We Have a Meeting With Costco!
Introduction:
This week, Hans Schrei and Sarah Segal talk about what it takes to break into Costco. How do you get on their shelves? If you do get there, how do you make sure your product will fly off of those shelves? And if you succeed, will you have the financing you’ll need to ramp up production? Along the way, Sarah offers some tips on enlisting Costco influencers, and Hans explains the inner workings of Wunderkeks’ equity crowdfunding campaign, where you can invest as little as $150 and where the company hopes to raise $1 million. Plus: Sarah responds to a smart listener’s suggestion of how to avoid getting ghosted by potential clients after preparing elaborate and expensive proposals.
Show notes:
Here’s Wunderkeks’ investing pitch on Republic: https://republic.com/wunderkeks
Here’s the episode where we introduced Hans and Wunderkeks: https://21hats.com/wunderkeks-has-two-daddies/
And here’s the episode where Sarah talked about being ghosted by potential clients: https://21hats.com/trash-rats-and-garbage-juice-a-case-study-in-pr/
— Loren Feldman
Guests:
Hans Schrei is co-founder of Wunderkeks.
Sarah Segal is CEO of Segal Communications.
Producer:
Jess Thoubboron is founder of Blank Word Productions.
Full Episode Transcript:
Loren Feldman:
Welcome Hans and Sarah. It’s great to have you here. Hans, we haven’t spoken to you in a while now. It sounds as if you guys have had a lot going on. Tell us about it. What’s happening?
Hans Schrei:
Yeah, it’s been a while. We are on our way in our fundraising. Probably it was the worst possible time to do fundraising. But actually, we took it in stride. I’m very happy that we managed. So we kept going the best way that we could, even if the fundraising hasn’t really come through just yet.
So our way to retail is underway, and actually, Costco reached out to us. So we have a meeting soon, and we’re preparing for that. And it’s a very exciting time, because I don’t know if you’ve ever had to look for a buyer in retail. They don’t want to be found.
Loren Feldman:
Yeah, I was gonna say, they reached out to you?
Hans Schrei:
Yeah, they did. It was funny, actually, we got reached out to by two different people at Costco with a day or two difference. I guess that all of the PR efforts have been paying off. So it’s a very exciting place to be, because it’s like playing “Where’s Waldo?” all the time. They will not get back to you. Finding the right person to talk to requires a lot of detective work. And to have it fall into our lap like that is very exciting.
So we’re really hoping that we’ll do a good job. But I think that we know the category so well, because we’re always on top of it, and mostly because we’re always complaining about it. So I think that we have a very clear understanding of how to win in the [cookie] channel. I don’t want to blow it, but that’s where we are.
Loren Feldman:
Hans, is this Costco local or regional or national?
Hans Schrei:
Actually, it’s from their headquarters in California. Most likely, they’re going to want to play with it locally first. Happy to do that, because we’re definitely not in a position just yet to go into a national account. All of this year has been about that, is that you keep going. Like yes, one of the key pieces, if you want to go into retail, is to actually have the retail invested in it.
But you also have to do a ton of things on your side. And it’s not the smartest thing to just wait until the moment comes, because it’s not gonna be like a fairy godmother with a wand and all of a sudden, you’re a retail brand. It requires a ton of things and a ton of conversations, because you know your product very well, but there are so many unknowns. We’re really trying to do the work and to be the most optimistic, if you will, that these things are going to come through, so we need to be prepared for them. And I think that’s really benefited us, because we come to this place very well-prepared.
Loren Feldman:
Do you have to go to California, to the headquarters, for this meeting with Costco?
Hans Schrei:
No, no, this is going to be a Zoom meeting. I would hope that we can do it in person soon. I really am not a fan of Zoom meetings. I don’t know if anyone is. But we’re gonna start with a Zoom meeting. The thing about us is that people really like when you give cookies to them. It makes a lot of our job very easy. I have never been into a room where they don’t welcome me with open arms, because I have cookies.
Loren Feldman:
That could be a good tip for anybody. You don’t have to make them yourself.
Hans Schrei:
Absolutely. In our case, it really aligns with the whole thing that we’re doing. So it’s probably not the same if you’re selling, I don’t know, olive oil. “Oh, here’s a bottle of olive oil” doesn’t have the same thing. So we’re just lucky that we’re in a category where people really get to enjoy the thing and we get to talk about it.
