Bootstrapping An Eight-Figure Business | Michael Martocci, SwagUp

0:00all right we just finished recording a dope episode with michael martochi the ceo and founder of swag up i personally came away with a ton of new learnings and actionable insights on business building what do you got so for me the biggest thing was this whole idea of abstracting away complexity from a fragmented kind of crappy industry and that was like what he did he went in bootstrapped a business had an amazing cash conversion cycle which we got into and has grown into quite a juggernaut totally i think my big takeaway was how do startup founders use debt not venture capital to finance their business and

0:42he shares a few secrets on that that i don't think a lot of people know yeah there were some great hacks in this episode you're really going to enjoy it if you're a builder tune in by now you know that i love going down rabbit holes and today i get to share one of my secret tools with you tegas in today's market we don't have time to spend weeks getting up to speed on a new company industry or idea tegas is the fastest way for investors and m a teams to learn everything they need to know about a company all from an on-demand digital platform tigas is the most extensive source of

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3:09all right we did awesome yeah we're seriously stoked to have you here so thank you for taking the time um so i want to get into this pretty quickly i guess because i have so much that i want to talk about what can i say how casual it is by the way can i start yeah dude [ __ ] start man and you can curse and by the way this is all post-production so like say anything you're like [ __ ] i shouldn't have said that tell us we'll cut it out yeah yeah you should curse yeah it's way more fun that way and we're drinking tequila

3:37so i'm going to pour some while you're so yeah was it sponsored by these uh yeah como's man you should if you've never tried it it's the best tequila in the world it's so good so swag up thank you continue no it's a great business um from what i understand like you i mean we're late check out as a customer so you help when a new employee joins late checkout you basically send them a box of swag and it's awesome because people feel welcomed and and it's just seamless for like the company we don't have to like think about it yep you're a bootstrap business is that

4:16right for now yeah can you talk more about why you bootstrapped it and how that experience has been yeah for sure well first off like it wasn't meant to be this huge company you know like when you're an entrepreneurial kid you start lots of businesses like i had you know started when i was five years old selling things outside my house and it evolved into like ebay buying sewing trading cards and stuff so this was just one of many different things that i started and it just so happened to really take off over time but in the beginning it was just like startups love swag and there's not the go-to brand in

4:52the space to you know that every startup goes to you know because if you think of business cards everyone went to moo you know stickers everyone goes to sticker mule but swag was a much bigger market you know corporate gifting is a 200 billion dollar market kind of cause you there how did you realize that like when p people that are listening to this they're young they want to go build something they're ambitious what did you do to actually like happen upon that exact realization that swag was a big industry and no one was doing it well yeah and i don't know anybody in this industry or anything like that you know

5:23the the reason i i got into it and learned about it was in college me and a buddy launched an app so again just another one of the ideas or businesses that were started and the app was called click and it was basically a way to find kids on campus that are trying to play volleyball or you know doing this or that and you can see a feed of live events going on and in the process we want to put custom flags in the dorm rooms because you know i saw barstool sports had done really well by promoting on campus putting flags up in parties and stuff so we want to get flags and

5:50they were 140 in the u.s to just get like a polyester rectangle and i was like this is crazy expensive and then i got introduced to alibaba and found a supplier over there for eight dollars to get these custom flags so while we were launching the app i was like why don't we just get a little side website going and resell these flags from overseas suppliers so that's how i first kind of forayed into custom printing and then you know fraternities would be like hey can we get t-shirts from you and stuff and then you know i learned i knew the people that did trump's campaign merchandise

6:20too and i i went on their site one day and i saw on the bottom that was like powered by this you know network of distributors or suppliers and i went in there and you can see like there's all these suppliers you can get hard goods from like bottles and notebooks and so now in the back of my mind i had this like whole supply chain that that i was aware of um and i didn't do you know swagger wasn't then the natural progression after that but i always had that in the back of my mind and then i ended up you know i dropped out of

6:44school became business partners with an nfl player this guy and the giant steve weatherford oh yeah and we started the most jacked guy in the nfl insanely jacked yeah we were leveraging that persona to build like a fitness brand around him so we launched like training programs physical products and stuff and even with that we were bundling the digital programs like physical items like shaker cups and you know resistance bands and stuff so still in the back of my mind i knew about that stuff and then i ended up leaving that and joining a vc firm in new york city for like three four months a family friend of mine and

7:14this is where kind of startup and so i came together because i'm around startups every single day and you just realize like they're coming in they barely have any traction but the first thing they have is like t-shirts and you know mugs and all this stuff it's the first thing you do you get fun and you make a logo you get swag and you know if you there was just no company that stood out as like the startupy version of a swag company you go on these sites and for imprint and vistaprint and stuff and these sites look like they're from 2003 or four and they throw you into a sea of

7:42like way too many options and i wanted to build a brand that kind of resembled you know stripe and the types of you know platforms they're already using you know from a software standpoint but in the swag world so so one of the things you hit on there that i think is really actionable for people that are trying to find a new business idea like oh i want to be an entrepreneur they're entrepreneurial maybe they did lemonade stands like i read about your background you had done all this stuff since you were a kid which i always admire by the way because i was like [ __ ] around playing sports

8:10and to this day i'm about to have a son like what am i going to teach him and do i want him to like be [ __ ] around playing sports like me or do i want him to be doing entrepreneurial things and starting businesses and poking around with stuff and i always really admire it but one of the things it's clearly part of your ethos but that people can take away from it when they're starting businesses is like that curiosity that you had where you were starting something totally different click and you were going and looking at the flag and you were like well [ __ ] man

