.

And so that was the business. And we. Ran at that for a couple of months. We were doing really, really well then slowly, but surely we started to get really bad customer complaints, things like this [00:08:30] isn't the product we bought or it's damaged to the point where some of the complaints were so bad, there were things like, we're going to come after you and we know where you live and it was pretty specific.

And at that point we're like, okay, we're going to. Shut this business down. This clearly isn't working and we're going to call it a day and take a loss. And so we did that. I shut the company down, fast forward a couple of months. I remember my father came home with a local newspaper article and in there was an article and a big photograph of that partner getting [00:09:00] arrested.

By the FBI for stealing goods off like back of trucks and using basically me to funnel that through. So I was like, okay, middle man, I was the middle man. I was the, the, in that case, I guess, useful idiot. But I'm glad I was a useful idiot at such a young age because that was really my first.

Hard real life and maybe the most important lesson in business for me ever, which is the most important decision you ever make in business and in life is who you spend your [00:09:30] time with and who you work with and who your partner with. And so I'm just really fortunate that I had that experience early because it really set the foundation and framework and mindset for me as I thought through.

What I'm going to do and what decisions I'm going to make in terms of where I lean in and work.

[00:09:46] Connor Tomkies: So, Dan, you have some other business partners that you worked with, right? So you stopped working with the sketchy, Jersey Shore guy, didn't do, any other ventures with him, but you have some partners that you've done some of these other ventures with.

Are they the same [00:10:00] people? Is it the same, like, group that you're doing? Or is it different depending on what the company is?

[00:10:06] Dan Reich: Yeah, they've been, they've all been different. The where, where it's been the same as you touched on tool. I built now a few companies with the same person involved in all of them.

Pretty much Tula troops, dibs, beauty, a few others. His name's Ken Landis. I met Ken after we sold spin back, which was another story. Like the day we closed with Salesforce, I also quit. I didn't want to stick around. I left a bunch of [00:10:30] money on the table. My parents thought I was insane for doing that part of why I was actually really afraid to get complacent and get on this sort of corporate. treadmill, which was and would have been perhaps the, you do a good job in the role and you get a promotion to a better role and you get paid a little bit more.

And I was actually terrified of that because I felt like there was a clear path to do a really good job. And I was afraid that if I got stuck on that treadmill, I might Ever come [00:11:00] off and so that was more terrifying to me than having no job and having no income and leaving a lot of money on the table.

[00:11:05] Connor Tomkies: Anybody else and to anybody else's parents, right? That's the goal is like you working at a big company. It's something easy that they can share with their friends is something.

I think my parents were probably proudest of me whenever I worked at like a big company called KBR and I removed staples all day. But I had a nice outfit that I put on, right? So was your family pretty upset?

[00:11:25] Dan Reich: They thought it was insane. They thought it was crazy. They're like, no, no, no, just chill out.

Like you're only [00:11:30] whatever, 26, just stay there for like a year. And I'm like, no, you don't understand. This is the, the best years of my life to do what I want to do on terms. I want to do them where I have the most energy. And so, yeah, I did exactly the opposite to your point of what I think every parent wants their kids to do.

And I remember even the year or two after it was in hindsight, also a very crazy, crazy financial just thing to do, but I did it anyway. Even to your point earlier on going to work for the big [00:12:00] company with a big name, even in college, I remember all of my friends were taking internships in these financial institutions on wall street.

Insert big bank here that everyone knows Goldman Sachs, Lehman Brothers, which was a whole nother story. Bright future there. Yeah, exactly. And so most of my friends want the status quo, the knowable, get rich quick path. And I ended up taking a job and internship with some guy that [00:12:30] was building his own ad tech company.

Startup out of Maryland, which before that he helped build a company called advertising. com, which sold to AOL for, I think it was like 535 million. And one of his early employees and partners was the very first sales guy at Yahoo. The founder, Jerry Yang would sleep on his couch while they were coming up with these things called display ads and inventing how the internet makes money.

