Sugar, Spice and Startups with David Downing, Co-founder @ ChipMonk Baking

Adam Kitchen  0:02  

Okay dokey, we are live today. I'm joined by David Downing, who is the co-founder of ChipMonk Baking. And we are going to talk about consumer packaged goods, starting an eCommerce brand in that industry. So David, welcome. Give us an intro to who you are and what your story is to date.

David Downing  0:22  

Yeah, absolutely. So, my name is David Downing. I'm co-founder of ChipMonk Baking, which I started in early 2019. With my co-founder, Jose Hernandez, he and I actually were roommates at the time, we were both working in the world of startups, I was working in venture capital and my background, more accounting, finance, his background is more in health, nutritional science and sales. We kept talking about wanting to start our own business.

And I guess the interesting thing with Jose is he was diagnosed with type two diabetes early on when he was in college and had always managed that with a diet. So instead of taking prescribed drugs, when he was diagnosed, he adopted a low carb high-fat diet and managed to get his blood sugar back to normal kind of none diabetes levels. And we kind of took that idea and started doing some baking in our apartment, he ended up making these desserts that were diabetic friendly for him, they didn't spike his blood sugar, so he could enjoy them, which is always a pinpoint that he had in his life.

And when he gave them to me to try, it kind of turned the light bulb on for both of us. In the United States, one in three people are either pre-diabetic or have diabetes. Anything you read in the news is all about trying to reduce sugar, reduce processed carbs, but if we would walk to our local grocery store most of the stuff on the shelf, either still packed full of sugar, or processed carbs, or it's packed with all this random kind of artificial ingredients that, that either tastes horrible, or you don't really want them in your body anyways. So we set out to create an all-natural, low carb, no sugar cookie.

And that's what we made. And have since kind of expanded it started in local farmers markets, moved on to our website, Amazon, and then this year, we've been expanding more into kind of traditional retail, grocery stores, meal prep places, even some hotels. But yeah, that's me and our background.

Adam Kitchen  2:19  

So it's interesting because I think that healthy foods and snack markets as well as just became massive. And obviously, it's been a few years now where you can go to the gas station, as you guys will call a petrol station for us. Now you can pick up protein bars, and,, various healthy snacks that just didn't exist in the past and guess and get exactly the same in the States. Right? It's a big movement now.

David Downing  2:44  

Yeah, I mean, it's definitely, I think,15 years ago, there wouldn't have been an option at all. But I would say that the options are still pretty limited. It's the markets kind of dominated by really big players like Quest Nutrition, Lenny and Larry's cookies, where either there, they're, incredibly functional, Quest I view is, 'Hey, that's a great way to get your protein' but it's probably not something you would crave as a dessert, at the end of dinner, you don't warm up a Quest bar and cut it up or whatever, eat it. And then Lenny and Larry's, are again, that it's a meal replacement.

It's not a really delicious cookie. And so we just saw this gap, hey, there's no one that's just trying to make a great tasting cookie that's just better for you period. And I think there's a lot of room for an opportunity there in the space of just coming out with stuff that tastes really good and can start to be a one to one replacement for some of the traditional foods that people know,  like Oreos, and Chips Ahoy, Doritos, all those things that everybody's eating every single day. I think we can start replacing that out over time. So our diets overall are just more balanced.

Adam Kitchen  3:56  

Completely agree. And on the subject of ingredients. The first question just came in from Joel so he says "when you say no sugar, what base ingredient replacement do you use instead?" 

David Downing  4:06  

So it took us a little while to find this because we wanted you to know, to use a natural sweetener, but it had to have no impact on blood sugar, ideally had very little to no calories. There's a lot of companies that use sugar alcohol as a replacement like erythritol. And that's actually where we started. But the problem with erythritol is it can upset your stomach in pretty low quantities and we wanted to avoid that. And also a lot of these alternative sweeteners can have a strange aftertaste. Resveratrol is known to have a cooling effect.

If you've had Stevia, for example, a lot of people will complain about this metallic aftertaste in their mouth. So we worked with a local food scientist at the University of Houston where he had a baking background and we kind of explored what was available and we found out about the sweetener called Allulose. It's a rare natural sugar. It actually occurs in nature and fruits, and just really tiny quantities, I almost think of it as like it's just a natural mutation of fructose itself, the chemical structure is just slightly different so that it behaves like sugar when you bake it, it tastes like sugar. But the human body because the chemical structure is a little bit different, the human body cannot break it down into calories, and it doesn't impact your blood sugar insulin levels. So that was kind of the perfect sweetener for us. We adopted it. But the issue is, it's only 75% as sweet as sugar.

