🎧🍌 The Great Media Arbitrage: How Craig Fuller Built FreightWaves
🎧🍌 The Great Media Arbitrage: How Craig Fuller Built FreightWaves
A crash course on global supply chains, negative CAC in media companies, why Craig's acquiring magazines, building a private airport community, and why the best startups make low risk high upside bets
Excited to share the latest episode of The Peel, and this was a fun one. My biggest takeaway: Craig Fuller thinks media businesses are the greatest arbitrage opportunity this decade.
Craig is the founder and CEO of FreightWaves - a media company and data provider for the global supply chain. At least, it was. On Wednesday January 31st, he announced the media business was spinning out and merging with his other media assets in aviation and marine (more on this here).
This 2-hour conversation with Craig is split into roughly three parts:
A crash course on all things logistics and supply chains
All things media, and how he built FreightWaves into a media powerhouse in logistics
All things print magazines
Timestamps to jump around:
2:39 Why logistics is the most important industry no one talks about
4:23 The rise of deglobalization
11:07 How Colombia benefits from US manufacturing
14:52 Why Craig’s watching US onshoring and Mexican nearshoring
18:18 How the supply chain function is changing
28:59 The US labor availability problem
32:40 Why AI will never fully replace humans in media
34:56 The early days of FreightWaves
41:04 Predicting recessions months before it shows up in data
48:51 Why logistics is the best barometer of the global economy
52:44 Taking 12+ months to raise FreightWaves first venture round
59:24 Surviving COVID with only two months of runway
1:05:20 How FreightWaves accidentally became a media business
1:08:15 Why the best startups make low risk, high upside decisions
1:13:27 Why media business are the greatest arbitrage opportunity this decade
1:15:55 Acquiring his first print magazine
1:17:50 Building his own airport and flying community
1:30:16 Almost failing to turnaround his first magazine acquisition
1:39:06 His non-intuitive lessons from building media businesses
1:43:39 Craig’s favorite media businesses
1:48:50 How to build a brand in media
Referenced:
Find Craig on Twitter and LinkedIn
Transcript
Find transcripts of all prior episodes here.
Turner Novak:
Craig, how's it going?
Craig Fuller:
It's a great, beautiful winter day here in Tennessee. How are you?
Turner Novak:
It is a great, beautiful winter day in Ann Arbor.
Craig Fuller:
It's probably colder in Ann Arbor, but congratulations on Michigan. I guess as an Ann Arbor resident, that means something.
Turner Novak:
Yeah, it's been really fun this year. Another fun topic, logistics which you have kind of spent your entire career and life in. I was wondering, can you kind of explain what is going on right now in the logistics space and then we can kind of go a little bit deeper on it?
Craig Fuller:
Logistics is this industry that really moves the global economy. So if you think about everything you consume that's physical, whether it's clothing or food or energy, electricity, power, all of that is dependent upon logistics. So 40% of the global economy are in logistics dependent industries, which effectively means if there isn't logistics, those businesses would cease to exist and frankly our whole society would cease to exist. In the industry, we often say that logistics is like your power company. You don't think about it until the power's out. Think about the last time you thought about your power company. You probably paid a bill or if the power went out, that's all you obsess about. And logistics is much the same. And what we're seeing right now is this really profound time in history where now people are thinking about logistics because it is being disrupted.
So if you think about sort of post Covid, we all remember the days of running out of toilet paper, going to the grocery store and not finding food, normal food on the shelves, and maybe if you ordered products for your house, it took forever to get. Those days are largely behind us. You're rarely finding shortages and supply chain shortages at places we normally frequent. But there is something pretty profound happening globally, which is now global shipping, global container shipping is being attacked by military grade technology that is potentially causing major disruptions on how global trade as commerce. We're dealing with a pretty profound time in history where global trade is now under attack in ways that it hasn't been since the Cold War.
Turner Novak:
What is an example of that that just happened recently? Maybe just for someone who is not super dialed in.
Craig Fuller:
These Red Sea attacks, if you take the Red Sea and the Suez Canal, so the Suez, 30% of all global trade goes to the Suez Canal. This is a profound major trade corridor that really unites Asia and Europe. So it's a really important trade corridor. Things like in the Middle East, we think of oil and natural gas moves, a lot of commodities move through it, but also container ships move through it to move product from China, India and to Europe. It is a major trade corridor for that. And what's happening is really related to what we saw in Israel in early October and Israel's military response to that in the Gaza Strip, is you're seeing states sponsored actors. So this is the Houthis rebels as they're called, sponsored by Iran and potentially Russia and other sort of anti-Western actors are now attacking civilian vessels, particularly container vessels.
Turner Novak:
And these are commercial, right?
Craig Fuller:
Yeah, they're not military. I mean certainly there had been I think a desire to attack military vessels and we've seen in the Middle East attempts to attack military vessels. But a lot of this is focused on civilian and commercial trade. And really the goal of these rebels is to disrupt trade flows around the world. And what they're trying to do is make it very difficult and obstruct trade in a way that makes it such that the container vessel companies will not transverse the Suez Canal. So what they're doing is creating effectively attacks on economies because the Suez has being such an important trade vessel corridor all of a sudden no longer is attractive for shipping companies to move freight. And what that means is that global trade and globalization is under attack and it really has been under attack for many years.
So if you think back to the Trump tariffs where Donald Trump wanted to make in his view America great by putting on these tariffs on Chinese imports and even sort of attacked Mexico trade through saying, if you don't pay for my wall, I'm going to basically cutoff trade. That was really the start of sort of deglobalization. But then we saw China and most people in the West thought, this is just a verbose politician in Donald Trump that is sort of attacking this sort of concept of trade, but it's attacks. Ultimately China and the United States will never sort of eliminate trade ties. And so they took it as almost a sort of a political and tax element. It really didn't change the way supply chain organizations and professionals think about global trade. But then what we saw during Covid was we experienced in America and Europe experienced and really around the world, we experienced what it's like to not have global trade or access to products.
And so if you remember early parts of Covid is things like antibacterial soap. We all thought we were going to die if we touched one another or around one another. Or you think about military. I remember when respirators were sort of in hot demand and all of a sudden we were dealing with toilet paper shortages. And so all of these things, supply chains became part of the public consciousness. And so now we have experienced what it was like to not have product. Some of these, and many of these were sort of goods that aren't necessarily for life. Things like furniture. If you bought a house you probably weren't able to get access to things like lumber and materials and appliances and all that. So some of these were just the comforts that we're used to. Some of it was more critical in terms of foodstuff, but what we saw was what it was like to have disruptions.
And I think all of a sudden supply chain disruptions became a part of the consciousness. And then China did something pretty profound is President Xi, who is the premier of China, basically started to do these pretty Draconian lockdowns on his own people and in many ways was willing to sort of change the way China operates. China has for really since 1990, been very pro expansion of manufacture and expansion of trade because they've been a primary beneficiary for it.
So the Chinese central party has wanted global trade because they have been able to effectively become the world's manufacturer of the sort of the center of global supply chains. But what Xi did was by shutting down his economy, is it scared and put everybody in the West, American businesses and European businesses on notice that China was no longer playing under this sort of post Cold War framework for global trade, is that effectively in an effort to maintain power is they were willing to sort of disrupt their global supply chains and global manufacturing in an effort to sort of maintain control. And I think we also saw then Russia, the Russia, Ukraine conflict or war, depending on how you would describe it, started to all of a sudden also remind everybody that the world's pretty hostile.
So we went through a period pretty profound in history of 40 years of sort of unfettered, unrestricted global trade where all of a sudden everybody is sort of the Thomas Friedman, the world's flat concept, that two countries of McDonald's won't attack each other to all of a sudden be reminded that history and civilization are prone to global conflict and trade has always been on the front lines of conflict. And so now what we see is escalation of attacks on vessels that have forced a recalculation for global supply chains where now companies are saying, I don't know that I can depend on global trade the way I did before. And this is forcing companies to think about nearshoring and reshoring back to the Americas because frankly I don't have to travel through places using military grade technology that are attacking my ships. And so this is going to change the way global supply chains operate and frankly creates a profound opportunity for America and Mexico and Colombia to really create a whole new types of manufacturing.
Turner Novak:
You mentioned something right there, Colombia. I've never heard that mentioned before in this discussion. What is going on in Colombia?
Craig Fuller:
An amazing country. If you started to think about Colombia as a country, if you go back 20 years ago and even 30 years ago, Venezuela was sort of the power center of South America in terms of really close ties to the United States in terms of trade. It was a big offshore center. A lot of American companies had headquarters. Their South American headquarters were in Venezuela. But then you had this really re-militarization, almost sort of really aggressive socialism dictatorship that took over the Venezuelan government and that pushed a lot of capital outside of Venezuela. Venezuela has been blessed through a lot of oil and energy and natural resources, and the Venezuelan people had close ties to sort of the American economy. Well, they all got forced out. So the bourgeoisie sort of got forced out of Venezuela and they ended up in Colombia, a lot of the Colombian economy.
And Colombia went the opposite direction. If you sort of remember back in the 90s, it was sort of the source of big drug trade. Colombia had its own civil war, but they had a pretty severe lockdown and the government stopped negotiating with these terrorists, the guerillas that were causing a lot of havoc that were really funded by the drug trade. The American dollars and American military, most of it was sort of dark forces, really prompted or prompt up the Colombian economy. And what we've seen because of that is we've seen this sort of Colombia has really taken control or taken the force of what the Philippines benefited from in terms of offshore call centers, what India also benefited from. It's become a major American nice economy really benefiting from having a highly educated workforce, a country and a people that really understand sort of American and Western economics and culture.
And it has benefited from some of its neighbors that have really sort of tried to destabilize the region. And so because of that, Colombia has become a force in the American economy, the Americas economy, much like Mexico. Colombia is benefiting things like offshoring. It's become a major trade partner to the United States. It is a stable country in the Americas, far more focused on sort of becoming a force of trade versus its neighbors and has become a great place for American companies to locate to. And so we're seeing Colombia become a major part of the Americas economy and it's a pretty exciting time because of the fact that you had this country that was sort of war torn. Probably a good analogy is what Vietnam has also done in Asia, is it's come from a country with a lot of problems to all of a sudden realizing that it can benefit great from trade. Colombia has also done that, and so it has become a major source of global trade to the United States. Also, great engineering for offshore computer programmers and engineers, great telecommunications, all of that is happening in Colombia.
Turner Novak:
Interesting. Yeah, it seems like I guess Venezuela, it's on the Caribbean coast, which probably relates to East Coast of the US and then Europe. Colombia probably benefits the California connection and then maybe the rest of Asia too, which is obviously a growing market. Interesting positioning there just on the map, kind of on the other coast. So if we look out maybe the next three to five years, Colombia, interesting market to pay attention to. Is there anything else in kind of the logistics supply chain space that three, five years from now, like a big trend or a big thing that you're following?
