YouSaid · the spoken record

Andrew Sugrue

lines on the record: 61
first: 2021-05-04
most recent: 2021-05-04
sittings or episodes: 1
sources: podcast

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“We were talking about the core job, if you will, of a buy side investor. leads to success or failure and the role that data and information plays in that equation. Can you talk through that concept and describe why catalysts might represent another step forward in how that's done for buysiders?”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“This episode was brought to you by Canalyst. In this four part miniseries, I sit down with catalysts' new chief product officer, Jeremy Payne, and talk about his background in fundamental data, the role catalyst plays in the investment process for its clients, and how catalyst products help investors better model and understand companies and their key drivers. In this week's episode, Jeremy and I discuss his career before catalyst and the role that data plays in the failure or success of buy side investors. So Jeremy, I think a good place to start would be with your personal background and how that background intersects with you starting at Canny. Specifically, what you saw in the business, given your interesting career path to this point.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Really comfortable with the fact that I might fail because at the end of the day I've already have what matters. And so I really can't thank them enough for setting me up for the life I've been able to lead. No one said it quite that way that unconditional love is the interesting prerequisite or allows for unique risk-taking in pursuit of passion. I love that. What a wonderful place to close. Andrew, I've learned a lot in our conversations. I really appreciate your time today. Thanks for coming on. Thanks so much for having me.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of starting a family. And I think about, I would have to say the kindest thing anyone's ever done for me is the sacrifice my parents made to alternating, pausing their careers to raise my siblings and me. I think about how challenging that decision probably was as someone who is, I imagine, equally as ambitious as I was to say, I'm going to put my child's needs ahead of my own ambition. And I think about how impactful that gift of kindness has been on my life. They taught me to be inquisitive, to question why the world is the way it is. They taught me a thirst for learning, but ultimately they give me the greatest gift of all, which is unconditional love. When you have unconditional love, it's a level of security that is irreplaceable. It allows you to take risks. When I know that my parents, my husband, my family loves me, I can decide to start a firm at 27 years old and be totally.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“From that. And when the capital markets turn off, those businesses aren't left with anything. They haven't created anything of value. And so I see that a lot in the consumer space businesses that value growth above all else and are willing to sell dollars for 50 cents or 75 cents. historically has not worked out well for folks. Well, this has been such an interesting conversation. I love the way that you invest. I love the path that you took very organically to get to where you are today and you're focused on literally the name of the firm, the future, right? The reason this is fun is because change is constant and possible and you get to work with people building these fascinating businesses and all the lessons embedded in them. I have the same closing question for everyone, which is to ask, what is the kindest thing that anyone's ever done for you? Well, I love that you asked this question, and thankfully it's the one question I was somewhat prepared for as I was thinking about that question last night. I was thinking a lot about family, and my husband and I are in the process.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's all gravy. I think a lot of people are betting on multiple expansion or at least assuming multiple compression. And I think that that's a dangerous way to invest. If unit level economics that are good is good growth, what is bad growth? In what ways do you look out for bad or dangerous growth? Is it just the opposite or are there more dimensions? Well, I think businesses that don't have compounding advantages. You could say, are we willing to make an investment in marketing, say, in getting a marketplace up and running that might not have a high return on that specific customer you're acquiring, but there's an exponential impact that increasing liquidity in a marketplace may have that could make that an attractive dynamic. That mentality has spread to other areas where there aren't network effects, where there aren't compounding advantages, where folks are just spending on digital acquisition for growth, but that customer isn't coming and repeating. They're not getting any kind of scale advantage.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I would just say it's an interesting market that we're living in today where growth is valued quite highly. I mean, that has changed a bit over the past month or so. I think all growth is not created equally, and I'm surprised at how often investors are willing to overlook fundamentals for growth and for momentum. That's the opposite of where we play. We're really focused on unit level economics. The business doesn't have to generate cash flow into aggregate, but they need to be highly profitable on the unit level, however we define that, whether it be a geography, whether it be a customer, and so forth. And when we see those high internal returns invested capital that we think are scalable over time, that's where we know we can be successful. If we penetrate that market, if we can generate 30 plus percent operating margins at that end state and our entry price implies one or two times free cash flow multiple at that end state, we know we're going to make money, whether the market values, free cash flow at 30 times or 20 times.