So we ended up finding monk fruit powder, it's this melon that grows in China, the inside is this antioxidant, that's incredibly sweet four to 500 times as sweet as sugar, you can actually dry it out, use it as a powder in baking or ice cream or whatever application you want. And so we took the blend of the two hyper sweet monk fruit. And then the sort of semi-sweet allulose blended it to this ratio where we thought was close as we could get to that one to one sugar replacement.

So that's the base sweetener we use, we actually trademark that it's called AlluMonk. And we actually sell it by the pound on our website because a lot of our customers like to use it to sweeten their coffee, or you can use it in baking, I've made marshmallows with it, you can use it to make a caramel sauce. Because it is chemically so close to sugar almost any application for sugar you could use it for.

Adam Kitchen  6:23  

Seems like Joe knows the ingredient well without calling out any names. Do you think there's a lot of companies who are jumping on the bandwagon of healthy replacements? Well, actually, you mentioned that a lot of research went into finding the legitimately healthy alternative, is there some people who are just claiming to be healthy or the ingredients or not necessarily good for you again, without calling out any names a lot of these sorts of meal replacement slash protein balls, I know because that's my background as well they'll use, is it maltitol in there and all sorts of sweeteners, which make you run to the toilet very fast, to say the least.

David Downing  7:07  

Yeah, I guess it really just depends on your own personal goals, and what you're looking for. Because I know some sweeteners that are zero-calorie, they can still have an impact on your blood sugar, right. So if you're a diabetic, that's really important. And that's kind of why we avoided them. One thing I have noticed with a lot of cleaner label healthier foods is they still have a lot of sugar in them.

A lot of traditional protein bars. You think it's healthy because it says a big protein bar, but then you look and it's got 20 grammes of sugar in it. So you might as well be eating a Snickers bar at that point. I don't know if it's really on them, but it has this portrayal of fitness and health, but if you sat and ate those bars every day you're not going to be healthy, right? So I think there is some confusion there.

A lot of that comes down to consumer education, it's all about just reading the labels, and making sure that the ingredients and the macronutrients line up with what you're trying to achieve as an individual. But I think a problem out there is a lot of folks just haven't been educated or haven't been able to research exactly what to look for. And so when marketing kind of portrays that halo of health or fitness, they might just lean into that and actually be doing themselves harm.

So that's definitely an issue. One thing we've tried to do with ChipMonk is put out a lot of content on our blog and on our YouTube channel, or Jose it talks through a kind of, 'Hey, here's why we use the ingredients we do or, here are the types of foods you should be looking for when you're at the grocery store, to achieve kind of better health outcomes for yourself.' And we'll continue to kind of keep doing that to help people make better choices when they're at the grocery store, or they're shopping online.

Adam Kitchen  8:55  

Yeah, I love it. Actually, that brings us nicely onto the next topic, which I'm going to let Leah take over for a couple of questions. So go ahead.

Leah Magee  9:05  

The scientific research about sugar was extremely interesting. This leads on from what you have talked about. Which marketing strategies do you think help to grow your brand today? Putting that free content out there, we do quite a lot of free content. And it is not an onboarding technique but helps people to really understand what you're talking about. What type of strategies has helped you the most?

David Downing  9:40  

Yeah, I guess I'll we'll kind of look at last year and then this year, I think last year, one of them it was the single most impactful thing we did, it's called earned media, right? So if you can get your brand highlighted on a local news channel or in your local newspaper, and they just talk about you and your story. Typically, that's going to lead to just a big boost of activity on your website, a lot of sales. What happened last year in May is Jose had a piece written about his history with diabetes and how it led to us starting a company. In the lifestyle column, the Houston Chronicle, which is the largest paper in the city. And Houston is the fourth largest city in the US. So it was, there were a lot of people. And it cost us nothing.

Literally, he just reached out to this editor and pitched his story. And I guess it just kind of fit the needs of what they were looking for at the time. And in that one day, I think we sold more on our website than we typically did an entire month. It was kind of a nightmare, operationally, we were at that time, we were still operating out of our apartment. So we would go to the shared commercial kitchen, bake for 10 hours a day, come home pack for 10 hours, and kind of sleep a bit. And we did that for three, four days straight. But it was just really powerful.

Unfortunately, it's almost like trying to catch lightning in a bottle, though, there's no real repeatable way to do that. Other than that, you can continue to outreach, but there's a lot of luck involved, right, just finding the right publish publisher-editor and hitting them at the right time. But that is definitely something that a very small company can do in a cost-effective way. If you don't have a marketing budget, and it's just you, the founder got some time highly recommend, that's a great place to start, I would say coming into this year, as our marketing tactics have evolved a little bit.