Craig Fuller:
Reshoring back to the United States and nearshoring into Mexico is going to be the story. I'm 44 years old and I think about all of this sort of generations where we always feel like America's losing. There's this sort of sense of throughout history where it almost has felt like at times where we've sort of on a global stage have lost the sort of script and the 80s Japan was going to take over the world. For the last 20 years it's been sort of this dread that China was going to take over the world. And we often sort of discount that America being able to sort of evolve. And we certainly look politically, we look like a,
Turner Novak:
It's a clown show.
Craig Fuller:
It is. It's a clown show. I mean you have two candidates that most people would not pick for office, but those are the two candidates running these two parties. And what's really interesting about it is what's actually happening in the background is this re-industrialization of America, this renaissance, and we're going to look at America as another American century. And I think this is a real counter conversation that probably five years ago we wouldn't be having. There's a lot of reasons for that, is that China, through some of really foolish and self-destruct policies has made it to where it is more expensive to produce products in China than it is Mexico, which most people think the reason China has won is because it's cheap labor. And that is certainly true, but because it has industrialized so much and the fact that it has real negative demographic trends, I mean it's a very aging population caused by some of its own policies with the one child policy as well as the fact that it just as it has industrialized aggressively over the last 40 years, just isn't having the population growth that it once had.
It means that the cost of labor and the cost of production is much higher than what it once was, whereas Mexico actually has plenty of available labor, particularly in the interior. And so because it's cheaper to produce goods in Mexico and geographically it's closest to the largest market in the world, the United States, it benefits greatly from the fact that that exists. And so what we're seeing is this sort of move away from China in terms of production and moving back to the Americas. And one of the things that I think is really interesting that isn't often talked about is if you look at the American manufacturing and sort of renaissance that we saw in the early parts of the 20th century, a lot of that was funded through a combination of the private sector and the government. The Cold War drove a lot of America's expansion.
But once the Cold War ended, the US government, the Department of Defense and really that military industrial complex really put a substantial drag on American manufacturing. We certainly saw globalization, but we also saw that the American government wasn't funding a lot of industrialization in our economy. Well, that has changed. And now America, because we have a new Cold War, doesn't want the Chinese to win, has decided it needs to make investments in industrialization. And this is driving a profound amount of investment in things like electric vehicles, batteries, semiconductors, in ways that we haven't seen really in 40 years. And so the American manufacturing renaissance is taking place. We are seeing significant investments in infrastructure and in manufacturing investments. And so we're starting to see that American century, because our government is dysfunctional as it is, it's pouring substantial amounts of money in re-industrializing our economy. And I think it's a pretty profound time, open up plenty of opportunities for entrepreneurs that may want to benefit from that.
So from a supply chain standpoint, these supply chain issues, when we're starting to attack commercial vessels and we're firing on them with military grade technology and missiles and that, that means it's a risk that a supply chain professional didn't have to deal with that now has to consider. And when you look at it, you consider the fact that, hey, I can move my production to Mexico and the United States, Colombia, Canada, et cetera, and not have to deal with bandits on the sea. And really what we're also seeing is the American Navy is really focused on China and Asia and doesn't have the resources, the time or the appetite to really manage the trade lanes in the Middle East.
And because we are able to produce so much oil in the United States, it means that we're no longer dependent upon the Middle East the way we once were. And so our focus is different. And because our focus is different, it means that American re-industrialization is a real fact. It means that a lot of that's coming back and it should be a pretty exciting time. Even though we see stress in the world, this is a pretty exciting time as American.
Turner Novak:
Yeah, I think we've probably both seen those charts where it shows a US manufacturing construction investment or starch or something over time and it's just kind of middling along for decades. And then in the last year, I mean it's up like 5X or just some insane number
Craig Fuller:
Now a lot of that is big dollars like electric vehicles and the EV and the battery plants. I sat down with the CEO of one of the world's largest auto manufacturers a couple of weeks ago and pretty profound kind of eye-opening conversation because what he had stated to me was that we're talking about $8 billion in terms of investment that the US government has offered in terms of the Inflation Reduction Act to try to promote electric vehicles. $8 billion per auto manufacturer. That is an massive amounts of money that is available to all major auto manufacturers. And what that means is that auto manufacturers are starting to bring production back. And if you know anything about auto manufacturer, you live in Michigan, you probably appreciate this as much as anyone, is that the reason states vie so much for auto manufacturing is it's not the auto manufacturer itself that is important. It's the supply chain that's important.
Auto manufacturing has this web of supply chains that it's dependent upon. So if I'm going to produce a car and Chattanooga, Tennessee has Volkswagen, Detroit has General Motors and Ford. And so you also want your production of your supplies. In an auto, in a car, I have so many things that go into that car. I have seats and leather and padding, I have steering wheels, I have radio nubs. I mean you have all these things, tires, just think about all the stuff that goes into a car, thousands of components and they all have an individual supply chain and the auto manufacturers want that stuff close to home. So what you see is when you look at an auto plant being built in the United States or in your hometown, you typically see a multiplier three to five times as much employment caused, not just by the auto manufacturer but by all of the supply chain providers also end up opening shop.
And these are typically higher paying jobs. Even the non-union shops tend to pay high salaries. They're high quality jobs because these auto manufacturers are able to provide a lot of professional skill work and fund things like continued education. They fund great benefits programs and this stuff really helps to sort of re-industrialize it. And so we're seeing the US government provide incentives to bring manufacturing of very selected industries back, we start with the semiconductor investments, that makes it very attractive and we will see multiplier impacts.
One of the other things that I found pretty astounding from talking to this auto manufacturer is the fact that not only are there incentives for the auto manufacturers, but consumers, the incentives for consumers to buy electric vehicles is also pretty profound to drive demand. And his statement to me was, and this is a large internal combustion manufacturer, so I'm not talking specifically about Tesla. I'm talking about a company that actually produces a lot of internal combustion engines. He said, we don't have a choice. We are going to produce electric vehicles because the incentives are so substantial for us not to, and that means that we're going to see both electrification of our economy, but we're also going to see a new manufacturing regime that just hasn't existed for many years.
Turner Novak:
I think it's going to be interesting to see what second and third order effects we get from this huge investment that, I mean it feels like people have been talking about kind of the resurgence of American manufacturing and all that kind of stuff. American dynamism I think is what the VCs like to say, but it'll be interesting to see what all that leads to when you talk to three to 5X more economic activity.
Craig Fuller:
Been around trucking my whole life. So this is an industry that I've sort of seen. And the phenomenon when Donald Truck came into office and talked about make America great and sort of his highly progressive, but also nationalistic, isolationist sort of policies is most people looked at as attacks. Supply chain organizations and professionals knew that Donald Trump wanted to sort of reshore manufacturing, but most of them didn't take the issue very serious. No one thought that we'd see a fragmentation between global trade because globalization was such a sort of core force in the world. But what's happened in a post Covid economy is that we've realized that the world is no longer this sort of safe and predictable spot. We've seen what happens when supply chains get disrupted. And one of the other things that corporate America, corporate boards who largely didn't talk about supply chain or even think about supply chain pre-Covid, it's now a core thesis.
In fact, if you go back sort of pre-Covid, we would talk to folks that ran these massively large global supply chains where they're spending 20 to 40 to $50 billion. I'm talking Fortune 100 companies that have these massive supply chains. The CEO oftentimes didn't even know the head of supply chain. There was no interaction from the C-suite to the supply chain organization. It was basically a back office function as far as most companies were concerned.
What's happening now is that supply chain has a seat at the table that is doing regular updates with the C-suite and the board. You'll see it in a lot of the Fortune 1000 publicly traded companies. They talk about supply chain, supply chain issues and opportunities in their earnings reports. This is a relatively new phenomenon, but what that means is that now companies are no longer sort of looking strictly at the cost arbitrage, which is really what drove globalization. They're saying, how do I secure a resilient supply chain and maybe strictly looking at things from a cost standpoint are not good enough. I have to consider resiliency in my supply chain and in doing so, I need to invest in technologies and resources here in America that perhaps I wouldn't have done before.
Turner Novak:
Yeah. The best way to make it more resilient is to almost simplify, reduce the distance, reduce the layers, bring it home, bring it as close as you can. You probably get more control over it too, more visibility, you can react faster, all that kind of stuff.
Craig Fuller:
Thinking about bringing it closer to home, the longer I transport something, the more likely it is to get disrupted, just the nature of physics. Right. So if I have a longer distance, then things can happen. And so by reducing the distance, I'm actually reducing the potential for failure and I'm taking it out of the equation. I'm also reducing cost. I'm reducing uncertainty, I'm reducing time. And that creates a lot of opportunity where now supply chains are getting a premium that have built resiliency in it versus what they did before. One other aspect, and we sort of touched on it, is this decarbonization sort of focus of corporate America is trying to move towards net-zero. And one of the things that is sort of a fact is a global supply chain produces an enormous amount of carbon. So if I can move my production closer to home and less distance, it just means naturally I have less carbon footprint that I have to contend with and more control I have over my emissions.
And so we've seen in Europe scope three emissions. Now in Europe, companies have to actually have a supply chain carbon footprint report. They're scope three, we call it scope three, which is not only my supply chain, but all of the dependencies across my supply chain. That carbon footprint is now part of public reported companies and earnings reports. And so now it shows up in annual reports. They're accountable for this stuff. And so I think as that continues to sort of play out over the next couple of decades, companies are going to be far more sensitive to their own carbon footprint and they're going to have to sort of be accountable to where they source products.
Turner Novak:
So if I am a founder or an investor that is thinking about how do I take advantage of this, like how do I build a company or invest in a company, what would you be looking for if you were deploying capital or starting a new company today?
Craig Fuller:
Well, so these are trends, right? And I think one of the greatest things about failure rates, if you look at failure data on startups or success on startups is timing. So if you think about all the companies that has sort of have become major companies is there's some catalyst. I mean, Uber's story is, it started up at a time in the great financial crisis in 2008, 2009 when people were looking for incremental work and driving a car and sitting around seemed like a great way to sort of make some money. And they sort of came out of that time. Airbnb the same. You look at a lot of the payments and FinTech companies, came out after Dodd-Frank was introduced in the great financial crisis as we saw this sort of acceleration of it. You had a technology sort of framework that enabled it, but you also had some catalyst that sort of created it.
And I think this is also a pretty profound time. And you can look across all these industries where there's some major regulatory change and framework or some major trend. If we truly believe that the case is towards nearshoring and reshoring, and we look at the kinds of businesses that will benefit from that, is that companies that are really sort of playing into this story. So re-manufacturing and automation are definitely happening. So these are things like robotics. There is a problem in the United States of just a lack of labor supply. So this is a thing that everyone's talking about, is how do we create technologies that sort of work on this sort of labor supply problem. So let's say we built a car plant in Chattanooga, Tennessee. Volkswagen has a production plant here. When it opened, it's paying 20, $25 an hour. Well now restaurants and Amazon and all these competitive...