We are doing now some form of cookie lollipop whenever we have events. And people love taking pictures with that. So it’s a whole different game. And then they remember you. It’s incredible. Everything that has something to do with the senses, you remember. So you will say how people will forget your name, but they will remember how you make them feel. That is absolutely true in a positive way. They will remember how the cookies made them feel.
Loren Feldman:
Aside from sending cookies, what do you have to do to prepare for this meeting with Costco? Have you researched strategies?
Hans Schrei:
Yeah, the first thing we did was go to Costco and look at the category. We do this all the time. We’ve been looking at the category constantly, and one of the risks that you run when you’re doing that, “Oh, I know the category like the palm of my hand,” and that is probably a mistake. So we are always going to the supermarket and looking. “Okay, so what’s changing? What’s new? What’s out? What’s in?” That type of thing. The first thing is to understand the category and say, “Okay, where do we have an opening here?” Because the approach that we’re taking, we’re looking at different versions of the same product.
So one is the fresh cookies as they exist, but frozen. The other one is the cookie dough, so you can bake them at home. And the last one is the cookies are made shelf-stable. I think the first thing that you need to do is understand where there’s the gap in the category. And in our case, the category is cookie. So you will say, “Oh, cookies is super-saturated.” But that will be true of every single thing that you want to put in a supermarket. I find it really hard that you’re going to invent a new category.
I would say the first step is to go and understand the pricing, because the last thing that you want to do is go, “Oh, I have these cookies, and they will retail for $24 for a pound of cookies.” And probably they will like them very much, but it doesn’t really make sense for the channel. So if you’re going to everyone, I don’t know, maybe you have a little bit more leeway with the price. Or you can work with a different type of presentation. So the first thing is that: Go and see what’s out there, and what are you going to inevitably be compared to.
Because I have some experience with CPG. I have dealt with buyers before, and the way that it works is similar to when you’re putting out a menu. You have a set of offerings, and you’re trying to maximize your returns. So you want to have on your shelf that will really make the shopper think, “Oh, I can find everything that I could possibly want here.” And that is a balancing act. Because yeah, I’m pretty sure there’s 100 different brands of cookies that would love to be in Costco or would love to be in Walmart. But you need to figure out: Where do you fit?
And also, I think it’s good to be able to say, “Hey, I want to understand. I want to be helpful for you.” Because this is the reality of buyers. They are in a business. And as much as my business is being measured, my business success is measured, theirs is, too. I mean, they have a boss who is probably the national buyer or the regional buyer—I’m not sure, the structures vary—but they want their aisle to perform.
So what they need—and this is true, I think, of every business—you need to bring to people who are the gatekeepers a solution and say, “Hey, I’m here to make your life better and I’m here to make your life easier. How can I do that?” As opposed to, “Hey, I have this product and you cannot live without this. You need to have it.” “Why?” they’re gonna ask. “Because we’re the best cookies ever.” And they’re gonna say, “I’m not interested.” And frankly, with good reason, most of the time.
Loren Feldman:
Sarah, if I’m not mistaken, I believe you’ve helped some clients through the process of trying to sell to Costco. Is that right?
Sarah Segal:
Yes. We weren’t involved in the whole deal-making aspect of it, but we were deeply involved—and we continue to be involved with that client—in terms of when they do get featured in the stores across the U.S. So we’ve done everything from just regional distribution, where they’re like, “Okay, we’re gonna have our product only in the Northwest, or Southeast, or the Midwest region,” to now, we’re actually currently working on a national distribution of their pumpkin cream pie, which will be in stores in mid-September.
So there’s a lot of little weird nuances to it that you might want to loop your PR agency into, specifically that when they say that it’s going to be on shelf, it usually takes about a week for them to actually be on shelf. So if your agency’s working with influencers or with members of the media who want to go discover it, it takes a little while. And it’s super, super, super important to work with influencers who are willing to do that kind of discovery post where they can tell people where your product is located. Because I’m sure you know, Costco is like, distracting, and just filled with so many different things. So sometimes your product—
Loren Feldman:
You mean where your product is located, not meaning Costco. You mean where inside Costco.
Sarah Segal:
No, in the store. Yeah, it’s hard. And if you’re doing a frozen good, I mean, there are usually three or four aisles that have frozen goods. If you are in the stable shelf, I mean, you have several aisles to work with there. And then if you’re in the refrigerated section, you’re competing—those are usually the end caps of the fresh section and the open freezers where you have all of these dessert products. So you really have to be able to tell people specifically where to go.