And we've had to really think through where we can be most effective. I will say that email and text message marketing is absolutely critical to the whole thing. A lot of that has come from some of the stuff that you guys have put out the email marketing brand guides, and that kind of that framework, right? Because what I love about it is with both of those SMS and email, you can set up a lot of automation flows so that you're capitalising on all the traffic that's coming to your website, you're getting them into your system, you're learning about them. And then you can start to have a direct one on one conversation with them to ideally turn them into customers, or at least supporters of the brand.

And then you can use your actual campaigns themselves to either again, continue kind of this direct one on one conversation. So all of our emails, when we send them out, it's coming from the voice of Jose. Jose spoke to them. And, we're asking for feedback. We're telling them not just, "Hey, here's a sale, but it's, here's what's happening at the company. Here's some interesting stuff or products we're working on.

And can you maybe help us with what flavours you want to see?" Those two have been great. I think the question that we landed on, though, is how do we continue to grow our lists, and the main strategy that we've had so far this year is brand collaborations. So we will find other brands that we think have similar audiences to ours, but they're further along the path. Maybe they're a year or two older than us. So they've got bigger audiences, or they could be the same size, but maybe they're offering a product that's not directly a Keto cookie.

But it could be maybe a Keto coffee creamer, or a Keto gummy or whatever, something that's just bigger, lower carb, and we'll do a joint giveaway with them, we'll create a specific landing page, both of us will send an email campaign out to our respective audiences, say, "Hey, you can win something from both of our brands, and just go to this landing page and sign up here."

And we do that maybe once or twice a month, and it consistently generates 500 to 1000 new emails for our list. That single-handedly has been kind of the majority of, where we've been able to grow it, and these are all qualified, kind of email things, right? So that that I would say is the main driver to and I look at, look at your content a lot too. And making sure that you're not just using your email and SMS to milk money out of your customers, but,  trying to create a dialogue and also trying to give back value to them to make them feel special as, we kind of view it as this VIP Club, where if you're on our email list or text list you're going to get early access to, we do a lot of small-batch flavours and things that you're going to be offered now.

You might be the only ones who have the option to go buy those things or check them out. Well usually if we're doing a new product, we just did a protein cookie where we deeply discounted the price because all we wanted was to get it in their hands to start gathering feedback. so that's a unique benefit. If you're a ChipMonk VIP email person, you got to know about that when no one else did. And things swag to hats and shirts, we have automated flows, where it's if you order a certain amount of times or a certain amount of money, then we'll just automatically send you free stuff or a handwritten card and things that. So, yeah, that's been the most successful kind of strategy we've used so far.

Adam Kitchen  15:23  

I think you shared some great insights that a lot of people overlook as well, because, we all want to accelerate things with paid ads, and it works really well. But you've been very economical. So you said the end media, I think guys, massively underrated. We've had some of our clients recently, advertising in newspapers. But I think as you said, you've really leveraged the story behind the brand, and you start to build a community as well. And the co-marketing is another one that bleeds over of lists, it's basically an organic free traffic source if you're able to set up. Just to touch a little bit more on the co-marketing because some of the brands we've worked with, even though obviously, it's not my area, seem to be quite cumbersome and struggle to set this up. Do you just reach out directly to an owner on LinkedIn?What type of strategies has worked well for you to approach this?

David Downing  16:21  

For, just cold outreach to the press and media? Yeah, I think you can try to find their emails. Most news publications will list their writers and their editor’s emails on their site. So you can definitely go there, I would always say start local, the Chicago Tribune or whatever is not going to care about what the Houston company is going to do. So the very first place to start is, make a list of all your local media establishments, try to find direct contacts. Unfortunately, COVID kind of mess made this difficult, but, one strategy is literally just going to their office and dropping off samples, if you have a food company, that's the biggest thing to share.

And then if you've dropped out the samples, they like it, then that's the kind of hook that gets them interested. In the COVID world, you can always just offer to send samples and mail them to them. I think just direct email, if you can find them on LinkedIn, that's great. If you want, I think the thing we've always struggled with is it takes, if you want to do it well, it takes a lot of work. And I won't say we're really good at it, I would just say we've been lucky. Because, if this was my full-time job to go do this, I would take it a step beyond and, find out whoever's writing the articles that you think would be, covering your company, and then start following and reading all those articles. And then talking to them about it, and be, “hey, I read your article, I thought this was a really great point you made” and try to build more of a relationship and a dialogue with that person.