Craig Fuller:
Well, the restaurants and Amazon and all these competitive wage companies are losing labor supply to Volkswagen's, paying a higher rate. They're considered longer, better careers than say, working at McDonald's. And so now McDonald's is forced to pay a higher salary. Well, one of the ways that McDonald's sort of fends that off is by automating the ordering process. And McDonald's is coming out with this sort of like, employeeless McDonald's. I think their employees in the back preparing the food, but you're not going to interact with people. All of your counter stuff is done either on a cell phone or on a kiosk, and you'll never talk to a human. You can walk into McDonald's. And let's be honest, that may be a positive experience.
Turner Novak:
I've used some of those before. They're nice if they're designed well, and sometimes it's better.
Craig Fuller:
I mean, McDonald's being one of the worst consumer experiences from my perspective, at least McDonald's I attend. Chick-fil-A would be disappointed if they got rid of the staff at Chick-fil-A because they're just so amazing. But you think about that, if you could eliminate some of those jobs through automation, then all of a sudden changes the way that those business models work. For founders, it's thinking about that. So we know we have a tight labor supply. These are fundamental directional changes in our economy that are not going away. They're funded by government funding and stimulus, and this is going to be a, regardless of whether you think that the type of spending that's going on is welcome or a good thing, it's a fact that our politicians and political system reward politicians for substantial amount of stimulus money and funding big projects. It's just you have to accept that as a reality. And because of that, the labor supply problem is going to continue to be a real problem for many, many years. America has a dysfunctional immigration system, which means labor availability is going to be a problem.
We have an aging demographic in terms of born people that are born here, which means we have a labor problem. We have a lot of retirees. We have a labor problem. So these labor problem systems are real. So anytime you can move automation, so these are things like automating, like we talked about at restaurants, automation in terms of robotics. Some of the really exciting companies around supply chain are companies that are building automated manufacturing. There's companies that are doing robotics assisting technologies. All of those things are really, and it doesn't have to be huge leaps. I mean, a lot of people think about the fact that we talk about automation, we're talking about this sort of dystopian autonomy that is going to eliminate all these jobs. These are probably complimentary technologies to a lot of businesses. Everything from software and sort of process automation using technology and software and natural language to other things like true hardware, robotics that you're starting to see. So all that technology creates opportunities for founders.
Turner Novak:
Yeah. And usually automation, it gets rid of the lowest level or the least skilled or the most boring or the most dangerous jobs. So with how AI, it's like automating data entry. No one likes doing data entry. You want that job to be removed and automated so you can do, using the data that's entered. That's much more higher value thing to be doing.
Craig Fuller:
I read the same things that I think everybody does around AI and I read the dystopian facts. Look, I'm not an AI expert, so I won't pretend to know where all this stuff ends up. And I do suspect there'll be some disruption at some point. I mean, these technologies get smarter and smarter. But one of the things I like to think about is when Excel first came on and accountants were like, oh my gosh, spreadsheet technology. Excel, it changed their jobs. It didn't eliminate the accountants. There's been this massive explosion in accounting professions over the last couple of decades. Excel is just an enablement tool. And I think about, like I run a media company and we talk all about AI a lot because sort of this concept that AI is going to replace journalists and maybe in time it replaces some of the, it makes it certainly easier to produce content.
Anybody can produce content, but what it also does is it creates far more junk. There's going to be this democratization where anybody and anything can write content, but I think the human side of it, humans are going to want authentic content from people that they trust and from media businesses that they trust. Humans are going to start to become really sort of desensitized to AI. And in the process of it, we're going to start to look for authenticity and want something that's real. And I think because of that, having trusted media brands as well as trust in humans, I think this becomes far more important in an AI world.
Turner Novak:
Yeah. And I think it's probably a good segue talking about your company. I mean, it's a fairly large business. I believe at this point.
Craig Fuller:
Total about 400 employees between FreightWaves and FLYING Media Group. So FreightWaves is the world's largest information source for supply chain focus on high frequency data. And what we do in that is think of what Bloomberg does in financial markets. This is what we aspire to be at FreightWaves, which is providing the world's information source for the goods economy. So 40% of the global economy are in logistics industries. Goods, as we have discussed, are highly prone to disruptions. And the individuals and the professionals that have to manage those disruptions, that have to know what's happening on the ground often because they represent such a small piece of the economy, don't know. So even companies like Amazon and Walmart, which are behemoths or companies like General Motors and Ford that are behemoths in their industry, because the economy is massively fragmented and the supply chains are often dependent upon millions, potentially millions of individual companies that are part of that. There's just so much fragmentation around the world that no single company has a perfect understanding of what's happening around the world.
And so what we have built is this information hub at FreightWaves, which combines high-frequency data, which means data that's produced in terms of in some cases, minutes, in some cases every day. And our analysts are trying to proving context to that data. So providing information that professionals. So best example of this I can give is think about, I just use an example that's sort of pretty absurd. Donald Trump tweets and says, if I don't get Mexico to pay for my wall, I'm going to shut down trade between Mexico and the United States and I'm going to do it next week. And he had been successful implementing tariffs on China. So all of a sudden everyone in the auto manufacturing sector says, oh my God, I have to respond to this issue.
So all of a sudden, the C-suite executives are calling down and saying, what are we doing about this? And so supply chain professionals that are in the auto sector are trying to get information to find out what's happened on the ground. This is all developing super quickly. That was something that they tuned into FreightWaves to figure out. Or you get another example. Yellow, the largest trucking company and one of the largest trucking companies in America was filing bankruptcy and it sort of had this slow arduous death. Well, we were on the ground providing context to inform companies that were dependent upon Yellow that, so there's an editorial element to this that this company's dying. Here are all the reasons for it. The employees that were at Yellow were being informed, and oftentimes were being told something different by management than what we were reporting. That helps them sort of understand what's happening on the ground in a way that only someone who's really close to understanding the context can do, but also the companies that are dependent upon it also have information.
And so our job is to help inform, just like if you're running The Weather Channel and my grandparents used to watch The Weather Channel, it felt like 24 hours a day, they would always have it on. I don't watch The Weather Channel unless there's a major snowstorm or hurricane that I'm interested in. But that's oftentimes the same sort of analogy is when something around the world is disrupting. So this Red Sea story, if you're responsible for container flows and you're getting asked about these attacks on these ships, you need to know why it's happening, how it's happening, and more importantly, how it's going to impact your business or is it going to impact your business that isn't from a major media.
So the major media sort of jumps on this story, and they talk about the fact that this is going to create massive inflation on consumer goods. If you're in the United States, it's just not true. And so you need to be informed about why that's not going to happen. And our job is to use data to inform that as well as our own sort of editorial group to inform that.
Turner Novak:
So you have a media business that informs people on all things supply chain logistics, 40% of the economy, et cetera. And then you also have a component that's sort of like a data researching. Can you give us some examples of what I would do or what I could see if I'm using the actual data product?
Craig Fuller:
We put out hundreds of thousands of individual indexes. So we index all this data and then we've got billions of data points and all these data sets, these big data comes in a standard methodology for all this data to make it very relatively easy to sort of discern. So just like in financial markets, you have all these data points and frankly, most people care about just a few data points. So if I asked you how the stock market was doing, you would probably go look up three data points, the Dow Jones Industrial Average, the S&P 500 and NASDAQ, and you would from that conversation pretty much be able to tell me how the stock market is doing. The reality is there are thousands of long tail stocks that are also in the stock market. And so we published these macro data points that are the equivalent to the S&P 500 that can sort of contextually tell you what's happening on a supply and demand basis.
So the volume of US goods. So we track the US goods economy, so we can tell you in real time or near real time within 24 hours, how much product is moving through the economy at any moment in time. So we're looking at all of the truck orders, all of the demands. So every time someone orders a truck cut and are using an electronic message to do that. So when Walmart is ordering trucks from its manufacturers or distribution centers, it isn't calling them on the phone. It's using computers to route those orders to trucking companies or railroad.
Turner Novak:
You get access to that?
Craig Fuller:
We anonymize and aggregate it. So we're looking at hundreds or thousands of companies across the landscape, typically larger enterprise based companies. We strip all the identifiable information. So no one could know how Walmart's doing or Target's doing or Best Buy's doing et cetera, or Toyota for that matter or P&G. But we get to see the US goods economy and global economy in a near real-time basis. And so what we're actually looking at is demand. So a good example of that is in April 2020 when the world was shut down and sort of mid-April, we wrote articles using our own data to talk about a robust v-shape recovery. And I remember Bloomberg, I was on Bloomberg TV at that time because everybody was interested in supply chain. They called me the most bullish guy in America because everyone else was talking about high unemployment and the world was melting down and the economy was never going to come back. And we were like, wait a second. That's not true.
Turner Novak:
Everyone is, yeah, everyone is making all these purchases or activities.
Craig Fuller:
Yeah. We're seeing all this demand flow sort of hit. And the reason that we have this sort of unique perspective is we are way upstream. Supply chains are naturally upstream. So if I'm going to restock my store shelves or I'm going to produce something at a manufacturer, it's way upstream. I've got to order the raw materials, I got to get it in my manufacturing plant, then the manufacturing plant will send it into a distribution center and then into the retail. We see all that data way upstream. So we actually get to know oftentimes how the goods economy is going to perform oftentimes months before anyone else does. So that was sort of April 2020. We continued through that. And then last March, March of 2022, we saw two March's ago, we saw basically a collapse or a real significant slowdown in demand that we knew and felt like a goods economy recession was happening.
And one of the things that was really interesting about it was we wrote an article on May 31st, 2022 about a slowdown in goods demand. And we guessed that it was just an over amount of inventory. We were able to sort of extrapolate that the retailers had way too much inventory that were post the Covid cycle, and they had built up this inventory so great that it caused them not to order as many products. In fact, we came out, we wrote this article, the Transport Sell Off, which is pretty gut-wrenching to basically crash all the transport sell off.
We shaved like $100 billion off of it. I think UPS stock reacted, FedEx's stock reacted. I mean you're talking, these big companies are losing five, six, 7% on an article you wrote. It's pretty gut-wrenching, especially when these are all your customers. But what was interesting about it was six weeks later, the big retailers, Target and Walmart and Amazon came out and talked about having way too much inventory. Well, we saw it in March and it wasn't until May before they did their earnings reports before basically the public became aware of this problem. And so that's because supply chains are able to reveal it. In fact, Bloomberg came out with an article and called it the Freight Waves Recession, which is kind of cool, but it's weird also to have a recession named after you, I think. But I guess it's a compliment.
Turner Novak:
It's probably like a net good, net compliment.
Craig Fuller:
Yeah, I guess the, I mean, great financial crisis, the Freight Wave Recession. So anyways, that's what we saw. And then in June of 2020, when China had shut down, Xi had shut down his economy in May, everyone expected when the Chinese economy reopened that it was going to be the surge of trade flow and containers that were going to come over the United States.
Turner Novak:
Yeah, I thought that. That was my hypothesis.
Craig Fuller:
We saw the opposite. In fact, it shocked us because rather than seeing a surge, we saw a massive drawdown, a slowdown, a sharp slowing of containers coming out of China. And we wrote an article that imports, I think the headline was Imports Are Dropping Off A Cliff. And for two months and in May of 2022, the container market, US trade imports had peaked. It was the biggest import month in history. And we're writing container flows are dropping off by a third.