8:38this doesn't make sense that this costs 140 here and it costs eight what can i start with that well i could resell the flags then someone else asked you a question can you make t-shirts and you're like hmm yeah like the curiosity to say hmm maybe there's something bigger let me go ask a couple more questions about it like what else might you need how could we do more with this that is a really cool thing of like if someone is just trying to go start a business just start asking questions about the stuff around you that people are struggling with to like start trying to

9:05find those little you know nooks and crannies it's so much easier now to start things you know like the you have to get over that initial hurdle of like zero to one of like just getting something started once you've done that a couple of times then it doesn't seem scary anymore you're like oh it's very easy to start this website start that there's free tools to make you know sites and use zapier to connect them and all this stuff and a lot of the initial swag up site that did millions of dollars was all just hacky bootstrappy free stuff so i think it's you got to get into that creation

9:32mentality where it's very easy to you know start you know seeing problems and creating solutions versus thinking about all the reasons it's not going to work or why it's too hard to do it you know we were talking about this earlier so i want you to talk about this too of like the whole like i don't know i call it lego blocks as a framework but basically we live in this world now where like with low code and no code you can just go build you know hack something together to as you said like you go test your minimum vial minimum viable product you can hack together over a weekend

9:59probably with like developers in eastern europe and like a bunch of low code no code stuff so like do you have any reactions to that i mean my one of my takeaways is is you started with the community right like it's not like you're like hey let me go build swag for everyone you had like a particular community in mind that you defined like a particular type of startup and then from that you use the lego building blocks of no code low code to piece it together and then tell a story that really resonated with that group of people yeah the one of the books that i read leading up to

10:35swag up was the purple cow from seth godin and it's all that idea of like if you're gonna stand out in this world that's so noisy you have to be like instantly remarkable you know if you walk by a farm and you see a purple cow you're like holy [ __ ] like that's a purple cow like i've never seen one and the first thing you're going to do is you're going to take a picture you're going to share it on instagram you're going to call somebody and be like i just saw a purple cow and the idea is that you need to embed like this purple

10:57color nature into what you're doing so that when people see it they instantly are like this is different than anything i've ever saw and that was the the idea first around focusing on high growth startups and ones that are looking to you know buy their time back that are looking for modern solutions to problems but then we niched down even further and focused in on like the swag pack concept that's you know i called a trojan horse or a mouse trap into the door with all these companies and because i was always looking for like how can we even dive deeper than that because with the custom

11:24flag business i learned about the supply chain but i also realized that you can't build a successful business just being like a cheaper provider of these products you need to figure out like who what community like you said do you resonate with and what's a specific thing you do better than anybody else in the world and that's what we've focused on there's been so many times where we could have diverted the attention and you know do new product lines or focus on other areas and we constantly kind of try to stay in this like lane that allows us to grow really quickly and then then move out of it over time

11:53this is a great business building framework in this of go find a massive industry so like the swag industry big fragmented tons of money flowing around no one's really doing a great job find an underserved community to your point in this case startups and basically just deliver the best product like exactly what they need no more no less and just go in and create the product for them you go talk to i i bet you could literally do it you go find that industry you find the community you want to focus on go talk to a hundred startup founders i mean you also don't even initially need to build the product for

12:25them that's the that's the hack that no one talks about which is if you could tell a story that resonates with them they'll bear with your product that isn't all there yeah say that again like what do you mean go deeper when you go to vistaprint as an example um i probably haven't been to visit prince in 2004 or whatever either but if you go to it um it and you're a startup founder it doesn't resonate with you when you read the website and when you see like the story that they're telling that you'll you'll look at it and be like okay maybe i can figure this out

13:00maybe i i could like it feels like amazon right there's just like so much option and it doesn't connect with me if i go to let's say swag up um it feels like it's speaking to me and that's like a uh it gives me a warm and fuzzy feeling so i think that people who create warm and fuzzy feelings basically as a way to to storytell is is the huge unlock when it comes to marketing you mentioned purple cow i think that there's if you want to learn anything about marketing there's only two books you need to read the first is purple cow i've never read it i need to go read

13:42that i said go did you're gonna read it tonight you need to read it tonight yeah it'll tell you how to stand out i wonder where you're going to say the cycle and i wonder if it's the other one i know it's inte it's also a seth godin book actually it's tribes by seth godin have you read that i have it but i haven't read it yet well it's a short read it's probably from what i remember like a hundred pages okay community building before community was a thing yes that book changed my like changed my life basically i read it in probably like 2005 maybe is this what originally got

14:14you into community as an investment thesis and as a business building thesis i i had always like been into community like i feel like people who are into community like you don't choose community community chooses you um so always like into like internet forums and stuff like that when i read seth godin so eloquently describe tribal nature basically and how why people come together and how you can use that from a storytelling mechanism that basically told me that hey like this isn't just some fun thing that like internet kids could do this is something that like real like seth godin he's like a new york times bestselling author he's

14:58like maybe 15 times and he's a real a real trusted source that is telling me at the time 15 year old kid that this is the way so that's what made me believe that you know it gave me the confidence to be like maybe i can have a career out of this there's another book similar to that called fizz that's really good it's about where to mark where to mouth marketing and virality there's a really big viral nature to our business and then another one that's like a classic marketing book is called positioning by al riese and jack trout which is all about like you know planning your

