Episode 49: Insights from a $225 Million CPG Exit with Craig Elbert of Care/of

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What's it like to exit for $225 million? Craig Elbert spills. He's the former CMO of Bonobos and now Co-Founder, CEO at Care/of, a company that was sold to Bayer for $225 million.

Craig dives in on how to think about an exit for a CPG brand, emphasizing the importance of tackling problems in a consumer-friendly way. He uses the example of Care/of, which focuses on simplifying the confusing vitamins and supplements market by making it easier for consumers to know what to take and build a habit.

Guest Speaker: Craig Elbert

Peter Fader is a Marketing Professor at The Wharton School, University of Pennsylvania. He believes that marketing should not be viewed as a “soft” discipline, and he frequently works with different companies and industry associations to improve managerial perspectives in this regard. His work has been published in (and he serves on the editorial boards of) a number of leading journals in marketing, statistics, and the management sciences. He has won many awards for his teaching and research accomplishments.

Links

- Follow Craig on LinkedIn

- Check out Care/of

Read the Transcript ↓

Drew Sanocki:

Hey everybody. On today's podcast, we are talking to Craig Elbert, who was the CMO at Bonobos, led them through the acquisition of Walmart and then started his own company called Care/of. Care/of ultimately sold to Bayer for $225 million. I make the corny joke that we are just interviewing people who've had $100 million exits this week on the podcast. So just lots of great information from Craig who navigated from 0 to 225 and has a lot of learnings on how to get there, how to think about an exit like that, especially as it pertains to growing a CPG brand. So enjoy the podcast.

This is the week of the Bonobos, which is like anyone who's had an exit for north of 100 million, the Hondo. What are the one or two things that a CPG brand needs to do to exit for $225 million? Like what's the playbook?

Craig Elbert:

I wish I could speak total wisdom and have a universal playbook, but I can speak to our circumstances and I think what worked for us. I feel like whenever you hear stories, it depends on the brand and the situation. I think in our case, we were focused on how do we tackle problems around a specific category and do that in a consumer friendly way. So really approached it as consumers.

In our case, with Care/of, we looked at the vitamins and supplements market and felt, you know, this is confusing. It's hard to know what to take and it's hard to build a habit. And those are just generally two problems that we saw with the category that then we tried to do our best to create a consumer friendly experience to differentiate ourselves by tackling those problems. So if I were going to say one thing that we did well, it's tackling problems in the category and hopefully a consumer friendly way.That's awesome.

Drew Sanocki:

I've got a zillion questions about it. I would love to start with Care/of and kind of the story. And I knew what you were working on. I think everybody else probably heard about you when you exited to Bayer. What was that? Two years ago? The deal was announced in 2020. And so they acquired a majority stake 70 percent in 2020 and the remaining stake last year. Yeah. You started as online only like DTC. I know you're in Target now, right? Is that post-Bayer?

Craig Elbert:

Before Bayer conversations, it was all DTC. You know, as you and I talked through, I was at Bonobos prior to this. So Bonobos was one of those first DTC businesses where you kind of learn part of that playbook. And I feel like with Care/of, it was trying to take some of those learnings, apply them to a new category, build something special. But a lot of it was, you know, it spent six and a half, 70 years there. And I think prior to Bonobos, I tried to find a couple of businesses unsuccessfully, kind of always got stuck in probably like overthinking it mode, drafting business plans, overthinking things, you know, versus actually doing.

And I think I learned from Andy and Brian at Bonobos the power of just actually going out there and starting to create something, put it out in the world, get feedback and also just learned the nuts and bolts of setting up Facebook ads in 2009 and 2010, managing search acquisition and just all the direct marketing things that came with that time at Bonobos. And it was basically with Care/of, it was how do I apply some of what I've learned there and then pair that up with my co-founder Akash, who'd built a couple of businesses before. He was more well versed in the technology side of things. He was passionate about healthcare and he knew kind of how to go zero to one on businesses.