In fact, so all of the global shipping stocks sell off globally because we've now built a reputation for making these pretty profound calls, contrarian calls that happened to be right. But we got attacked. So the FedEx, FedEx came out and said, this is going to be one of the greatest second quarter or second halves in history. The port of LA director came out and we were getting hammered, and what everybody was looking at was the customs data of stuff that was clearing the imports that were happening. But what we were uniquely doing was looking at basically container loadings out of China to the United States.
So the best analogy for this is if I wanted to tell you how many passengers are going to get off an airplane in Detroit, I can wait until after they depart and count the number of passengers, or I could go to, let's say the plane originated in Atlanta, I could count the number of passengers that got on that plane and count the number of passengers. And I would know before you did, how many passengers are going to get off that plane in Detroit because you're counting, I'm counting how many got on. Assuming that the plane did not land anywhere in between, I'm going to have a faster bed of information than you will. And so that's what we do in China, is we're looking at the number of containers that are being booked before they hit US shores, and that gives us this enormous advantage over anyone else. It's the same idea in supply chain. So we were able to sort of see the Chinese economy have this substantial slow down that it's still dealing with these major issues that continue to sort of plague it.
Turner Novak:
So then what was kind of the initial insight to start the company? I know you've kind of been in the industry your whole life, but how did it all start?
Craig Fuller:
So my dad started what became the fifth-largest trucking company in America, and my uncle started, what's the eighth-largest trucking company in America. So I grew up as a trucking brat, if you will.
Turner Novak:
What were those two companies?
Craig Fuller:
So one is called U.S. Xpress, which is now merged with a company called Knight-Swift which is the largest. And then the other company that my uncle owns is a company called Covenant Transport. So two of the big trucking companies in America, I grew up around it. They both started in 1985. They were both bootstrap businesses, but I grew up around, my grandfather had started a business and...
Turner Novak:
Wait, so why were they doing separate companies? Why didn't they team up? Same time.
Craig Fuller:
It was stepbrothers, right? So there's a lot of history here, a lot of family sort of dynamics, but they were highly competitive step brothers and they knew trucking. My grandfather was sort of a patriarch of long haul trucking and he had sold his business and sold it to a guy that had embezzled a bunch of money and ended up spending prison time, and they worked for this business after my grandfather sold it. And they're like, wait, this thing is going south. This dude is embezzling money. They ended up sort of turning state's evidence, but realized, Hey, we know trucking. Let's go start a business. They actually tried to work together but didn't like working together as step brothers. So they went out and started their own trucking companies. And so I was six years old when this happened. So I grew up where trucking was sort of core of my life.
And so I had always sort of been, and I worked in various parts of the business and my dad fired me 2005 and I did a payments thing business that we sold to US Bank and we sold only part of it and we kept another part of the business. And then my father had funded that business and in 2014, he fires me again and cuts me out of any opportunity. So for the first time in my life, I had to find a real job. And so I worked and realized I'm a really bad employee. I'm not used to working for someone other than family or not used to work. I effectively had ran these businesses and I had inside my dad's company, had set up this on-demand trucking business in my early 20s that became, we did 140 million in revenue in two years and 68 [inaudible 00:48:46] a profit.
It was a massively profitable business inside his company. So I knew a lot about trucking. I grew up my whole life. And so I had gotten fired by my dad and tried to become an employee and realized I'm really bad at it. But on the side, I was day trading stocks, trucking stock specifically. My father's company was not public at the time, so it wasn't like I was doing anything nefarious. I was just trading trucking.
Turner Novak:
Yeah, because you knew it.
Craig Fuller:
I knew it. But here's the interesting thing was, I was starting to lose a lot of money trading it because the market is so fragmented that the bigger companies are often the last to see a major cycle turn. So you think the big companies will be the first to know. It actually doesn't work that way in trucking. They're often the last to know. And it's true in, you can look at FedEx and you can look at airlines. The bigger companies are largely insulated from trends. And you can see this in the stock market is oftentimes the high quality big companies are not the first to see a change in consumer demand.
And so the same thing exists in trucking, is the bigger companies are often the last to really see a change. And I lost money because I was trading based on my understanding of the market, but I realized that there was just a lack of information. And they kept talking about the global economy. They never mentioned trucking as a sort of barometer to the global economy. And I realized that this is one of the most important sectors to tell us what's happening in the economy, and yet no one's tracking it or has any ability to do it. There's no high frequency data, there's no news associated with it.
So that's what I set out to create, was an information source for freight and logistics. And that's effectively what's become FreightWaves. I also tried to do a futures market based on trucking because that was sort of my initial thesis, was that we were going to create tradable instruments based on the US trucking market because it is a commodity. And much like oil or wheat, I thought that, hey, this would be cool. But what we realized is what the industry really needed was information, and that's effectively what we built.
Turner Novak:
What did you do? So somehow did you convince Walmart to give you their full purchase orders or how did that work?
Craig Fuller:
So I had this idea initially to build a futures market. We thought data was part of it. So I went up to Chicago, which is the home of the Chicago Board of Trade and CME and CBO and I spent a week there trying to understand futures markets. The power market has been traded, wheat, and oil, and all these markets in Chicago is sort the epicenter of commodity trades. And so I tried to learn how commodity trading, and then data kept, sort of a recurring themes. The initial thesis was I was going to build this tradable instrument based on trucking so that companies in trucking because it at a very volatile commodity, pricing is very volatile as we learned during Covid. That they would have information. But the data part kept recurring in all my conversations. It's like, oh, if you could get the data.
And I realized really quickly that hedge funds would buy the data because they wanted to know what's happening. So that was sort of the original thesis. I then went to New York and London, sort of the home of financial markets and spent weeks in each of those cities to sort of learn this industry. And the way I would connect is frankly on LinkedIn, just like you can today on LinkedIn. And this is sort of 2016 where LinkedIn had sort of gone from its own company. Microsoft had just bought it, but they hadn't really changed it. And in the trucking industry and in transport supply chain, LinkedIn was still an emerging phenomenon where now it's so ubiquitous out there, but I was able to take advantage of social media. And I reached out to every C-level executive at every major company I could find. And I was relentless, just sent messages, introduced myself and said, hey, I want to learn from you. And one out of 10 of those turned into a conversation.
Sort of shadowed them for an hour or a day or whatever. And that was sort of how I started it. Now, we couldn't raise money. We had a hard time convincing venture capitalists to give us money, hundreds of pitches. I mean sort of the classic story of a founder that has an idea that gets turned down and rejected dozens of times and hundreds of times. And that was sort of the story for FreightWaves, is like even investors that I had a really good relationship with, thought this idea was the dumbest idea they had ever heard.
Turner Novak:
That's like the worst concept you could possibly pitch them.
Craig Fuller:
This sounds like a really boring niche was a recurring theme. Why would anybody want that? In fact, there were some VCs that actually had sold their logistics company that had zero interest. And one of them who was actually a good friend of mine, so I won't embarrass them by calling them out, but we had lunch together and he had set up a VC fund based on trucking. He had sold his logistics company and his whole thesis was, we're going to invest in supply chain. Well they didn't write me a check. And over lunch he goes, "Why would anybody want this information?" And I looked at him like, "Dude, you lived in this market." But the reality is nobody could see the opportunity of what data would mean for this industry, and nobody could understand the power of media in this industry, and it was just a lot of cynics. And so I spent a year trying to raise capital and it was a very hard and difficult time. And then we eventually just got lucky, if you will. Found some investors that got behind us and then went on the way.
Turner Novak:
Do you know what convinced them? Did they have a similar thesis or just buy into you as a founder or?
Craig Fuller:
We had two. Our first true institutional round was with Fontinalis, which is based in Detroit, your backyard. It's Bill Ford's mobility fund. And the partner there is a guy named Chris Stallman. It's I think a $300 million AUM fund, but investing specifically in mobility. And they really understood mobility and the power of sort of this mobility revolution and felt like this was a really solid asymmetric bet in the fact that supply chains were also being disrupted in the mobility concept since 2017. So if you think about the fact that this is sort of pre, convoy had gotten funded, Flexport had gotten funded. They realized that building a freight broker or a digital forwarder didn't make a lot of sense. They never really bought the thesis of it, thought that was a really hard business to build, but they really liked supply chain concepts and what they effectively underwrote was my background and experience.
The fact that I knew a lot about the business and what was interesting, I think the fact that Bill Ford himself had been a multi generational person that knew the auto industry. I think it was some appreciation for the background that I had grown up in the industry and knew a lot about it. And I think they felt like, hey, this is an asymmetric bet. If he's wrong, then he can build a community out of it because that was sort of the thesis is, hey, we can build this information source if futures don't work. They thought there'd be something there of value and they turned out to be right. But also I think they were just effectively underwriting the founder at this point and felt like, okay, this guy and his team will figure it out, being me. Even if he's wrong about this thesis, which is in many ways a lottery ticket, there'll be something there that they'll figure out around this community and that turned out to be right.
Now, the futures market never really took off, but this whole data business and media business did. I think also we were raising money in supply chain still relatively early before supply chain really got hot where there weren't a lot of investors that understood it and didn't really think there was an opportunity there. Now, had we had waited two years or eventually had to wait two years, I think it would've been a different climate for us. But really in 2017, supply chain and supply chain technology, it was a pretty big bet. It wasn't a lot of consensus that supply chains were going to be digitized or an interesting asset class for investment. So that's oftentimes I think how some of these businesses work, is if every company is getting capital and raising into an industry, I think oftentimes those businesses aren't, some of those are super successful, but oftentimes they're not. And we just happen to be sort of an asymmetric bet that wasn't blessed with all sorts of capital.
Turner Novak:
Yeah. Less competition too. If I was building the same thing and everyone listening was also building the same thing, all raising money, I mean, good luck to all of us of getting any kind of scale, any kind of concentration of customer because we're all doing the same thing.
Craig Fuller:
You're right. And the other thing that I think, supply chain, some of these companies have raised billions of dollars, Convoy being sort of the most prolific, if you will, that has now gone, I think one of the biggest VC-backed companies in history to fail. One of the sort of interesting phenomenons, there's a lot of companies in supply chains that raise a lot more money than we ever did. We were never really blessed with large amounts of money. Now, one could argue raising $65 million in equity in venture capital is a lot of money. And certainly by many definitions it is. But it wasn't as if we were blessed throughout our history with hundreds of millions or billions of dollars like some of the other supply chain startups.
And because of that, I think we didn't have the opportunity to aggressively grow our business and hire all these people and burn all this cash. We had to operate far more disciplined and a little more scrappy. And I think in many ways it was a blessing in disguise. We almost ran out of money in February of, like February 2020, we had timed a round of funding. In fall of 19, we had two unsolicited term shifts. One was from KKR and another was from a firm called G2 out of Silicon Valley, and the deals fell apart.
