Ep #009 - Scaling DTC nootropics with Dan Freed

ben fisher -

Sometimes a scotch-taped-together tech solution is just what you need to jumpstart your subscription services. But if you grow fast enough, the tape won’t hold up. Dan Freed experienced this firsthand as he grew Formula, an incredible company specializing in personalized nootropics. In this episode, Dan shared how he’s reengineering Formula’s operations to provide the very best customer experience possible, and learning from the customer and competitors every step of the way.

Show Topics

  • The formula for a great tech stack
  • Getting out of “technical debt”
  • You can’t improve what you can’t measure
  • Beat competitors with a superior experience
  • Why bootstrapping guarantees a quality product

Show Links

Show Notes

2:26 - The formula for a great tech stack

At Formula, Dan’s team combined an innovative group of tech resources to create the exact customer experience they wanted.

“Our current tech stack is a mix of Shopify, Recharge, CartHook, Gorgias, Klayvio. Everything's basically taped together with Zapier, Typeform’s a huge part of it. So we took some unconventional twists and turns. We don't have a traditional customer portal. We needed features that none of them came out of the box from any of the apps that we looked at. So we built our own using Typeform that we could have this kind of conversational journey with our customers. And then we integrated the Typeform directly with Recharge using Zapier so that it would update their product mix. It could do simple actions like cancel, discounting, things like that, which is a unique way to have a much better experience than what's currently available through Recharge, without having too much hands-on manual work.”

4:41 - Getting out of “technical debt”

Early on, Dan got so deep into creating scotch tape solutions that it led to what he called “technical debt.” It got so difficult that their analytics stopped working.

“Shopify is great because you don't need to write any code. A lot of it's like right out of the box, you just follow instructions, YouTube tutorials, whatever. But there comes a point when—every founder has probably been in this position—where it's like, I want Shopify to do X and it just can't. You get to this where it's trade-offs. So it's like I could just live with that, or I want to get that extra 2% conversion rate, or I want this feature that's going to help with retention. And one of the things with me is I hate being told no. And every time I hit one of those spots, I go and I'm like, there's gotta be a way to make this work. And almost always, I'm able to figure it out and implement a solution that gets us that conversion rate, or improves retention, or some feature that I think is incredibly important. The downside is, in the process of doing all of this scotch tape with Zapier, I broke all of our analytics. Our conversion rate has dramatically improved with some of the features that I've been able to implement, but the loss of not having analytics is [hard]. We just onboarded a world-class head of growth. And he's like, well, I don't even know where to start because we don't know what's going on.”

7:04 - Reengineering from scratch

Today, the Formula team is working on rebuilding their processes. The efforts include an entirely new website and proper documentation at each step of the way.

“The other thing to understand is I'm not an engineer, and I did zero documentation. So the company has been around now for four years. We also just set up our internal engineering team. And the engineer will come to me and say like, I don't understand how this is happening. I vaguely remember two years ago, some Zap that's supposed to do this and that, or some UTM code tracking feature that I implemented. But without documentation, it's like having to go back, having to look in the code, having to kind of deconstruct things. And with this level of complexity, it's almost impossible. So we had a great chat with Source/Medium. We're in the process of migrating and basically rebuilding the entire website from scratch, using Cord. and Cord has a deep integration with Segment, and they also give you a data warehouse with Snowflake that kind of solves all of these problems. The only reason why we didn't invest in having something like Source/Medium is because we're already in the process of migrating.”

11:37 - You can’t improve what you can’t measure

Once they can measure everything they need to, Dan’s team will focus on creating a system of testing in order to gain deeper insight into things like levers for customer retention.

“We can tell how our CAC to LTV is trending, and we can get the basic insights that we needed. But you really have to dive a level deeper to see like how these different cohorts of customers are behaving. The biggest thing that we haven't really had until now is a great system of testing. So being able to test different funnel structures, different product pages, different offers, and not only correlate that with the direct acquisition metrics, so things around CAC and conversion rate, but with retention. That was almost impossible for us to do. And one of the things for us was you can't improve something that you can't measure. And retention, we could measure the basics of retention, but we couldn't actually run some of the complex tests that we wanted. So some things were kind of no-brainers. So like having better onboarding flows, following best practices. But when we really want to test like, how much does a free gift move the needle for retention? You know, should it be month two, should it be month three? We weren't able to run those types of tests until now.”

13:09 - Be proactive vs. reactive

In the past, Dan’s team would need to wait for something to break before fixing it. The new goal is to be proactive.

