Episode 11
2PM—Founder, Web Smith

Welcome to the DTC Growth show.

Every episode we talk to founders and leaders at some of the most exciting DTC brands in the world. We discuss their vision, how they launched, and how they are growing their brand.

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In this episode, we talk to Web Smith, Founder at 2PM, a bootstrapped media and publishing company that puts out two long form essays and three letters every week, maintains 12 databases, and hosts the 2PM polymathic community.

Mention Web Smith, and most in the DTC community will know exactly who you're talking about. Not in 2009, though. Back then, Web found himself unemployed—with a family of three. He wasn't discouraged. A couple hours into unemployment, and he was making his next move. Hunting for opportunity in the chaos. In the decade following, he'd move to Texas, take a role at Rogue Fitness, co-found Mizzen + Main, advise at fortune companies, and invest in a handful of other top DTC brands.

And yes, he also launched 2PM.

If you've read On Optimism and Big Ideas, you know there's five important lessons he leans on to get through tough times: optimism, dynamism, calmness, opportunity seeking, and finally, deep generalism. We dive into each of those.

With the current global pandemic, calmness is a lesson that sticks out. Web encourages founders and leaders to step back, "don't throw a way a whole business model because of a couple weeks." Many brands have rushed to discount their products either because of a crisis, or to clear inventory. Luxury brands should avoid it. There's good inspiration to model after in these times, and we talk about those brands who are doing well.

Look for opportunity. Web is big on arbitrage. In 2003, Alibaba used the SARS outbreak to shift towards ecommerce. That's when they launched their peer to peer marketplace, Taobao. Web talks about the similarities to what's happening now with COVID-19.

One category that is thriving now is fitness—companies like Peleton, Tonal, and Mirror. In addition to the added focus on exercising at home, there's also a longing for community, and the competitiveness that it brings out. There are important benefits that Web calls out.

There's some advice he has for brands during this time of uncertainty. He offers his words of encouragement for founders and operators who are navigating through the turmoil.

If you want to be on top of shifts and trends in the direct to consumer space, we encourage you to visit 2pml.com and signup for the executive membership—we highly recommend it.

We also recommend that you follow 2PM and Web Smith on twitter.

To learn more about the DTC Growth Show and #paid, visit hashtagpaid.com/dtc

Thank you for listening. This is the DTC Growth show.

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Welcome to the DTC growth show, by #paid. My name is Roger, and if this is your first time joining us, let me tell you, every episode we sit down with founders and leaders at some of the most exciting direct to consumer brands on the planet. We talk to them about how they started, how they launched, and what they're doing to grow. I'm excited because today we're talking to Web Smith, who's the brains and muscle behind the bootstrapped publisher and media company, 2PM. If you don't know, here's a list of his tasks: he publishes two long form essays, 4000 words plus a week; he maintains 12 databases, manually curates and publishes three letters, directs creative researches and builds new databases, and he manages the 2PM polymathic community. More importantly, he's a husband and a father of two. So welcome Webb. How are Alexis? How's Adriana? How's Lindsay? How's your family doing?

Web: They're doing well. They're, they're currently in Florida. They're having fun under the sun. I decided to stay back home in Ohio to hopefully keep some momentum going into into this tough time and it's paid off.

Now I want to jump into some of the adversity you faced over the course of your life. In 2009, you lost your job. At the time you had a family of three, what was day one of unemployment like for you back then?

Web: Day one of unemployment for me wasn't unemployment at all. I think I immediately went to, I went into steam mode. I had a conversation, it was one of those calls, where, I don't know if you've listened to that one Kanye West album, he has like this long monologue towards the end of his album (it's one of the one of the earlier ones). And he just gets dropped from a label that was about to sign him. And he had like this preconceived idea to work with Jay Z and Rockefeller records back in the day. There was something there, there was chemistry between them. And so as soon as he got the drop, he calls Rockefeller and he's like, "Hey, you guys still want to work together?" And the rest was history, right? For me, it was something very similar. I wasn't discouraged for very long at all. I called a buddy in Austin, Texas. I said, "Hey, man, I think that we could build a really cool media company for action sports and elite fitness athletes." And he said, "Okay." So within a month, we moved to Austin, and we bought this company that was highly influential in the early CrossFit Games craze. And, you know, I ended up selling the company and moving to Columbus a few years later for my next role in that role was with Rogue Fitness. So I tried not to sulk, I try not to stay idle. I guess that's the moral of the story.

And you started 2PM four years ago. The anniversary was not too long ago. Congratulations. Tell me a little bit about launching that.

Web: Remember, it was around the time that media around politics really began to pick up. And I was recognizing in my roles that I was so heads down, and focused on the nitty gritty, on the minutiae of the work, that I was losing sight of the bigger picture. I was essentially specializing in something. And because I wasn't looking at the bigger picture, my specialty was suffering. And so I was like, "How can I stay on top of all these trends, the news and developments? How can I stay one step ahead of the people that are trying to beat me?" And so I started a newsletter. I advertised it for like three or four weeks, I built it on this really crappy platform, in hindsight, but it's, you know, it served the purpose for the first hundred or so. And I think my first email went out to 12 people. And I decided, you know, I'm going to do 100 of these, and I'm going to take it from there. And so I did my first hundred. I stayed up late at night and did all that stuff. Over time, I realized that I was better at my job at my job. And that was the premise of 2PM. I was able to focus on the work by curating away from politics and sensationalism, and all the things that every media company was trying to talk about to get clicks. I just focused on the industry. And it helped me to grow in my own profession.