And I'm like, wall street sounds interesting, but this sounds way more fun and way more interesting. And so I'm going to. [00:13:00] Not do finance. I'm going to not do business. I'm going to instead go entrepreneurship work at these guys is already studying engineering for part of that reason. My parents thought it was cool and interesting.

They were super supportive, but yeah, for sure if you're that parent and in conversation, kid A goes, To Goldman Sachs for a job in kid B goes to this weird, funny name company. That's no one's heard about. that's a tough pill to swallow in the short term. You look silly and ridiculous in the moment, but fast [00:13:30] forward, the company I was a part of goes out to raise a bunch of money.

We grow from a few of us to, over a hundred employees, tens of millions in revenue market leader. And some of my friends in wall street all lost their jobs because Lehman brothers blow up and wall street. Demolished probably pretty much 99 percent of my friends, maybe all but one or two from that period of time have all left Wall Street.

None of them are in banking except for maybe literally one college roommate and they've all gone on to do things in the more [00:14:00] startup ecosystem. In fact, I've spoken to probably all of them and the conversation I've had probably with all of them is some version of, Hey, I think I need to get out of finance and I want to get into this whole startup tech world.

What do you think? So you have to be. Comfortable looking like the odd ball, in the short term to, I think, be successful truly in the longterm. And then to get back to your question on who am I building these companies with?

After I quit, I [00:14:30] went and I worked out of a family office called Great Hooks Capital on 60th and Madison. They were one of the, would have been investors in spin back. The founder of that firm also went to my college, university of Wisconsin. And him and his partner were like, dude, like don't work from home or out of coffee shops.

You're a couple blocks away. Why don't you just come work out of our office and we can look at deals together. You're going to be angel investing anyway. Why don't we do this together? You could leverage our balance sheet and our office and, and deal flow and, and exchange will leverage [00:15:00] your deal flow and your operating experience.

And maybe we can do deals together. And during that time, I ended up coming up with a new software idea that I wanted to build. Basically spin back 2. 0, we had sold early. There was a lot of white space left in the market that we didn't get to capitalize on. And I figured, let me go do that.

And so I reconnected with a lot of my old customers, pitching them on a new concept, one of them being QVC. And they go, Dan, that's a really great idea. We're in, like, we'll be a design partner, beta [00:15:30] customer.

But by the way, can we get your thoughts on a strategic initiative that we have? I was like, yeah, you're the third largest retailer in the world. I'd love to hear about your strategic initiative. You do 10 billion plus a year in sales. Go on, tell me more, please. What they told me is that they realized that the world was changing and moving from traditional media to digital media,

the internet was becoming the new thing, and in particular, they recognized they had finite shelf space. If you know the QVC business model, it's television shopping, their [00:16:00] shelf spaces, airtime and their airtime and shelf space was limited to 364 days a year minus Christmas, 24 seven of shelf space.

But on the internet, they had theoretically infinite shelf space. But the problem is they had never done that before. It was so different. And out of the core DNA of their business. And so the question was, could you help us prove this as a strategy and business opportunity? Oh, and by the way, beauty is the fast growing category.

That would be the brand we would get behind and support. [00:16:30] What do you think?

[00:16:31] Connor Tomkies: And you're like, yeah, a hundred percent. I'll work with the third biggest retailer and take it online. What did you do?

[00:16:36] Dan Reich: So I was like, look. I know the QVC business pretty well, cause they were a big customer of mine.

So I knew the inner workings and all of the key players cause they were one of my biggest and most important customers. Problem is I know a thing about beauty, but I knew someone that that did.

And so while I was working at that family office, there was another person doing his own private equity investing. His [00:17:00] name is Ken Landis. And the reason he was able to do his own private equity investing is he helped co found and ultimately sell a beauty company called Bobby Brown cosmetics. And so while we were working out of this office together, it was literally stealing his office space while he was away traveling, we got to know each other and I was like, Hey, Ken, I had a pretty interesting conversation.

It sounds pretty familiar to how you started Bobby Brown with unique partnerships, retail partnerships. You had, so we got lunch and lunch. We came several meetings later with [00:17:30] their executive team. And lo and behold, we had.