Turner Novak:
Was this Covid related?
Craig Fuller:
No, it was pre-Covid. So this is 2019, sort of fall 2019. And the deals had fallen apart because frankly we weren't ready for those level of investors anyways, that was partially our fault, but also our board felt like, Hey, we should wait, do a process. These are competitive unsolicited bids. Let's go out in the first quarter and raise. So we went and did a road show in January of 2020, had timed, and we only had cashed like May, so we were at the line. But this was a time when VC was sort of ready and we had timed our fund closing, our process closing to March 2020.
Well, I don't have to remind everybody what happened in March 2020. The world fell apart. So we ended up in March and sort of mid-February of 20, we had zero bites on our round. VC started to really aggressively pull back. And by March we were looking at, we may be out of cash in two months. And so we got really aggressive. We had a big layoff in sort of early March. I think we laid off 30% of our staff, and I got really nervous. I remember walking into a Walmart and seeing the greeter guy in front and thinking, well...
Craig Fuller:
... really nervous. I remember walking into a Walmart and seeing the greeter guy in front and thinking, well, if all else fails, I can be, I think founders do this where you start to get so down on yourself and you're like, at least I could be an Uber driver, or at least I could be a Walmart greeter. But that's how it felt. It felt like this business was going to end. But what was interesting about it was we went in early March, so we got really disciplined with cash and very focused on just preserving the enterprise. And then we ended March all of a sudden with what happened in supply chains during March, it was the toilet paper crisis of March of 2020 if you remember. Supply chain data became in vogue.
Everybody's like, oh my God, I need real time data. I need to know what's happening. And so, we entered March 2020 thinking we're out of cash in two months. To end the march of 2020, it was the best month we'd ever had in history. We signed a big FEMA contract, we signed all these major contracts. End the March of 2020, and our board didn't think it was ethical for us to take a PPP loan, like a PPP loan was unethical because we had this just change in our fortune in one month. And I think as a founder, two things about that that I think are pretty profound.
One is we got really disciplined really fast on cash and that sort of fear, the thing is I did also was I had a pretty strong ego about this business. It was a business I had started and I built. I went through a process of basically firing myself from every functional role that I had and made sure that management had the power to do what they needed to do. And that was the first thing that I did was I realized I was a bad manager of people and I needed to have professionals in the roles to manage. So, I delegated so much of the responsibility that I probably wouldn't have if we didn't have that scare. So, we got really disciplined with cash and processes and all the stuff that you don't want to do as a founder. And so, it really sort of saved us later on.
Turner Novak:
So why did it save you? Because you weren't focusing on things that weren't high value?
Craig Fuller:
So, many companies during COVID ended up adding so much cost. We've seen so many layoffs over the last couple of years where companies grew by their staff by 300% or something.
Turner Novak:
People were using number of employees as a KPI of the business.
Craig Fuller:
They were burning 10 million a month or something, or 20 million a month or whatever. I mean, the numbers are perfect, profound, and their business models didn't change. I mean, our revenue during COVID went up four x, and yet our staff size in terms of staff grew up like 10%. I mean, it was pretty insane. In January of 2020, we had 150 employees. Today we have 162. What's really remarkable about that is in 2019, we did $11 million in revenue. $5.5 million of our revenue in 2019 came from physical events like in-person conferences. And so, that went to zero. So, the whole business was $5.5 million, this is like 50% reduction in revenue, and yet we ended 2020, we had grown, I think to 18 million or something at the end of that year in spite of the fact that our events business had gone to zero. So, it was a pretty remarkable time in our business, but it forced a level of discipline that is still ingrained in us.
And I look at all these startups that have had to have significant reductions. We didn't raise crazy money during COVID. We could have raised a lot of money during COVID. We had opportunities to raise a lot of money in COVID. We did, I think two rounds of funding. We raised a $10 million round, and then we took on a $16 million I called it the insurance policy round, we had $30 million on the balance sheet I think at that point. And we took on a $16 million round of funding, and it was like an insurance policy, but we didn't raise crazy money, and I think that's really helped us a lot because we weren't chasing high valuation and we weren't chasing a lot of money because of that scare, that sort of fundamental understanding that we could have lost at all. I was very fortunate that that happened before we were sort of blessed with so much riches.
Turner Novak:
Yeah. What percentage of that do you think came down to just pure luck versus making the right decision at the right time?
Craig Fuller:
I always have a saying that it's about you want to take as many shots at bat as possible, take the shot. And one of the things that enable FreightWaves to be successful is the fact that we are willing to take those low risk shots. And I think so much of business is serendipity and luck, and the entire story of FreightWaves is luck. We created a physical events business and that was sort of a lucky find, and we realized that hey, people showed up. We never imagined it was going to be successful. In fact, 2017, we created something called the Blockchain in Transport Alliance because blockchain was hot, and I wanted an excuse to call up CEOs and technology businesses that serve freight and said, "We're going to create this alliance of I didn't know nothing about blockchain. We're going to create this alliance." We announced it and I thought 30 people would show up to this event in Atlanta we were going to host four months later, and we had 150 people that showed up.
Well, these were executives at SMP and Microsoft and Daimler and all these major supply chain companies like wait, blockchain, you're going to bring a consortium and a standards organization to it. So, we created this thing and we realized really quickly that nobody really knew what blockchain was going to mean in supply chain. Let's throw an event dedicated to digitization of freight. That became our conference series. The media business was never made the initial pitch deck. And if you had told me I would be a media executive seven, eight years ago, I would've thought you were nuts. We early on tried to get press for this futures market and this data business we were building, and couldn't get it. We're getting turned down by the Chattanooga Times Free Press, which is the local newspaper, Chattanooga Tennessee.
Wouldn't even carry a press release because they were like, this is the most ridiculous idea I've ever heard of. I remember trying to find some way to get press, and I remember these PR agencies that started trucking also turned us down. They're like, "This is a really stupid idea." And I remember reading Convoy had signed a PR agency and I reached out to the guy, it was like, look, if they could make Convoy into this really sort of high disruptive company, then they could make us look cool too. And so, I reached out to the guy and he agreed to take us on, but at $40,000 a month retainer. This is 2017.
Turner Novak:
Yeah, what percentage of your seed round would've happened?
Craig Fuller:
We had raised $2 million and he wanted a year contract over the course of a years, a half a million, we had a million dollars or something left. I was like, this is the most ridiculous thing I've ever heard. And so, when I sort of balked at him, I actually think he quoted us that simply because he wanted to turn me down, but in a nice way, right? But a really high ridiculous price that you'll say no to is better than, and if you say no, it doesn't cost him anything. I mean, if you say "Yes," great, he gets a half a million dollars. But I think, so he told me, he's like, I would end up hiring your own editor and write. He's like, you have a really difficult topic. You should hire somebody to write blog posts. And I was like, oh, that's a good idea. So, we'll write our own. So, we put up an ad out and an editor at a publication called FleetOwner applied for the job and they had an editorial background.
And again, not thinking we would ever be a media business and not really thinking about the Bloomberg business model of ADAM Media. We hired this guy and I remember feeling guilty about it. And I don't know if you've ever had this situation where you sort of make this impulsive decision on something and then later you have buyers remorse. And I remember cash was getting pretty tight at that point in time and thinking about laying this guy off before he started because we really didn't know if the cash was starting to drain. And we kept him, but what was remarkable is he had an editorial background, and I told him when he came on, I was like, because he had already resigned his other job, he'd given notice. I felt bad. So I was like, "Okay, well let it," and I told him when he first came out, I was like, "You can't write about futures and you can't write about our business much.
You have to write content about freight and logistics and what's happening to drive audience. But you can't write about futures," but you need to make it very much what the creators do today on Twitter you've done, I've talked about this is like you have a Twitter account, use a lot of snarky humor about VCs, and you're hoping to drive eyeballs. And out of that by engagement, you hope that people get to know you and you become a venture capitalist. And that was the same instinct I had with FreightWaves was we wanted him to write about Amazon and digitization and trucking and these things hoping that it would drive interest in our data business. And so, we put him into it. And so, it became a lucky hire, but it never became sort of a core thesis of our business model. But then the hurricanes hit in Houston and he was on vacation at the time, and I didn't want to bother him, but I happened to have run in a previous life disaster logistics for FEMA.
And I knew exactly what, and it had been a while, it's 2017, and it had been a while since a major hurricane had hit us shores. And so, I had this experience of being involved in these FEMA Disaster Relief Projects and understood the logistics of a hurricane and all the relief supplies and medical supplies and all the stuff that's going to take place. And I was able to write it from a firsthand knowledge of it. And all of a sudden the site went from 40,000 page views a month to these articles were getting hundreds of thousands.
Turner Novak:
An individual article was getting hundreds of thousands?
Craig Fuller:
We were an obscure website that I had never written and published anything ever. And my grammar is, if you watch my Twitter account, I had grammatical issues allure and spelling on occasion, and we didn't have copy editors in those days, but the site blew up because all of a sudden this sort of firsthand knowledge, somebody with firsthand, and it was written in his name, so it wasn't like they said, oh, Craig Fuller, they thought they were reading Brian Straight. He got really mad about that, by the way, because I was writing his name probably because my grammar was so bad.
But the site blew up and we realized, oh my god, people really want firsthand accounts of these topics is the idea that a media business that is writing about things, a lot of traditional journalists will write about something they interview somebody, [inaudible 01:10:31] a couple of weeks after an event. This was sort of almost firsthand knowledge the way Bloomberg covers financial news where you have a lot of people with financial pedigrees writing about financial markets, the way ESPN covers sports where you have a former athlete talking about a topic.
Turner Novak:
Yeah, you're digesting it and sharing it live, as it comes in. You're just riffing on it, sharing the facts, adding opinion, weaving it in.
Craig Fuller:
Twitter has enabled almost anyone to do this today. If you have a deep knowledge of a topic, you can write about that topic and you can drive engagement. And this was something that the trucking industry just didn't have before. And that was a lucky break. I mean, hiring Brian was luck. The hurricanes and my experience in FEMA was serendipity. I took the initiative to do it just because again, I had some experience and we realized from that that this is something that the industry really wants. And so, we sort of decided to double down on media. The media business never even made the initial seed pitch deck. It wasn't even a concept that we thought that anyone would care about media. And so, just a lucky break. I think so much in business and entrepreneurship is luck, but you have to take your shots, right? I think in the creator world, you can probably see this most obviously on Instagram and Twitter.
I think creators learn this is just put content out there. Most of it sucks. Most of our content really sucks, and most of it will never matter. People will forget about the things that are meaningless. In fact, the algo won't pick it up, but you might get lucky. And if you do it enough, you get lucky more often. And that's the whole idea about taking shots, and I think entrepreneurship often is like that, is you want non-consequential bets. And in many ways that's driven the success of FreightWaves. It wasn't like I had this grand vision for the business, but I often was willing to take shots that enabled us to put us in the right place at the right time.