15:34business in the minds of people and tying it to something they already believe in and so that you'll be remembered and it's very similar to purple cow you know nature can you talk about the viral point that you just made because i hadn't thought about that until you just said it but like your product is visual your product is also surprise and delight because companies are sending this stuff and you're getting it and you're like oh holy [ __ ] one of the benefits of having a physical world business yeah where like they want to tweet a picture or post a picture on facebook or instagram

16:01or snapchat or whatever of like holy [ __ ] this new company i just joined just sent me this swag pack so how are you like how is it clear that it's powered by swag up when that happens or is it just like implicit because it's a startup doing this and you know there are customers there's a few things i mean we have a channel in our stack called swag in the wild and every time we see one of these out in the wild we'll throw it in there and we make newsletters out of it we'll show our customers as like social proof but there's a lot of it you go on

16:28twitter you go on linkedin you'll see a lot of it and i think one of the most interesting things that we've accomplished is that swag up swag means something versus just swag you know like you can buy a notebook and a hat but if you're a startup that didn't get at swag up you almost took like the cheap router you didn't go with the brand that companies go with and even without us prodding you'll see people on linkedin sharing like oh we just got our new hire swag packs from swag up like at the end of the day we're selling a commodity why are they tagging us they're tagging us

16:58because there's some sort of value and brand like around what we do that showcases that hey swag up is the best they do it the right way and we're proud that we work with the best type of company i think if you can build that connection for your brand that's like a huge huge unlock because now it becomes this sense of like you know ego in a way like we need to be working with them or else it means something about us like we don't you know and that's the focus of when you work in a tight community everyone knows each other you know and one they start

17:26telling each other like hey we work with swag up you guys should too but also like if they if they see you working with another company maybe they think like oh they don't work with swag up like why is that but then the other viral nature to your point is like our products are out there in the world all the time we every customer we get has an uh exponential growth in terms of how many packages are out in the world yeah that people get and naturally if you get a package from a company you know let's say you really love ramp and ramp sends you one of their packages that we made

17:52for them like swag packs you're gonna go to kareem or eric or somebody at ramp and be like hey these are awesome like where'd you guys get them like how can we get them and you and they'll say oh so i got they're the best reach out to them we also put our logo on the bottom of every custom printed box so if you flip it over you'll see a small swag up logo on the bottom of the boxes so that also helps a little bit but it's almost like type form you know powered by typeform they have that there and gets people to want to do that product like

18:17product like growth i was just gonna say exact thing because we've talked about this a lot of like the most amazing product led growth that we normally see it in like software and tech products where you see like superhuman have the sent by superhuman email mercury uh is amazing with like their wire sheet is just beautiful and it's an amazing wire sheet a beautiful product great product like growth this is a really cool example of product like growth in physical products where it's out and because it's like integrated into what is naturally already a pretty exciting process of like you've joined a new company you typically announce that

18:54on linkedin or on twitter or facebook wherever and now you're tying it to a physical product that these guys are integrated into it's like a really cool natural acceleration high k factor activity one of the other digital components is like we do these redeem pages where companies could build out a little landing page and send it to the the people the recipients and those also will say powered by swag up towards the bottom so like every new customer leads to more new customers i don't know the exact viral coefficient of like one equals 1.8 or 1.9 but every incremental shift like one leading to 1.5 and one leading to

19:271.6 has a huge exponential difference so if you can drive that let's tie that back to bootstrap businesses so what you're what you're talking about is like the dream of any vc right so now you started this bootstrap business um you're hitting some scale i don't know if you can share like what sort of scale you're hitting um tens of millions and bootstrap also makes you do things like this you know because the constraints you don't have to the capital to just pour hundreds of thousands of millions of dollars in the market so you have to look for the ways that you can drive growth in a way that

20:04doesn't cost you anything you know so we've always focused so much on like the user experience the customer experience so that they can become our advocates if like because then you know that if you pour money on top of it it's just going to have an exponential effect versus oh you're just so relying on capital to get new customers and they don't really love the product they just you know you were able to buy them basically is would you ever consider raising venture now that you're at this point of of scale and yeah for sure i mean there's so much that we want to do long term from a

20:35technology standpoint to just change how this industry operates you know and be more of a supply chain api layer and that requires like the best engineers in the world the best product managers in the world and it's just going to be a slow slog if we want to keep going down this path and and it's like one of those things like it might not even make the most financial sense to to raise money for me personally as a founder because i own so much of it my life is like nice and chill you know we run the business i can keep doing it and we'll build a several

21:02hundred million dollar company but at the same time i get more enjoyment out of like seeing the vision come to reality than just like milking a business like for cash flow or something so you know we've always reinvested all the money back we've always taken low salaries we've always be you know we're growing two to three x a year you know we'll like for a sense of scale we'll do 55 million plus or minus this year next year we'll do over 100 this month alone we did eight um so things are moving really quickly and again without raising any money and we're always like redlining like we're

21:33always at the very you know edge of like how hard we can go and you know the resources we have and what we can do with them and like i said it forces a sense of discipline and i think that bringing capital into that environment in such a scrappy environment we can use that capital so much more effectively and efficiently than another company that's so used to buying their product like solutions or paying away their problems um you've learned capital allocation from the ground up like you've had to be an extremely efficient capital allocator because of the fact that you didn't have capital and so now bring capital into