Realize we had an opportunity to build our own digitally native beauty company with the third largest retailer in the world, forbade him telling us we will make this successful. And In short, that's how Tula skincare was born. since Tula I've partnered with Ken , on Tula, on troops, on several cannabis companies.

On, dibs beauty. We're launching another one later this year in partnership with the United talent agency. And a few others. Most recently I've been [00:18:00] partnering with him on kind of everything, but like troops, even though he was involved, I knew I wanted co founders in the trenches with me day to day, because inventing a new category of software is an entirely different prospect and venture than consumer packaged goods.

For the troops business, I knew I needed help in a different way. And so I ended up bringing in. Three other people to basically be my co founder and compliment me in areas that I knew I needed and wanted help in. You know, look, all these businesses [00:18:30] are like snowflakes.

They're all unique and different and circumstantial, and they all require a lot of different thinking and puzzle pieces.

[00:18:36] Connor Tomkies: How many companies are you involved in?

[00:18:38] Dan Reich: Are we going to count ones I've invested in or started?

[00:18:41] Connor Tomkies: How many are in your mental space? So I would probably say investments that you're pretty active in, started, that you're still involved in as of this moment.

Because I would find that hard just keeping track of, of what's happening where, right?

[00:18:54] Dan Reich: Yeah, so right now I have, I would say, like, two. In full, full [00:19:00] throttle, like dibs beauty, which is live. And, this other one, which will be live probably later this year, but, but with these businesses I'm building now, I'm leaning in more.

Into the consumer world because I think they're much more knowable, business models and easier to understand and execute against, not to say they're not hard to build. They are. It's just again, making a thing and putting it in a box and selling it is a very different prospect than what we were doing at troops, which is like true category creation [00:19:30] and change management and

you have to inform people on what the product is. There's a, you're starting from zero

and it's like four dimensional chess and totally. And so as a result of leaning in more recently to the consumer world and making it more noble, I'm able to partner with early on other co founders and CEOs that will run it full time that are better operators than me and so it makes the headspace. More manageable because there are again, better people than me at the steering wheel, 24, seven, whereas [00:20:00] in the past I was at the steering wheel 24, seven. That gives me the ability to increase the breadth of things. And so right now I've got, those two, I'm looking at a few others to maybe kick off and build.

I've also partnered with my brother and one of my really good friends, Sam Rockwell and their company called Happy Foodie, which is a basically a food holding company that has a few brands, but one of them is more recently an ice cream company called Dr Bombay, but their partner and our partner on that [00:20:30] business is Snoop Dogg, which is pretty fun,

[00:20:32] Connor Tomkies: man that's amazing. Did you meet with Travis? I think he's also working with Snoop Dogg.

[00:20:37] Dan Reich: I did not. I mean, that's really my brother and Sam. That's their baby that they're running full time.

[00:20:42] Connor Tomkies: I I'm a little curious that Snoop Dogg is getting involved in like music royalties company and then also Dr. Bombay ice cream. Like, yeah, Snoop Dogg is getting around.

[00:20:51] Dan Reich: He totally is. I think it's smart because I think a lot of the Celebrities, artists, influencers, they're all waking up and realizing now [00:21:00] that they've been getting paid to make other people money by promoting other people's brands and making other people really rich.

And I think people are waking up now and going, wait a minute, we want our own equity, we want our own assets, we want our own company. And our own enterprise value, we should start our own company. The problem now though, is a lot of those people, their genius is not in company building, it's in being an artist.

So they must partner with people that are operators and company builders. [00:21:30] And so that categorically is where I'm spending a lot of my time. And then to kind of finish answering your question, if you layer in the angel investing, I think I'm, I think I've invested in, I don't know, 75 plus Or a hundred plus startups.

And what I tell all of those founders is like, I'm not going to be your biggest check at all, and I'm not going to lean in and help unless you want me to. So I'm here, here's my number, here's my email, call me, I'm happy to help and I'll be as responsive as possible with [00:22:00] all of them.

[00:22:00] Connor Tomkies: It seems like every time that you have like a CEO and you have cash flow or like some form of like investment or funding for each of these ideas. So are those your two kind of checks before you push a project live? It's like, I have this idea I'm excited about.

