🎧🍌 How to Get 1 Billion Views per Month | Isaac Medeiros Founder of Mini Katana & Kanpai Foods
Creating a content strategy, lessons building consumer brands, why TikTok saved food & beverage brands, how to get a product into retail stores, moving his factory from US to Mexico due to tariffs
Isaac Medeiros is one of the most prolific content creators on the internet. His videos get over 1 billion views per month, which acts as the marketing machine behind his companies Mini Katana (swords) and Kanpai Foods (candy).
In this latest episode of The Peel he unpacks his content strategy, from a high level down to the tactical decisions, differences between the TikTok and YouTube algorithms, and how AI will impact content creation.
We also get into Isaac’s origin story building consumer brands, why TikTok has made food and beverage an interesting category for new products, how to get a product into retail stores, and why you shouldn’t sell into retail.
Isaac also shares how tariff’s made Kanpai’s US manufacturing unprofitable overnight, and he moved his entire supply chain from the US to Mexico in 60 days.
A quick thanks to Sean Frank and Kevin Espiritu for helping brainstorm topics for this conversation Isaac!
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Timestamps to jump in:
3:46 165 million views in two days
5:15 Followers don’t matter, build a binge bank
11:21 How to monetize an audience
14:36 Identify outliers for content ideas
17:13 Should founders make their own content?
19:34 Starting Mini Katana
23:39 $10m revenue in two years w/ $0 CAC
25:56 Difference between TikTok and YouTube algorithms
29:38 When to experiment with a second platform
32:20 Starting Kanpai, a freeze-dried candy company
36:54 Why freeze-dried candy wasn’t popular
38:22 Why you shouldn’t sell in retail
41:12 Why you should sell in retail
47:05 Downsides of selling to large retailers
49:52 Should CPG brands raise money?
57:59 Moving manufacturing from US to Mexico in 60 days due to tariffs
1:04:20 Why you don’t want to be first in a category
1:08:06 Other CPG creators Isaac follows
1:09:15 Elon Musk, Charlie Munger, Mark Cuban
1:11:55 Labubu’s
Referenced:
Find Isaac on X / Twitter and LinkedIn
👉 Stream on YouTube, Spotify, and Apple
Transcript
Find transcripts of all prior episodes here.
Turner Novak:
Isaac, welcome to the show.
Isaac Medeiros:
Thank you for having me, Turner.
Turner Novak:
Yeah, I think this will be fun. I was trying to think of a good way to just think of you. You're kind of the MrBeast of short form almost or something like that, or the Cluely guys in the tech startup world. You're like Cluely of short form video, but you've actually done a really good job. You built a couple of pretty interesting businesses around it.
Isaac Medeiros:
Yeah, I think the Cluely guys are... They're crushing it. Interesting case study. Also not new. I think it's just new in tech. In the consumer world or in the creator world, people have been getting millions of views for years now.
Turner Novak:
What's your current stats? I think I saw you tweeted something the other day. You got 165 million views on one video in two days. Am I remembering that right?
Isaac Medeiros:
Across all of our channels, we average usually around 700 million through a billion views a month. A lot of that is shorts. We also get some long-form views. What's unique about us is how dominant we are in shorts. I think we're one of the top 50 channels on YouTube in terms of just raw viewership and we're certainly in the top 20 of shorts.
Turner Novak:
And that's based on views?
Isaac Medeiros:
Yeah, that's just raw views. A lot of people will say things like overall views don't matter, which you could argue. In terms of unique viewers, we get about a quarter billion a month.
Turner Novak:
Oh wow. Okay. And is there a general process or just way to think about going viral or getting a ton of views, or is it completely luck and completely random?
Isaac Medeiros:
Yeah, there's a lot of content out there on how to make a great short or even a great long-form piece of content. I think to be more constructive, actually we should talk about something else entirely than just the actual video. We should talk about the overall macro strategy for a channel because that's actually dictates your success over years instead of today and tomorrow, right?
So what I mean by that is when we're trying... We've launched 10 plus channels at this point. When we're launching a channel, we're focusing on specific emotions. So for Mini Katana for example, we're trying to elicit excitement, edutainment, entry. And then we can build formats around that and what we're trying to make content around. So off of that, we can do some educational content around the sorts. Easy-peasy, right?
Turner Novak:
So is it just how sharp something is like how a certain sword works or something like that?
Isaac Medeiros:
Or how it's made or how people used it. It's infinite really, right? We're now we've started doing forging videos where we make them from scratch on camera as well.
Turner Novak:
Oh, you create a sword?
Isaac Medeiros:
Yeah. Yeah, yeah. We have, especially in our long-forms. And when you kind of focus on these formats that capture core emotions over multiple years, I've seen people call it you're creating a social show, right? And I think that's more of what single people should think through when they start creating content. Because a lot of creators, they trend hop, they kind of just make what's viral today, but long-term they're not really building this format-driven bench bank. Think through it. Somebody in a year from now finds your videos. Ideally, you don't want them just watching your one video. You want them to follow you and you want them to start watching all of your content and going through your catalog. The only way to do that is consistency, focusing on specific emotions you want to elicit, and providing the audience with that value around those formats.
Turner Novak:
So it's almost like a layer cake almost where each new video, over time, it's within the library and the universe and you're maybe hitting different emotions or ideas or concepts or whatever you're basically creating content around. And if they discover you today versus in one year, you have one video today versus in a year you might have 50 videos and they might be able to discover all 50 or the 20 that are most interesting to them.
Isaac Medeiros:
Organic content compounds over long periods of time, you should build that in mind from day one if you can muster it.
I think one of my creator's friends on Twitter, Oren, he has a following on Instagram and TikTok and he's the creative director of the internet. That's his thing. He makes videos about where he talks about his opinions on specific vibes, aesthetics, marketing trends, marketing shifts, and that's his whole thing. And if you scroll back hundreds and hundreds of videos doing this on different topics, hyper consistent, right?
Turner Novak:
So you always know what you're going to get?
Isaac Medeiros:
Yeah. I think where people get lost in the long term is they don't provide that consistent value. And when your content is really inconsistent over long periods of time, then you're not really providing long-term value to an audience. It's like your favorite television show, you're tuning in because you know what you're going to get. You're going to get a continuation to plot, you're going to get this genre. Maybe I want to get sci-fi every time I tune in. If I saw you tune in and it's a comedy show, you're like, "Well, what's going on?" Right?
Turner Novak:
So is thinking about getting as many views as possible maybe not the right way to approach it? Is that even a... I mean, maybe there's some measure of success there, but it sounds like maybe that's not everything?
Isaac Medeiros:
Yeah. And coming from somebody who gets a lot of views across our networks, I think really what you should be tracking is recurring viewership. And you need to basically measure audience loyalty. So people get really lost in vanity metrics.
Mini Katana has 20 million subscribers, the main channel. That doesn't mean anything. You can get 20 million subscribers by doing viral shorts, begging people to subscribe over and over and over again. What means something is no, a quarter of billion people are viewing this over and over again every single month. That means we're providing quality to people.
Turner Novak:
So you have 10X more people viewing on a quarterly basis than actually subscribe to the channel?
Isaac Medeiros:
Yeah, exactly. So we're always going to gain more subs naturally. And it's like we launched... We have other channels we've worked on. The Kanpai Foods channel is an interesting case study. That's my candy brand for those listening. I think that's something we actually messed up. So if you go back to the beginning of the content, we didn't really know what we were doing. We were making content where we just made recipe videos, we tried showing people how we freeze dry candy. And then we shifted to making content about our candy inside of stores and skits. What ended up happening is the platform kind of realized that our audience wasn't responding as well to the new formats because we were changing so much. So now we've kind of rebuilt that base by being consistent for a year. But even I, this is coming from a place of experience, where if you're trying to build a long-term audience, you need to deliver the expectation over and over again.