22:04that you already have built a really efficient capital allocation one dollar is not the same for everybody sure you know one dollar for us might be six dollars and one dollar for could be you could be very different it could be 20 cents so i i think we have you know we've proven that we can get a high return on capital when yeah when we have it now that doesn't mean we're just going to raise 100 million just you know to get a good article out of it if it's going to sit there you know and i think there's also a big use of debt too you

22:31know when we have a physical business that's relatively predictable you raise some equity but then you follow it on with debt or you want to buy companies or vertically integrate the supply chain just raise debt you know these are predictable businesses i don't think enough founders understand how debt works or you know they get spooked out of it by equity investors like oh debt's bad don't use that you know it can be bad if you don't know what you're doing can you talk more about that like i feel i feel like you're totally right like you know a lot of the founders that i know when they're thinking you know they're

23:01running a technology business they're just they only think venture um so how do you you know what's your advice to to founders and and how did they learn more about debt or how you know how did they use that to their advantage well first off i have a finance background you know i went to school for finance i worked at a hedge fund when i was 18 you know as an intern that was the path i was going down so i think there's a really big advantage to understanding finance in startups if you're going to be the ceo or leading the company because every business you know and keith or boy

23:33will say it and others it's like an equation you know the whole business is just one big you know algorithm and one big equation there's all these inputs and levers and leads to outputs and you need to be able to model that out and understand how that works and and then when it comes to fi you know resources and capital for these businesses you know different types of capital are good for different things like if you're taking bets or long-term you know investments in the future debt is not a good idea like you need to be able to cover the cost of that debt over time

23:59and there's a chance those investments don't pan out but it's when you have predictable cash flows that are going to be derived from the investments then it's just an ass a measurement of what's more expensive is is the dilution more expensive is the cost of capital more expensive you know the cash that you're pulling out of the business in the meantime but if you're let's say you're buying a cash flow positive business like for us we want to let's say we want to buy a screen printing facility to vertically integrate it would make no sense to raise equity capital to purchase that business it already has cash flow we can just get

24:29debt at a very cheap rate we know the cash flow from the business is going to cover it you can even spin that out as a separate entity that doesn't impact you know the main swag up business or something so you just have to be really smart about like how you structure the business it's an important concept so i similar background yeah so i spent seven years in private equity and so got very familiar with that because leveraged buyouts were the game in private equity and we didn't over lever things in the way that like barbarians at the gate and people think of private equity but one

24:57thing that i learned intimately was the whole idea of cost of capital and when you think about the cost of debt capital versus the cost of equity capital like equity investors expect a 20 plus percent return on their investment debt right now you could probably get yeah yeah depending on what it is four to seven percent four to six percent depending on how risky and where does the founder go and find that debt well if you have investors coming in on the equity side it's very easy because then you have like the stamp of approval from an equity investor and you can raise on the back of that like svb won't

25:30even talk to you unless you have you need that equity although mercury is disrupted like there are companies now that are disrupting that where if you have a bank account you're doing other things like mercury has now branched into doing venture debt because they can disrupt svb with that companies like that i think are very interesting like uh pipe cap chase these companies that are doing like clear co doing revenue financing where it's mostly for sas companies so they haven't quite branched into stuff we're talking about with physical but non-dilutive revenue financing another interesting like paradigm shift within um within these markets that again can be much

26:06cheaper i'll give you two more unlocks too one is local banks you can actually go to and they'll have you know very loose easy terms for small amounts like fifty thousand a hundred thousand hundred fifty thousand and there'll be maybe no personal guarantee they won't want the first position on the debt and you can stack them you know so you can go to this bank and get 100. you go to td bank and get 150. you go to this bank and get 50. and now you just got 400 000 in lines of credit and and debt that didn't really you know at a four percent five percent six percent rate and they

26:38don't care if they lose 50k they want your business as a customer that kind of stuff so we did a little bit of that that's interesting in the early days and then the other thing is if you do let's say you go to like a santander bank like a local bank and you get 100k and now you want to get 300k in a rev like a line from them or something me as a 22 year old at the time or 23 year old is going to be very hard-pressed to get santander to give me another 300 000 they're going to say first off the business doesn't have a lot of

27:02credibility and you're 23 years old so what i did early on was i brought in a partner into the business that was the finance person you know the back end compliance finance legal all that kind of stuff artem and he already had small banking relationships so i inherited his credibility into the business and he can go to his banker who he's worked with on other businesses and be like hey you know we've worked well here i'm now part of swag up can we you know can you help us raise raise a little bit of debt and you know that's that's like a cheat code i think is if you can inherit people's

27:33credibility to get their relationships otherwise it could be hard you know if you're just starting out like not many people want to give 200 000 you know lines of credit or something to some business that has no revenue and it's started by a 23 year old the sba loans were like the original genesis of a lot of this like people would go get an sba loan but a lot of times those came with a personal guarantee and so if things went sideways you were stuck for the next 12 years whatever having to like have a portion of your income go towards paying it off my main idea when

28:01i was starting it once we realized it was going to be somewhat successful and there's a whole entire idea of like cash conversion cycles and when you have to pay out and when you get paid that is a huge component of how we were able to do it first off um but the the idea i want to talk about that actually sorry so i'm gonna i'm gonna i'm gonna pause you on that because so cash conversion cycles is a super interesting business concept that i don't feel like people dive into enough but like the whole idea of a working capital cycle and being able to actually collect cash on a

28:32faster cycle than you have to be paying it out to your vendors or your suppliers that is a huge unlock it's going to be the difference between two businesses that do the exact same thing and one that grows at 100 one that grows at 20 or goes out of business because growth so the actual math of it is that if you have negative working capital when you're growing you actually are funding the growth with the cash that's coming in from this and you don't need to put money in negative working cap or a positive working capital business means like i have to pay for inventory before