So that when they do have a need for a story where your brand might fit, then you're already in their Rolodex or whatever. And they can, they can contact you another tool that brands can use to get some, I guess, media coverage is it's called HARO, H AR O Help a Reporter Out, you might have heard of it. But basically, you can subscribe and you say, “I'm interested in these types of news requests.” And it's just this daily email, they'll just say, “Hey, this reporter is looking for someone to comment on the labour shortage, or this reporter is looking for a lineup of healthy snacks.” And then you can just directly respond to their requests. We had, we've had the kind of limited success there. But it is a good way to at least get a link to your website out into a few spaces. I don't think you're going to get a New York Times hit or anything. But it's a start.

Adam Kitchen  18:45  

I think you gave tonnes of great advice there. In fact, we could probably set up something else and talk just about those topics way more in-depth. Yeah, one more question on that. David, before we move on to the next one, and sort of co-marketing? Are you just literally speaking to the owner and saying, can we share an email, you promote my products, I promote yours? How does that work?

David Downing  19:10  

Yeah, so LinkedIn is an amazing tool for this, I think, most founders, CEOs of startups, they're kind of in the same spot where, we don't know, a lot of things, and we're kind of desperate to learn from each other. And so I'll just cold reach out to founders, I probably talked to maybe two or three every week. And just, I always say, “let's just have a call, I'd love to learn more about your story about your brand.” 30 minutes. And then, let's talk about maybe some pain points we're both having and I'll share my knowledge and resources and vice versa.

And if there's a good connection there and it makes sense, then the obvious follow up is, “Hey, by the way, we've had a lot of success with doing these brand collaborations. Here's our email marketing guy,  just to hook him up with your marketing team and, let's get this on the calendar.” I don't think we've ever had anyone say no. And then as you build a pretty big email list too, you can lead in with some of those stats, right? "hey, we have an email list of 13,000 people, this is going to help you a lot too. So it's a win-win for both of us."

Adam Kitchen  20:18  

Yeah, I love that. I think it's a great strategy that is very under leveraged as well.

Leah Magee  20:26  

 So we've covered the market and strategy, but we wanted to know what your tech stack looks like. What is it that you are using at the moment?

David Downing  20:39  

Yep. So we run our website on Shopify, we actually originally ran it on Squarespace which was a mistake. And then says Shopify email marketing, we use Klaviyo, which is amazing, because it integrates with all that data from Shopify, and you can set up all your flows based on customer behaviour. And then we use postscript for SMS marketing for the same reasons. That just blends well with Shopify as data, we use a mix of Shopify and ShipStation, for our fulfilment.

So we actually pack all our orders, ship them out in-house. ShipStation is great if you have a walmart.com, or Amazon sellers account because it can pull all those orders into one place. And then you can just do it all in one go. Instead of going through the horrible Amazon platform. I guess, accounting, I do all our bookkeeping and stuff. We use QuickBooks Online.

What's nice about that is that it also has a lot of good integrations. I plug it in directly into stores like our Shopify and Amazon and Walmart, and it can pull through transactional data so that I'm not manually entering one sale at a time. So that's, that's been pretty good. And I would say, within Shopify itself, I guess one of the great things about it is there's this amazing app marketplace where pretty much anything you might want in an app exists. And there's probably three or four options to do it. So, we have an app to help us collect customer reviews, we have an app that does a post-checkout landing page to encourage customers to kind of reorder and add to their cart. We have a subscription app. So there's a lot of different things you can plug and play directly in your website to help increase the lifetime customer value or improve the overall user experience on your website.

Adam Kitchen  22:43  

Yeah, in terms of single purchases to subscriptions. Are you trying to push the subscription model hard? Or what? What's the balance of sales there?

David Downing  22:57  

It's just, we've never had much success there. I don't know, maybe 1 to 2% of our customers actually use it. And I feel most people who do use it, they're just using it to get that initial discount, and then they move on. I think it's better just to stay engaged with your top customers.  Then they're going to kind of come order as long as they're aware of what you're doing. And you come back to mind via email or text. And that seems to work better than the subscriptions. I could see, if we had if you had something that's a little more I guess less about your personal tastes, cookies, right? You have to be in the mood for cookies or a certain flavour and no one's gonna want to eat six lemon cookies every single two weeks for the rest of their life.