“Up until now, we've been very reactive. And we had this kind of like scotch-taped together funnel. And when something broke, then it would get my attention. So it's like, okay. We have no idea what happened, but our CAC is up 30% this week. And so I would methodically go through every single step of the funnel, look at where there were differences, go through the change log to really see what changed in the last month. And then out of that, I would build tests. So it was usually how do we improve something that just broke? We're moving towards being much more proactive. One of the great things about our company is we have a very close relationship with our customer, and we collect a lot of data on how they experienced the product, what their expectations were. And that's been incredibly helpful too, to just kind of understand ways to improve.”

14:18 - Build a culture of communication

These days, the team works together to catch problems when they’re still small. Communication and a savvy director of customer experience have been key.

“We also have an incredible director of CX, and she surfaces insights. So when something in the funnel breaks, there's two ways that we get alerted. The way previously, it would be like CAC. We would see something's going sideways, like our sales are dropping off. Now, we have CX. So CX, if there's an error on the checkout or a discount code is not working, we get that surface almost immediately. We're an in-office startup, and we really spent a lot of time building culture so that the department heads are talking every day. So our head of growth and our head of CX will say, Hey, are you noticing this? We're planning this sale. What do you think of this value proposition? And having that two-way communication so that when there is a problem it's surfaced immediately, instead of a week or two later when it's much more difficult to solve.”

15:45 - Beat competitors with a superior experience

Subscription brands resort to all sorts of tactics to get customers to subscribe. Dan believes that the best way to build a company is on a great experience, not quick wins.

“Attitudes towards subscriptions are changing. There's a lot of companies that are forcing customers into a subscription. I strongly felt that that was not the way to go. There's some companies that are locking customers in. So if you purchase a subscription, you have to at least commit for two months or three months. There's the two-week trial and then upsell to a full pack. And then there's a heavily discounted first month, this is more and more popular now, and then it's full price for the second month, but for the same exact product. We've tried almost all of those. And one of the things that I strongly believe about our industry is the company that's going to win is going to have a superior experience. It's really that long-term retention that is going to build a great company.”

18:34 - Bootstrapping guarantees a quality product

Dan has seen companies with lots of funding end up with sub-par products. Formula has been able to succeed and stand out as a bootstrapped brand because they had a quality product from the start.

“We were basically bootstrapped for the first four years, up until very recently. So we had to focus on being profitable, or at least being self-sustaining. And that was kind of the driving force between a lot of our decisions. But being able to have the restraint not to do things that would cause any reputational damage to the brand, even when it was really attractive. And we really wanted to hit those growth numbers. But being able to say this is a very clear line where we think the damage far outweighs short-term benefits. For companies where they're well-funded and they kind of have that runway where they can take more time to build up a product, and it's more about, they don't have to be profitable. They just want early indications of improvements. I think that's an incredible luxury. I've seen it go both ways. So I've seen companies take that luxury and almost abuse it. And they end up with really crappy products. For us, if our product wasn't good, we would have died a long time ago.”

20:42 - Why you want a high refund rate

Dan used to take pride in Formula’s low refund rate, until he realized it was holding things back due to a lack of aggressive marketing.

“We had an extremely exceptionally low refund rate for a company that was in our space, and offered a full money-back guarantee. And one of our advisors sat me down one day and I was all proud. I'm like, look, we have such a low refund rate. This means our product's good. And he's like, no, this means your marketing is not aggressive enough. You should be pushing. You want your refund rate to go up. Because you're reaching a broader audience and it's not going to be for everyone. And people have a right to ask for a refund if it's not effective or it doesn't meet their expectations. But that's the wrong metric to really use as an indicator of product quality. And since then, we've been much more aggressive on marketing. Our refund rate went up, but our profits, like it was a no-brainer. Once we actually saw that type of growth, it was definitely the right decision. And I was resistant to it for a long time.”

23:59 - Learn from competitors

Dan has an insatiable appetite for gathering marketing inspiration and understanding how other brands tick - competitors and outside verticals alike.

“I learn from competitors a lot. When I started this company, I had no experience in a lot of these things. And I would look, and I would see ads, and I was like, this is incredible marketing. And I would deconstruct them. And it's not just companies in our vertical. I would see like a fitness company and I'm like, wow, that's great. I'm obsessed with this. On Facebook, I connected an app that my Facebook feed is only ads. And every once in a while, I'll turn it on. But I have folders where I save ads, and I keep notes on it. Like I like this because of the way the simplicity of their value proposition came across. And at this point I probably have a thousand ads that I've saved. I have bookmarks for UX. I have competitors that I'm tracking, understanding what's going on in the market. Our category is still very small, and I'm very familiar with all of our competitors.”