29:00i'm receiving cash for my customers that's a typical apparel business because they have to pay vendors on 30-day terms and then they receive cash from their customers on like 60 day terms and that's really bad because when you're growing you're actually just bringing in cash much slower than you're having to pay it out your business three legs for cash conversion cycles are how long it takes you to pay out your vendors or how long you get to to pay out your vendors how long it takes you to collect money from people and how much money or how many days you have of inventory sitting there how much cash is

29:28sitting in inventory for us in our business everything is just in time manufacturing so the inventory component is out so that's a you save 10 20 30 days insane of working capital there that most businesses have to put out and then it's a matter of you know selling the story to the vendors and and trying to get get credibility with them to give you as far out terms as possible net you know in the beginning it might be hard you'll get a couple net 30s the rest will be like no we need you to pay until you start to build up credibility but at least it's still only when you collect

29:55money you know and then we try to collect as much as possible up front the good thing about working with startups is they're not amazon walmart and facebook where they're going to be like no we only pay net 60 you know screw you guys we and since we're doing custom goods where those goods aren't really useful to us afterwards we can say hey no you need to pay us right now before we start because we don't want to sit on a bunch of you know stripe hoodies that are useless to us now after you know because you didn't pay us um so you know really thinking about that is super

30:23important i think we have a negative like 16 day cash conversion cycle so like you said as we grow we get to sit on you know every million dollars for 16 more days so every you know as we keep keep growing we're able to fund more and more over time i mean it's it's this is like the maximum iteration of this is like warren buffett and berkshire hathaway like having insurance companies having a float where you collect premium up front from all these people for something that you're not gonna have to pay out until a much later day so you have all this cash that's just sitting there that you can

30:55do things with in a business like this you have all this cash coming in from your growing customers and you can use that to invest in things you can pay all your employees with it like you have all of this capital that you're actually as you grow amassing and accumulating that you can reinvest in things you got to say like a lot of people are like oh they just want to go straight to the software and just build software that's very expensive and the payback periods are long but if you take a business like the one we have it can become a bank for you to build

31:21software you know one you get to learn about the customer you get to understand the problem so it's almost it's like the agency style you start with an agency you build tech later because you under you get paid to learn the problem and you get customers out of it and they're giving you the capital that you can reinvest without deluding yourself so i what i was trying to say before that i couldn't get out was every day you can push raising money out you're saving yourself lots of dilution because the the risk in the beginning is so high you know investors are going to want 20 25

31:50on a seed round because you haven't proven anything so every every little thing you can de-risk you're gonna save yourself five percent ten percent that equity is so important and so if you can if you can be really scrappy don't spend a lot of money personally get a few customers in the beginning you're going to save yourself tens of millions hundreds of millions of dollars down the line by just saving you that five percent ten percent fifteen percent um versus just the easy route of just going straight to raising the money because you know you're going to use that money just you know figure out the problem

32:19you're trying to solve or you need you know and some people aren't in the same position like they need that capital to get out of their full-time job or something but the more you can avoid that you're going to feel much better about it like two years down the line can we talk about this whole idea of apps abstracting away complexity as a business like twilio is the best example that i can think about as a public company of doing this they took messaging which was this super messy thing that startups and small companies didn't want to deal with it was like really hard to set up and

32:50hard to cobble together and you just didn't have time to do it and they took that messy back-end process and abstracted it away into this simple api first company you've done that with this industry can you just talk about like how you thought about that where it came from yeah it wasn't the natural like inclination from day one it was the you know over time understanding the problem and the way the industry is set up in the supply chain you start to realize like what is the best way to solve the problem in the industry so you know as we started to gain scale and get a lot of customers you hear the same

33:23problems over and over again about how they deal with it and that helps us build like the front end but then you also realize it's so fragmented there's 30 000 swag companies 30 000 that's basically do the same exact thing 90 of them are doing under two and a half million so if you just think about you know that's that's a 30 billion dollar industry and like i said corporate gift things like 210 billion so if you think about that network you have you have 30 000 swag distributors millions of customers and hundreds or maybe thousands of suppliers so if you think about all the nodes in a network like

33:53that it's hundreds of millions of one-to-one connections and they're all reinventing the wheel over and over and over again you have a swag company in milwaukee that has their own warehouse they have their own tech team they have their own designers they have their own you know relationships with these suppliers the suppliers have to have 100 or thousand people sales orgs or account management orgs to deal with all the volume and it's just wildly inefficient for for the world in general and it's you know it eats the margin in in the industry because there's so much manpower involved and if you think about the the biggest swag companies some of

34:25the biggest ones they're just private equity roll ups you know they there's a company called halo they do like 850 million and they just buy all these smaller slide companies but they don't unlock any sort of real efficiencies or scale dynamics and they don't use technology they just aggregate all these people so there's 10 000 people that work at halo you know 5 000 people whatever it is so to me there just seemed like a much better way to utilize shared resources you know and i you'll have to give credit to dak our cto as well because when he came in he also saw this and he

34:56decided when he was building you know the first version of our internal and external like platforms to start with apis and then build around it so it wasn't it wasn't meant for external users yet but it was like let's start let's build those apis it's the right way to build our infrastructure knowing that one day people might want to tap into that you know directly and build something else with it or build the same type of thing and compete with us or whatever so you know then i started to do the research into companies like twilio and plaid and stripe and how they're set up and how you know they're