So I think it was working with him and kind of thinking through where our strengths, where our passions lie, and then ultimately looking at categories and, like I said, looking for problems that we felt like we could tackle and solve. Did you guys come out of the gates raising money or were you sort of running Facebook ads yourself, trying to like get some traction? We had the benefit of launching with one of these, I think now they're called Startup Studios, but a fund called Juxtapose where one of their partners, SkyJet Cairo, I'd known from business school, and they were interested in kind of helping shape ideas, helping build them early on and getting them to kind of the series A stage. They had not launched any businesses prior, so we were kind of in some ways a startup within the startup of Juxtapose. But Jed and Patrick Chun, his partner, were essentially co-founders in the business as we worked through the different problems, as we thought about how we got everything set up.

And for me, that was really about what can I do to de-risk this as much as I can? You know, when I left Bonobos, Andy, the co-founder of Bonobos was like, why don't you just go start something entirely on your own, raise money, just start it from scratch? And I looked at different ideas and I talked with the Juxtapose guys and ultimately felt like, you know, when you're a founder, if you build something and it's successful, that's a good outcome for you. And it's just like, if it's a little bit less equity or a little bit more equity, it's not, that's not ultimately what matters. It's like, can you get to a successful outcome? And I felt like working with the Juxtapose partners, you know, having that access to capital, having access to working with them early on was going to increase the likelihood of success. Partnering with them, which meant that we had a couple million dollars of seed capital, essentially, to use that first year to learn, to build out the business, test everything, kind of figure out how we wanted it to look and feel, figure out what the product was, and then launch at the end of 2016.

And then after that, go out and raise our Series A in 2017. So yeah, it's not a typical founder story. And, you know, I definitely have a lot of admiration for people who bootstrap businesses through those early days, because it was stressful enough with having some capital in the bank to start with.

Michael Epstein:

What helped you most achieve sort of the level of scale that you ultimately reached? Because a lot of brands start to hit a ceiling or start to cap out once they hit a plateau based on Facebook acquisition, or some of the key drivers that allowed you to sort of not plateau at the same level that a lot of brands face?

Craig Elbert:

A couple of key things. I think one, we were intentional about the addressable size of the market, you know, vitamins and supplements, $40 billion domestic category. And I remember when we were looking at different categories to build in, there were multiple sort of brands where I'd never even heard of them that were $500 million billion dollar exits and sort of just like the idea of like, hey, this is a large category gets fragmented for a reason, but it's also, you see some of these success stories, and so it feels possible.

Two, ensuring that as we built the business, we had a hook and it wasn't just Facebook ads. So we didn't initially launch the business with advertising for the first three months or something. It was really a lot of focus on press and PR with the thesis that if our narrative isn't good enough, if we don't have enough differentiation to get press and PR, then it's probably not at the point that we should put advertising dollars behind it. So I think early on it was like seeing that proof that there's press behind it, there's organic influencers, there's some word of mouth behind this. Now let's put money on the fire.

So I think that's the second piece, which is kind of not just doing it from Facebook ads, but ensuring we had a story that was differentiated. And then the third piece is sort of obvious, but just trying to be differentiated in acquisition channels too. So it's not Facebook reliant, you know, influencer direct mail is, you know, a number of different acquisition channels so that it's not just that single one, but being methodical in how we turn those on. So not turning them all on at once, but turning them on gradually so you know what the lift of each of them is.

Drew Sanocki:

You came out of the gates raising, it sounds like a couple million bucks, and then you had a Series A. So it was 2016 to 2020 when you were acquired. Were you guys ever profitable? Or were you ever like in a situation where you were taking cash out of the business, or was it always kind of like negative or like break even all the way up?

Craig Elbert:

Yeah, essentially not profitable through all of that. And I think to your point, there's different phases in how you can scale these business at different times, dependent on capital markets. And so I think particularly now you have to be able to make sure you can have that ability to control your destiny because there is risk associated with that. That said, it's like we always would look at, you know, what would be the path if you needed to, you know, where do you hit the brakes or what do you need to do to make sure that you're in control. But as we were scaling the business, yeah, it was essentially funding through capital as we grew.