There's a CEO, there's a investment I think I can get for this idea. What other checks do you have before you let something loose?

[00:22:21] Dan Reich: I heard this framework before from someone else. So believe me, this isn't mine but it's like, I look for the horse race and jockey.

Is there a [00:22:30] horse or product that's unique and differentiate enough? That's interesting. Check, is there maybe most importantly, a jockey or a person that are also unique and exceptional and then, the race being market size, is the market worth it? Is it sufficiently large enough? It takes just as much work to build a great company in a small market as it does build a great company in a big market. And so you might as well spend your time building a great company in a big market.

[00:23:00] And in a visual analogy, if you think about being at the base of a mountain range, embarking on a mountain climb, but it's super cloudy. You can't really see where the top is, you want to probably climb the biggest mountain. Like what you don't want to do is go on this.

[00:23:14] Dan Reich: Exciting mountain track. And in five minutes, you've reached the peak. It's like, well, now what you're like, you're at that peak, you're above the clouds. And you see the much bigger mountain over there. We're going to climb all the way down and go across the valley and begin to embark on a bigger mountain that happens all the time in, and [00:23:30] startups were founders, business leaders.

Pick the wrong market or on business, or they build a business that they shouldn't have been building in the first place. Maybe it's not a business, it's a feature or not a feature, but a hobby. And so anyway, those are the three things I look for. And then I do put real cash into the business because I know that to build great companies, you know, you need great people.

And to get great people, you want to arm them with resources to do great things both financial and human capital, but you need [00:24:00] and want both, I think, to be successful. And so figuring out how much you need depends on the business, depends on the market. So for example, with Tula, we raised embarrassingly little money in the early days and we raised more once we proved success.

Whereas with troops, we raised a venture out of financing pretty much from day one, because we knew that we needed to for that market and for the R and D and to do the things we knew we needed to do. So again, snowflakes, very different ecosystems, markets, [00:24:30] products, circumstances, but the fundamentals were both the same, where you still need a great people.

You still needed to be playing in a big market. You still needed a unique and differentiated product. And that's kind of it those are really the big ones.

[00:24:42] Connor Tomkies: I heard one the other day, which is like a surfboard, like your market is your wave, the surfboard is your product or service.

And then the person is your CEO or the person running point, right? Like I've seen a lot of founders get in the wrong market and then they work so hard and it's just not worth it. What are some markets? [00:25:00] What are some waves? And what are some surfboards that you're excited by?

[00:25:03] Dan Reich: Just to be a little bit antagonistic. And I don't totally believe what I'm about to say, but I'll say it anyways. I'm kind of bearish on SAS right now, even though I come from that world, I kind of lived through this while I was building troops. During that period of time, we shared office space with Tua Skinter.

So if you walked into that office on one side, you'd see a bunch of beauty people. And on the other side, you'd see a bunch of Scala engineers and enterprise SAS people, maybe the [00:25:30] most hilarious office in New York city for a few years. And I remember thinking and looking at kind of what was happening in general in both markets and, beauty, high margin, high replenishment, luxury, recession proof, because we.

Certainly went through one of those, if not more. And also with COVID we saw what happened there. Despite the fact that there are, maybe it feels like millions of competitors, we were still able to make it work humongous market. And then at the same time in troops category creation,

[00:26:00] the beauty of SAS, which we would hear all the time at Buddy Media and Salesforce, which is like, it's an ATM machine, it prints money. You get these annual or multi year contracts and you just know how much money you're going to make the next quarter or the next year. And it's a beautiful thing.

And I remember looking at the numbers thinking, wow, like employees are getting and engineers in particular are getting wildly expensive, Maybe prohibitively so. Oh, and wow. There are way more copycat competitors than I've ever seen ever anytime before.

Like literally [00:26:30] copycat by like copying us pixel by pixel word by word. And, wow. Pricing is really hard. It's a race to the bottom I don't know how sustainable this is. I don't think this. The math can really work. But nevertheless, that was the game people were playing and we were doing well and we had a path forward.