Turner Novak:
And I'm assuming there's some element then of making money with the audience from them, from providing value to them. Is there a way to think about how to do that? Like, do I want to think about conversion immediately? You get a view, 1% buy something, or is it like you need to probably hit them five times and then they may convert a little bit more? How would you think about that?
Isaac Medeiros:
I think it depends on your objective. So if you're starting out, it's really easy because you can track one-on-one. Like, okay, you're a small brand, you get a sale, boom. If you're a large brand, you're doing nine figures or maybe even eight figures, what you're going to eventually want to measure is the halo. And that's going to look like a lot of things. It's going to look like maybe some organic purchases, but also cheaper CPAs, cheaper CPMs. Maybe your Amazon gets a lot of picks up tailwinds. Maybe retail, which is really interesting is people will recognize you instead of a store like Walmart and maybe pick you up more, right? So there's all these secondary factors that could happen, but I think it's actually easier when you're a small brand to get immediate feedback.
Turner Novak:
Yeah, that's true. Because if most of your revenue is coming from, we'll say Walmart, it's kind of hard to measure, "Oh, this one specific video that we put out last week drove an X amount of dollars from a thousand different locations across the country." I guess is there a ways to measure that?
Isaac Medeiros:
Yes and no. I mean it's really obvious. So when Kanpai has a viral spike, you can see the sell through that day inside the store. And it's like what else causes that? So you can correlate pretty directly.
I'll just say if you have a lot of channels, that's where it gets a little more tricky. I think in general, and this is going back to pre-Meta days, advertising used to be a lot harder before Meta. People complain about meta performance a lot nowadays, but-
Turner Novak:
It's kind of beautiful.
Isaac Medeiros:
Yeah. Truly. It used to be you could put a dollar in, $2 will come out. It was a money printer. It's a little harder now. But for most of history, marketing has been very difficult. You ever see the show Mad Men?
Turner Novak:
I've actually never seen it, but I know the show. It's like an advertising agency?
Isaac Medeiros:
You have to sit there and you'd have to be highly creative and really work to capture people's attentions. And there was a lot of competition, whether it was billboards or commercials. That's what marketing usually look like. And I think awareness campaigns in particular is still like that. So what I mean by that is if you're doing a really viral playbook, that's what it's going to look for you. It's a little hard to measure. You're going to have to work hard to get us started, but it's worth it.
Turner Novak:
Is there a good way to come up with ideas? Because I was just scrolling through the Mini Katana and the Kanpai page, it looks like maybe you sort of borrow from trends, but it also kind of seems like you also sort of come up with your own concepts. And maybe that's just because I wasn't familiar with the trend you were doing, but how do you generally think about idea generation when it comes to content?
Isaac Medeiros:
We do the same thing every other big YouTuber does, which is we identify outliers and then we make videos against that.
Turner Novak:
So what does that mean, an outlier on YouTube?
Isaac Medeiros:
So an outlier, it just means like if you have a creator who makes 30 videos, one of them is going to get a million views and the rest get a hundred thousand, the million view video is an outlier. It's a very high performing video.
On YouTube, we actually look at all outliers on the platform and then we see if that's applicable to us and what we're trying to capture of our content, and then we make our own versions. So that's like when you say, "Oh, you're picking up on trends, that's what I'm doing," there's tools that help you do this like Viewstats. I mean, MrBeast has a SaaS that helps people do this.
And then after that comes the experimentation which, say, something else you described. And that usually has an objective behind it. So what I mean by that is like if we're doing a product drop, we're going to make a video for that. And we're not looking at the viewership as to when we're just trying to drive sales. But generally speaking, 50% of our views come from those outlier videos.
Turner Novak:
Interesting. Okay. And that's just because the reason you do an outlier is because you know that it works and people are interested in it. And they're familiar with the format, so maybe they're just more likely to click and watch?
Isaac Medeiros:
Yeah. So a few years ago somebody texted me, he's like, "MrBeast stole your video." And I got a few of these texts in the same time period. He didn't steal my video. He doesn't steal anyone's videos. It's just every single short form video he does is a copy of an outlier video on the platform. So he is able to guarantee performance each and every single time. So Mini Katana has a lot of outlier videos that we have a video that got a billion views on YouTube. Of course that's going to get copied.
Turner Novak:
Yeah, a billion people have watched it. Someone else is going to say, "Oh, this is a good idea. I'll do it too." I mean, if you just think about in other forms of media or art, like Avatar, the most highest box office of all time, it's literally a copy of Pocahontas. It's like Pocahontas in space.
You think of businesses. Somebody makes a certain company that does a certain thing and it's like, "Oh, we're this company before this industry." Everyone's always copying boring ideas. So to your point, it's not like it's really that unique at the end of the day.
Isaac Medeiros:
Yeah, I mean good artist copy, great artists steal, all saying.
Turner Novak:
Yeah. Fair. One thing I noticed is I didn't see you in any videos. And maybe I just didn't watch the right one. But so as a founder of a company, should you be creating the content yourself? Did you initially, do you hire a team? How do you kind of think about when you should make that transition?
Isaac Medeiros:
I had a very unique journey because I was the first creator and I was in every video and when it started for the first year and a half. I constantly found myself unable to execute against other things I wanted to do because of it. I think people underestimate how much effort time it takes to be a creator. Like just this podcast, you're probably going to put five hours of work into an episode.
Turner Novak:
Probably more than that, honestly. It's more like 15-ish.
Isaac Medeiros:
There you go. People don't see all that. They just see the end product and they're like, oh, this was easy. Right?
Turner Novak:
It was a 90-minute episode. I pre-probably spent 95 minutes on it.
Isaac Medeiros:
Exactly. So when the business had its first year, great year, all my first objective was to replace myself as a creator. So my journey is a little different than everyone else because most creators don't replace themselves that early. I did. So now we have a media team. It's quite developed running the show.
Now, to your question, should a founder do content? If you want to make that an acquisition channel early on, yes. That needs to be a core competence thing of yours. Just like how somebody who starts on Meta, the founder is running the Meta ads. If you hire an agency for that, you're not going to have much look if you're early stage. I think it's one of those things if you're early and you want to make that a part of your DNA, you should act like it.
Turner Novak:
Yeah, it's kind of the whole thing. If you're starting a company, you should probably be leaning into whatever your strengths are, whether you're really good at marketing, you're extremely technical and talented at building things. Whatever the thing is that you're good at, you should probably be doing that. And then find people that are better than you at the other stuff to actually make you even better at those.
Isaac Medeiros:
Yeah, I mean eventually too. I think I'm probably a 5 out of 10 creator. I'm not that good. So that's part of the reason why I hired better people.
Turner Novak:
Okay. So that's interesting because I guess going back to when you first started Mini Katana, that was your first big breakout success, how did that initially get started? I know there's a cool story there.
Isaac Medeiros:
Oh yeah. So I was pretty broke. Worked kind of a regular marketing coordinator job, underpaid. I'm sure a lot of people listening to this show-
Turner Novak:
Probably can identify?
Isaac Medeiros:
Yeah. They want to start a business because they're trying to get out of.. It's a dream or they're trying to escape a situation. I was trying to escape a situation. And I had an affinity for Japanese culture, so I decided to sell a little samurai letter openers. That's why it's called Mini Katana because my first product was a tiny sword. I have one here.
Turner Novak:
Oh, nice. Yeah, let's see it.
Isaac Medeiros:
This is it.
Turner Novak:
Okay. That's pretty heavy duty though.
Isaac Medeiros:
I mean, it's not sharp. It's just like a letter opener.