Loren Feldman:
Does that vary by store, Sarah, or are they consistent across the board?
Sarah Segal:
Generally, they’re consistent. But still, there are still nuances to everything. But what we’ve done is we’ve been able to work with influencers really early because it sells out, right? And that’s the other problem. It’s getting your influencers to go to the store to discover the product, when you know the product is actually on the shelf. You’ve got to be really careful with your timing.
The first time we launched in Costco for a brand was in the middle of the pandemic, like, literally lockdown. And so we do a lot of trade relationships with influencers, so people are willing to take a product, in exchange for a post—as opposed to paying for them. We do do paying stuff too, and I can give you some tips on that one.
The trade ones though, what we did was, we pitch people, and they say, “Well, I don’t have a membership to Costco.” And we said, “Oh, well, we can fix that.” And so we would buy them a membership. We would say, “All right, we’re gonna send you a $60 gift card for Costco, but you’ve got to promise to buy the product. So we’re paying for your membership, plus some, and you get the product,” and people were ecstatic about that. They love Costco. And the idea of having a, quote-unquote, free membership was fantastic.
Hans Schrei:
I love that.
Loren Feldman:
Did they live up to the deal? Did they go buy the product?
Sarah Segal:
Oh, 100 percent. I mean, people want to work with that. Another trick—and the people who you should be reaching out to—is there are specific Costco influencers. There are influencers who literally only write about Costco products. And they’re usually pay-for-play, but it’s a worthy investment, because some of them—not all of them—actually get picked up by traditional press as well.
We worked with one influencer over a season, who, every time they highlighted a new flavor of the product we were working with—which is called Pots & Co., it’s a very decadent desert—their articles would be picked up by MSN, Eater, all sorts of other publications, because they were followed by those publications. And they would literally write a story like, “Oh, our favorite influencer just found this.” So it was like extra PR.
Hans Schrei:
That is brilliant. Like, this whole idea about the influencers, I hear that, and those horror stories about how you need to tread the line very carefully with them. And I’d love to hear more about that. Because, yeah, if your product sells out, you’re wasting your investment, which is great. “Yeah, our product sold out!” But you don’t want that either, because you’re spending a ton of resources getting people there.
Sarah Segal:
And ask them things like, “Are you gonna be able to do the sampling?” Because literally, for like two years, they stopped sampling because of COVID. But sampling is back now, and people love sampling.
Hans Schrei:
We are Costco people, Luis and I. We love Costco. We buy some stuff for the cookies there, so we go all the time. I think a lot of it comes down—and this is true of all retailers—when you’re starting, you want fantastic numbers. They know and you know that having the founder there, looking, saying: “Is everything okay?” Getting into a relationship with the manager, getting to see, “Hey, can I get an endcap?” All of those things. They really build relationships.
They know that you’re accelerating your sales, if you will, by doing all of those things. But those first numbers are super important. And I think that the most important lesson we’ve taken out of all of this is that, as a founder, there are some things that you don’t get to delegate. At the end of the day, it says to these people, say, the Costco store manager, “You’re important to us.” We’re very aware of the power that our success in this store holds for our company. So you need to be, I think, very humble in your approach and not say, “Hey, here we are, here we come,” but really treat it as the opportunity that it is, because they know. They are very aware that it is an opportunity for you.
Sarah Segal:
Yeah, and definitely, if you have PR dollars that you have been reserving for a special project, I would 100 percent put those behind this. And that way, you know that it’s going to fly off the shelves, and then Costco is going to come back to you and go, “Oh, well, let’s put you in the Northwest and see what happens.”
Hans Schrei:
Absolutely, yeah. We’re super scared, because you need to thread the needle in so many different things, and I guess also be willing to learn. Because this is the most complicated part. One of the things that we can leverage for our company, for instance, is that, “Hey, we have a significant database of people who know us.” We can segment that by regions or whatever.
We also have a significant investment in social media, so it’s very easy to add to our Facebook ads, “Hey, we’re launching in the Southeast.” So instead of spending in the whole country, we’re going to make sure that we only spend, I don’t know, 5, 10 miles away from these and these and these and these ZIP codes, which are the right ones. You can be that granular.
And I would say that is very attractive as well, to really talk about what you can do. And it’s very easy to just add to our, “Hey, find us on Wunderkeks.com.” You can also say, “Find us at Costco now,” and be very intentional about that. So that’s attractive, because it’s not direct. It’s not direct spend on samples, on discounts, or what have you, but it’s also something that is beneficial to what you’re doing. So we think that there’s a big opportunity there.