We ultimately got acquired, but fast forward Salesforce, Facebook, Amazon, Google, like everybody does. These mass layoffs, because I think they realized what we were looking at, which is those numbers got [00:27:00] inflated, things got bloated, and it just was not sustainable. People lost sight of why people are in business, which is to be profitable, like everyone got caught up in this game of raised a lot of money at high valuations.

Don't worry about profitability. It will come later. Turns out that's a really hard thing to pull off when at the same time with Tula, we were profitable. It's like, Great. That is what being in business is about. So I say that I'm kind of more bearish on SAS these days, because that model I've raised a lot of money to go build an enterprise software company is very different now.

Why is it [00:27:30] different? A in particular, you've got. AI and LLMs and machine learning, like the technology is so much better that you can do a lot more with less be the barriers to entry are much lower. And I think we've talked about, and I've read about this idea of globalization for over a decade, but like.

It is more and every day be increasingly becoming more and more obvious that will continue just seeing how many startups are popping up from other countries, Canada, India, Israel, you name it. The competition [00:28:00] is fierce. Pricing pressure is a real thing. So I think in sass, the two companies that may win characteristically will be, lean and mean teams that don't raise a lot of money that can do a lot more with a lot less, or you're doing something that's like really deep tech that requires a lot of capital upfront, but once in market,

you win, so like I'm an investor in a company called figure AI, which is building humanoid robots like you're not doing that with a shoestring budget.

[00:28:26] Connor Tomkies: And that mode is going to stay there for a while, right? That takes a lot [00:28:30] of work.

[00:28:30] Dan Reich: Exactly. So, you know, been bearish on the world I came from, but more bullish on what I think many of these C's thought to be not venture back to bull businesses or too much of a commodity, which are these CPG companies.

And I remember thinking about what I wanted to do with my life over the past year or two or three, and I'm looking at the world's richest people. And on the top of the list for a moment was this guy selling women, handbags. Yeah. perfume and clothes, LVMH, right? In fact, my private equity [00:29:00] partner at Tula and its beauty is a firm called Elkaterton, the L stands for LVMH.

It's it's their private equity partner nevertheless, these are asset like companies that are high margin that in some cases are replenishment and have the continuity and annuities like a SAS company does, and, are a session proof in some cases, ,

[00:29:17] Connor Tomkies: There's that weird like demand dynamic, right?

Where you increase the price and demand increases. That's a miracle of finance. That's remarkable to see

[00:29:25] Dan Reich: And there's historical context here. If you look at the great depression, there was something called the lipstick [00:29:30] effect where people couldn't spend money on anything, but they were buying a lot of lipstick because it was an affordable luxury good when COVID happened at Tula, we saw something very, very similar, which we now, and then called the quarantine routine , we didn't know at first how our business would do when we were preparing for best case and worst case, but people ended up buying a lot more skincare products because they were locked in their home, but they still wanted to. Buy things and have a luxury for themselves at home. And so they bought more [00:30:00] self care and skincare products.

And we saw a pretty huge increase in our business. They're like great brands and physical products. They're just never going anywhere. When I think about those businesses we touched on this earlier, they're much simpler business to understand versus real invented inventiveness or category creation.

And by the way, I'm not taking anything away from those companies. The biggest and best companies in the world will be built in that category or that bucket, but it doesn't mean. Great companies can't, won't be built in [00:30:30] this other more simpler bucket. It's sort of like Warren Buffett will really only invest in a company that an idiot can run because one day one will, you look at that portfolio and they're really simple, easy to understand businesses.

And so, simplicity. Is something I value a hell of a lot more these days, especially when it comes to building companies, because it's really, really hard to execute a simple business. And when you try to do something that's complicated, you're just compounding the execution risk and the [00:31:00] likelihood of success.

[00:31:00] Connor Tomkies: I think, Dan, Whenever you talk to younger entrepreneurs, a lot of them want to create something new or something exciting because that's what they they're overexposed on that, right?

They get overexposure on this new tech company.