Turner Novak:
Yeah. So how long is that for people who don't have video on? Is it maybe 12 inches or something like that? Maybe like a foot and a half maybe?
Isaac Medeiros:
Yeah, it's a nice desk prop, right?
Turner Novak:
Letter openers though. I mean, did people still buy and use letter openers? What was the thinking? Did you do market research around like, "Oh, this is the best concept?" or...
Isaac Medeiros:
No. I saw the product originally at a gift shop and I bought it and it fell apart. And I wasn't very sophisticated. I liked the product and I was like, "I can do a better job." And I think that's why it has such a weird telling story because most people do a ton of research and they're very intentional. That wasn't me. And we launched on Meta and that worked really well, right? The business had legs.
Turner Novak:
Did you make a Facebook page and make some posts like text or...
Isaac Medeiros:
No. I was just had a website, Shopify store, and running ads. Just very plain regular image ads. And this was 2021. And within a month it worked so well. I just got a loan from a friend and I was like, "I'm going to order all this inventory. Let's get going." Facebook banned us a week after we bought all the inventory, and it was because they considered what we were selling a weapon.
Turner Novak:
You had bought all these letter opener/mini katanas and then you couldn't run paid ads to try to sell them, essentially?
Isaac Medeiros:
Yeah.
Turner Novak:
Okay.
Isaac Medeiros:
And I had a tiny apartment filled with these boxes. I was shipping everything out myself. You kind of just figure it out. So my next step was I tried every marketing channel I could think of. I tried Snapchat Ads, I tried Google Ads, Pinterest, everything. And as a consequence of that, what ended up working was a silly TikTok video I made showcasing the product. It wasn't like an ad. I just made the video and posted it. Just, why not? And it got a sale. I was just like, "Wait." Well, first of all, I was like, "Where did this sale come from?" I had to trace it back because I was like, "I'm not running ads. What's going on?" And then I made two other videos, and then I sold out the entire store.
And I think I did a lot of things red. The first one was I was accidentally very early to content as commerce. Like nobody was using TikTok as a platform for commerce in 2021. And the rest is history. I mean, the brand today is an extreme example of that behavior where we just post videos and it sells products.
Turner Novak:
So at the time, TikTok shop did not exist right? In 2021?
Isaac Medeiros:
No, TikTok shop came around in very late 2023.
Turner Novak:
Okay. So did somebody probably go to your account and click the link in the bio or something, or was that even in there yet?
Isaac Medeiros:
No. They just found the website on Google, I'm assuming.
Turner Novak:
Oh, okay. And then how did things go? You said it was going pretty well. Are we talking $10,000 in revenue, a couple hundred thousand? How did things scale up over time?
Isaac Medeiros:
I think we did 15 our first month after the organic strategy started. And then because I didn't have ads, I could just reinvest everything into more inventory. So that first year we did around 2 million with TikTok. 2.2. And then early 2022 comes around... Sorry, backtracking. I did 2 million 2021. Sorry.
Turner Novak:
Okay. Oh yeah, that's a good... In the first year, that's pretty good.
Isaac Medeiros:
Yeah. And especially with our weird product, right?
Turner Novak:
Yeah. I was thinking what is the market size for letter openers? Like, a couple thousand a year? I don't know. How many of those get sold or bought?
Isaac Medeiros:
I remember my dad called me and he was like, "You just got to get a job." Even when I was working, he's like, "There's no way this continues." And that's a very fair point that he made, but I kept going.
Turner Novak:
It probably worked because even though maybe you hit a... if you're going to hit a ceiling on sales, you weren't spending money on marketing, right? It was all, you were creating the content, which you'd have to create the content anyways even if you were running paid ads, right?
Isaac Medeiros:
Yeah. Yeah. And then year two rolls around 2022, and I'm just like, "You know what? All the creators I know are on YouTube. Why am I so focused on TikTok?" And I could kind of smell that I always had this... Especially after we succeeded on TikTok, I just had a theory that the platform was probably going to lose to whoever came around if YouTube got serious. And YouTube did get serious. They launched shorts in mid 2021. So roll up my sleeves and we launched on YouTube in 2022. And that's when the brand really hyper-scaled because YouTube has crazy reach. It pays you AdSense. So we literally get paid. Our marketing team-
Turner Novak:
Made money.
Isaac Medeiros:
Yeah. And it lets you build... I think the core difference for us between YouTube and TikTok and Instagram is YouTube prioritizes audience. So on TikTok, the algorithm is very transient. Anybody can log in and go viral just like that. It's based on videos. It's not based on audience or following. YouTube is very different. If you have an audience, that really compounds. And the platform rewards you for building an audience and prioritizing that.
Turner Novak:
When you say building an audience and prioritizing for that, you mean specifically trying to target the same viewers again and trying to get them to come back? Or if they do come back kind of naturally or organically, YouTube then gives you even more amplification in the algorithm or-
Isaac Medeiros:
It's the latter. So TikTok, you can add a million followers. It literally doesn't matter. Your reach could be gone tomorrow if your content dips in quality. YouTube seems to be a lot more forgiving where if you have a million followers and you built that through high quality actions, you can continue compounding and you gain more priority in the algorithm.
Turner Novak:
Have you found, does the thumbnail matter? Does the title matter? Are there certain things that really drive the needle in terms of just YouTube benefiting in the algorithm, or does that stuff not matter at all?
Isaac Medeiros:
Yeah. So for shorts, that stuff doesn't really... I won't say it doesn't really matter because we A/B test everything and we find that titles and shorts can boost performance significantly. But I will say when you're starting out, for shorts, that doesn't matter. I think what matters more for shorts is being consistent.
If you want start a YouTube strategy today, you need to give yourself at least six months, and you need to post hyper consistently across those six months. If you're going to make two videos a week, two short form videos a week, you have to make two short form videos a week for those entire six months. Especially when an account is new, YouTube seems to really prioritize just longevity and consistency. And I think that's why most people don't break through on the shorts algorithm. They're just post five videos and they're like, "It didn't work." Well, it's not TikTok. TikTok will give you reach in your first five videos, YouTube might not.
Turner Novak:
So you basically just have to be committed to, "I'm going to do this for a longer period of time than I probably think is necessary," and you just kind of stick with it and just keep iterating based on what you see in the data?
Isaac Medeiros:
Yeah, that's why people reach out and they're like, "I'm really viral on TikTok and Instagram, but I can't crack YouTube." And I'm like, "You're probably just not trying hard enough. Sorry."
Turner Novak:
It's like a skill issue or whatever.
Isaac Medeiros:
Yeah, it's a valuable platform so it's worth the effort.
Turner Novak:
Do you need to make YouTube native content? Can I create a TikTok export and put it on shorts, or is that not a good idea?
Isaac Medeiros:
No, you can do that. Yeah. I do find though, if you're starting a short form strategy period today, kind of going back to even outside of YouTube, you should be syndicating everywhere. And then you should just double down on the platform that works first. If it's TikTok, that's your home base. If it's Instagram, that's your home base. If it's YouTube, that's your home base.
Turner Novak:
So then how do you know when to start expanding? So let's say you tried that. You tried Instagram, Reels, Facebook, I don't even know what they call video on Facebook, TikTok, YouTube, and one of them really works. TikTok is one that really works or maybe YouTube is. Is there a certain time that you kind of know like, "Okay, it's safe or the right time to maybe try to figure out a second channel"? Or do you never do it?
Isaac Medeiros:
I mean, I think you should from a reach. You should always try to be expanding outside of TikTok or Instagram. But I mean, I think it's a capabilities question, right? So if you've tried that and your YouTube content is not working, you're probably going to have start a new channel and try a different angle than what worked on TikTok.