Turner Novak:
Yeah, it's almost like low risk, low effort, or quick speed or just quickly iterating testing. And then if something works, you're like, okay, let's lean into this. And that's the new business model.
Craig Fuller:
Your consequences are going to be low like you said. The risks have to be low, but you have to sort of take the shots when you have them. And I think that has been instrumental in our business model, is certainly been instrumental in our success. And as you find those successes and sort of building processes around them is also important. Because you can't iterate for constant chaos because that model of constant iteration is just chaos, right? Because always trying something new and there's a certain amount of people on a team that thrive in those types of environments, but they're often really not the right people in a scaled sort of professional process environment. But so you have to sort of overtime build processes and build a team that can professionalize it, but still wanting to stay in that entrepreneurial sort of experimental phase is important.
Turner Novak:
You had this one really interesting comment that I heard you say, you think that media businesses are the greatest arbitrage of the next decade, which I mean maybe I agree with you. But it is a very bold proclamation that kind of sounds, if you say something's the biggest opportunity of the decade, that's crazy no matter what it is. Why is that?
Craig Fuller:
Media businesses have gotten destroyed by investors. And look, a lot of it is deserved. I mean, if you sort of look at the media business model is these businesses come super hot and super quickly dismissed when they don't achieve their goals. But we saw Buzzfeed, we saw Vice, those that's what VCs all of a sudden discovered media and the last decade. And then those businesses have continued to struggle. A lot of consumer media has really, really struggled because the business models have changed. A lot of that was built in sort of the social media fabric where Buzzfeed and Vice figured out how to sort of hack the algo.
Turner Novak:
Yeah, they grew fast. The top line growth, just the numbers if you're looking at a spreadsheet were really good.
Craig Fuller:
What they didn't do was provide a ton of original thoughts and context and community around Buzzfeed was listicle article that then tied into pop culture and created, but really driven by the Facebook driving so much traffic. And then Mark Zuckerberg decided he didn't want to drive traffic to media businesses and basically cut them off. Well, that destroyed their business model. It was a one trick pony. And I think VCs have largely discounted media. And then you have traditional media like magazines and newspapers. Newspapers have really struggled to transition towards digitization. But you've also had magazines, which are often forgotten about in the media sphere that had these long tenured audiences. And one of the things that I think is pretty powerful, so I've been as sort of a side hustled, initially, I'm a pilot, fly small airplanes. During COVID, after I fired myself from every job that I had, became really bored because we didn't need to raise venture capital anymore.
Which is really, as a founder, most of what your jobs consist of is sort of raising money, dealing with investors and sort of shaping the narrative of the company. You get to a point if you're sort of lucky or fortunate or whatever, you don't need to raise money anymore. And all of a sudden you find yourself if you've actually built a management team with nothing to do, which was my story. So, as sort of a side hustle, I decided to buy Flying Magazine. I took up flying again after a couple of months of rediscovering my aviation passion. I've started reading all the aviation content. And Flying Magazine was sort of the magazine, sort of the Sports Illustrated for pilots when I was growing up.
Turner Novak:
How big is it, like subs?
Craig Fuller:
At the time it had 106,000 subs and the time I bought it had half a million of page views a month. So, it wasn't huge. It was sort of niche. At one point it had a couple hundred thousand subscribers back in the [inaudible 01:16:28], but the publisher had not made any investments in it, and you could just see this. And so, I reached out to the owner and said, "Hey, I'd like to buy it." And they said, "Well, it's not for sale, but I happy to talk to you." So, I made them an offer and they sold it to me and they started done as a side hustle. And I had learned this at FreightWaves, which was we had built our data business to about 10 million ARR without spending money on third party advertising. So, most SaaS businesses, sort of the first customers come from buying leads on Google or perhaps LinkedIn or maybe Facebook or whatever. And they're effectively buying or renting their audiences. They're renting the audiences from the platform and they're buying their leads to sort of generate top of funnel.
We didn't do any of that in the early days. We did the opposite, which was we developed media content that brought customers. So, most of our software sales and data sales were inbound very much like Bloomberg built its business model. If you look, I sit in a presentation with the CMO of Bloomberg a couple years back, and she said when she was the first CMO that Bloomberg had hired, they were an $8 billion revenue company before they had a CMO. In fact, the marketing department was three people, and she's like, we got to $8 billion simply through our media business. And that was the same business model that FreightWaves had had. And so, that was how we built our business model, was using the media business to drive top of funnel for data. And it worked great. And so, I realized it was a very efficient customer acquisition channel.
And especially if you can sell advertising off of that, which we do at FreightWaves, you're effectively using the contribution margin from advertising to fund your own SaaS, in our case, SaaS distribution. So, when I bought Flying Magazine, I had this sort of theory that you could apply this to any industry but hadn't proven it. So, I bought Flying and I wanted to create, again, a luck kind of conversations, serendipitous. I wanted to create a media center where we could do videos and basically bring aircraft into a studio, but you can't bring it to a downtown studio. An airplane can't fly into downtown Chattanooga. And so, I needed airport access, I needed hangar access. And so there's like five regional airports around Chattanooga and metropolitan or small little community airports, and none of them had hangar access. So, I found some land, I found 1,500 acres in East Tennessee, selling it in some old farm land.
It was an old farm for $2,400 an acre. And I made this purchase, I bought 1,500 acres. I'm going to build this community. So, at first it started off as, hey, we're going to build an airport and build a media center to wait a second. There is a concept in aviation for pilots, these fly in communities, and why don't we build homes next to the runway, so that pilots can effectively park their airplane? We buy this land and we started design this project. We start advertising it in our magazine. And over the course of six months, we had millions of dollars worth of reservations. People were pre-buying lots. We hadn't started construction.
Turner Novak:
So, are these hangars like to store your plane and park it or a home to live in, or?
Craig Fuller:
They're high end luxury homes that happened to have giant garages that you can park your airplane in. So yeah, I mean this is what it looks like is these are multi-million dollar homes. Think of it almost like Vail, you have a second home, essentially high-end luxury, but has a very large hangar, a very large garage that's 50 by 50 feet and 16 feet tall. And I can park my Cessna or Cirrus or HondaJet inside of it targeted to not the ultra-high net worth folks that have pilots that fly them, but pilots that fly themselves. And the way to think of this is if I am into boating, then I want to live near the Marina. I want to have a boat dock on Lake Michigan. Or if I'm into golf, I want to live on a golf community. Pilots who love, and I'm not talking necessarily about pilots that fly commercial, but there is some of those. But these are people like myself who happen to fly as a hobby.
This is something we love to do and we want to be at the airport. We want to fly around. We're not flying jets most of the case, we're flying small single engine airplanes because we love it. It gives us a sense of freedom. That is our target audience. And we found there was an enormous amount of pent-up demand for this project. And I learned that hey, this arbitrage concept of using media, which is Flying's audience driving top of funnel to sell real estate worked. And then out of that building on that model is we bought a couple of commerce businesses. So, I scout the DealStreams, the BizBuySell, and the acquire.coms. And I bought an commerce business on acquire.com for $10,000. It had done $6,000 in it entire history. And I had this idea, it sells sort of custom swag to pilots. You can get a custom, this is a phone case that has an airplane map on it. So, any airport in the country, there's like 18,000 airports. You can design a map, an airplane map, a navigation map.
Turner Novak:
That's the kind of product that might run an ad in a magazine for pilots.
Craig Fuller:
Correct. So, I bought it and my 16-year-old son wanted to be an entrepreneur. And so, he and I run this really tiny business together. We bought it, I paid $10,000 for it. Last year it did about $80,000 in revenue. But what I've learned out of that is that the audience, the Flying Magazine audience is I'm able to essentially what I would normally be paying either a digital media site or paying Google or Facebook or Twitter or whatever to bring customers, my customer acquisition, I can use my own audience either through email or through magazine ads or on site ads.
I can effectively own those audiences. I'm not renting them from anybody else. I'm producing content that drives newsletter subscriptions or drives physical subscriptions. And out of that, I'm able to sell them other products. And so, we also have bought a finance business. We ended up buying these airplane marketplaces. Now we're the number two aircraft marketplace for used aircraft. Think of what CarGurus is in the car business. We bought a bunch of small airplane, eight different marketplaces and put them into one sort of marketplace. And we realized when people are shopping for airplanes, what they want are-
Turner Novak:
Reviews probably, or.
Craig Fuller:
Well reviews and pricing data. So, we build a pricing assessment business on that where we can sort of guesstimate like CarGurus does on-
Turner Novak:
Zillow's Zestimate, how much is this plane probably worth?
Craig Fuller:
Exactly. It's like a Zestimate for airplanes. So, we built that, but we also realized that people need financing. If you're going to buy an aircraft, these are not even a small $50,000 aircraft, you can amortize it over 20 years, you can actually get some pretty nice financing arrangements in it. We realized that we should become the source for finances. We bought a really small finance business. And now effectively, these are almost, in many cases, these sort of connected commerce businesses are acquihires. You're not buying a big finance business. This is a business that did $140,000 in revenue last year. So, we paid $140,000. And what we're able to do from that is then scale it up. Because in December, I think it did like $85,000 in revenue. We only owned it for six months. So, you think about it went from $140,000 to $85,000 in one month.
And so, I bet a million dollar run rate on a business simply because we own the audience and if we can drive interest in it, we can sort of that top of funnel, I call it negative CAC, which is I'm selling in the media business. Media businesses make their money fundamentally from two primary ways. One is some type of subscription product if they have it, and advertising. There are other ways to make money at events and stuff, but that's really fundamental to media businesses is advertising and subscription. So, these businesses make money doing that. But really the power, and this is where that sort of massive arbitrage comes in, is by owning the audience, I can find tangentially connected products that I can serve an audience that already wants those products, products that they should be buying from me. And what it does is it changes the calculation from I'm dependent upon advertisers to I'm now able to drive commerce through my own efforts.
And look, affiliate marketing has been around for, since really the early days of the internet where companies put in links and that link pays you a commission. This is just one step further or taking it further, rather than sending affiliate traffic, which we do like a YETI cooler or a Garmin watch or something, you could have an Amazon link to it to go get it, or maybe the manufacturers own website. We do that affiliates an important piece of the model, but there are certain categories that don't compete with direct advertisers that we believe that we can also offer our own media opportunities or our media audiences opportunities that we can make a lot of money. And this is sort of the fly wheel in terms of why media businesses, I think are the greatest arbitrage play.
Turner Novak:
Yeah. So, instead of I think renting the audience, you own it.
Craig Fuller:
That's exactly right. You're not renting an audience. You own it. And that's why I think this is a very powerful opportunity, and I think AI is actually going to make these legacy businesses. So, Flying Magazine had been around since 1927. Yachting Magazine, now I'm the largest, not only aviation publisher, but I'm also the largest recreational marine publishers like Buddy Magazine, Yachting Magazine, Sailing World. Yachting's been around since 1907. These magazines have survived decades of technology changes and economic changes and wars. They're going to be around for a long time. They have audiences that deeply care about the content. And you're not paying much for these businesses.