But to your point about PR, I would say that that is the one thing that is a mistake that a lot of brands make when they go there. Because you go to Costco and the first thing that you do as a consumer is, “Oh my god, everything here sells out. This is insane.” I was here last week, and I saw this, I don’t know, vacuum cleaner, and I came back, and they’re out. A lot of people have the idea that just by virtue of being in the store, things are gonna sell themselves. And I don’t think that anything can be further from the truth. It’s a lot of effort. The first part is getting there, and then there’s a lot of work to staying there that I think a lot of people don’t really appreciate.
Sarah Segal:
Would this be your first step into national distribution in a brick-and-mortar?
Hans Schrei:
Yes.
Sarah Segal:
Oh, okay. Yeah, you don’t want to mess this one up. [Laughter]
Hans Schrei:
I know.
Loren Feldman:
You’ve talked previously on this podcast about how, in many ways, you think the story behind your brand is more important than actually the taste of the cookies—in terms of developing an audience and selling the cookies. Do you think that’s true in your approach with Costco as well? Do you think they care about your story more than they do about the cookie?
Hans Schrei:
I’ve been talking to a lot of retailers and people in the industry about this. And the play—say, you are in your 30s. You are an Oreo person. You’re gonna keep buying Oreos. You’re not going to change. Probably you’re gonna test something else new, sure, but you’re on your way. A better example of this is Coke or Pepsi. If you’re a Pepsi person, and you’re in your 30s, you’re locked. It’s very unlikely they’re gonna change. So the people who we need to talk to—and this is what we tell retailers—are these younger consumers who are in the middle of a transition, who are just graduating from college. They are just getting married. They used to have whatever brands they got in college, but now they have a little bit more money. They’re doing their own groceries.
Costco is a good example. Now they go to Costco instead of whatever bodega or whatever you call the store near you. And these are the people who you can convert. So the problem with legacy brands is not that they are not appealing and they’re not good. The thing is that legacy brands by design were made to appeal to a certain audience, and that audience grows. So at some point, there is saturation.
So they’re interested in the people who are starting to get their footing in things. And they want to say, “Hey, you can find this amazing brand here. You can find all the innovation that you want here with all of these new brands.” And the reality is that, for Gen Z, who are all roughly under 30, and are just getting all of these customs in place, like: What dishwasher detergent do I use? Do I buy the private label? Or do I splurge for Tide? They are getting into that. And these are the people we’re talking to. And these people are interested in this.
Sarah Segal:
Does Costco… will they provide you with their demographics? Because I have a specific vision of what the demographics are for the traditional Costco customer. And it’s definitely going to lean older, established people with lots of school-aged children, people who are already set. So that also might play into the product you decide. I would also make sure that you ask about their flier that they send to every member with the Costco member savings. So if you can get featured in there, that’s only going to help you as well.
Hans Schrei:
Yeah, absolutely. What I’m thinking is this: if you’re in your 40s, and you never got a Costco membership, it’s very unlikely that you will. For many reasons, you will just not shop there. So the funnel is younger people. And of course, their demographics skew older, but the ones they are interested in attracting—the ones they want who make sense for their own execution and strategy—are younger, which is the same for younger brands. It’s not that the older people are not going to try your stuff. It’s just that they are a harder sell, because they have their cookie brand that they have been enjoying for 20 years. So they will try it once, but it’s very unlikely that you will convert them.
Whereas the new ones who are still excited—because we all did it: “Oh my god, they have a dollar-and-fifty hotdog!” There’s a time when it’s new to you, and it’s exciting that you can now go to Costco and get one. When you are new to Costco, in the sense that you used to go with your parents when you were a kid, but now you have your own membership, and you’re going to Costco, and you buy all this stuff, and you get super excited: “Oh my God, look at this. It’s like $40 for 150 pods of detergent!” Those are the people who are being drawn in by the new brands. The older customers, they don’t need innovation. They need their staples to be there for them.
Loren Feldman:
So Hans, when you meet with them, do you pitch the story first, or the flavor first?