The cultures are very different on each platform. I think in 2022 and 2021, '23 even, it was very monoculture. They were all just copying each other. But now each platform has its own user base that prefers it, and that's caused a bifurcation. So on TikTok, it seems to be like... How would I describe this? TikTok hasn't changed or still prioritized kind of the meme format and cultural-driven discourse. Instagram seems to reward higher production value for whatever reason. Maybe the audience is more mature. YouTube is very young. So if you crush it on YouTube, you have to basically... That's why MrBeast's content is hyper edited for example. Those are just some examples. It doesn't encompass the differences to their full extremes.
Turner Novak:
So then that might maybe tweaking for those of like, okay, you're targeting a 16-year-old average or 21-year-old average on YouTube and Instagram. Maybe it's an average of 38 years old or something. So just the type of things that those people are interested are naturally going to be different?
Isaac Medeiros:
Yeah. I have a good friend, they run a brand and they've cracked Instagram. They get about 30 million views a month on Instagram. Half their sales now come from organic content. They're high seven figure dollar year business and they can't crack YouTube no matter what they do. And it's just like you look at their content and it's like parody content around kind of liberal jokes. And it's like, well, I think there's something there. Maybe young people on YouTube don't really want to hear any of that, or maybe there's probably an audience play there.
Turner Novak:
I feel like that could do well on TikTok.
Isaac Medeiros:
Yeah, they do okay on TikTok too.
Turner Novak:
Yeah. Interesting. Huh. So you started another brand, another company, it's called Kanpai. Did I pronounce that one right?
Isaac Medeiros:
Yeah. Kanpain. Yeah.
Turner Novak:
Kanpai? Okay. How did that kind of come to be? What is it, I guess, and how did it all come to be?
Isaac Medeiros:
We started a freeze-dried candy. That's the wrong thing to say though. So I'm going to backtrack to 2023.
Turner Novak:
Because I know it kind of started Mini Katana transitioned in.
Isaac Medeiros:
Yeah. So it started in 2023 when Mini Katana kind of stopped growing in revenue. And I got really frustrated by that so my reaction was to try to break past that barrier. And at the same time, I had noticed a lot of food and beverage innovations coming out of TikTok. What I mean by that is people... The free distribution has given free rein for SMBs to innovate product and gain free distribution and then sell the product, right? That's how freeze-dried candy started. It was a bunch of mom and pops buying home freeze dryers and freeze drying like a gummy worm.
Turner Novak:
And then they post a video like a TikTok? This was pretty recent?
Isaac Medeiros:
Yeah. They post it on TikTok and it'll blow up three years ago. It started three years ago. And it's not just like freeze-dried candy. There's a lot of other trends. Sour fruit is a really big one. People love drenching fruit and sour stuff, citric acid, or freezing grapes and dipping them in citric acid and eating them. There's a lot of these food and beverage trends. And if you look close, they're actually innovations and there's a reason why they're popular. People actually enjoy eating these things.
So that's why Kanpai started. That was the thesis. The thesis is we're going to be the company that looks at these trends and brings them to shelves.
Turner Novak:
Oh, because no one was selling these in stores. It was all DTC. So you'd see a video, you'd go to their profile. And maybe there's TikTok shop, or maybe it was just a link. Go to the website and buy a pack of freeze-dried gummy worms from the Shopify store?
Isaac Medeiros:
Exactly. Yeah. So we went to opposite route. We took that. We took what was trendy, what was happening, and we translated that into a brand that could work instead of a place like Target.
Turner Novak:
And maybe super dumb question, but I'm sure people listening might not know what freeze-dried candy is. What is it exactly versus non freeze-dried?
Isaac Medeiros:
Yeah. So one sentence explanation, it's candy that has no moisture. Freeze drying is a process where you heat a tray in a vacuum chamber and you use liquid nitrogen to trap all the moisture on the walls of the vacuum chamber. Long story short, it makes sugar molecules puff up. So gummy worm is normally squishy and stretchy and pretty yummy. Now it turns into like a Cheeto.
Turner Novak:
Okay, interesting. So is it crunchy?
Isaac Medeiros:
Yeah.
Turner Novak:
Yeah. Okay. What's your opinion on the taste personally? How does it compare?
Isaac Medeiros:
I'm a crunch guy. I grew up loving popcorn.
Turner Novak:
Oh, nice. Okay.
Isaac Medeiros:
So I was like, "This is a massive upgrade for me."
Turner Novak:
So the gummy worm example, it's like a gummy worm flavor, but it tastes or it eats like popcorn? Like, feels like popcorn?
Isaac Medeiros:
Even more crunchy than popcorn.
Turner Novak:
Really?
Isaac Medeiros:
It has no air, so it's very airy. It's just a straight crunch.
Turner Novak:
Interesting. Like a Cheeto-type texture?
Isaac Medeiros:
Yeah.
Turner Novak:
Huh. That'd be crazy. I probably should have ordered and tried some of these before we talked, but it does sound interesting.
Isaac Medeiros:
I'll send you some.
Turner Novak:
Oh, nice. Yeah, I mean I'll buy it. I'll pay for it. But did that not exist? I feel like... I mean, it was like 2023 at the time. Someone had to have been making that. Wasn't Skittles or Airheads or no one had done anything like that before.?
Isaac Medeiros:
Well, there were companies that did it from the '80s with ice cream. Astronaut ice cream is a thing that a few listeners might know about.
Turner Novak:
Astronaut ice cream? What's that?
Isaac Medeiros:
You just freeze dry some ice cream and it turns into a crunchy, shelf-stable, doesn't melt. It's a very bizarre experience.
Turner Novak:
Huh. That is crazy. Ice cream that doesn't melt?
Isaac Medeiros:
Yeah. Yeah. No. Is it because it sucks all the milk out of it?
Turner Novak:
All the moisture is gone. So dairy is still in there, but it just has no moisture. The reason why...
I guess it can't melt if there's no moisture, if there's no actual milk there?
Isaac Medeiros:
Yeah. What I was going to say, the reason why it doesn't melt is because there's no moisture.
Turner Novak:
Okay, that makes sense. So it exists in the '90s. Was there a supply chain reason that it didn't exist or was it unhealthy or too cheap or something?
Isaac Medeiros:
It was just marketing. So it was a niche thing that people who are nerds knew about. Freeze drying is very popular in other industrial processes. So a lot of ingredients and supplements are freeze-dried. Breeze, which is like they're a THC beverage, they use freeze-dried mushrooms, I think. Like, ground up, freeze-dried. It turns things into powder too. So if you freeze dry a carrot, you can literally grind it up because it has no moisture. It's just like a fine powder.
Turner Novak:
Okay. You get carrot powder sprinkled on top of something. I don't know if you want to do a carrot, get some carrot flavor. I don't know. Maybe that'd be good. Who knows? If you like carrots, that might be fun.
Isaac Medeiros:
It's a weird example, but...
Turner Novak:
That's kind of crazy. So you were basically just like, "I think this will be good. I like the taste of it. I think people will like it" and that was kind of the thinking?
Isaac Medeiros:
Yeah, there was data though. It was viral on TikTok. There were small businesses doing it, separate small businesses. No one big. And there was a lot of data backing up the decision. It was more intentional than the sword thing.
Turner Novak:
Yeah. That's true.
Isaac Medeiros:
And we launched in '23. Last year was amazing. At first it was kind of slow. And then the first P.O. came in from World Market.
Turner Novak:
The first peel?
Isaac Medeiros:
P.O. P.O.
Turner Novak:
Oh, P.O.
Isaac Medeiros:
Yeah, purchase order. And then I remember it was a snowball from there because what ended up happening is other retailers saw it in World Market and then it was just like, "Oh, that's interesting." And then it broke down every single barrier. We ended the year launching Target, kind of got experience there. And this is now year two and we're kind of just rolling.