Turner Novak:
Yeah, no one's interested in buying print magazines right now.
Craig Fuller:
I mean, most of our deals are uncontested where there isn't a bunch of private equity firms coming in to look at buying these businesses. Most of it is uncontested. We put an offer, we can close quickly, and we're the only buyer at the table. And what makes that really powerful is that we are underwriting these businesses. We're using the media revenues, we're using the media contribution, the advertising and subscriptions as essentially a way to finance the acquisition. What we're really buying is the audience. We care deeply about the audience, but we use the media contribution to finance the transaction.
And then out of that, the next questions that we ask are what can we offer this audience that they want to buy, that they should buy, and we can do it well? We're not just buy a finance business and basically let it be. We have to make investments like streamlining the application process and doing things that a finance business really cares about. We're building that as a real business. We're not just owning it and driving traffic to it. We're actually making investments the way any entrepreneur would. But essentially we're trying to serve our audience with very specific categories that they care about.
Turner Novak:
Yeah. And then if you think about your media business going against another media business, just kind of the typical model, your cashflow per sub or the value of your subscribers are way more than somebody who's not doing everything that you're doing. So, you can really, you can be more aggressive acquiring customers if you're readers, if you really want to because that those readers are more valuable for you too, which then lets you get an even bigger scale.
Craig Fuller:
A lot at our project in East Tennessee is $150,000 for a quarter lot. An acre, it's 600,000. And so, that customer acquisition model is really important. In finance, our average finance transactions about six to $7,000 in terms of the commission we receive for helping somebody find an aircraft. We've had some transactions that are $30,000. And so, aircraft value matters there. But you're right, we're no longer forced to think about audiences having to make money in subscriptions and in advertising. We're really trying to drive commerce. And one of the really important things as we talk to advertisers about this is our interests are directly aligned with theirs. Because we are not dependent upon advertising strictly to make a profit, we can invest in the best audience intelligence that money can buy.
Because remember, we are buying the audience. We're trying to find people to buy real estate or to finance an aircraft or use e-commerce, which means we're going to put a lot of money and capital into that audience acquisition, that audience engagement, and then audience data layer because we have our own reasons for doing so. And out of that, they become beneficiaries. We'll never get into aircraft manufacturing. I'll never all of a sudden open an aircraft manufacturer to go buy one. That isn't a business I'll ever do. That's oftentimes the advertisers. I'm never going to go compete with Garmin or SiriusXM. These are just clearly not something I want to compete with or ever would. But they have an aligned-
Craig Fuller:
Compete with or ever would, but they have an aligned interest with me as I invest in these audience development and engagement platforms and content, my interests are much aligned with theirs because they're also trying to sell products to the same audio.
Turner Novak:
I heard you mention that you made a lot of these big changes to Flying Magazine. You were like six months in and it wasn't clear that it was going to work. You took this huge risk. What happened there?
Craig Fuller:
So I bought Flying Magazine again. I bought it because I loved the content. But I, the thing about flying about most magazines is that an effort to fend off their demise. The whole magazine industry is just so bad. The whole supply chain is messed up.
So the old days of magazines, magazine publishers had theorized that having these very large audiences and what they call rate base, which is the number of subscribers of the magazine, was the most important fact for advertisers. And before the internet changed the way marketing works, it was all based on how big a rate base is defined CPM. So they all thought, hey, if I have a million subscribers to my magazine, then I can go sell a million. So it drove advertising, pricing and that's how most of this worked.
The problem is that marketers became really smart to this concept of that rate base was largely inflated because what the magazine publishers would do is they would effectively give away subscriptions to people that actually didn't care about the content. And so the magazine publishers, and you probably remember when you were in school, you would bring home this PTA form or if you were on a baseball team and you would have this donation thing and you'd bring it home to your parents and they subscribed with three magazines or something for $10. They would get Sports Illustrated and would have these magazines, a lot of that, or the people who knock on doors to try to get you to subscribe to magazines. Or back in my day when I had a City Bank credit card, they offered me three magazines that I could get.
I didn't really care about the content that much. I just thought, hey, I'm supporting this cause. And that's actually where a lot of magazines drove subscriptions was people who truly didn't care about the content that were basically subscribing to it to help up some other cause. And so these agencies drove the majority of the unit economics and magazines. So, Flying Magazine had lost money every single month since 2006. I looked at the data, every single month they had lost money on print and fulfillment. And I said, we're not doing that anymore. I buy it. I'm like, I'm not doing it and I'm also going to raise the rates. Average yield or the average subscription value was $8 a year. I said, we're going to charge $30 a year minimum. So raising the rate.
Turner Novak:
It's like 4x.
Craig Fuller:
4x, and then the next thing I did was I told the sales team, I want you to go raise the ad rates to all these advertisers. So I'm naturally not destroying the rate base, but I'm certainly turning out a good level of these subscribers who don't care about the content. I've increased it so naturally I'm going to have some level of attention in the market. And I've raised the cost of advertising. And my message to the salespeople, which got a lot of pushback was I want you to remind the manufacturer of that airplane. Maybe it's one of our advertisers, the cheapest magazine is a million, or cheapest airplane they'll sell is a million dollars. Some of these airplanes are $8 million, $10 million, $75 million. I want you to remind that advertiser that the number of people reading the magazine do not matter. What matters is that the audience is qualified, has the willingness and interest in buying that aircraft.
And I said, look, if a subscriber is not willing to pay $30 a year for Flying Magazine, either they don't care about the content enough to pay it, or they're not a prospective buyer of a million dollar or $8 million or $75 million airplane, do you honestly think someone buying a million dollar aircraft is crying over $30 a year? The whole logic is crazy. And I said, they don't want to reach 106,000 subscribers. They want to reach the hundred prospective buyers of that airplane. We can help them do that.
Turner Novak:
That's all that matters.
Craig Fuller:
That's all that matters. And this is true if you've got a young marketer that's grown up in the internet age where it's all about I want to reach the decision maker that's going to bring the LTV to understand LTV to CAC, what's my customer acquisition cost versus the long-term value? They get it instantly. But a lot of traditional marketers that have these long legacies didn't understand it.
Well, what we did in the first six months was all of a sudden subscriptions that were paying $8 on average now paying R30, a lot of them turned out. We lost a lot of that rate base went from 106,000 subscribers to 32,000. So I'm seeing subscription bleed out and I'm actually excited about this getting, I called them freeloaders people who just weren't paying much were leaving and I'm not going to lose money on them anymore. But then the advertisers also were like, no, I'm not spending more money with you guys. This is ridiculous. You're destroying the magazine, this isn't going to work. And for the first six months I thought we had destroyed the business. And I was like, I'm wrong. Clearly I'm wrong.
You talked about luck versus strategy. This was a strategy decision that I thought I had made a massive mistake. But then the magic hit after a couple of issues, we had also upgraded the quality of the print. We focused on this being what I call coffee table ready. It was supposed to look like a piece of art. You see these high-end magazines that actually have gone super high-end. It's what we did. We wanted something that people would be comfortable putting on a coffee table. They want framed, they would want something that's framed that they could have on the wall, and we focused on creating a piece of art. And all of a sudden after the third issue, we saw this massive influx of advertisers. We ended up like 260% a year over year in terms of growth in the fourth quarter.
We started to see subscriptions come back and all of a sudden we realized we hadn't broken it. We had solved the problem, but it took six months for us to actually see that through. And for a while, I thought we had broken the business model.
But the reality is what we had done was we had said, we're not going to lose money on a unit economic basis. We're going to create a profitable and successful magazine by focusing on what a magazine should be, and not what it had been defined as. And so that is really the opportunity is I think for founders that are looking at how do they acquire customers, is these magazines that have historically long audiences and duration, are an amazing resource because they had these long-tenured audiences that cared deeply about the content. And you can combine them with whatever product or service you're selling. And if you focus on quality, I think there's a really interesting opportunity there.
Turner Novak:
It's a really good lesson in just almost thinking from first principles, look at the business model. Look at structural changes in how the world has changed since maybe the model was built. And then seeing what you can tweak and what you can change and actually being bold enough or maybe stupid enough to go ahead on and make the decision.
Craig Fuller:
These are all asymmetric small bets, right? I bought Flying Magazine for a couple million dollars, which is a lot of money. Look, it's not a small amount of money, but it wasn't like if it went to zero, it wasn't going to bankrupt me. And I think in some ways, it goes back to what we talked about earlier, which is you want small. This was a big bet for my own personal investment, but it wasn't one that was going to destroy me.
I mean, you can in many ways call it a trophy asset for lack of a better term. I happened to turn it into a business. But I think oftentimes the best opportunities come not from what you expect. I mean most, I set out with FreightWaves to create a futures market. We certainly launched a futures contract, but we probably in the history of the futures contract when it was listed, probably traded 30 times total over the course of a year. It was a failure by every stretch.
But what we discovered along the way was that there was these other opportunities to create a really incredible media business in terms of information, news and analytics that became a very profitable part of the enterprise. I discovered from that that I love media and have an knack to how to build it. And we also created a really successful SaaS data business out of it.
I think those things in many ways were accidental discoveries that we never intended to do. And I think because we took some small bets along the way that serendipitously turned in successes, I think that is available to any entrepreneur.
Turner Novak:
So if you were to say maybe some key high-level takeaways on what were some non-intuitive things you've learned on starting running, acquiring a media business that just surprised you, or biggest learnings that you don't see people talking about in terms of how to be successful?
Craig Fuller:
Almost every media business I bought has been under-invested in. And I think what's happened is that this private equity has ignored this asset class, particularly magazines, but I think this is true for a lot of media businesses, a lot of founders that want to create media businesses. And I tell them, they're like, I'm going to go raise money. And I'm like, good luck. I mean, we even found this at FreightWaves. I mean FreightWaves Media has been a very successful media business.
But oftentimes in when you start talking to private equity because past the world of venture capital and the growth and private equity, post-almost Series C but we're focused on profitability more so than venture. It's a kind of different investor.
But most investors when we talk to them, are not comfortable putting money into a media business. They are comfortable putting money into a data business. They love SaaS, but I think they largely ignore a really important large scale media business. And so from our perspective, what I've learned is that private equity, just isn't investing in it at all stages along the cycle.
And this is true in acquisitions, you're talking about paying two to five times EBITDA and I talk to founders or people that are familiar with valuations, they look at me like I'm crazy. Really? You can buy a business that in two years pays for itself? And the answer is yes.
Turner Novak:
That's pretty crazy, yeah.
Craig Fuller:
It is crazy. But the really craziest part of that is the business can make money in a couple years and pay for it, but what you are left with is this residual audience. The asset you're buying is the audience and you're not paying much for it.
I think about all of these companies think about all of the SaaS businesses and the running joke among Silicon Valley is that the heydays of San Francisco was the primary beneficiaries of the venture capital boom was that real estate owners in San Francisco were Google and Facebook. I mean they have gotten the lion's share of venture capital poured into their businesses. And that's largely true.