That doesn't make any sense. But  maybe if it were dishwashing soap, or something that is a commodity that you're going to use every month or even supplements right? That's probably something I would subscribe to. I think it makes more sense and those industries that are so we kind of set it up as an option. But we've tried a couple of email campaigns and promoted it but never really saw much traction and didn't really feel the need to keep hammering it on.

Adam Kitchen  24:20  

 Leah did you have something else you wanted to ask before I rudely interrupted you?

Leah Magee  24:24  

I was just gonna say obviously, we kind of mentioned a little bit of the VIP community. Is there any software you use for keeping this?

David Downing  24:40  

We don't have a loyalty programme where you earn points or anything and then get rewards. I would say that Klaviyo is probably the closest tool we have. Because we use that to set up a lot of automations based off it we use it to help us identify our very top customers and then kind of start separate flows engaging with them. Whether that's surveys or the T-shirts, apparel giveaway. But yeah, we don't, we don't really have a loyalty programme per se. It's, it's more, I guess that the main tool we use is, really small-batch releases. And so every month we try to do one or two special small batches.

So that could be an entirely new flavour. Or sometimes it's even a different form. So we make cookies and cookie bites, but we've actually done savoury biscuits, we do those protein cookies. That's the benefit of being, us manufacturing ourselves as I literally right next to me, I have a bakery. And so whatever you can make in a bakery we can make it and we can sell it. And so we'll reach out to our customers. And we'll ask them, 'Hey, here's four flavours we're thinking about, which one would you like to see most' and then based off of that feedback, we'll actually make it we'll make 200 300 pouches of it.

And then, say, “Hey, this is the one that it's, it's going live on Sunday, it'll be sold out in, 24 hours. So go get it.” and then we'll send it and a lot of times, we'll even send feedback afterwards. Because it helps serve as a long term product pipeline for us to develop. We know, of the 20 small-batch flavours or products we did over the year, we could tell you which ones are most popular, based on feedback and, and also based on sales data.

So coming into 2022 Some of them we've decided to make full-time products themselves. So pumpkin spice, that was a really popular seasonal flavour we did last year. This year, we went ahead and just pre-planned it, we bought really nice custom bags, we launched them in the wholesale channel as well. So you can find it on the grocery store shelves coming into Christmas time, we're going to do the same with a gingerbread flavour. And then coming in next year, we have a couple other flavours lined up too. So it's a real win-win. Because it's great for driving sales, great for driving engagement and we stay where we're kind of staying true to the customer's voice, we're just making what they want, versus trying to come up with it ourselves and maybe getting it right, maybe not.

Adam Kitchen  27:19  

I think that's very smart.  It advocates using email and SMS as well for qualitative research and consumer feedback. But what I like about it is that you're de-risking the creation of new products as well, which I think, especially in your space can be a very costly exercise unless you have a good market research behind it. And you're doing it in a way that's really intimate to the customer. So I think it's a great idea.

David Downing  27:52  

Yeah, de-risking it's interesting. This is I guess something I would recommend to a company that might try to recreate what we're doing. You need to start with a really strong base recipe, right. And then from there, you can just apply different flavours to it. But as long as the base ingredients, for us the base flour, it's always almond or sunflower seed flour, the sweetener is always the same and all the ratios are going to be the same. But usually all we're changing is maybe a different flavouring we're adding or a different inclusion. So a different type of nut or different chocolate chip.

And so from a product development standpoint, it's easy for us to offer something new. We're not changing our supply chain, we're not having to invest in buying a pallet of an entirely different ingredient. And so yeah, I think if you can start a company where you just land on a really flexible but great base recipe that gives you a tonne of flexibility to offer new and exciting things to your customers. The only key to that though, is you have to manufacture your own product yourself; a contract manufacturer is just not going to be able to do volumes, set amounts. But if you're just starting off and you're in a commercial kitchen that's shared, that's a great way to kind of have a competitive advantage against your bigger competitors.

Adam Kitchen  29:16  

Making notes so I'm ready to start my own consumer packaged goods business after this. Talking of food, there is a man that knows his food, Barry Kerrigan, he is daydreaming about Dublin, and Ireland on Saturday. So that's the story. Barry is a butcher, by the way, is a previous client of mine. So yeah, he knows the game quite well. The next two questions were actually covered already.

So we were going to talk about your VIP community. How do you expand your SKUs? I think we sort of covered them already but just one more on the VIP community. So when you are releasing these Limited Edition runs at David's, what's your criteria to be a VIP? Do you have to subscribe to an SMS list? And how do you then release it to these people? Is it just a case of, subscribe to SMS and you're on the VIP list? Or is it a certain criteria that this person's all digital three times overall time and they've spent X amount of dollars?