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think there's a selection bias on both sides, right? The folks that are attracted to us and that we're attracted to are folks who are critical thinkers who want to have their assumptions challenged, who want an active thought partner. And so we're talking to them all the time. I think that's the exciting part about working with someone like Luke at Latch or like Corey at Drizzly is they call you with their considerations and they don't feel the need to come to you with just a board deck and saying, here's what we're going to do. And we have 100% conviction in this plan. They're saying, here's the alternatives we have. Here's what I'm thinking through. How would you deal with this specific issue? It's a virtuous cycle because the more we are understanding of their mental models, of their decision frameworks, of their motivations, the greater conviction we can have in their ability to accomplish that end. Which enables us to deploy more capital into those businesses. So it's a very close relationship. I feel very lucky to count these.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Contra as an entrepreneur who has concentrated in one idea. I think they like having someone in the boat with them that we're willing to roll up our sleeves. We have the time to do that because we benefit from concentration. We benefit from the fact that we can spend more time with any one company. And we're not reliant on outside perspectives on our businesses. We don't fund one round and wait to be marked up by another firm. When something's working, we want to own as much of it as possible. And that's why you find us lead successive rounds of our companies. We led Latch's series B and led every subsequent financing, including anchoring their public offering. We've done the same with Savage. And so they really get a life cycle partner. The reason we're doing this is because we see what they can be in 10, 15 years. A lot of that journey is going to be in the public markets, and we position them to be ready for that. And we're partnering with them through that timeline.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Having this wonderful purview that we're afforded, which is to look across businesses, across industries, across models, and be able to draw analogs, to be able to say, here's how a specific company took on a similar industry, here's the lessons learned, here are potentially some strategies that we can deploy that could avoid some pitfalls. But ultimately, we think ourselves as the capital allocation partner. We've helped them think about how do we resource the highest return opportunities in front of the business? How do we sequence that spend? And how do we kind of focus on the opportunities that are most impactful? It's a partnership driven business. And I think the reason these partners choose us is we're pretty different than the rest of the folks in our industry. Many folks in our industry are there with you in the good times and they're focused on other companies when you're not breakout, right? They rely on that power law distribution, highly diffused portfolios. We run concentrated eight to ten investments per fund, which means we're the only person close to.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Attracted to that strategy. And a lot of the alpha generation potential was competed away by capital and both human and dollars flowing into that strategy. I think what's so interesting about our category is there is no Bloomberg for information. There is no mapped universe per se. And unlike the public markets world where you can put on a position if you pay the market clearing price with an anonymous counterparty and a dark pool, this is all of relationship driven business. We have to find companies, these companies that we partner with aren't selling to us where it's the private equity model where you're optimizing for the highest price. They're looking for a partner. They're saying, how do we build this together? The founders that we work well with are product oriented founders who intimately know their end market and their end customer and have a vision for how they can solve more of their problems over time where we help is helping them think through capital allocation. They traditionally are not investors in their own, right? And so we help.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I have to say the private investment world is a far more attractive place to me than the public investment world. If you think about what happened in the public markets, Julian was very unique in the late 80s, early 90s with a fundamentally different way to approach investing. Whereas everyone else was saying, what does credit suites or Barclays say about what the earnings are going to be for this company? And oh, great, is that cheaper, expensive based on one year out earnings? Julian was saying, hey, great, I'm going to go do the work to meet customers, understand the dynamics of these industries better than anyone else to do the heavy research driven fundamentals based analysis that others weren't willing to do and run a concentrated portfolio of those best ideas. Lo and behold, what happened is he generated tremendous returns. And much like I said, we have a strong appreciation for the efficiency of capital markets. Much of those returns got competed away. More smart people followed his framework, more capital was.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“But also, how do I pull up the bridge, the ladder behind me? How do I create more and more barriers to entry? How do I better serve my customer and monetize more and more of the services I can sell that customer by solving more of their problems and having a unique relationship with my customer that's really hard for others to replicate?”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“What's common across our businesses is that they're run by entrepreneurs who have a vision of how the world is going to change. They see these undeniable inevitable shifts, these paradigm shifts that are happening in their industry, whether it be technology that's changing the way that a product or service is distributed, whether it's changing the way that those products or services are marketed, whether it's changing business processes, they're fundamentally capturing and riding the wave of these inevitable structural shifts in a market, whether they're driven by technology, whether they're driven by changing consumer preferences, whether they're driven by evolving regulatory dynamics. These companies are benefiting from these inevitable trends. I think the other thing that's common across our portfolio companies is these are what I would say constructively paranoid operators, right? They're constantly not thinking about how do I disrupt the incumbent? How do I gain?”