Drew Sanocki:

We're favoring growth over cash flow, obviously. Right. It's exactly. It's funny, because I mean, you're like me, I mean, kids, you know, family, like it's different doing that when you are young and single, and you just want to like go all in on growth. But when you talk about like personal risk profile, and what your game to do when you can't take a ton of cash out of the business along the way, it's very different.

Craig Elbert:

When I left Bonobos, my wife was pregnant with our first kid. In that first year, I remember like as we were building the business before we'd launched, there was a key recruit for the team that was going to help us actually get the physical product made. I had him signed up, got a counter offer and I lost him and I didn't have a backup. And I remember just being like not sure how I could even get product made. And it was definitely one of those where it was like a bad life decision. Not good for my family. At the same time, part of it coming out of Bonobos, I'd sort of seen what the outsized impact could be for the founder of seeing kind of like what success was for Brian and Andy versus kind of like what is for employees. And so the thought was I'm going to take that risk and I should know if I try to hit the gas on this, like I should know within three, four years, if not less, if it's not working, personal pivot and go back to more of a cash rich salary myself.

Drew Sanocki:

Was that ever a formal pact with your wife?

Craig Elbert:

No. So like you're on deadline, you got two more years left. Yeah, clocks ticking. You got to go get a job. I do remember when I took the job at Bonobos out of business school, it was a startup. And I remember telling her I'm taking less salary, but there's equity. And, you know, hopefully within a three to four year time horizon, I can get equity out of this business. And then six years in and it was always three to four years out. And you lose a little bit of credibility. And it was tricky.

Michael Epstein:

What was the thesis behind the acquisition for brands of Think, Buy Me for a ton of money? What do you think was the rationale behind your acquisition? First thing I'd say is like all large companies have their own dynamics of things that are important to them at different times. People who are in key management positions at different times of what are they looking for?

Craig Elbert:

And that changes with time, that changes with companies. And so I do think being aware of potential acquirers and what matters to them and building those relationships over time is important. So I've been, in my case, talking with a number of sort of corporate development people for years, not with the goal of doing acquisitions at those various time points, just helping them understand our business, getting credibility. Two, for us, I think there's strategic capabilities and being conscious of that, which is in our case, Bayer had a thesis around personalization and building direct to consumer and didn't have those capabilities in-house. And so I think being able to have those capabilities, I know what we could offer. Meanwhile, they have capabilities around retail that we didn't have. Bottom line, ultimately, large public companies are valued based on their cash flows and their stream of cash flows. And so they may be willing to accept some losses, but you have to show them long term ability to drive cash flows.

Drew Sanocki:

It's funny having sold a couple of businesses myself, how much just getting the business sold and then your ultimate valuation has to do with like just being on the radar of someone at the right level of the strategic acquirer. Not that you've got to overspend on PR and biz dev, but just like putting in that legwork ahead of time, being known to the right people is really important. I wish I had done that at my first business because I didn't even think about that. I just focused on the business. And then when you go to sell, it's like you've got to brainstorm a list of potential acquirers andthey don't even know you from Adam at that point. I also just think it's generally helpful when you're building something to get outside perspectives on, you know, what are things you might not have thought of? How are you perceived by others? Where are there gaps that you could build?

Craig Elbert:

Oftentimes, I do think when you're building these businesses, you can just listen to one audience, depending on how you're capitalizing that business. You're either like listening to like the venture capitalists who are saying you've got to grow at 5X and get to this amount for it to be even interesting, or you're listening to the people who are saying you should just bootstrap a business and you've got to do everything you can to control it, or you're talking to the corporate strategics. And I think they all have different views on the business. And it's just trying to make sure that when you're building something, you understand the pros and cons of those different perspectives. For instance, if you just listen to venture capital, you run the risk of getting yourself in trouble when the markets dry up. Whereas if you just listen to folks who are bootstrapping, you may miss out on opportunities to accelerate growth or get it to the next level. And so I just think that understanding it's not just about kind of like networking so that you've got a Rolodex of people when you want to sell the business, but it's understanding the different ways that people perceive your business from different areas, which means there's different risks and opportunities associated with that business.