David Downing  30:24  

Yeah, and I it's, it's not super exclusive, I think we choose certain channels to have, I guess first dibs, you would say so for us our SMS list just see, that's where we get the most engagement and the most sales. I guess for numbers, our SMS list is maybe a quarter the size of our email list, but it generates more revenue from flows and campaigns. So typically, what we'll do is when we make the small-batch flavour, we always get some really nice photos, we'll try to do some videos that will kind of build up a little suspense on our social media too. And, do mystery videos or something's coming.

And then we have the week kind of scheduled out so it's Sunday, we'll send out a text campaign to just SMS subscribers telling them that it's available. So they have the first dibs. Tuesday is when we'll do a kind of an email campaign and then probably Wednesday, Thursday, we'll do a broader social media mention as well. And then Thursday, we do a retargeting campaign as well, just as a final reminder if we have any left.

So that's kind of how we structured our SMS, they always get the first dibs. If we have something that's a super small batch, or we just want to talk to a certain sub sect, we'll just split our list based on customer number of orders or dollar value. One thing we did recently is we actually, I think we looked up our top 50 customers of all time, and actually call them and, we had a survey to just to figure out a lot of it's just figuring out, why the heck people are buying your product in the first place, right? Because if you can capture that essence, you can incorporate it into all your marketing and your packaging, and then future product development.

So we used kind of a Klaviyo email flow to identify those people, reach out to them, give them the option to do an electronic survey and then talk to them on the phone as well as either walk through the survey or get some more details. When you look at our packaging. Everything on our packaging comes from those surveys from the conversations. So the reason we put soft baked and chewy on our packaging is because we had a lot of customers say, “Hey, on most keto cookies are crunchy and falling apart, we love that yours are soft and chewy,” and we're are like “Oh, dang” We didn't make that front and centre. So I really highly recommend all CPG food companies to do something similar.

There's a book called I think it's Dr. James Richardson Ramping Your Brand. And that's kind of the whole takeaway of the book is you can't be successful as a speciality food company unless you understand the reason why people are buying your product in the first place. Otherwise, you're just kind of bumping around in the dark and you'll probably end up making a decision that doesn't align with the core reasons behind your consumers demand. And so you need to early on, start those dialogues and figure that out. And then once you figure it out, then you can actually scale up your product. Right. So that's, that's what we kind of tried to do. I don't know if we do a great job of it. But we talked about that book.

Adam Kitchen  33:40  

Sounds like you are doing a good job of it. I think the challenges that we probably have for a lot of  eCommerce companies is how do you maintain that intimate community as you scale? And keep in touch with the customers when your operations expand?

David Downing  33:57  

Yeah, it's difficult as we've grown in the wholesale front, and probably 40 to 50% of our revenue now comes from wholesale versus eCommerce where last year was 100% eCommerce, yeah, it kind of is shifting the way we look at, the purpose of those channels. Last year, eCommerce, that was how we made money, right, that's where our revenue came from. And maybe in an ideal world, there's some profit every once in a while. And then, but this, as we're moving forward, it's starting to seem clear that wholesale is a really great place for you to make your money because the volumes are there.

And then eCommerce is more of, for us a listening centre. Where it's a way for us to have a direct relationship with our customers to fuel product development to make sure our marketing message is on point to make sure we're kind of aligning with what they want, in a way that's not costing us 1000s of dollars, running, surveys or hiring third party companies to go do research and figure this stuff out. So, ideally, your ecommerce is generating some profit, too. But that's kind of what I'm looking at is five years down the road. I don't really think our eCommerce is going to scale up at the same rate that wholesale is. But yeah, the value of it from the consumer perspective is, I mean, that's the only that's the main touchpoint. Right. And so that's how we're looking at it going forward.

Adam Kitchen  35:23  

A little bit. A couple of questions came in, and it's nice to see that Romain is quite a technical one. "Hi, guys, How's ChipMonk adapted since the release of iOS 15?" I think this is one that all people will struggle to respond to. Feel free, David, if you want to take that on.

David Downing  35:44  

I guess the caveat is, I don't run our Facebook ad campaigns myself. Funnily enough, my brother, he's our digital marketing director at ChipMonk he started about two years ago. He was a musician and COVID wiped out all live shows. And so I said, “hey, I need help with marketing.” He knew nothing about it, but has self taught everything. A lot of the resources you guys put out too. I always forward them on to him to make sure you're reading this. But yeah, so he's running and has learned a bunch I would say [DROP OUT]

Adam Kitchen  37:08  

While waiting for David to come back online, if anyone has any questions, feel free to drop them and just can just go through a couple of comments now and ask.