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Would say that we're also quite intentional of using that word. The name of our firm Avener is French for the future. I have to credit my husband who's French for giving us that name. Thankfully, it's also easy to pronounce in English, which was”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Advertised in your Instagram feed, there's usually a shop now button. When you click that shop now button, it oftentimes directs you to drizzly. It's leading you to the platform that has the highest percentage chance of converting you, the platform that has the most existing users, but most importantly, the platform that has the most existing supply. And that supply is not created equally, right? This is not a category where you just want a pizza. You want your specific product and you want it delivered to you in 40 minutes or less at the right price point. There's tremendous compounding advantages that come from that density of demand that Jersey has built.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“That first choice for alcohol brands to point their advertising towards is that it's not just your traditional network effect of a DoorDash or an Uber. We also have the fact that we're selling a highly branded category, which is alcohol. The alcohol brands are some of the largest advertisers in the country. And there's the three-tiered distribution model, a regulatory framework, which basically says that alcohol brands are not allowed to sell direct to consumer. They can't do those traditional channels to be able to understand if I spend a dollar on Bud Light ads on Instagram, what's my conversion? They have no idea who their customer is. Now, in a world where they're moving, their advertising from off-premise events-based marketing towards direct response advertising like every other consumer business, they need an endpoint to that funnel. They need to be able to say, what am I advertising is working or not? How is my market share change when I do? And drizzly is a direct response advertising channel for them. I encourage you next time you see Bud Light or Bacardi.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think I kind of go back to first principles. And I think what's really interesting is there's a lot of elasticity of the demand for all of these services. And so you think about why does the average person have their apartment cleaned once a month? It's not because their apartment's only dirty once a month. It's that they have the propensity to spend $90 a month on that service. And so if you can reduce the cost, can you actually increase the frequency that those things are used? I get really excited about thinking about how the world changes dynamically by being able to drive better services to customers, which density of demand enables. But I think density of demand is extrapolatable across tons of different business models. You mentioned Drizzly, which is a nice segue. They have tremendous local network effects. The more demand they have in a specific area, the more they can bring on supply, which interestingly also has a secondary network effect, which is that the more demand they already have on the platform and the greater the supply coverage that they have, the more they're able to be.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Trash taken out, things that would take 10 15 minutes. You can't justify given the cost of those services. But when you already have labor present in the building, it enables you to do things that solve real consumer needs in a way that has never been achievable in the past.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, latch is probably a really great example of density of demand. When you have 200 households in a building, you can, the marginal cost of provisioning that incremental service is very low. Cleaning is a good example. In New York, for instance, the average cost to clean a one-bedroom apartment is about $90. Now, why is that the case? It's the fact that your cleaning person is commuting 30, 45 minutes between appointments. If you think about what it costs a hotel to turn a similarly sized unit, it's $45, $50. It's because they have that density of demand. A cleaning personnel is moving down the hall, cleaning those apartments, or in the case of a hotel, hotel rooms. So the ability to be able to provision services at far lower costs and pass on those savings is a huge opportunity. The second piece is that enables you to start doing things that otherwise would not have been economic. Watering your plants, turn down service, having your”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it's a generalizable approach, right? It's like how do you have unique relationships with customers? And how do you solve more of their problems? That is the core of vertical software. And great consumer businesses adopt that same mindset. How do we use our privileged relationship to solve more of their problems and do so in a way that's really accretive to us, right? We're generating incremental gross profit dollars while passing on a substantial amount of savings to the customer, driving very high conversion on that. So I think there's tons of examples of other companies that have that privileged relationship that they can continue to monetize over time.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Who are using your app five times a day? Those are five times a day that we can solve more of their problems and monetize it by leveraging this very unique attribute of our business, which is we've got home screen app with high frequency and we have density of demand. That is the key to any of these last mile logistics businesses, key to the on-demand economy is having density of demand. We have that without spending a dollar on marketing.