Turner Novak:
So how did you get into World Market initially? Because that seems to be sort of the new strategy in D2C or CPG, is like you got to get in the stores. Is it because are the margins higher? Is it higher volume? Is it more retentive? Is it better overall than selling just straight D2C?
Isaac Medeiros:
I'm going to tell you the reasons why you shouldn't do it, first of all. I think that's why... That's like we'll provide more value.
Turner Novak:
Okay.
Isaac Medeiros:
Look, so basically when you sell something online, you get cash right away. If somebody pays, you get a deposit in your bank the next day. B2B is a cash hog because for you to play it in retail, you're going to be a bank of inventory for retailers. That's what's going to happen. So unless you have the capital to fuel a very large P.O., you're not going to be able to do it.
Turner Novak:
So you don't get paid up front. You have to buy the inventory, send it to them. When do they pay you?
Isaac Medeiros:
I’ll give you an example. Target. Like net 60, right? So let's say you produced for Target, they give you your first opening P.O. You have 90 days to plan against it. It takes you 90 days to produce it because it's going to be massive or 60 days. You send it in. Another 60 days to get paid. Your cash turnover is more than a quarter of time. That's the number one reason why DTC and other business models are so much better.
In retail, you're forced either to sell for that. And there's several ways. One, be a very creative at financial engineering, which I'm not that guy. Raise a ton of money, which that's why you see all these fundraising announcements around food and beverage. They have no choice. Or three, self-fund or have another win. That's more me.
Turner Novak:
You said have another win. So have something else that's kind of funding it?
Isaac Medeiros:
Yeah, that's my route. Candidly.
Turner Novak:
That's fair. So why did you do it? Because you said that it sucks.
Isaac Medeiros:
So TAM basically, right? If you look at eCom, retail is still a massive, massive amount of commerce and you can just play with bigger numbers and bigger boys.
Turner Novak:
Fair. You think of every single store has a candy aisle. Like gas stations, you've got them with the checkout. Pretty much every stadiums have a candy thing. Pretty much any retail location that sells something, there's candy there.
Isaac Medeiros:
It's very simple math. For every thousand locations we're in, that's about a million dollars of revenue a year. Conservatively. Keep it simple. We're in $5,000 doors and growing. So once we're in $100,000, 100 million. There's literally over a million doors in the US that we can sell candy on. And that's just the USA. So it feels unlimited. It just feels you can continue growing that pie, especially if your sell through numbers just stay similar or increase over time.
Turner Novak:
And you could probably add new product categories too, right? So instead of making a million per thousand, you make 2 or 3 million if you can add new SKUs or new products?
Isaac Medeiros:
Yeah, I'm just giving you the math simple for simplicity's sake, but it's like a platform. Once you have those relationships, it's a platform. You can go back to them and say, "Hey, we're launching this new line." Or maybe we bought this other brand and we're rolling it in. There's a lot you can do there.
Turner Novak:
And how did you initially convince World Market to do it? Was it a process or was it just kind of like, did you meet someone at a conference, cold email? Did they watch a video?
Isaac Medeiros:
I looked out. I hired a good sales guy.
Turner Novak:
Oh really? Okay.
Isaac Medeiros:
But I'll give actionable advice for people out there. So the most underrated way to get buyers is physical shows. And people on Twitter won't talk about this. People won't tell you to go out to Sweets and Snacks Expo and hustle, but that's the best way to get a buyer. And the hardest thing is getting your first buyer. And if you have data from one buyer, that's when it starts cascading.
Turner Novak:
Is it because it's a food product? You got to get them to try it? They have to actually eat it. Is that just a big part of it?
Isaac Medeiros:
Yeah, but also they're getting hundreds of emails every month of pitches. It's like you're not going to get their attention unless you get them in person with the product.
Turner Novak:
Yeah, that's fair. You probably go to the show, bring the food or the drink and just get them to try it, see if they like it.
Isaac Medeiros:
Or in person. I've heard stories of somebody... A friend of mine owns a little chips brand, like Healthy Chips. And she sold them in Farmer's Market until the Erewhon buyer just walked by and was like, "This is cool."
I just think one thing I've noticed is on Twitter, people talk... The more chronically aligned the community gets, the less people talk about in-person advantages, which are becoming more considerable by the day. It feels like everyone's socially awkward and doesn't want to actually show up. But that's an advantage.
Turner Novak:
Yeah. I feel like generally, I kind of accepted that AI is going to change some things, especially with content like Twitter. I don't know what the number is, but I'm sure half the tweets that we read are LLM-generated or whatever. But AI's not going to go out and meet people in the real world or whatever. That just becomes so much more important. Just in-person events, meeting people in person, talking. I feel like with podcasts, something like this, it's two people sitting down talking, understanding things. You're not like, I don't know, people aren't going to sit down and I don't want to listen to an AI podcast for 90 minutes or whatever.
So I've been kind of thinking, it's kind like this two-pronged thing. It's like, okay, figure out how the world is going to change with it getting more digital, more online, but then also figure out, like, I don't know, the complete other end of the barbell is completely offline, completely non-connected to the internet and AI and all that stuff.
Isaac Medeiros:
Yeah. Look, I couldn't agree more. I think it's actually insulting when somebody finds out it's AI. If you send somebody a cold email and they find out it's AI-ran, it's like that's a red flag. It's a massive red flag, right? There's something interesting there.
Turner Novak:
One of my friends told me this trick and I feel like it does work. It's like you purposely have a typo or you don't do all... You have lowercase in the subject or whatever. You just kind show that there was a human that kind of messed something up just to kind of show that it's not just an AI-generated email or whatever.
Isaac Medeiros:
In general, the more the supply of a type of content increases, the less the demand for that content. So by that logic, all AI-driven content will have less and less effect because there's unlimited supply of it. So that means videos are very obviously AI or near perfect become less valuable. Or that means things run by AI that are too perfect become less valuable, just like you said.
Turner Novak:
Yeah. Or just like the, it's so obvious that this is not AI and it's very shittily-produced, pretty low quality. Somebody almost wants to see that. Or it stands out more, I guess. To your point, it's like a supply demand almost.
Isaac Medeiros:
It's not even about the quality. Sometimes it's about taste. An extreme example is maybe you record all your short form videos of a camcorder from the 2000s. And that's your vibe and aesthetic. And the videos are actually high quality, they're edited well. So that's a great way to obviously not be AI.
Turner Novak:
Yeah, that's true. So then speaking of offline, was there something specifically that worked then as you kind of scaled up expanding into retail? It seemed like, was it inbound, people saw it and they really want it?
Isaac Medeiros:
It was both. So a lot of inbound. And then eventually we expanded our capabilities through outbound with AI, ironically.
Turner Novak:
There we go. After we just shit on it for three minutes.
Isaac Medeiros:
Yeah. So we do a lot of outreach with AI to smaller accounts. So after a year and a half of doing this, I realized I don't want to be in every large account. Those accounts actually suck in a lot of ways.
Turner Novak:
Why do they suck?
Isaac Medeiros:
They are competitive and matured and they have engineered their businesses to extract as much margin from brands as possible. So as a young brand below 20, 30 million, you want margin.
Turner Novak:
Yeah, because you might land a customer and you actually lose money on them even though you added revenue.
Isaac Medeiros:
Most people in Erewhon are losing money on Erewhon.
Turner Novak:
Really? So what's the benefit? Is it just you get a halo saying that you're there?
Isaac Medeiros:
You get a supposed halo. If you ask me, I don't know, you know? It depends on your category.
Turner Novak:
Yeah. Interesting.