'Is this a live session?' No, it's about David's story of how we started ChipMonk baking, and obviously, go in depth on some of his marketing strategies. Hence why we are discussing SMS. Romain broke the stream with that question. Apple's been listening and really caring about privacy. They didn't want anyone to discuss it. That's probably why it went down.

Leah Magee  37:48  

I think the marketing things that David's definitely brought up are really, really interesting though. I want to know more about the scientific facts beyond sugar.

Adam Kitchen  38:04  

It is an interesting one. Then I think he touched on some key points that people just completely overlook. For example, the media. 

David Downing  38:18  

Laptop was plugged in during the podcast.

Yeah. So I mean, I don't have a whole lot to talk about. Other than that, our Facebook ads have been really close. We have certain CPA targets that we compare to what we think is our lifetime customer value. We look at the gap between those two a lot. And then we look at our percent of ad spend as a total over total sales. And as long as we're kind of keeping it at that rate in the right ratios, we keep things going. I will say in this slower time period, we've been cutting back a lot of our Facebook ad spend. We still use it to generate new traffic.

But we're becoming more reliant, I would say on that kind of the email, SMS marketing that we've talked about where it's, hey, as soon as we get someone on the website our main goal is to get them into those flows to start building a relationship with them, start that dialogue, get them excited about new things, whether that's a promotion or our small batch, and then and then just keep them as repeat customers for the longer period. One thing I've talked to Michael, our Digital Marketing Director a lot about is collecting data.

Using zero party data on our customers, if you have an email marketing list of 10,00 or you have people coming in who want to get a discount, you can collect that additional information from them along the way. Ask them a quick question like ‘Why are you buying the product?’ or their birthday, and just use that information to better engage with them. I know you have mentioned you can use some of this information to refer back to Facebook to improve targeting. This is definitely a tactic I would highly recommend. We have struggled a little bit because there is this line because you don’t want to ask a whole lot of questions and sometimes it can feel like you are asking too many questions.

We were joking about doing a political-themed one, in US politics it is so you are either on one side or the other and both sides hate each other. And we were like ‘hey what if we could find out which side our customers were on?’ and then be like ‘Oh supply chain issues, oh thanks Biden!’ or ‘This is clearly Trump’s fault!’ and depending on who you were speaking to you would get a totally different reaction. 

But that is too controversial for my team to go with I think.

Adam Kitchen 41:40-

Yeah, you have to tread very carefully, I don’t even talk about politics anymore. Another question for another day.

So you are still in the start-up phase yeah? You have mentioned you are going down the wholesale route. What are the keys to scaling a packaged goods business? 

David Downing 42:13-

I think that number one, you have to have a product that people want so early on, do as much leg work as you can. And make sure there is a real demand for what you are doing. For us when I and Jose started we were baking out of our apartment, so we couldn’t sell online. Legally you can’t sell food online unless it is made in a commercial kitchen so we went to farmers markets for about a year every weekend and just talked to people constantly and we still have PTSD because I am kind of an introvert. But really engage with people and learn about why they like the product and if they don’t and iterating early on. So the sweeteners that we were talking about early on, we changed this due to all of their effects. So the one we chose to work with really elevated our product to be something that wasn’t already on the market.

So I would say that is something that is absolutely key, you have a killer product and a core group of people who are going to want to buy it. I think other than that is make sure your financials make sense, anyone can make the best tasting product in the world but if it costs $1000 to make you are never going to be able to scale that up. So make sure you think through your packaging, labour and ingredients costs, marketing and that the unit economics make sense.

So that as you sell more ideally your profit situation improves versus you have a really bad gross margin on your product and you keep selling more and more you are just digging a bigger hole. Some companies who have a lot of financial backing when you start that can be good because your end goal is to be acquired but if you are like us and mostly bootstrapped early on and don’t have a ton of access to capital, you need to get your margins and pricing right. Which has been a big struggle right now because so much of the world has changed with regards to supply chains and ingredients but I would recommend that.

Other than that if you get the two things right just keep going and try to sell as much as you can. At each step of the way keep learning from it from both a marketing and product perspective, like learning how to message and explain what is good and unique about your product. Keep making the product better, that would be a recommendation on how to scale. A strong foundation is key.

One other thing is, if you are a small business without a lot of money, do not take any massive risks. So if you said to a lot of CPG founders early on ‘Oh Walmart wants to buy all your stuff. ‘Oh, Target wants to buy all your stuff.’ and be like ‘ WOW what an amazing opportunity that would be a nightmare to me right now. Because I know the resources involved, you are putting everything into this one basket and if anything goes wrong your company is gone. So don’t make any decisions that could be big enough to sink your whole company early on.