35:24able to scale so so greatly and how they're able to enable creativity at scale because they take care of the boring hard stuff that it's really inefficient for people to continue to solve that same hard problem like let one company solve it so but those principles haven't really been applied to the physical world as much the physical world is still so messy and hard to deal with um so you know as i started to think about the competitive nature of the swag world like we can keep going with swag up.com and be the best swag management platform and stuff and we'll continue to do that but

35:55to me everyone it seemed like everyone was running away from the supply chain you know that was the hardest problem and nobody wanted to deal with it and even if you see companies like um you know like sendosos and snappy gift there's all these like both sales enablement platforms and sales marketing and also like employee experience platforms and they want to leverage swag in some way but they all want to partner with a company like us because they don't want to touch the physical part of it because they just like you know being the software layer making it really simple and not getting in the weeds with

36:23it so as i saw everybody running away from that part it's like that's where the real value is that's where like the mo and the big opportunity is if we can just kind of consolidate this industry aggregate all the volume coming through us as this central control point both the supplier and supply chain side will be much happier because it's one centralized place to interact with all the demand and then on the demand side and the distributor side they now have best-in-class technology to scale their business and they can just focus on customer relationships you know partnerships expanding revenue within the accounts they have and not

36:56worrying about the actual fulfillment of orders execution running a warehouse running a tech team and a lot of these companies don't have the capital or even wherewithal to know how to do those types of things you know so we we feel better about empowering the industry and making it more more efficient at scale than being the one that's going to go out and acquire every customer and also that's very expensive to acquire all the customers there's you know there's so many different niche types of users that utilize swag for different reasons and the way that i think of it you know there's a swag company probably in

37:25michigan that's really good with like the hospital systems in michigan they really understand that market they have there's still a big relationship component to these types of sales too like i know i know the director of you know hr at you know university of michigan hospital system like are we going to try to spend all this money trying to acquire that customer and break that relationship or why don't we just empower the you know the people that already have those relationships and just be the one that all the volume is flowing through and we'll take a take rate on the entire industry and we'll work to drive our costs down so that we

37:54can get as close to the industry margins as possible and still give them the margin they need so that's how we think about it so there's a lot there um and i guess a couple things a couple reactions i have one is just like looking into the future the takeaways from that for me if like if you're a builder and you're going out and you're wanting to create something there's so many interesting insights of like where can you go do that so swag up is a perfect example like you you found this big like very inefficient industry you abstracted away all of this complexity you did all the like grunt shitty stuff

38:29that you had to do and it's still and you're dealing with the supply chain you're dealing with transportation you're doing a lot of stuff like what other industries if we want to get tactile and we want to think about the future and brainstorm like where could you do that what industries jump out to you guys as places where this could happen to me i look at financial services as a huge one where i'm like busy we talked about it actually at the beginning taxes for like founders for startups for entrepreneurs i look at that i'm like this is a huge market that is somehow massively underserved like all of these founders

39:02are selling equity getting into these things not optimized at all from a tax perspective huge opportunity to go and do something that's just like really simple seamless plugs in like offers a great experience for them i look at transportation and logistics like right now i mean we all know about the supply chain issues that are happening i'm sure you know it intimately probably too intimately and that's one to me where i'm like there's no clarity no company wants to deal with it i'm on the board of a few consumer companies that it's like dealing with freight forwarders and the entire experience awful the whole thing flexport is trying to do it and ryan's

39:38amazing and he's going to come on the show actually too and they're like phenomenal and they're trying to do that they're trying to abstract away a bunch of the complexity um what other industries or places you think about that might have some similar attributes i mean the way i think about it is start like i start i start with a community of founders so i think about what do founders do on a daily basis and what do they do in the life cycle of a startup and i think the way to think about it is you just start mapping out what founders do hiring team members

40:11um you know paying them like all and you and you just i think like the challenge i would have for our community is you know if you feel like you have an edge in a particular community for example founders map out that life cycle and then through that map out the challenges and then through that map out what a product that abstracts the complexity away that you could make api first community first you want to look at common themes of what are things that all these people are doing in a way that's like very manual or they're all doing it in some sort of different way

40:51that's a pain in the ass for them and how can you be the one that kind of consolidates and does that part for them i think another i think deal is an interesting one d-e-e-l yeah where they're kind of you know taking over the whole compliance and payroll for overseas workers and you can easily embed that into lots of other platforms and they don't need to be the interface layer for that i think notarize is really interesting so good you know that one like to this day i look at it and i'm like why didn't i do that pisses me out like it's the dumbest thing like

41:19docusign is the perfect example of this where you're just like it's the most obvious business that should exist i mean notarize can be plugged into so many different transactions and platforms and it's so much better than the old way when you but you bought a house before like the notary process oh my god you need i i refinanced my house during covenant and then i sold a house and bought a house during covet and the amount of time i spent with a notary physically in person during those three processes i mean it's insane like i spent more time with them than i probably spent with my parents

41:48because like they have to come and you have to do all these stuff the promise of eighth grade is like you take something that's really annoying and complex and become the best company in the world that's solving that problem over and over again and then you just let people access it as easy as they can access anything like making a text or calling or whatever it's like and it's so efficient for the world because it's one company solving a hard problem and letting everyone else focus on the problems that they solve and you're going to see so much more of it because if you think about what happens with