Hans Schrei:
They’re kind of aware of the product itself. We’re sending samples to them. They’re aware that they’re cookies. I really hope I’m right, but I think it’s a lot about not only the story, but the many ways that we have been able to leverage this story. Because I would say, for retailers, it’s interesting: “Oh, this product got on to the Today show. This product got in the Oscars’ gift bags, and got a lot of press out of that. They’re doing celebrity collaborations. They have this thing going on for South by Southwest. So that’s also interesting for them.” Because at the end of the day, any PR thing that you do will benefit you and the retailer, if you do it right.
Sarah Segal:
I’d like to see you on airplanes. You know how Stroopwafel and Biscoff have taken over every airplane?
Hans Schrei:
We are on that. We have a meeting next week, actually, about… I’m not going to say which airline. I don’t want to jinx it. But they love the cookies.
Sarah Segal:
That’s a discovery space. My family has become avid fans of the Stroopwafel because of that.
Hans Schrei:
Absolutely, and I think that that is super important. I will say that, I mean, we haven’t gotten to price discussions, but I’m pretty sure that that is not going to be profitable in any meaningful way. But the amount of people who will have nothing to do for a couple hours, and will take the time to read your packaging, from top to bottom, is priceless. So yeah, that is a gigantic opportunity.
Loren Feldman:
How about the pricing with Costco, Hans? Are you concerned that they’re going to squeeze your margins more than you’ll be comfortable with?
Hans Schrei:
No, actually, the interesting thing about Costco is their margins are probably a little bit lower, because the price is a bit lower. But most of what they do is, they don’t squeeze you on the margin and keep it for themselves. They squeeze you on the margin and transfer it to consumers.
Loren Feldman:
But you’re still getting squeezed on the margin, though.
Hans Schrei:
Yeah, but at a bigger volume. Another thing that is super important for Costco compared to, say, Walmart, is that their cash cycle is way shorter. The terms are way more favorable. So the volumes are good, the volumes are significant, which will allow me to go to my co-packer and negotiate better terms. But also, the cash cycle is in weeks, not in months. So that’s really a factor to consider. Like, Walmart can very easily give you 180-day terms, and you’re probably going to take them. But the amount of financial muscle you need to do that is a lot, compared to a three-, four-, five-, six-week cash cycle.
Loren Feldman:
Are you concerned about what happens if you’re successful, and they want to do something? Are you ready to supply them in the quantities that they would want?
Hans Schrei:
I’m getting ready. I’m not ready yet. Realistically, this is exciting that we’re talking to them and that we’re really building a strategy around this. But realistically, we’re looking at a Mother’s Day, maybe Easter, launch—if we get there. So we are preparing for that, and we’re having all of the conversations in all the other places as well, because, yeah, they are excited about what we’re doing, but we don’t have anything in the bag just yet. So we’re actually vetting partners right now for co-manufacturing.
Loren Feldman:
Let’s take a quick break for a moment to hear from our sponsor.
[Message from our sponsor, Work Better Now]
And we’re back. Is that why you’re simultaneously working on fundraising? Is that what needs to happen, in order for you to service Costco the way you would like to?
Hans Schrei:
Absolutely, because probably, we’re gonna start with a few stores. That is very likely. Let’s do the five stores, I think we have in Austin. That is manageable. Sure, we can do that. And we can even go to every single one and check on them every single day we need to. The problem comes, if you are successful, they’re going to say, “We love this. We want it in the whole Southwest. We want it in the whole country. And if it is a success story, as we hope it will be—and I think we have really prepared for it to be a success story—then you need to move very fast.”
And like, the volumes are insane. We’re talking millions of dollars that someone needs to finance. So that’s why we’re doing fundraising, because the amount of working capital, no matter how favorable this cycle is, it is an insane amount of money. So we do need that.
Loren Feldman:
And your approach to fundraising, you have some kind of crowdfunding raise going. Can you tell us about that?
Hans Schrei:
Yeah. We’re raising a million dollars on Republic. It’s called equity crowdfunding. It’s regulated by the SEC. And basically what you do is, you file your financials through Republic. They keep a commission on how much you raise, and what you issue are called Crowd SAFES. So there’s an unlimited number of people who can have the Crowd SAFE. They set it up, not exactly as a trust, but basically, Republic itself becomes a representative. So the cap table has just one name. And whenever they need to vote, for instance, if it came to that, because they converted, they vote as a single entity.