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Any of these insurance business renters insurance businesses, they spend the disproportionate amount of their gross profit dollars on customer acquisition because these are very infrequently consumed products. You buy these when you move. They have to advertise to a broad base of customers knowing that people are moving every seven years in the residential world every one and a half years in the multifamily world. You have to catch that person at the time they need it. When we can reinvest those 40% of dollars premium value spent on marketing and instead reduce cost to customers. That's a huge conversion opportunity. The second thing when you're checking it says, do you want internet installed when you move into your building? Well, of course you do. No one wants this way to home for the Time Warner cable guy to come. I think there's a few categories that have lower NPS than the cable industry. We can provide those services a cheaper cost to our customers and drive high conversion on that. So fundamentally the way I think about Latch is this unfair advantage. You have customers.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Excited about with Latch is version 3.0 of what people didn't expect. The first version was this is a hardware device that people think is commoditized. They don't realize the fact that this is a really complex software problem that Latch uniquely solves and becomes very sticky. On average, our customers are paying us five years up front for the software. You can't turn off the product because your doors no longer work. So talk about a sticky customer relationship, a locked in customer pun intended there. But what I get so excited about is coming back to our consumer predisposition in the world is the fact that we have an unfair customer acquisition angle. When you move into a latch building, you have to download the latch app, right? That's your onboarding flow. It says, you know, Patrick, welcome to 172 Broadway. Here's your access credentials to the building. Do you have renters insurance? Your building requires renters insurance. No, click here for a latch offer. If you go look at Lemon.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Them, but also because there's a high return on them. So the average lock that gets deployed, there's a software contract associated with that, the building owners pay to latch to enable this ongoing system of record, this access for the building. One of the things that's phenomenal about being a great vertical software business is that you get to reinvest your subscription profit dollars into R&D to solve more and more of your customers' challenges. So we sell to building owners. These building owners have lots of different problems on their hands. There's a need for enterprise management of smart devices from thermostats to leak detectors, et cetera. There's the need to have a better onboarding experience for tenants to collect payments. There's so many problems that they face. And we sit in this very privileged position as their core software relationship to be able to solve more of their problems, upsell them more solutions that in order to our benefit. But I think the thing that I get most”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“The demand of an entire building, which makes the economics of all these services far more attractive. So there's a huge consumer shift in behavior embracing these access-based services that's necessitating a need for a new technology paradigm. Latch is accomplishing that. The system works as an integrated system of hardware, everything from the front door intercom, the front door locks, the package room, the garage access, your building's gym to your apartment door allows you with your smartphone, a key card, or your unique code to access seamlessly that entire building. The average tenant needs access to six different doors. The old world of kind of a schleigh glock with a keypad. Who's going to remember six different codes that, by the way, need to be changing constantly because there are new people coming into those building, people who are moving out who no longer need that access and shouldn't have that access? So there's a massive change in behavior that's necessitating this need. Buildings are deploying these locks because consumers are demanding.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think we actually abstract up to a higher level. Why do you need something like this? Consumer behavior has changed dramatically. The rise of on-demand services, whether that's dog walking, cleaning, et cetera, the rise of grocery delivery, food delivery, the rise of Airbnb, the sharing economy have necessitated a totally new paradigm for access. If you're going to use a WAG dog walker, are you going to have hundreds of copies of your keys every time there's a new gig of Kanya worker coming in? No way. Are you going to change the code on the front of your building every time a delivery person has to come in? No way. So there's a need for a new paradigm around access, which is provisioning the access to the right people at the right times and nothing but that. As we saw the world changing, there's this last millimeter challenge on delivery, right? It's no longer the last mile. It's that last millimeter. How do you get in to that apartment? How do you have that density of demand that comes when having...”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Competitive product on the market, despite the fact that Latch has been in business for a number of years. But I fully assume that our hardware advantages could commoditize over time. What we really want to build is the density of the network. One of the things that's so interesting about Latch is it drives a high ROI to its customer base. When you as a building owner install Latch, you see a real demonstrable ROI. You save costs on the operations of the business from labor and buildings, from placing lost keys, from changing out key cylinders every year. But most importantly, you drive higher rents. So there's a phenomenal ROI associated with deploying these devices, which is why you see the majority of the top 20 property owners now on our platform and that continuing to grow over time. That ability to grow within our customer base. As we've proven out that ROI, people have embraced it. And that's the benefit of selling to enterprises if you can drive great returns to them that exceed that dramatic.