Isaac Medeiros:
Look, most CPG brands die because they rent out of cash. That's number one. It's not product market fit. And for us, our strategy has been to chase smaller chains this year. And there's a lot of small accounts in the US. There's hundreds of thousands. So you do a lot of AI outbound.
Turner Novak:
Interesting. Okay. What's the hardest part about selling to those smaller brands? Are they lower values? You just need to make sure that you're not spending enough money, you need to figure out ways to do it. Thinking about organic, other ways to cut cost to make sure that they're still profitable?
Isaac Medeiros:
I think it's in any other long-tail strategy. It's just about fulfillment and logistics. The effort for a hundred a dollar a month account is the same level of effort for a thousand a month account. But if you're set up for it, it's not difficult. And that's just like back end stuff like having a 3PL.
Turner Novak:
Okay. Do you guys have a 3PL that you work with?
Isaac Medeiros:
No.
Turner Novak:
Okay.
Isaac Medeiros:
We self-fulfill.
Turner Novak:
Okay. Was there a reason that you did that?
Isaac Medeiros:
I just finished my warehouse move and I had a list of things I needed to do. It's a long-ass list. Moving out of the US was number one, right? So it's a matter of resources.
Turner Novak:
Yeah. Okay. We should definitely talk about how you moved all the production. One thing I did want to ask though is you mentioned one of the strategies to doing the wholesale was raising money. So I think if you talk to most investors, the average consensus is consumer brands are not good investments. You don't make money on them. You talk to any VC and they're like, "Oh, I don't invest in TPG. Those are bad categories." Is there any truth to that or what was your thing? Because I think you did raise a little bit of money. Would you agree or disagree with that?
Isaac Medeiros:
I raised money after the brand was working, just putting that out there.
Turner Novak:
Okay. Yeah, fair.
Isaac Medeiros:
We had PMF. And we had our first POs. I think that I would generally agree with that for VC returns. That's the caveat. So a VC needs a thousand X, it needs a crazy return on investment. That's how they operate. Consumers are very different playbook. You have a brand and it maybe sells for 100 million, 50 million, 200 million, 300 million. Billion of dollar outcomes are incredibly rare. So you just need to engineer for that. And VCs don't want to participate in these kind of little outcomes. I think with that in mind, it's like if you go out and raise from friends and family at a low valuation, like 10, 5 million, and you get a 10X return, that's pretty solid. But that's just a different investment criteria and different investment thesis. It doesn't fit VC.
Turner Novak:
It seems like the issue then is VC say, "Okay, the 10X, that's kind of fun, but that's not really what we're looking for. You can get to 100 million valuation, but we need you to get to a billion or 5 billion, so you need to get really big really fast." And then that's probably where things start to fall apart. And I mean it seems like if you look at the graveyard of kind of VC brand investing. It's like, to scale it up fast, it's like you just do a bunch of paid ads because we talk about how great Facebook is, you can scale it up.
Isaac Medeiros:
Yeah. And that breaks your business because rarely can you go back to profitability after you do stupid stuff like that for long enough. I mean, look, I think it's just that disconnect and expectations. And that's fine. Go invest in an AI startup and it might go to a billion. That's a better return on capital. If you're going to start a food and beverage brand, your best bet is friends and family. If you are going to raise VC, especially early stage CPG VC, you're going to take a massive dilution. That's the caveat. So there are investors, but the dilution will be absolutely nasty.
Turner Novak:
Interesting. What kind of dilution do you usually see?
Isaac Medeiros:
From talking to friends, buyers, series A, you might own 30%, 40%.
Turner Novak:
That's brutal.
Isaac Medeiros:
It's just not worth it.
Turner Novak:
Yeah, I feel like generally in more, I don't know, tech world, you probably usually above 50% at the series A. There are some cases where you might raise a couple rounds. Like the company takes three years to build a product, truly get product market fit. You have to do an extra round in there or something. That definitely happens. But I feel like the most down the fairway that you see is after the series A closes, you have an option pool. There's fully diluted. You usually own a little more than 50% roughly of the company. Sometimes more.
Isaac Medeiros:
I mean, don't get me wrong. There's founders in CPG who are smart and retain a lot of control, but it's very easy to lose a lot of equity early on because the capital is that inefficient.
Turner Novak:
And I think the other thing too is when you raise money, each dollar typically there's a preferred 1X return. So if you raise $1 million, or let's say you raised $10 million, generally the way that it goes is there's a 1X liquidation preference. So if the company is bought for 10 million, it doesn't go like pro rata, everyone. The first 10 million goes to that 10 million in preferred shares and the investors get everything. So you kind of run into that issue like let's say you raised 50 million or you raised 100 million and the company is legitimately worth 100 million dollars. You built a good business. But the investors get all the money inside of the team, which really sucks.
Isaac Medeiros:
If you're doing consumer, you should do it because you're passionate about physical product and you're passionate about your category. And you should just prepare for a decade. I mean, this is not my quote, I'm trying to remember who said it. A consumer brand is in a real brand until they're eight years in.
Turner Novak:
That's a long time.
Isaac Medeiros:
It is a long time, but not in consumer, right?
Turner Novak:
Yeah, fair. And if you just think about some of the greatest, most iconic brands, maybe Nike or something, it's like 50 years in and it wasn't really a household name maybe until 10 years later. But then if you just look at one of those stock charts, all the compounding and the value is created in the last five years or whatever.
If you look at a company like Monster Energy drink, I think they're one of the highest returning stocks of all time. It is just one of those charts that goes up 25% a year. Coca-Cola also, one of those charts. They just went up 20% a year for decades. I don't know about lately, maybe they've kind of fluctuated around a little bit. But those things take a really long time. And then all the value is created in the last five years.
Isaac Medeiros:
And isn't that interesting too, because if you look at early stage charts, it's like they almost died 20 times. Nike almost died like 10 times, right?
Turner Novak:
Oh yeah. Fair. Like Amazon, classic example. Or Carvana. Have you heard about what's happened with Carvana?
Isaac Medeiros:
Their stock is high again?
Turner Novak:
Yeah. So basically, I don't know, it was worth... I don't know what the market cap was, but $100 billion, something like that. Dropped 99%, literally 99% drop. And then it's back and fully recovered again.
Isaac Medeiros:
It's basically a meme stock at that point.
Turner Novak:
Yeah. Well, yeah. Maybe that's the other way. You start a company, you go public, you become a meme stock and you launch a token and that's how you fund it.
Isaac Medeiros:
Yeah. I mean look, I think in general, if you want to get rich quick, tech is your best bet. And I think there's still more risk there if you ask me.
Turner Novak:
More risk. Starting more of a tech company versus a brand?
Isaac Medeiros:
Consumer is far easier to get a small outcome in. I think anybody, if they work hard enough, they can build a seven-figure good lifestyle business and consumer.
Turner Novak:
Yeah. When you say lifestyle business, what do you mean by that?
Isaac Medeiros:
That low seven figures, you can draw a few hundred thousand a year from it. It's a great outcome for most people.
Turner Novak:
Yeah. I've always kind of not liked that word though. It's kind of like a dirty word from people. Almost like putting it down almost, like, "Oh, it's just a lifestyle business."
Isaac Medeiros:
I don't think that's a dirty word, man. I think it's like how people for a long time were like, "Oh, agencies suck. They're the bottom feeders." And then one guy sells an agency for 40 million or whatever, and everyone's like, "Agencies are awesome." No business is inherently bad. I think it's bad for your needs, maybe.
Turner Novak:
Yeah. I think it's really just ultimately, what do you enjoy doing? What are you good at? And do you personally, did you make @20 million from it, 50 million, 100 million? Maybe you made more money but your life was miserable and it sucked. Or maybe you made slightly left, but you truly actually enjoy what you're doing and you're actually good at it and you're passionate about it and you get joy.