Because you can invest $150, so you don’t have to deal with a thousand investors directly. We just need to have one line in the cap table. And the beauty of that, particularly for consumer products, is that we already have a ton of people engaged with what we’re doing. And we’re actually offering proper ownership in our company, one. And, two, we really think that this is gonna blow up. We’re trying to make this into a full-blown unicorn. So the fact that you can share that with people who are actually outside of angel investing and that type of thing is very exciting, I think, for both sides of the equation. Because these are the people who are then going to become your ambassadors, if you will.
Sarah Segal:
So if somebody wants to invest in this, where do they go?
Hans Schrei:
They go to the Republic website. It’s republic.com. Look for Wunderkeks. You can even pay with a credit card.
Sarah Segal:
Do you ever pinch yourself about this? That you’re like: I have a cookie that could be this incredibly large business that blows up nationally because of whatever opportunities you have on the horizon. It’s so funny because you say that it’s a saturated market, but I think part of it is that it’s stale. You know, we’ve been seeing the same brands of cookies on shelves for so long.
Hans Schrei:
Absolutely. I’m amazed that we’ve built it into what it is. And to be completely honest with you, like last year, we turned down $3 million.
Loren Feldman:
Three million dollars from an investor, an individual, or a firm?
Hans Schrei:
It was a private equity firm. It was not the right partner. And we said no, because at that point, we didn’t need the money. We didn’t have anything to do with the money. Like, we can take $3 million, but what are we going to do with that? And it was not the right partner for many reasons. And we said no.
And for a long while, we were like, “Oh my God, we should have taken that money. That would have made our life so much easier. But you know what? Sarah, to answer your question, I think that now, when everything is kind of coming together, and we’re building it, and we’re so excited about where we’re building it, and the credibility that we’ve brought to our business. We have gone through a lot.
And for a long time, for say, from October up to March of this year, we were not sure that our business was viable. We really had to consider: Is this a viable business? And the answer was: Not in the way that it exists, so you need to shift. But I think the fact that we didn’t take that money, and the fact that we had to go through that period, where things were very shaky, where we didn’t know if we were going to make it, it’s made us better people and more appreciative of the opportunities that come around.
Sarah Segal:
Where would you see yourself in five years? I’m just curious about the trajectory that you’re hoping for.
Hans Schrei:
I would like for Wunderkeks to be spoken of in the same sentence as Oreos. That is the long game. But I definitely see myself operating the company still.
Loren Feldman:
It’s a very different product you’re talking about.
Hans Schrei:
Absolutely.
Loren Feldman:
It’s interesting that you would pick that one out.
Hans Schrei:
Because when you think of cookies, Oreos is the cookie. That is the dominant brand.
Loren Feldman:
Going back to your crowdfunding, you mentioned you’re going after smaller investors with this. Is this more about raising capital for you to invest? Or is it really a marketing strategy to get customers invested, quote-unquote, in your product?
Hans Schrei:
Oh, no, definitely more about the capital. We do need the capital, in order to grow.
Loren Feldman:
Is this one of those plans where you have to hit a certain threshold, before you actually get the capital?
Hans Schrei:
You get it in tranches, but the threshold is $25,000, something like that. So, yeah, there is a threshold, but it is a very small one.
Loren Feldman:
And you said, you’re hoping to raise a total of a million dollars this way?
Hans Schrei:
Yes.
Sarah Segal:
How are you getting the word out about that opportunity to invest?
Hans Schrei:
We’re talking to a lot of places like this. We’re doing PR outreach. We’re getting ourselves in a few newsletters that are relevant to that. We are using our own database, because we have 250,000 people in there. There are many different places. Actually, when I’m done here, I’m heading to a meeting exactly about that. So a lot of it has to do with presenting yourself as capable, that you know what you’re doing, what your plan is. And because most of the people who are into these are people who are excited.
And actually, a VC recommended this to me: If you want to understand how VCs and angels work, go into Republic and invest a little in something. And the thing is this: Republic, I think they have like a million-plus investors who are on the platform looking for deals. And these are people who may not have the capital to make a $100,000 angel check. But they are very invested in the process, because they’re hoping that one day, they will get to the point where they can actually do the angel checks. So it is a lot about selling the vision to these people who are already sold on the idea of crowdfunding.
Loren Feldman:
So what does a small investor get? If somebody pulls out a credit card and invests $150 or more in Wunderkeks? What do they own?
Hans Schrei:
We’re using a valuation cap of $20 million, so they will get $150 divided by $20 million. And that is the percentage of the company they will own when they convert. It is a SAFE note, so it is not technically stock. It will convert into stock at the moment that we have a price round. So when we raise a Series A, then it converts.