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Would say that much like apparel can be a very challenging category to be in. Hardware is a very bad business model on its own, right? It's a hit-driven business. It's peaks and valleys. The GoPros, there's countless examples of where folks have gotten burned thinking that these one-time sales can be extrapolated into the future. Hardware commoditizes quite quickly, generally speaking. You're talking about one to two year lead times versus your competitors versus many years for software. I think what we found to be so different about Latch is first of all, the hardware is really complicated to build. This isn't something that you can just stand up in a contract manufacturer. When you add in components, silicon chips, plastics and cameras, et cetera, into a lock, it combusts at lower temperatures than a traditional hardware only lock device, which means for multi-family where you have very stringent fire code regulations. The hardware itself is really complicated to build, which is why there is no other”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think so. I think brands have to stand out in a very, very fragmented market where there's so much competition for our time. One of the things that most brands struggle with is they have to then go reacquire their existing customers to come back. So how do you create community engagement that has people coming back? A savage has been very successful with these monthly drops. The average customers coming back once a month to check things. They're only purchasing four or five times a year, but they're highly engaged. We don't have to continually reacquire them. I think brands that create that community do so to their benefit because they don't have to continually spend to reacquire their existing traffic.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“The great businesses, the Lulus of the world can operate on a kind of after store level EBITDA with about 6% of overhead. So these businesses should be 20 plus percent operating margins in the future. Lulu, I think, is the comp that I would look to in terms of business quality category defining business that has very high consumer NPS and very high repeat rates. I would say the vast majority of direct-to-consumer businesses don't look like that.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“If you're growing really quickly, if you're acquiring customers towards the end of the year, right, your contribution margin might look lower than what the LTV to CAC would suggest. But that's what we're really looking for is, are you stacking cohorts that have very high returns on that initial investment in acquiring those customers? Can you retain them? And then do you have the ability to sell them more products over time? I think that's what we found to be highly successful for Savage is as we add more categories, our customers purchase them. This is a brand that they want to support. It's a brand that they identify with. So the long-term operating margins for our business, we're going to have similar gross margins to a Victoria secret or any of these other businesses. We might have some slightly higher gross margins as we turn our inventory more quickly, as we have less discounting because we're more efficient in a centralized fulfillment model. But we're going to have a store level EBITDA, in our case, contribution margins that we think are as good or better. And then the question just becomes the scale of your op-ed.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“We were in a reopening economy, the travel and retail brands are spending, and the digital brands are spending. And so unless you have that long-term LTV that's differentiated, it's really hard to make money at an end state. And so these businesses, I kind of think about it kind of like a four-wall margin. That contribution margin is effectively, after marketing is effectively like store-level EBITDA for these businesses. Our contribution margin for Savage is as good as Lululemon. Most direct consumer businesses don't have a contribution margin said otherwise they spend all of their gross profit dollars on acquisition. That's, I think, the reason why we're so excited about Savage and what we would look for across other businesses. Are you profitable on that unit level basis? Doesn't mean on a per order basis. It's on a customer cohort. If you're growing really quickly, unlike a retail business where the growth costs are really showing up in your CapEx on the free cash flow side, here you're expensing all of your growth costs. It's in marketing.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think with scale, most of these businesses are going to have consistent gross margins, right? Assuming that they're pricing at the same price point. So the big opportunities are really around repeat behavior. Many of our friends have coined the term CAC is the new rent. The productivity of your CAC is ultimately the driver of the success of these businesses. Said otherwise, it's kind of the contribution margin. What are you generating after your cost of goods sold, after your variable cost of distribution and fulfillment, and after marketing? That dynamic that I mentioned about Savage having almost double the 12-month spend of a Victoria Secret customer is the definition of why we believe this will be a more attractive long-term model than even Victoria's Secret was, which was attractive at its peak. The businesses that are one time in their use case have a much harder time of getting that leverage on that initial CAC. CPMs today are at their all-time highs as”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Think transitioning from a brand being defined by one person to a brand being inspired by one person, but ultimately defined by that community that develops is the future of these brands.