But one of the things that I find so fascinating is that if the money that was spent on advertising and driving top of the funnel was spent to acquire an entire audience that the company owned and it was their audience. And as long as they continued to make investments in that audience and treat it as an editorial product, that they would effectively not have to rent that audience any longer, they would own it.
But I do find that, and we've seen this, a HubSpot bought The Hustle. Some other companies have tried to do it. Oftentimes, it ends in disaster because the company loses the founder and the founders media business just slowly dies. It is difficult for those businesses to get it. But I think the fact that private equity, growth equity and other startups and other companies have not figured this whole model out means that there's massive arbitrage for those that do.
Turner Novak:
Yeah, you basically have this profitable media business that then if you take a software company, insert whatever company you are plugging the media business into, instead of spending on customer acquisition, your customer acquisition is another profitable business inside of your other business.
Craig Fuller:
It's negative CAC and think about negative customer acquisition costs, which negative CAC is a term that I coined a while ago, which is if you take the customer acquisition in a traditional sense, I have one cost, so it's what I spend on a customer acquisition. But if I'm able to offset that customer acquisition through advertising or subscriptions contribution margin, and I'm trying to drive interest and engagement of my audience through that effort and I generate a profit off of it, I can actually turn my customer acquisition cost on my other businesses into something negative.
The advertising dollars can contribute to the P&L of the business and make my unit economics incredibly compelling because now I'm not having to spend all that money on Google and Facebook and other third-party advertising that effectively I'm able to pay myself.
Turner Novak:
So I'm curious if you've seen any other media businesses that you think are really interesting that no one talks about that you think are very good businesses?
Craig Fuller:
I mean Bloomberg would be, but everyone talks about Bloomberg, I think.
Turner Novak:
What about Industry Dive? They're pretty big, right?
Craig Fuller:
Industry Dive is great. I mean Industry Dive, Sean Griffey sold his business two years ago to Informa for $500 million. And then last night, Informa announced that they had sold off Industry Dive and merged with another company called TechTarget, which does top of funnel lead generation. A bunch of mostly the software and engineering and CTOs, they do lead generation for software companies. But they had announced that they had created this new company where Industry Dive's a part of it.
I mean, Industry Dive's a great business essentially creating content and newsletters for IT and software decision makers is essentially the whole idea. They go and create something called Utility Dive, which is for people who run utility businesses, but mostly trying to influence the way the CTO thinks about buying software for that utility business or Waste Management Dive, which is thinking about how to influence the waste management companies around the country on how to purchase software or products for their industry.
So that's his business model is building these very targeted newsletter products to these specific industries that do original and roundup reporting of an industry, and influenced the way they think about it. I mean, he sold that business for R500 million. It had a little bit of private equity in it that they had sold some of the business off. But that's the great thing is it wasn't a paywall. It was a traditional media business that did reporting. It was all newsletters and he sold it for four times revenue, I think something like 12 to 15x EBITDA. So a great outcome in a business that people normally would think is not that interesting.
There are some great magazines out there that have some fantastic audiences. I love Surfer's Journal and The Golfer's Journal, not because I surf or because I golf, but because they've taken that whole idea that a magazine is for the audience and it should be beautiful. I think they have created this beautiful piece of art in it. I think they're a wonderful inspiration for any magazine publisher and provider.
I think what we saw with Morning Brew and The Hustle, I mean, Morning Brew's business models are incredibly interesting. At the time they built this business and even somewhat today is they're not doing a lot of original reporting. They're essentially rewriting articles and providing a really quick summary of a business topic. And they've built this $80 million to $100 million revenue business by simply not doing original reporting, but basically rewriting an article that was in the journal or on occasion is in FreightWaves that we have to spend a lot of money.
Original reporting is very expensive, and journalists that can do that and do it well tend to be very expensive. That's a lot of hard work. What they've done is created almost a Cliff Notes version of it that's easy to consume on your phone and have created this a hundred million business. And so it's a derivative product of what original media reporting does, but has made it almost in some ways more profitable than the original form of it.
So I think that's interesting. I think the New York Times and what they've done in terms of regardless of where you live on the political spectrum, Fox on one side of it and the New York Times on another is also very interesting. New York Times is arguably the most successful subscription newspaper in the world. In an effort to fend off its own demise at one point 10 years ago, really doubled down on driving subscriptions. And if you've ever tried to not subscribe to New York Times or let your subscription churn, they will hunt you down. They'll show up at your house and hold you hostage until you resubscribe, it feels like. They are the most obnoxious subscription driving force on the planet.
But they have turned that business from a very strong advertising print version into a very strong to all of a sudden had almost died. That business model had died to a very strong editorial-driven, built its own community in it to drive subscriptions. I mean, one of the reasons that New York Times is so polarizing to a lot of people is that it is writing for its subscribers. It's writing for a very specific type of audience, and in doing so, it alienates people who don't have similar views.
But you could look at Fox on the other end of the spectrum is doing effectively the same thing. The reason Fox is so polarizing is that it's driving content and opinion on topics that a core audience deeply cares about. And yet people who are not in that core audience find it highly offensive.
But these are two examples from two different political spectrums that are actually very successful in their own right because they're reinforcing their audience, what the audience cares about in the narrative. And I think that's the reason a lot of media businesses have died is that they have tried not to provide a lot of context, and I think they've tried to stay very neutral, and frankly have become quite boring.
And I think that's what is really interesting about media is that you can be incredibly successful by having strong opinions. I mean, that's the way Twitter works. Twitter algorithm, is the people who are the most successful Twitter accounts, you know this, Turner, is having provocative content that's a bit polarizing. There are some accounts, that's what they put out is highly polarizing content to get a reaction, but have become very successful in doing so.
In fact, I know some of those contributors. I'm friends with some of them and I know their online personality. I know their offline personality and sometimes it can be quite different.
Turner Novak:
Yeah, no, that's 100% true. Sometimes it's completely different personality or I guess even sometimes once you almost institutionalize that creator where maybe it's my account, but there's a team running it. Or, it's the face of a person, but it's actually, there's a whole business behind it too.
Craig Fuller:
A hundred percent. I mean, I do my own. I don't use a team. I write my own content, and there's some days that I'm on.
Years ago, I hired a PR director that had spent some time with politicians. He was in the military, worked at the Pentagon doing some public relations, and he consulted on strategies. He looked at my Twitter account and he's like, Craig, and so he profiled every tweet I did. And he looked at engagement levels and he is like, when you write about supply chain topics and media business topics that you're viewed as an expert in or viewed as a subject matter expert, your account gets incredible engagement. But when you tweet about Baylor football or some other topic, he's like, you get zero engagement. He's like, that actually hurts your brand.
And so one of the things that he reinforced is focus on where your view is. Where your niche is really important. And that was something that I really learned is in order to drive engagement, I think driving and reinforcing your personal brand is really important. It's also important for media brands and I think a lot of this works out.
One of the great things about Twitter or X, however you want to call it, is if you want a lab on how to create a media business, go create an account on Twitter, and that becomes a platform because the rules that apply on Twitter also apply in building a media business. The types of engagement that drives a Twitter account is also going to drive the type of engagement in a media business. And I think it's a great lab for that. I tell our journalists all the time is they should have a presence on Twitter because I think, one is, it helps them become better writers articulate points. They get real time feedback out of it.
The other thing is, I think in an AI world where we're talking about AI writing largely junk content and maybe it gets better at it, is that human element, that human personality is going to come that much more important in the future because people consider it highly credible than just anybody.
Turner Novak:
It's going to be really interesting, scary, maybe I'm not actually that scared. I think some people are scared, but.
Craig Fuller:
I don't know that any of us are smart enough to know what it will be like. I suspect some of the doomsday people piece of that will turn out to be true. I mean, hopefully it doesn't destroy humanity, but there'll be pieces of it that probably turn out to be true.
Years ago I read this article where it's the old Gartner hype cycle concept, which is oftentimes when new technologies get created, is that people overestimate how fast things will happen, and they underestimate the long-term impact of these technologies. So we think AI is going to destroy humanity or change humanity overnight, or we think autonomous vehicles are instant and going to happen. We are expecting this technology to happen right now, but that's not actually what takes place.
But over the long-term, we couldn't have imagined the impact of Amazon or even social media had had on society. And these are true of technologies, and I think AI probably is there as well.
Turner Novak:
Yeah, there's this really interesting website I found, I'll throw a link to it in the show notes. But it's basically, it just shows newspaper headlines throughout history of all these different technologies. The radio waves were going to rot our brains or candles were going to fall over and burn our houses down or light bulbs were going to explode. And it was just crazy stuff where, yeah, valid point I guess, but.
Craig Fuller:
I went back and looked at the FLYING Media archives because we've been around since 1927, and there were articles in 1950s about women can't fly. Or, there was an article about women shouldn't be pilots. There was an article about that being a pilot, because of the ultraviolet rays in the atmosphere, would ruin your sperm count. You would become impotent as a pilot. There was these weird theories that people thought would happen with these technologies that just were just absurd.
But you can go back in these, like you said, in these old archives and see these things. Cell phones, I remember my age, and you still occasionally hear this as people think that cell phone radiation is going to cause brain cancer. These were concepts that in the '90s everyone was talking about does a cell phone cause brain cancer? Clearly with as ubiquitous as cell phones are, we don't see this massive growth of brain cancer. So that has not played out.
But I think a lot of times we as a society are always scared of the things we don't know because in some ways we feel like we can't have nice things. Surely this can't all be good. So it is just an interesting way that we think of things.
Look at nuclear energy. I mean, nuclear energy is incredibly safe, but it got a really bad... we stopped investing in nuclear energy because of the concerns about the meltdowns that would happen and it would destroy these entire communities.
Turner Novak:
We've seen the videos, we've seen the headlines like, yeah.
Craig Fuller:
Scared the hell out of everybody, but the technology is largely safe. And what's amazing about that is that we have oversubscribed to dirtier forms of energy because we're so scared of something we don't understand. But I think the future, we've largely learned that nuclear energy can be incredibly safe, but it's also in a great way to offset emissions. Eventually these technologies, the fear of it can actually force us to make really poor decisions in the short-term where I think that's why investing these technologies can actually create promises and new technologies and new opportunities that we never would've imagined.
Turner Novak:
Well, this has been a great conversation.
Craig Fuller:
I really appreciate it. Thanks for reaching out.
Turner Novak:
This was a lot of fun. Any plugs for anything? Follow you on Twitter? How can people find you?
Craig Fuller:
Yeah, @FreightAlley, so you can reach me on Twitter, @FreightAlley is the best way to reach me. It's how I respond. I don't typically respond to a ton of LinkedIn messages, so @FreightAlley is the best way to reach me.
And you can also check out if you're interested in supply chain, nearshoring reshoring concepts, Freightwaves.com is the best place for that type of information.
Turner Novak:
And you guys have a newsletter?
Craig Fuller:
We have a newsletter, we have a website. We've put about 30 to 50 articles a day. We have a lot of video, a lot of interviews, so you certainly can subscribe to the daily newsletter, but you can also check out the website anytime.
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