Sarah Segal:
Have either of you ever invested in one of these type of Republic opportunities yourselves?
Hans Schrei:
No, I haven’t, because they are not allowing me to go on, because I am not American.
Sarah Segal:
Loren, how’s your portfolio?
Loren Feldman:
I’m kind of an index fund guy, Sarah. So no.
Sarah Segal:
I’ve done some. I mean, I’ve definitely researched it, not just for investing and making money out of it, but also finding cool companies. Because we work with established brands, but there is always someone with a great idea—like you—who is just getting started, in terms of their growth phase. And that’s a great place for us to find those innovators and people that we can reach out to and say, “All right, we see that you’re doing crowdfunding, but we see no press about you. So let’s talk.”
Hans Schrei:
That’s very clever.
Sarah Segal:
Yeah, and so once in a while I look through them. I wish I had more time to do it, but Republic is not one I’ve heard of. But there’s a whole bunch of other ones that I follow.
Loren Feldman:
We’re running a little short on time. I want to ask Sarah about a reader comment we got. But before I do that, just one last thing, Hans. Could you give us a sense of what you are hoping to get out of that initial meeting with Costco? I’m sure we’ll be asking you about this after it happens. What would be a success for that meeting?
Hans Schrei:
Well, an LOI would be amazing, because I have a few investors who are like, “Bring me an LOI from a retailer, and I’m in.” So that would be great. But I don’t think that’s going to happen in the first meeting. What I would love to get from them is their perspective on the industry, what’s happening in the industry. And ideally, because we are very malleable in what we can do, we can do a lot of different products. Cookies is where we’ve been and what we’re known for. We can manage the sizes, we can do the cookie dough, we can do a ton of things. So what I would like to do is to say, “Hey, how can I help you round out your portfolio?” And hopefully that will be the spirit of this meeting.
Loren Feldman:
All right. Sarah, I want to ask you, you were on I guess a couple of weeks ago, and you talked about the frustration of preparing elaborate pitches for potential clients and occasionally, or sometimes more than occasionally, having those clients just ghost you—not have the courtesy to even tell you that they’re going somewhere else.
We got an interesting response from a listener, Buzz Park of Lightyear Management Group. He wrote in, “I could directly relate to Sarah’s dilemma with companies ghosting her after a pitch. As Sarah mentioned, preparing a proposal for a prospect is fairly costly. And post-pitch ghosting can be quite frustrating. I was a marketing consultant for over 10 years. And a few years ago, at the recommendation of some peers, I started charging for my proposals. If a company wanted me to look at their marketing plan and come up with a strategy or ad campaign, I would charge a minimum of $1,500 for the proposal. And that amount will be credited towards my services if I won the contract. My reasoning was that if a company was serious about evaluating my services, they would understand the value of the proposal, and would be willing to pay one or more agencies, or consultants, to pitch them. This worked very well for me.”
What do you think of that, Sarah?
Sarah Segal:
I mean, I think it’s a fantastic idea. And my response is: I don’t know that an agency of my size is the right agency to start that.
Loren Feldman:
To start, in the sense that this is not something that happens a lot in your industry?
Sarah Segal:
Oh, never. PR agencies don’t charge for proposals, but like, if some of the the Goliath agencies that are out there started putting that into how they do things, it would be a lot easier for the smaller agencies to do the same. But I don’t know that it’s something that a small agency, that it would be in my best interest to start that.
That said, never say never. It may be… All right, I can see this. I can see: “I will give you a standard proposal, which will talk through all the things that we generally do for our clients and our capabilities and tell you all about our favorite colors. Or, option B, we will put together campaign ideas with specifics, as well as recommended influencers in media and timing and all that kind of stuff. But that will cost you $1,500,” or whatever it is. So I can see it as kind of giving a menu of options for potential clients.
But right now, the current space is, if they go out to five agencies and say, “Hey, can I have a proposal of working for us?” and only one of them—my agency—says, “Oh, well, we charge for that,” they’re probably not going to ask us to do the proposal.
Loren Feldman:
Or they might have more respect for you. I’m sure you’re right in many, if not most situations, but I’m also sure a few would understand and respect it.
Hans, how about you? As a consumer of PR services, would you consider paying somebody to prepare a proposal for you?