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Think having a well known celebrity can be a great growth hack to get a business started, but every celebrity is not created equally. Authenticity really matters. You see so many of these startups being founded by celebrities that don't have a ton of authenticity in their in category. Rihanna has always been very authentic in this end market of saying that beauty is inclusive. She's been doing it for a long period of time. And so it really resonates in an authentic way with customers. I think it's really hard to do that. I think that those opportunities are few and far between. But I think the most exciting thing about Savage is that Rihanna's using less than 10% of our creative. This brand is defined by the community. We have 300 plus influencers who are the majority of where our marketing spend goes towards. We are not reliant on Facebook and Google for acquisition like other brands are. And we leverage our community to grow our community. There's this viral coefficient in the business.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“To consumer, lean into science, lean into data, because ultimately we believe that the companies that amass larger data advantages are those that are going to be the most successful over time.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think the historical disposition in consumer was that it was more art than science. It was create the brand and the boardroom and define it and push that out. And it's all about marketing. What you found is there are far more data sources now available that you can actually make the creative process scientific. What makes Savage so successful is the data that they harness. We have a million customers who we know extraordinarily well who come back to us. We know their sizes so we can better predict inventory. We have customer panels that we tried new products on who tell us what they like and don't. We iterate on PDP, which is photography and merchandising on the site. So you would look at three different images and say those all look the same to me. When you test them on the site, you find that some convert at dramatically different rates than others. So that iteration, that desire to test, which is consistent across great tech-enabled businesses, can be applied.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“We would be far more profitable than anyone trying to compete with us. And so that was really what suggested to me that this was much bigger than Rihanna. This was much bigger than a fad. This was a brand that was really hitting on a massive hole in the market, was delivering better value for price, was delivering a brand that really was resonating with consumers and that was showing up in the data.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“The fact they keep renewing it for future editions. The other thing I just wanted to touch on about Savage, I think, is really interesting is the secret to success in consumer is high repeat ordering. We used to talk about this when we looked at the alcohol industry and the advent of craft beer. Anyone can get trial if you get it in the hands of customers. You can get trial and that can drive explosive growth in the early days of a brand. The hard part is getting repeat. In a celebrity driven brand, you're willing to try something because your favorite celebrity is endorsing it. But you're only going to repeat purchase if that brand fulfills the traditional consumer dynamics of better value for price, high quality, convenience, selection, et cetera. And I think what we got so excited about seeing with Savage was not just the credit card panel data that showed explosive growth and the overall revenue of the business, but the cohort level performance. What we saw is given.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“A category that people want to talk about. I think you'd have a hard time having that mattress show. This is a category that is at the forefront of social change. Think about what drives a lot of the press impressions on that show. It's the fact that it's the first time you had plus size models walking in a show. The first time you had a transgender models walking in a show this past year's first time, male models were in a lingerie show. And so I think Rihanna has fundamentally changed the narrative in this broader category. And you're seeing so many other brands embrace inclusivity, not just because of why we did it, which is because it was for societal good, but also because it's good for business. This is what customers ultimately want. It's great content. Amazon wouldn't produce it if it wasn't a huge driver of traffic to Amazon Prime. I think Jen Sarkia, Amazon Studios would tell you it's a highly successful show.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Identity, et cetera, sexual orientation. Rihanna decides to totally reimagine that show, we signed a deal with Amazon to create the Savage X Fenty Fashion Show, which replaced Victoria's Secret in New York Fashion Week. It's the most watched fashion show on Amazon Prime. In fact, I believe it's the most watched shows last October, generating over 16 billion press impressions. When someone's willing to produce an hour-long infomercial for you and pay for it, A pretty interesting unfair advantage in customer acquisition.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“It was digitally native. It was constructed in the cloud for this future that we thought was inevitable. The second was that it was defined by Rihanna in this very powerful, inclusive way that was resonating with consumers. That has a viral impact, ripe. When you're talking about something that people want to talk about, when you're defining a cultural narrative, it engenders a ton of free press impressions. That is how we've been able to build brand awareness far faster than any direct consumer brand that I'm aware of. The second thing that we got really excited about was their ability to leverage the existing model that Victoria's secret had built around the fashion show. So Victoria's Secret has historically defined its brand off of this fashion show. We're all probably familiar with the idea of the Victoria Secret Angel was not a very representative group of people, representative of the broader consumer base in terms of diversity of size, background, ethnic.