42:14swag up at scale is as we continue to you know take on this really complex supply chain and make it available through apis now just like twilio you're able to like handle the whole communication stack through an api you with us you can tap into the whole physical world you're sourcing blank products sourcing decorators sourcing you know the ability to kit and assemble the ability to store items fulfill them we think of our supply chains legos and and building blocks in an entire kind of physical supply chain so if you just want to procure the blank merchandise the the notebook you you just want to procure

42:47the ipad you or you you want the ipad you want to put the logo on it or you want to build a membership subscription box that taps into our sourcing capabilities and our assembly and our storage and fulfillment capabilities like you can build those things as a kid in a house in you know michigan or wisconsin without ever touching the physical world without ever figuring out the supply chain without ever building relationships all you're doing is looking at different apis and i want this part of it i want that part of it's like a menu and you put them together to be building blocks of a business without having to

43:16re-figure out the things that everyone else has already figured out and it's just it's just so much more efficient for the world to have expertise you know that does it once and other people can use their creativity on top of it versus trying to figure out the logistics and then their creativity is dead by the time they figure out the operational component if you talk to people that you know people that loved baking pies and then they start a pie business they end up hating baking pies because they had to deal with the operational part that's been solved many times over and that's why i'm a big fan of like private equity

43:44versus venture capital because i think it's much more interesting to take businesses that are bad at the operations and that part and and help them scale that because that part's repeatable versus the creative side and the product market fit size the hard part you know this is that's so interesting first off super hot take on liking private equity versus venture capital which i love i love a good hot take and i love this like find the annoying thing framework like hiding the ugly stuff or like find the annoying thing because it's so easy if you just open your eyes on a daily basis to go find annoying things and it

44:21doesn't have to be things that annoy you everyone's like everyone loves the you know find a pain point like what's something that you find annoying or find a pain point if you literally like sit in an uber i i've tried take a lot of ubers in new york and every time rather than sitting there on your phone and texting if you just talk to the person and ask them or like people on a daily basis go to your like landscape or someone that's at your house or service workers whatever you just ask them like what's annoying about your job what do you find annoying on a

44:47daily basis what do you have to do it's like sending invoices whatever whatever they say sending invoices finding enough rides collecting money collecting money there's no better skill than being deeply curious oh you know you just look at everything you're talking about you're talking to the curiosity chronicle yeah it's true man i mean this is my thing it becomes a sickness like you're just so curious like i spend so much time reading on my phone and talking to people and you know even in an uber i'll ask them like what's their life like what are the pain points with uber all these things because you just

45:13want to know like how can you make it better you're just interested genuinely interested and those types of people end up building the best companies because they're solving very real problems i think another one is an example of a type of business like when i worked at a pizzeria it was my first job i was a bus boy for two years in new jersey every friday night or sunday night or whatever mike dino orders his ingredients he's got a list of all the things like i gotta get three bags of sugar i gotta get 20 pounds of flour all this stuff like it's every pizzeria is doing that why

45:41wouldn't that just be embedded in the pos system as you sold 30 units of this pizza automatically reorder flour from this centralized distributor and it gets sent to me oh like it's just taking those things that are happening in the physical world that people like don't really like to do and how can you do that once and let other people tap yeah and what could he be spending time on rather than that when you when you compound that over five years could he have opened up different locations could even improve the experience i mean it's like when you play that out actually economy wide there's something

46:10incredible in terms of the value unlock that happens when people do abstract these things after 10 years 50 years 100 years that incremental 5 back that people are getting keeps adding instead of gdp going here it goes here yeah you know it is a really powerful thing i mean i i love this the whole like the power of just being insatiably curious that's going to be my takeaway from today because it's the biggest thing i try to find in like people we hire yeah are they are you curious innately curious how curious are you how do you test that how do you like interview someone like

46:40practically i try to see like have they started something on their own like do they have a podcast or they have a blog do they have a book club do like just have they done something from zero to one and started it for no reason other than they just wanted to you know that that's like the biggest telltale sign and then it's just you have to product do you read like how do you find information like what are you interested in like why did you even apply to this company you know did you did you do research on swagger before you got here like just because you're genuinely

47:04interested in it like so it's not it's not cut and dry like you never know 100 but that's the number one thing i try to look for because startups you don't have time to be on top of every single person and you have to hope that they're just gonna self-motivate themselves to find the answers and ask the people the questions they need and stuff and be proactive like the worst thing you can have at startups is reactive like we call them like passengers because they they don't get anything done and you don't really get leverage as a leader because you have to keep prodding them to do things so

47:32that's really interesting passengers i've never heard anyone describe it like that but it's so true like you you want drivers not passengers yeah we talk about all the time so i bet if you took an index of people who talk to their uber drivers and ask them questions about their life i bet if you put an index on those people you would do really well like a financial index on people that do that yeah i mean if i was a seed investor the only thing you're really looking at at that point is the characteristic traits of that type of person that's leading the company because everything else doesn't matter

48:04you know the business is probably going to change you know they're going to have a lot of hardship it's like is this person going to make it through are these people going to make it through do they have the right skill set to interact with each other you know people matter so much so maybe this is the venture fund of the future you like get a fleet of 10 uber drivers and you have them like strategically pick up the founders of the people that you're going to be going and backing and assessing and you see like how interactive this reminds me of like the things like hedge

48:28funds do where they send people out and they get like a clicker on the road like how many trucks passed by or go stand in line on a new apple launch you know a new app are you going to buy this what are you going to buy how many are you going to buy are you going to buy in the future it's like some associated hedge fund yeah it gets harder and harder to find your edge yeah in the world especially as ai comes in and stuff like what's going to be the unique edge that you can the insight that you can draw that nobody else can you know interestingly