Hans Schrei:
Yeah, I guess that you have to have a very strong reputation. But absolutely. At the end of the day, I think that speaks of confidence to what you’re doing. And also, it’s a tricky one. I am reminded of when I was doing wedding cakes, because they wanted a tasting. So I would charge for the tasting and discount if they actually hired us. But it’s the same principle.
I would say that if you have a strong enough pipeline of people who are coming to you, absolutely. If you have so many people wanting your services, and you cannot do enough, that is a good way of filtering who is actually interested. Because a lot of times what you’ll get, and I hate it—but it happens and it’s part of the game—is that they send their assistant or whatever, and it happens more at big companies. “We need three pitches. I want to work with this company, but I’m gonna get two more pitches and two more proposals because I need to present three.” That will happen a lot.
Sarah Segal:
Yeah.
Hans Schrei:
So that’s one way to filter that. In PR, I’m thinking that it’s less technical than in other categories. So that pitch is more about you than about the product itself. So I would say that I would take that into account, like: How specific does this pitch need to be?
Sarah Segal:
Well, when we do our pitches, what we’ll do is usually we’ll do a competitive analysis to give the potential client an understanding of where they fit in the current environment and ecosystem, and basically kind of give them a sense of other comparable companies. Like if we were pitching you, Hans, we would put together a proposal that reviewed Oreos compared to you, reviewed Biscoff compared to you. And generally what I’ll do, is when I do my initial call with any potential client, I say, “Okay, tell me your three to five top competitors and/or companies that you aspire to be similar to.” And we include that in our proposal and kind of walk them through and say, “All right, this is where you are. This is where PR will take you, if done correctly.”
Hans Schrei:
So if you’re really offering something that valuable—because it is valuable—then you should charge. I’ll share with you an email, a pitch, that I got from a supposedly top-of-the-top agency. And I looked at it, and they spent five minutes doing this. They just typed “cookies” where the word “tomatoes” used to be. [Laughter]
It happens. It happens. And it’s more about them. But if you’re doing this, like you say, “Hey, we’re gonna charge you for this analysis on your category, what it looks like, because that is something valuable. You could very easily take the proposal and use it.” You decide, “Okay, I’m not gonna go with them, but this is very valuable to me, which seems to be the case.” The problem is there are a ton of people who will say, “Oh, I’m gonna charge you,” and then they give you a copy-and-paste proposal, which is… I mean, we all have to deal with our industry being full of idiots.
Sarah Segal:
I personally also love being able to get on those calls and talk to people and have a very firm understanding of what their challenges and opportunities are. And I can’t do that, if I do cookie-cutter. Maybe having that kind of tiered approach of like, “Yeah, we’ll give you kind of the baseline, but we also have this awesome tool that lets us look at the Twitter accounts of all of your competitors, and tell you all the reporters who are following those competitors. Because Twitter, as you know, is the main form of communication for a lot of journalists. So if they follow you on Twitter, they’re relatively interested in and invested in your brand.” So we will do that. Generally, when we start building media lists for our clients, that’s like step one: Who’s following their competitors? And get them to start following you.
Hans Schrei:
Oh, I love that. From my perspective, as someone who is going to be looking for an agency soon—we should talk, by the way—is that a lot of them want to lock you in on these things. I think it’s fair to say, “Hey, the first thing that we do is, here’s your proposal. And the first thing that we’ll do is going to be this competitive analysis, and that will cost $1,000. If you want to keep working with us for six months, this is the retainer. But you can also say, ‘Hey, yeah, this is useful. No, thank you, whatever.’” So you can offer a little bit of it. Because it also allows, I guess, for, say, people who are not ready to take the plunge. Like in my case, I’m not ready to hire a PR agency. But I would love to get the insight from a PR agency.
Sarah Segal:
You see, that’s the thing. That’s what some people do, is they say, “Oh, yeah, we’re gonna hire a PR agency.” They go out to all these agencies and get proposals, and then they have no intention of hiring a PR agency. The stories that I could tell you from other people who have experienced that, where they’ve had their ideas stolen and repurposed… It’s a problem in the industry that I think that we’re all trying to solve.
Loren Feldman:
I don’t know, Sarah, it sounds to me like you might have found your first test case.
Sarah Segal:
I know, I might do it.
Loren Feldman:
All right. My thanks to Sarah Segal and Hans Schrei—and to our sponsor, Work Better Now. And Hans, best of luck in that meeting with Costco. We’ll be eager to hear about it.
Hans Schrei:
Thank you. I’ll keep you posted.
Sarah Segal:
Knock it out of the park.