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Can test product with allows you to innovate far faster to replenish winning styles far faster. And so Savage was really set up to take advantage of the structural shift in consumer behavior away from in-store towards online, the willingness of consumers to try new brands, and the willingness of consumers to embrace brands that stood for their core beliefs. We talk about how brands have changed from being defined by being created in the boardroom to now being defined by their community. I think Savage is a perfect example of that. If you go look across Instagram, across Twitter, across consumer discussions about that brand, it elicits tremendous NPS. It has higher NPS scores than Apple. And it's because it's telling them something about who they are, not just about what they purchase. I think that's so powerful. So when we saw Savage, there's a couple things that got us really interested. The first was that it was on the right side of history.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Inclusivity, body positivity. You think about the original Dove campaigns, right? About inclusive beauty. In Victoria Secret had totally missed the mark on this change in consumer behavior, which is why you saw pre-COVID, these sequential year-over-year 10% negative same-store sales comps. We have a strong view that legacy businesses oftentimes struggle to take advantage of paradigm shifts. They're usually on the losing end of those leases are a liability. It makes it really hard to invest in innovation in e-commerce capabilities, merchandising for an e-commerce brand is totally different than merchandising in a store. There's so much more data that can be leveraged to improve the process. Actually, a centralized fulfillment model is far more attractive than having your products spread out across a thousand stores because you can turn inventory far faster, which allows you to accommodate a wider range of sizes, a wider range of styles, having data and predictability and having cohorts of consumers who”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“To get into those manufacturers, it's a category that's operated at high product margins for a long period of time, right? It's a very attractive category, 20 plus percent long-term operating margins when you do it, do it right. The thing that we got really excited about is Victoria's Secret was the 800-pound gorilla in the category. It had peaked at 7.5 billion or so of annual sales. It was a mostly United States-based business, which we can talk about why the internet can enable this category like Savage to be much more international business, particularly given Rihanna's following. I think what we thought was so interesting is that two massive paradigm shifts had happened in that industry. The first was the transformation of consumers wanting to shop in-store to shopping online. But the second piece was a fundamental shift in how consumers wanted to be spoken to. Victoria's Secret was created as a beauty assize zero. It was a very male-centric vision of beauty. And the female consumer had shifted quite dramatically towards”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's really interesting as you look at market share. It's about a $16 billion category in the United States. And historically, more than half of that was captured by Victoria's Secret. It's the opposite of most other apparel categories where they're highly fragmented. But the reason is really interesting, which is that the supply chain in Lingerie is quite complicated. You're talking about six to 12 month lead times on inventory. This is not something that you make in a contract manufacturer that you can drop ship it as demand comes in. The requirement to no demand six, 12 months ahead of time makes it a very venture unfriendly category. It's also a category where the product is quite important to the consumer. A t-shirt, if it's plus or five percent, too large or too small, you're not really going to notice. If a bra is 5% too large or too small, I can tell you that the female consumer is going to notice that. And so there are very few manufacturers who can do this well. And you have to put massive minimum order.”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“I've been looking for Savage before I knew that Savage existed for seven years. If you go back to the Caterton days, we had a view that most apparel businesses were low quality businesses. Apparel is a highly fragmented category with very low long-term operating margins. There are segments of the broader consumer industry”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Quickly over time. And we had a very differentiated view that no, this was not just an upfront sale of hardware. It was hardware that won you a software relationship of 10 plus years where five plus years of that's paid up front. It's a software relationship that gives you a consumer end user relationship for free. You have the one to many enterprise go-to-market model of software selling to building owners and building managers. you get customers for free who use your app five times a day. That's an unfair advantage to be able to sell them incremental products and services over time. So what we're constantly looking for is where is there this unfair advantage on customer acquisition that a company may have? And how is that maybe not so obvious to the outside world?”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source
“Around that. We're very okay to be on an island on our own. One of the things that you learn in the hedge fund world, which you know quite well, is not just to be able to articulate the bowl case, but to understand intimately the bear case and to take it down piece by piece. I really enjoy when the armchair quarterbacks have a perspective that's totally different than our own. When we first invested in Savage, I can't tell you how many people said, haven't you heard of XYZ consumer category, direct consumer is a horrible business model? Haven't you seen how XYZ category has commoditized so quickly? And we had a very differentiated view of why this business was quite sustainable in its competitive advantage and why Savage could be the category defining business, which has happened to take place. Frankly, it's happened a lot faster than I would have anticipated. We really love investing in Latch first. And everyone said, isn't this just a commoditized hardware product, or at least a product that will commoditize?”
2021-05-04 · Invest Like the Best · Andrew Sugrue - Investing in Paradigm Shifts - [Invest Like the Best, EP. 224] · IDENTIFIED FROM THE TRANSCRIPT · source