[00:31:12] Dan Reich: Yeah, it's true. I would say the one thing there, and I was guilty of this, especially when you're young, often wanting to create something new takes the form of coming up with a hammer and looking for a nail or coming up with a cool idea or solution to a problem that [00:31:30] may not really even exist.

At least for me, I think as you get a little bit older, the wisdom that one gains in life. And the appreciation for problems because you have more of them as you get older, they become realer and realer and frames your thinking around problem solution versus solution. Now let's go find a problem for the solution.

[00:31:49] Connor Tomkies: Dan, You have your own, I want to call it like a family office slash venture studio, right? Where you're, you're bringing in all these different companies and you're working with them, right? As [00:32:00] an operator, as an investor, as a partner,

How do you find that divide between like operator and investor? What role do you play in these companies?

[00:32:07] Dan Reich: So I think there's a spectrum of on one end, you're full time building a company. And on the other end, you're like full time investing and not operating. I'm kind of like playing in the middle right now where I love to build companies, but I don't want to be in them full time at the moment subject to change, but.

I also love to invest and think about capital allocation also. I'm kind of [00:32:30] operating a very, very, very informal venture studio is one way to think about it. Which I haven't deliberately formalized with a fund or a formal team or infrastructure, because I like the optionality of being able to work on.

Ideas that are only worth working on. I think if you create formal structure, take a venture capital firm or private equity firm, you get paid to put money to work. And so that can often create pretty bad incentives where maybe you're at the end of your [00:33:00] fun life cycle or the end of a year where you have some quota of deals you need to invest in.

You just maybe invest in a shitty company. Cause like you feel you have to, and by the way, it's fine because you're taking management fees and

Like that company will get marked up because other great investors are invested in, you can go raise your next fund it just becomes a game.

Not to be pejorative to my friends in PE or VC, many of them built unbelievably great enduring firms. I want to be really selective and I think having more autonomy and freedom [00:33:30] makes for better picking and building of companies.

[00:33:32] Connor Tomkies: You have a unique opportunity in that you have the cash flow of the experience in a time.

And so with that combination, it's almost like you're creating your own hybrid private equity firm that's working on different mechanisms, right? And that's pretty cool. I feel like every time I look at a venture studio, they have like a different basis or a different way of operating or a different ethos that they operate off of,

and so in a way, you're creating your own kind of version of what that looks like. Are you thinking about formalizing that and putting a brand to it somewhere to like Andrew [00:34:00] and Tiny or, a few of these other firms, or are you thinking about keeping it a little bit more undefined?

[00:34:05] Dan Reich: I did that this week as an experiment.

It's called companybuilders. com. It reads as a venture studio slash investment company, but again, it's like not even a real company.

It's more designed to be an experiment and, uh, and a house to convey some of the things we've talked about to bring in some of the people that I've worked with in the past that I think are amazing people that I would certainly build a company with again. So we'll see where it goes.

Ask [00:34:30] me again in a couple of months or a year. I'll report back.

[00:34:32] Connor Tomkies: Honestly, that's one of the things that gets me the most excited. Like I get excited when I'm like, I want to work with you and you, and if you guys are willing to work with me on this and I'm, I'm game, if not, then like, I'm not moving, but yes, that's how I get myself into trouble essentially. You might be getting into trouble depending on who joins you on some of these adventures.

[00:34:50] Dan Reich: Yeah.

I think the thing I'm optimizing for now is, back to those horse race jockey or surf wave surfboard and the surfer, right? Like life is [00:35:00] short. Time is the most precious and valuable commodity and it's finite.

If you optimize for choosing to work with the people you want to work with, then I think the rest is a hell of a lot easier and more fun, frankly.

[00:35:12] Connor Tomkies: Do you have any goals, financially, or do you feel like you check that box and right now you're just playing the game because you like the game?

[00:35:18] Dan Reich: Yeah, it's really a game. I don't have, there's like, there's no number in my mind that I'm like, I must hit that or I've gotten to, you know, X dollars and now I must get to X plus Y and then I must get [00:35:30] to X plus Y. That's not me at all. The, the financial goals I had were, To not be massively stressed to pay the bills and, go on vacation.