48:51curiosity is still an edge to this day curiosity and community yeah yeah yeah community is always going to be community becomes more important as the hype as the world gets more digitized like we've seen it over the last two years people have flocked to like communities in this world where they were so you know away from their you know the people that they've seen on a daily basis and every brand that's been successful now over the last three four five years all has a community element to it you know and that's that's why i've always said that swag matters now more than ever because it helps bind

49:21bond communities together you know and the theory that i have is that if you go back 10 20 years before it was like companies had all the power you know whether it's employees or their customers from a customer standpoint there's not a lot of solutions out there you are the one or two or three main solutions as an employee you can you only have a few companies to work at if you're an engineer back in 1985 you work at like ibm or you work at ge or whatever now today the power shifted to the employee into the customer and stuff you have so many more choices of companies you can work

49:50at you have so many more choices of companies you can buy from so when you choose to work at a company you choose to buy their product you have some sort of connection to that brand in a deeper sense than just the product they're providing in the paycheck that they give you you know like if i if i'm a developer and i choose to work at stripe i chose stripe over 100 or 500 other companies i could have and i didn't just choose it probably because the money there's something deeper about stripe that i resonate with the british the mission the type of people there the

50:15values and swag becomes this physical kind of embodiment of that connection and it binds the people together and if i if i'm going to bar an sf and i work at stripe and i see someone else with a striped hoodie i instantly have a connection to that person the same way that if i went to stanford and i saw another person wearing a stanford hoodie you instantly are connected because you have these shared value systems so that's why i think not only have we executed well but we're also hitting a stride where community and building bonds between people and communities is more and more important and doing swag

50:45right really helps do that well um and that's why i think it's more valuable than ever would you ever explore doing digital swag for teams so for example like late check out we're like 30 people we are actually we like we we actually just realized this that we're a customer and uh but not only do i get like a welcome box for new employees but we also get like an nft that i can use as my profile picture for example yeah yeah we thought about nfts and how we can integrate them into the experience but i don't i'm not a huge fan of nfts to begin with

51:23yeah just unless there's some sort of practical value not to say that it has to have real world application but like what if we introduce nfts how is it adding any new value to the experience and if we can come up with a way to where it is then great but if we're just going to throw it out or like tie the word nft to what we do to get some sort of like credibility or something then that's not really something i'm interested in yeah but if we can figure out like hey this is actually really valuable like you get the one of one you know representation

51:50of the branding in this year's swag pack for something and it's a collectible or it gives you access to something at the headquarters or something like that that makes it interesting um but also i mean it's not for us it's for our customers so if customers come to us and say hey this is how we leverage it we were talking to one of our bigger customers last week about it so we're open to it but it's kind of it's got to be there needs to be utility into it yeah yeah well i'll introduce you to our uh the late checkout agency maybe they can help you out all right

52:17yeah super interesting um cool this was awesome thank you so much to time man thank you so much for the time this is super interesting casual i love i mean the story of what you're building is just like so so cool and i like that you like private equity rather than venture capital all right greg what was the one big takeaway from that episode for you i had several so it's gonna be tough for me okay what do you got all right so number one um the whole idea of abstracting away complexity from a bunch of like very messy ugly processes doing all the dirty work

52:56in the background and building a business that has built around just taking all that messy stuff and making it clean and easy for a customer in a community was just an amazing idea that i think is very broadly applicable people can go build that around financial services you can go build it around transportation and logistics that was a really cool insight to me the other one for me was like just being insatiably curious as a huge competitive advantage michael's a perfect example of that like he thought about the idea of swag up because he was out there seeing different things he was starting something different a totally different

53:31business that he talked about and then he saw this flag that realized was so much more expensive in the us than it was in asia and it started making him ask questions it started making him dig into it and that has led to a what did he say a hundred million dollar close to a 100 million dollar business which is insane yeah i mean the scale that he's been able to hit as a bootstrap business to me was mind-blowing my big takeaway was that starting a bootstrap business really allows the founder and founding team to intimately understand the business and all portions of it unlike when you raise

54:11venture capital at you know the early stage so i actually think that and it was a great reminder that don't be so quick to raise venture capital if you can bootstrap because that is a huge competitive advantage yeah i mean he learned very early on about capital allocation it's something that we don't talk about with startup founders and with builders is like the power of now for him to go raise money he has learned so intimately and deeply what capital allocation means and how to efficiently allocate capital that if you went and gave him 10 million 20 million today i'm extremely confident that he would know exactly where to deploy it

54:50with really high roi and high efficiency where a normal startup founder that just goes and raises that right out of the gecko they don't know where the high leverage spots are in their business yet because they haven't built them so i i agree with you i think that's a really really powerful one and especially the product led growth stuff like all those so cool so cool like how does he think about implementing you know this was created with swag up and all the different ways physical physical world super smart um you're gonna love this episode let us know what you think in the discord yeah let's jump into the

55:22community after i really want to go deeper on where else could you do this where else could you take a messy messy industry fragmented industry and just abstract that away to go build something beautiful for a niche community customer base so we're going to jump in the discord we'll be chatting about this later hope you enjoyed it are you and your team still using your personal phone numbers for work do you call customers partners or candidates with your personal phone number do you find it hard to manage your work in personal calls when they're all mixed together on your smartphone well we have a solution today open phone

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