Isaac Medeiros:
Yeah. Look, I could have gone done something in AI, got in a billion views against it, raised silly money, kept getting views. But I love candy, I love anime. I love my life. That's the thing I'm optimizing for, is having a great life.
Turner Novak:
Yeah. Well, and so speaking of... Actually, this is not related at all, but we were going to talk about it. Maybe having a great life optimizing things. You recently completely rebuilt the supply chain in all your manufacturing that you're doing. What kind of made you start going down that route of thinking you had to redo everything?
Isaac Medeiros:
So for context, Kanpai makes all of its own products in Los Angeles or it used to. And that worked really well for us up until tariffs. Candy's not a super high margin business, so we can't eat the tariffs like other business operators can. And I mean it's not just us. I think US Steel just put out their earnings and they had a really bad quarter as well because of tariffs. It's not just us.
If you import a raw material, there's no exemptions right now. It's actually a crazy statement. The whole point of this was to bring back manufacturing apparently, which is why I stood at my factory. I thought, "Oh, we would might get a benefit from that."
Turner Novak:
So you built a factory in the US?
Isaac Medeiros:
Yes, in LA of all places because I want it to be local. And there's no exemptions for me. I import chocolate or cacao, like, "Fuck you. You're paying us tariffs." It's a tax. It frustrates me that the feds have tried everything in their power to avoid Santa tax, but it is a tax. And it just pisses me off because it's the most in anti-American thing I can think of. The Boston Tea Party was over a tariff. That jumpstarted the whole revolution, and people were forgetting that.
Anyway, I could go on a tangent. Point I'm making is our business went from a decent business to a shitty one overnight. So we rolled up our sleeves and we decided that we needed to fix that. And I set a timeline of 60 days because runway's imperative, that kind of situation. And I mean it sounds crazy saying this, but I dug through every sort of idea. And what it came down to was something called USMCA, which is the trade agreement between Canada, Mexico, and the US in 2020 that Trump put together. So Trump caused this, but he also saved us. That's the funny thing.
The trade agreement says food produced in Mexico is tariff-free. So you can see what my next step was, right? We got to set up a factory in Mexico and import our raw materials into Mexico and then reimport into the US. Instead of making it here in the US with US labor, we're going to go pay Mexican labor to do it. And I recommend this for other food and beverage founders. We found a great compromise. We found an existing candy factory. We set up a custom production line inside their facility that we manage and help oversee. They allocate the labor and we get candy.
Turner Novak:
So it's an existing company that has an operating candy business?
Isaac Medeiros:
Yeah. So we didn't set up a factory from the entire ground up this time. We wanted to have the mobility and flexibility. And by the way, a lot of food and beverage businesses do this. Poppy did this in their very early years too. They set up this kind of quality structure.
Turner Novak:
How do you do that? So this is different from doing contract manufacturing.
Isaac Medeiros:
It's like a hybrid because we own all of our own equipment, we own the lines, it's just they operate all the labor. A contract manufacturer will own everything.
Turner Novak:
And this is beneficial because do you expect probably building your own stuff again soon?
Isaac Medeiros:
It lets us have flexibility. I think the name of this game in this macro climate is being able to pick up your shit and move. How fast can you do that?
Turner Novak:
Yeah, you got to be nimble. You never know how the world's going to change.
Isaac Medeiros:
Yeah. Because tomorrow Donald might wake up and be like, "You know what? USMC is done. No tariffs for American manufacturers." And it's like, "Okay. We're back in the US, I guess."
Turner Novak:
Yeah. So it was actually more profitable to instead of manufacturing it in the US, this whole thing was supposed to be designed around, it was actually more profitable to make it in Mexico because you can import the raw materials to Mexico and not pay as many or as much?
Isaac Medeiros:
No tariffs.
Turner Novak:
No tariffs. And then you are paying Mexican labor because I mean it's probably a little bit cheaper.
Isaac Medeiros:
It's way cheaper. It's like $6 an hour.
Turner Novak:
And then you ship it up to the US and you don't pay tariffs on that either?
Isaac Medeiros:
Yep.
Turner Novak:
Interesting. So it really just defeats the whole point of this at a high level, like bring back more jobs to the US?
Isaac Medeiros:
I saw the jobs numbers for like, it was last month's manufacturing numbers. It was like loss of 30,000 workers. And I think we had a conversation outside of the podcast where I said, "Look, everyone's really quiet because everyone's hurting." And no one knows what to do. It's like you're just helpless.
Turner Novak:
So the best thing to do is position yourself to be nimble and flexible to be able to change.
Isaac Medeiros:
You really have no choice. I think if you're starting out and you have a very kind of small company. So if I were to start a food and beverage brand, I'll get a very small shared kitchen and make all my own stuff. It's just to start. And then I would find a co-man and then I'll take the approach of don't sign anything that's five years long. Just don't do it. That might backfire heavily on you.
Turner Novak:
Because you may have to commit to five years of renting a facility or paying them for usage?
Isaac Medeiros:
Yeah. Or if it's a contract manufacturer, you commit to it. You might find yourself with no margin next month.
Turner Novak:
So maybe even pay slightly higher costs for having a shorter commitment?
Isaac Medeiros:
Yeah. Yeah. I mean, I just think it's, in general, I wouldn't even start a physical product brand in this environment, but here we are.
Turner Novak:
Yeah. I guess no more competition coming in, I guess. Maybe that's a benefit.
Isaac Medeiros:
Yeah. But I mean the funny thing is my competitors are just committing tariff fraud. They'll just lie about the country of origin.
Turner Novak:
Really?
Isaac Medeiros:
Yeah.
Turner Novak:
So who are some of the competitors? Have the big CPG companies started really leaning into freeze-dried candy?
Isaac Medeiros:
The big CPG companies do the same thing I do. They make it in Mexico or Canada. That's how they navigate this. My smaller competitors are the ones committing tariff fraud. I'm not going to name names. But yeah, I mean Mars and Hershey copied us and launched our own freeze-dried lines towards the beginning of this year.
Turner Novak:
How'd that go?
Isaac Medeiros:
It was interesting. It actually kind of indirectly helped us because it was a lot of small mom and pop shops and they basically wiped them out. And then it's like three companies now. Those two big guys and us is a third option. And retailers kind of think strategically about shelves where they want want options for consumers. So it actually helps us a little bit.
Turner Novak:
And that's because they might not have freeze-dried candy and they add it. And then since they added it, they need to slot you in too because Hershey had some or...
Isaac Medeiros:
Yeah, because more optionality. It's now a section of the store adding incremental revenue. And we're very differentiated. A smaller competitor, they can't manufacture enough or they might not stand out enough.
Turner Novak:
Interesting. Okay, that makes sense.
Isaac Medeiros:
You generally don't want to be the only people in a category. That's a bad thing. You need headwinds.
Turner Novak:
And that's kind of going back to when you started it. You were like, "Okay, this kind of already exists." But you were one of the first that was selling to retail, right?
Isaac Medeiros:
Yeah, I think we were one. We were the first or one of the first.
Turner Novak:
Okay. One thing interesting that you said before is you don't think EBITDA is a good metric? Seems like a hot take. I mean cashflow is important.
Isaac Medeiros:
When did I say that?
Turner Novak:
Oh, I don't know. I think you said it on a podcast. Did you not say it or did you not mean to?
Isaac Medeiros:
I think I probably meant that cashflow is really what I look at.
Turner Novak:
Oh, fair. Okay.
Isaac Medeiros:
When I operate a business, I'm very tactical, bootstrappy. So what I do is I have a 13-week cashflow model and I just look at what comes in and comes out and what I can take out. I'm very simple-minded. And that works really well for me. I think what I meant is if you're looking at an accrual book, it's like it's not as taxable. It's not really as useful.