Like I've checked those boxes, but now those boxes are checked. I can play the game a little bit more. And on my own terms, certainly on my own terms, more so than I've done in the past. And it's fun. Someone described it to me. Well, it was another very successful entrepreneur, repeat founder, sold multiple companies.

And I asked him the same question. I'm [00:36:00] like, dude, why are you doing this? You've done this even more than I have. You're older than me. He's like, Dan, do you ever play video games? I was like, yeah.

He's like, this is an adult video game where. I get to play this video game every day. And Oh, by the way, I get to get money from investors to play the video game. And Oh, by the way, if I do a really good job, I get to give those investors their money back and more, and I get to make some too.

What a great, great video game. I'm like, yeah, you're right. It's, it's a game. Like the [00:36:30] journey is the prize. It's just one giant, puzzle. And it's, it's just fun. What would you do? Would, would someone. Pick a hobby, golf, ski, go boating all day, seven days a week. Like, I don't

know.

[00:36:43] Connor Tomkies: I don't know if this is a term, but it's like a limitless game, right? Like you have unlimited players, you have unlimited different opportunities that you can chase down and you're competing against people that are competing in earnest, right?

Like they are seriously trying to do what's best for them. And you're trying to navigate like [00:37:00] macro economics, macro psychology, as well as micro economics and psychology, and try to figure out what's in your buyer's head, what's in your competitor's head, which way are things going. And I find myself thinking about the businesses all the time, like I'm walking, I'm thinking about it, I wake up, I think about it.

[00:37:15] Dan Reich: That's right. If you could figure out work such that it's play, and have fun doing it, you'll never work a day in your life. And yeah, that's how I feel about these things too. It's not work building. These companies is like more fun than any of those other things. [00:37:30] And if, again, if you do well, it just so happens that the scoreboard in this game happens to be money by late, not just for you, but for the people you work with, like for all my companies, Everyone I work with has equity. Like to me, that's really important because probably the most exciting thing to me is if, if, if any one of these companies do well, the other people within those companies do well and can realize and unlock in their life, that could be a step function or life changing event for them.

And I've seen that a few times with people I've [00:38:00] worked with, and it's like the coolest thing in the world.

[00:38:01] Connor Tomkies: Yeah. How awesome is that? Is that you sell a company and then you see them start. Their own company and see them start in their own way. I mean, that's pretty sweet. I think a lot of times options don't come to fruition.

A lot of times people don't fully understand the options that they're given. Sometimes the terms are not super advantageous. There is a little bit of a gap, every company is different. Every option pool is different, right? But I think it takes a little bit of work as a company to be like, here's what your options mean.

[00:38:30] Here's what it means to execute on your options. Here's what it might mean for you financially. And then just continue to repeat it. Just get them to the point where they understand the impact that that could have on them if they're successful.

[00:38:39] Dan Reich: Yeah, for sure. We did that at Troops. In fact, we had our offer letters.

Most offer letters, I think, are legalese Word document and the offer letters we created at Troops were basically many PowerPoint presentations that walked the perspective of Teammates through not only what's their role and compensation, but within it, [00:39:00] we double clicked on compensation in the form of, of equity.

So we would walk them through here is what your equity is worth. Here's how to think about it. Here's how to do the math. Here's how the exercising works. And we would also often give people three options to choose from, you know, high, medium, low cash but we were very.

Transparent with the stock options, company valuation that could be worth with assumed various outcomes. [00:39:30] So they could kind of do their own math, but yeah, cause like I remember when I was in their shoes, stock options are like a really nebulous or can be a nebulous thing. That's a bit of a black box. So we worked really hard to demystify it for everybody so they could feel really, really good and feel like owners in the business.

[00:39:46] Connor Tomkies: There's a thing called post termination execution period that you can add to stock options that we added to the support ninja stock options. And so it's even if you like leave, you can still. Get some of the benefit from your [00:40:00] stock options because we convinced them, Hey, come work with us for three or four years and you're going to get these stock options, but maybe they don't have the money to execute on them.

Maybe they leave right before the transaction occurs, in which case it's like, how can you help reach that gap? It's called a P tip, but I thought that was something I don't often see.