And then ultimately, your role as the person in charge of the business is given those risks and opportunities, how do you want to proceed in building it? Building a narrative too. Yeah, that is true. It does help. I mean, that's the same with fundraising, which is, you know, if you're talking with an investor for the first time when you're wanting them to write a check, there's no dots for them to connect. It's just sort of like a pitch deck. And I think it's the same with corporate development processes. It's much harder if it's just a single data point versus if you've been meeting with them, sharing stories along the way, showing how you can problem solve, showing resilience and it allows them to connect more dots. It's more likely that you'll build a real relationship because it's more likely you'll understand each other.

Michael Epstein:

How did life change post-acquisition and today?

Craig Elbert:

Yeah, I mean, I think I definitely give credit to Bayer in terms of being thoughtful of letting us run the business for the most part autonomously, where we can pull resources, where they can help us like something like retail. So the nice thing is I definitely don't have like a feeling of like, man, suddenly I have all these people up in my business. The board of directors has changed, so it's not all venture investors and it's more folks from Bayer and some other folks, but it's still our team running the business. So that autonomy is there, that focus on kind of long term building. It does remove some of the like fundraising cycles of kind of like, what do we need to prove for that next fundraising cycle? It does put on top of that instead kind of fiscal year targets, where it's what did we promise to do in this fiscal year and how are we compared to our budget? So I think there's some different ways of running the business from a personal standpoint. I'm definitely very grateful for the outcome. And I would be lying if I didn't say it removed a degree of personal stress that you have when you're running a business.

A couple hundred million takes the edge off a little bit.So, yeah, and just generally, you're thankful for a lot of gratitude for the team and for the investors who believed in you. So, yeah, it's good. But there's things that are different. I think the reality is that the actual running of the business, like we have the same challenges that we in the outside world, I think would have been a lot harder to manage, which is things like this shift in the Facebook, iOS. So, you know, acquisition costs get thrown out. You know, some of the challenges over the past couple of years, I've just been thankful that it's like, all right, we've got a partner who's helping us focus on how we get through this versus me needing to navigate the fundraising market. So, again, very appreciative and grateful on that front.

Drew Sanocki:

So three years later, you're still CEO of Care/of.

Craig Elbert:

Exactly. Yeah, I'm still here. I still intend to be here for the foreseeable future. I still enjoy it. And we've got different challenges that we build. We're building out a mobile experience and trying to tackle something, you know, what we call ongoing personalization. And some of that is because we've been able to have the focus on building the product and, you know, building something we want to build versus beholden to fundraising cycles.

Drew Sanocki:

You know, we had your old professor on the other day, Fader. Oh, nice. Yeah, he's talking all about customers and he's gone from customer centricity to like how to do the audit, how to build a culture around it, which without offending him. Would you say Care/of was like a customer centric company?

Craig Elbert:

I think that there is something to one, making sure that you're looking at the data and looking at different cohorts and understanding your lifetime value. I know these days, sometimes in DTC world, people are like, don't pay attention to LTV and CAC because it's there's so many assumptions that go into it. But regardless of how you measure your advertising, I think understanding your LTV is important. There's pools of customers that you can fish in who are good customers and there's pools you can fish in that are bad customers. And the more that you can be thoughtful about fishing in the good pools versus the bad pools, the more likely you are to build higher retaining business versus spending a lot of your time trying to change behaviors, you know, in people it's instead kind of understanding. Just acquire more goods.