Try to keep it small, a good example would be, our packaging at the beginning we just bought blank bags and printed stickers out. Then every time we changed the recipe or a new flavour we would just print out a new sticker. Rather than buying $15000 worth of packaging that I can’t change down the road so just have that mindset. You are going to make a lot of mistakes, so try and limit the financial impact that those mistakes can have.

Adam Kitchen- 46:21

I feel as if I have learnt a lot, just speaking to you over this last hour. I might have to open my own CPG this Christmas.

David Downing - 46:24

Go for it

Adam Kitchen - 46:31

Final two questions: I'll let Leah take over from here.

Leah Magee- 46:34

Amazing, I feel like you have definitely covered the majority of the things we have asked. But let's go into a bit more detail. What would you do differently if you had to start again?

David Downing - 46:50

I guess that comes down to what kind of company you want to be. I have thought about this a lot as if I was to start an eCommerce business from scratch, there are definitely different types of products which I think would be better. I joke around with our team saying if you could find something that weighs nothing and had an incredibly high sales price with a big margin and then being used frequently by a consumer. Then that just makes your life so much easier, because you can spend more on customer acquisition when your margins are tight. A nightmare food for me if I was in that space would be a beverage or ice cream if I was trying to do that on eCommerce, I don’t know how you would do it? Because you would have to spend $20 to ship something or even more if it had to be freeze-dried.

So if I started from scratch on eCommerce I would definitely think about more of the logistics involved, packaging and how much is it going to weigh. How can I be the most efficient with this process to be successful?
I think a bit of an issue with this is if people are dumb, they’re going to research and find those products and if they are easily commoditised and can order it on Alibaba or something they will just do that. Then it is just a race to the bottom on the price, then you just don’t really have any competitive moats to protect yourself.
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Other than that, what I would do differently, I don’t think it is a fair question, because you don’t know what you don’t know going into it.
I would want to do the same and just have an open mind and just learn and go through the big losses and mistakes because that is how you improve and get better. I don’t think if someone just tells you, then you might not actually listen, because you didn’t touch that hot stove or burn yourself because you didn’t get that core idea and theory into your mind. So I’d say just go out there and do something, take the first step and just along the way learn.

Adam Kitchen - 49:22

Yes, completely it is about what you learn along the way and the experience. You wouldn’t want to take that experience away even if you did make mistakes. As long as you don’t go out of the business of course.

Leah Magee - 49:35 

I do think it is a right of passage that when you start something like this you do have to fall over a few times to learn how to walk. Adam has just hired me and I’m learning loads and he is learning loads from me as well [Laughs}

Have you got any advice for new founders in the eCommerce space?

David Downing - 50:01

I have talked about this a lot but this is really important, just get started and just do something and start small. Take small steps so that if you trip you don’t fall face flat and your company goes under. When we started ChipMonk we started with $5000 and we ran on that for the first year basically. We were going to the grocery store and buying small amounts of ingredients and buying a few hundred bags here and there. Trying things out, we tried Facebook Ads but we didn’t spend $10,000 right away, we just spent a few hundred bucks here and there to help us learn. As you pick up on winning strategies you can scale them up from there. 

Just getting started is the main thing to do, a lot of people dream about having their own company. This happened to me, you can spiral into this sort of depression, I was working for this 1400/500 company making good money, I could have just stayed there and retired. But I felt just empty and drained every day and I didn’t feel like I was making a difference.

And I always knew I wanted to build something myself even if it was a total failure. At least I didn’t die not giving it a shot. It seems overwhelming when you are sitting there thinking about all of the things that could go wrong or how complex it can ultimately become. But if you just break it down into the simplest components at the end of the day that just means ‘How can you get your first sale?” Then just go for it. For us, it was “Let’s just bake some cookies at home and take them to the office and try to sell them at the lunch desk.” We did that and we sold $20 worth of cookies that first day. It was that first step and immediately we were like “We have a customer now! And we have some feedback now!” And it gave us something to build on to keep climbing up. You don’t need to have a big bang start and you don’t need to have a ton of money. You don’t even necessarily have to have a great idea, just start small and adjust and learn. As long as you aren’t taking big risks early on you should be around.

Adam Kitchen  - 52:33

And look at you now!

David Downing - 52:46

Joes and I never had any baking or food experience before any of this so, not knowing isn’t a valid excuse!

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