[00:40:17] Dan Reich: I mean, the reality is I, I truthfully haven't spent too much time. On this, every time I went down this path of trying to innovate on comp, I keep thinking like I should use this brainpower to think about how to [00:40:30] innovate on the business, but it seems like there's so much room.

To improve the equity based compensation and sock based compensation for employees at these companies, because if that could be further optimized, then it makes the incentives better and easier for more people to take a little bit more risk to go build more companies that can be a creative to not only themselves, but the local community and the community.

Kind of our country at large, if not the world.

[00:40:59] Connor Tomkies: [00:41:00] Yeah, and I was talking to some post exit founders in New York and we were talking about doing a pitch competition where we were pitching terrible ideas or maybe I immature ideas, ideas that haven't had a, a solid business plan, don't have any revenue attached to it.

Might be a little bit fun, something you might wanna see in the world if you have any immature business ideas that you're excited about.

[00:41:20] Dan Reich: Yeah, I almost built one., if you recall. I don't know if you ever seen saved by the bell that moment in time, one of the, or some of the original cell phones were like these giant [00:41:30] bricks.

so Zach Morris had in that show, like this giant cell phone he walked around with. So I prototyped. And it's online probably somewhere. So definitely, uh, like a giant brick looking cell phone from the nineties, but it wasn't a cell phone. It looked like the cell phone, but it was an iPhone holder slash iPhone charger, slash AM FM radio slash speaker.

[00:41:52] Connor Tomkies: Emergency flashlight slash pocket knife.

[00:41:55] Dan Reich: All of the things it was called retro cells. So I built that [00:42:00] thing. I, I prototyped it.

And it was fun. I brought it into the office and built a website. I got a few press articles written about it. And then I put it in front of a bunch of people, Urban Outfitters was one of them. Next thing you know, I got a purchase order from them for like a thousand units.

So I was presented with the decision, am I going to actually make this thing or not? And at that time, I was also in parallel working on this other thing called Spindak, which was that software company. So Spindak had matured enough that it was taking up more time. [00:42:30] And when I got the purchase order, I was like, I don't think I'm going to fulfill this because then I'm really signing myself up for work.

[00:42:35] Connor Tomkies: I just imagined you telling the spin back guys, like, Hey guys, I'm so sorry, but I really have to do this giant phone thing.

[00:42:41] Dan Reich: Yeah. I mean, they knew about it. Did they, we, it was a joke, like that I should still do it. But part of the other reason I did it is I'm like, I'm, I studied electrical engineering, so I had a deeper appreciation for it. But even in the prototype, there were some glitches with it. And I had some question marks over the, how they did it.

Good thing I didn't move forward. Cause I could have [00:43:00] easily faced financial problems because I would have been in it for a lot more money to produce the thousand units. That's a real cost and real capital costs. So anyway, that's

one of my best done business ideas, but I've had over the years.

[00:43:14] Connor Tomkies: Dan. This is awesome. I appreciate it. I think that whatever you decide to do, whether it's a giant telephone or a beauty product, I think you're gonna knock it out of the park and have been knocking it out of park. Where should people go to find you, Dan?

[00:43:25] Dan Reich: Thanks, Connor. I'm on Twitter and all the social media places. Just. [00:43:30] Dan Reich is probably the easiest place.

[00:43:33] Connor Tomkies: And also there's company builders, which is a brand new baby website that's been around for 48 hours and, and should probably get a little bit of love.

[00:43:41] Dan Reich: Yeah. Yeah. Again, I'm not, it's a more an experiment than anything, but yeah, it's, so if anyone's interested in building. Clearly I am. I think you are too, Connor. So happy to chat about it.

Awesome, man. Thanks for coming on the pod. I appreciate it.

Yeah. Thanks for having me. This is fun.

[00:43:57] Narrator: That wraps up today's episode.

For [00:44:00] more inspiring stories and valuable lessons from successful entrepreneurs, be sure to listen and subscribe wherever you get podcasts. Thanks for listening. Until next time, keep pushing boundaries and writing your next chapter.