By the way, if you're starting a CPG brand, I cannot recommend enough having a 13-week cashflow model.
Turner Novak:
What's the importance of a 13-week cashflow model? Why 13 weeks? Is that basically like a quarter?
Isaac Medeiros:
Yeah.
Turner Novak:
Yeah. Okay.
Isaac Medeiros:
It's enough time to know what's to actually be able to predict accurately and not long enough of a time period for it to be useless. So it's just very tactical.
Turner Novak:
Yeah. Just because you know inflows and outflows. Like week two, I have this order coming in, I need to pay out week four, but I'm going to be short, so I need to make sure by week three we delay something or bring more in or something like that. It just lets you kind of plan a little more tactically?
Isaac Medeiros:
Yeah. I mean you can literally DM me on Twitter and I'll send you my template. It saved my butt a few times in my business.
Turner Novak:
Yeah, no, that was one of the big things we did when I interned at private equity firm and then I worked at a bank where we lent money to a couple private equity -backed companies. And it was always, we did 13-week weekly rolling cashflow models because you lever those things up and it's super small margin for error.
Isaac Medeiros:
Yeah. CPG is like that because you're lending all this products to retailers, so you've got to track all those net terms and everything. A lot of eCom operators are just not very sophisticated financially because they've never had to be.
Turner Novak:
Because things were good for the past couple of years?
Isaac Medeiros:
Things were good. And you get product, you sell it, money comes in, boom. It's not acting as a bank for your customer-base.
Turner Novak:
Are there any other creators out there right now or accounts that you are like, "Oh man, these guys are really crushing it"?
Isaac Medeiros:
Business or just in general creators?
Turner Novak:
Maybe both.
Isaac Medeiros:
When I find old references of who I'll watch when I was starting, I'll watch Peachybbies, which is like a viral slime company.
Turner Novak:
Peachybbies?
Isaac Medeiros:
Peachybbies. They're really impressive. They used to be have more subs than Mini Katana. So when I started, they were on YouTube first and I was watching what they were doing. A really great business, no marketing spend, really impressive. There's another one called The Marshmallow Co. Gourmet marshmallows on YouTube.
Turner Novak:
Interesting.
Isaac Medeiros:
2 million subs.
Turner Novak:
If I wanted to buy them, how much do they cost?
Isaac Medeiros:
I think they're like 30 bucks for a pack.
Turner Novak:
That's a lot. Yeah. Interesting. Okay. And it's literally like sugar, right? What are the ingredients in marshmallows? It's probably pretty cheap to make.
Isaac Medeiros:
I think they make a Nutella one. They do a peanut butter. They do all sorts of unique marshmallows.
Turner Novak:
Okay, that's interesting. Do you have a favorite founder or CEO or business just either current or throughout history that you gotten a lot of inspiration from?
Isaac Medeiros:
It depends on the... Life comes in seasons, right? So when I was young it was Elon Musk just because I have autism. So I remember when I was 14 and I found out he probably had autism, I was like, "That's awesome. I can do anything." But as I grew older, I prioritize my life a little bit more. It's probably going to be like anyone else, Charlie Munger. Or I remember Mark Cuban had a big impact on me too because that guy just failed so much early on.
Turner Novak:
Did he really fail a bunch?
Isaac Medeiros:
He had a garbage pickup business, disco lessons, computer consulting. He just had a lot of businesses before Audionet, before his big exit. And it's just like, honestly, that's how I operate. Before the candy brand, I had two other things I tried and they didn't work out.
Turner Novak:
What were they? Are you open to talking about them?
Isaac Medeiros:
Yeah. One of them is called WakuWaku, which is Letterboxed. It's a movie lover app, like a community app. And you just log in and you review movies.
Turner Novak:
Okay, yeah, I've seen that before.
Isaac Medeiros:
It's massive. It's a really big business. I made that for anime. So that was WakuWaku. We got to a few hundred thousand subs on YouTube. I forgot the user base, but it had a solid user base. I just couldn't monetize it very well.
Turner Novak:
What did you try doing?
Isaac Medeiros:
We tried doing the traditional, you provide a good app and then you put super wall up and then you try to monetize subscriptions and it just couldn't. Turns out anime lovers are broke and they don't want to pay for things they don't need.
Turner Novak:
That's fair.
Isaac Medeiros:
And then I also try selling figurines.
Turner Novak:
Oh really? Okay.
Isaac Medeiros:
Similar playbooks.
Turner Novak:
Custom-made or...
Isaac Medeiros:
Both. We tried custom-made and we tried reselling as a distributor, quasi- distributor. And it's just awful business to be in. Super low margins.
Turner Novak:
Is it that's why the margins are just so low you just can't make money?
Isaac Medeiros:
Yeah.
Turner Novak:
Interesting. Why are they low? Could you just increase prices to get higher margins?
Isaac Medeiros:
Let's say you're starting a figuring business and you want to make a thousand units of a figuring to start. You can have to pay massive mold costs on it if it's a quality one. It's really hard to start up is my point. It's capital-intensive. And it's not like candy where there's a guarantee built in demand.
Are you familiar with the Labubu craze?
Turner Novak:
Kind of familiar. Not super familiar, but I've definitely seen it. Yeah. Are they like little stuffed animal things or something?
Isaac Medeiros:
Yeah, they're figurines. It's a Chinese company. Don't ever say Chinese people can't do brands because this brand is the most valuable toy company in the world now.
Turner Novak:
Yeah, I've seen it. I keep seeing it everywhere. People are talking about it. It's just because they're really cute?
Isaac Medeiros:
They're cute. They're hyper unique, I think. And it's the mystery boxes where you get like, it's like gambling.
Turner Novak:
Oh, I didn't realize that. So it's one of those like a Kinder surprise/ You open something and you get a random other toy with it?
Isaac Medeiros:
Yeah. You get a random Labubu for the box in a collection. And they're able to roll these out and do it fast because they own the factory. They're Chinese.
Turner Novak:
Yeah, they almost look like... It's almost like a teddy bear mixed with a Lilo and Stitch almost.
Isaac Medeiros:
They look like they're devious is how I would put it.
Turner Novak:
Is it that they're super cute? Is that why people like them?
Isaac Medeiros:
Yeah. And I also think what they nailed was the accessory component of it where you can hang them on things. So you know how Starbucks early day like having a Starbucks cup in your hand on Wall Street was a status symbol? Labubus are a status symbol. You can hang them on your jeans, on your bag or whatever, and it becomes a fashion statement that you're able to get one.
Turner Novak:
Interesting. It kind of reminds me maybe not quite the same, but with Crocs. Crocs are literally the ugliest shoe I've ever seen. I do not understand how those are a fashion thing, but they're super comfortable so there's kind of utility. But then they have those little... What do they call? The little things.
Isaac Medeiros:
Charms.
Turner Novak:
Yeah, the charms you put on. And you'll see a kid and he has 80 little charms on his Crocs. He probably spent $200 on all the charms.
Isaac Medeiros:
I met somebody that ran his charm business. It was doing 500,000 a year at 80% in that margin or something crazy because there's just little pieces of plastic. And he had LTV. People already buy the same charms two times a year because they fall off.
Turner Novak:
Oh, the exact same one?
Isaac Medeiros:
Yes. Because their footwear. They get beat up so they fall off.
Turner Novak:
Interesting. And the thing that just always blew my mind with Crocs is just how passionate people are. And you'll go to some kid's house and they have four different colors of Crocs. It's like, "What?"
Isaac Medeiros:
It's right. It's part of their identity.
Turner Novak:
Yeah, that's true.
Well, this was a lot of fun. Thanks for coming on the show.
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