Drew Sanocki:

Exactly. More whales. You sent me some presentation, I want to say it was like 2011, about like the whales and minnows research you had done at Bonobos and really identified that the whales drove the business.And it made such an impact on me and my thinking. And that's all kind of came out of, I think, some of that thinking from Professor Fader initially.

Craig Elbert:

But yeah, back in 2011, while I was in at Bonobos, we, you know, we looked at the past year of sales and we basically said, let's divide it into, you know, top 10% of the customers are like our big whales and then bottom 10% are the piranhas. And then you've got the minnows and the other presentations on the, you know, the whale and the minnow. And the idea is just the more of those good customers you have, the more you can grow a business. And I think so much in the direct to market space you're often looking at like, what is my CAC? What's my customer acquisition cost or what's my return on ad spend? That equation treats every customer the same. And the reality is that all of those customers have different profiles of what they could return for you. And so the more you can be smart about getting the customers who are going to stay with you longer, the less work you have to do constantly fishing and getting more and more customers.

So what we did in that case was we separated it and we said, like, okay, of the best customers, what are attributes that they have in common? You know, where do they live? What do they, do they purchase multiple categories? What products are they into? And then how do we use that to build out the further strategy here? And definitely trying to do something similar here at Kirov. Sometimes it's easier to do from an academic standpoint and a operational execution standpoint, but we can aspire.

Drew Sanocki:

What were those early days like at Bonobos? Pioneer of like digitally native brand, D2C brand, before the time of a lot of brands that have started up over the last few years. What were the early days like?

Craig Elbert:

It was fun because you're a bunch of people figuring stuff out and there aren't experts. I mean, the sort of crazy thing to me today is like you have whole industries of growth marketing experts and you have, you have just experts that have sprung up over time in all areas of this DTC ecosystem. And at the time there were no experts. And so you were getting to like tackle the problems for the first time. And, you know, if you were trying to hire someone who was a master in Facebook advertising in 2009, it's like, good luck. Everybody was just, we were all figuring it out. And so I think the joy of that was you're figuring it out. The challenges, you make a lot of mistakes, you know, a huge credit to Andy and Brian in terms of just creating a culture that was a lot of fun and motivating. And you got, you know, Andy would get the team fired up of like what we're building and you know, you get everybody rallied. And again, I think I took a lot from that in terms of how to build a culture, how to build a team. Now you're in a world where you have all these systems. I mean, you have Shopify, you have like the Triple Whale and all these analytics tools.

Like none of that existed. Like, you know, there was no Shopify and, you know, you're building everything. You're building, remember like our tech team building out referral campaigns. And today that would be crazy if you're like building it out versus plugging something in. But I think that made it fun. That also made it so that you burnt a lot of cash because, you know, today you can sign up for different subscriptions and you can pull these things together and you can do it a lot leaner. But it was a great learning experience, a great culture. And I think you saw a lot of people from that business go into kind of the direct consumer world. You know, David Fudge and Emily Anki, who I worked with, they launched Aplos, which is a non-alcoholic spirit, a hemp based spirit, which is I think their series A. Josh Goodman, who I worked with, co-launched by Humankind, which is, you know, in the sustainable CPG business. Nate Poulion is like a DTC Twitter guy, digitally native. You just have a number of folks out there in the world and it's because we learned so much and I think we're tackling the problems kind of in those early days. But yeah, it was fun. It was, you know, ups and downs like any startup. Yeah.

Drew Sanocki:

So if you were starting something today, what would it be?

Craig Elbert:

I would be focused on some category where I just wanted to build a product that I was proud of and do it probably at a small scale. And then if it got traction grade, if not, just still build something. And I don't know what that category is, you know, herbal teas. Yeah. Something where it's like, there's some craftsmanship, there's some product to build, to be differentiated and just really focused on creating a product that you're excited about and care about.

Drew Sanocki:

Thanks for joining, man. This was great to hear your story. Yeah. Congrats.

Craig Elbert:

Congrats on what you guys have done. Appreciate getting the chance to chat here today.