You take this approach to writing your reports with 2PM, you describe it as one part practicality, one part historical context, and two parts analysis. Tell me a little bit about that.

Web: I think it's really important to remind people from time to time that I'm not speaking from an observational standpoint. I try to only communicate things that I personally know. So you won't ever find me writing about the toils of playing basketball at a professional level because I've never played basketball at a professional level. But a lot of the things that I've talked about, I've been heavily involved in. And so, I try to take failures and successes or moments from my experiences and use them as anecdotes to explain a much larger picture. That's the practicality side, practical knowledge, if you will. Historical context is really important too, because it grounds you. It reminds you that if you're seeing something new, perhaps it's not new at all. And it's really important to understand how people before you navigated around what they felt was new, because frankly, for them, it probably was new. That's always helpful to know. So instead of having a doomsday approach to the circumstances that we're in right now, study the businesses that navigated in in the 1920s.That's the point of historical context. Then analysis is obviously getting into the nitty gritty and the details around the actual problem and trying to find a solution based on data and insights. Not just my own, but from people that I admire within the industry.

In a recent memo, called "On optimism and big ideas," you describe five important lessons that you lean on. And those are: optimism, dynamism, why calmness is valuable, seeking out opportunity, and finally, deep generalism? So I want to dive into each one quickly and get your thoughts around those. Tell me about optimism. Why is it a talent?

Web: It's a talent because it's it can be developed. But either you're born with it, or you don't have it at all right? So for the people that are naturally optimistic, obviously, you can improve upon that optimism. For the people that don't have natural optimism, you can attain it. It just takes practice. It takes practical experience. Here's why optimism is important. It's not this loosely bound fluff that people tend to think it is. I'll give you a specific example. We were building Mizzen early on, we weren't paying ourselves. I had about eight hours a day to have a "real job". But I needed that real job to end after eight hours. Like I didn't want to take it home with me. So one of those types of jobs. So I worked in essentially this boiler room at a company called startups calm. We like selling these packages to some poor souls. I forgot exactly what we were selling. But I was only making like, $30,000 a year. And this is 2011. I went from a pretty nice salary at Rogue to that. We weren't paying ourselves with Mizzen. The fact that I was in that position didn't bother me, because I knew that I wasn't going to be in it for long. And so, that's where optimism plays in. If you are not optimistic, those circumstances will beat you up because you can't see the light at the end of the tunnel. And because I focus on that light at the end of the tunnel, it was very helpful in understanding how to navigate out of it. So that's I would never have to be in that situation again. I thought that that was extremely valuable. And frankly, that was the last sort of crappy job that I ever had.

You say that optimism and big ideas go hand in hand, and you've given some examples, I'd love for you to explain the connection between those two.

Web: Recall what I was saying about me being in the job and focusing on the minutiae. If you are so focused on the small things because you don't see opportunity, you don't see paths forward, you hate your job, you don't see a way to grow out of a situation, then you're only going to focus on small ideas. You're going to focus on ideas that can get you to tomorrow, or next week. If you can lift your head up, and you have the basis and the security to think ahead of yourself, that's when you can see the big ideas. And those ideas, when you reverse engineer them, and begin executing them, that's what changes your circumstances. That's what changes the circumstances of your of your job or your business. Here's another practical example. I think I mentioned this in a previous post, but a lot of Mizzen's struggles in the first year—we only did $30,000 in sales in the first six months because it was very, very difficult to sell the shirt online at the time. It was new fabric. It was knit, not woven. Men didn't respond to performance wear in traditional men's casual. So the entire time Kevin and I were really focused on looking ahead. What could provide us the step function to really sort of help this company take shape? And for us that was, "we're gonna move into sports." So how do we move into sports? Okay, so I call my buddy Dan. This is me reverse engineering the outcome. I call my buddy Dan. Dan and I we did a deal together. When I was at Rogue and he was at Tough Mudder. Dan is now the founder of Fan Chest, who was just acquired maybe three or four weeks ago. And because Dan and I were friends from the tough mudder Rogue deal, he had moved on NBC Universal NBC Sports, and he knew a guy at CAA (Creative Arts Agency). That guy is now the president of CAA. We met with him, Kevin and I, and long story short, he said, "Not only do I want to help you find some athletes to rep for your company, I want to invest." And so, long story short, our first sort of batch of folks included Malcolm Jenkins of the Philadelphia Eagles and Darren Rovell, who at the time had the ear of a lot of athletes that were in and around ESPN. That vision essentially helped materialize where you see the company today, which is JJ Watt and Phil Mickelson and Kyler Murray and Tim Tebow and you name all these high level athletes that are attached to the brand. We don't get there if we're following on the small ideas.

Tell me about dynamism. That's the second point in your in your five big lessons that have driven you.

Web: Yeah dynamism, in my opinion, it's another word for the pursuit of entrepreneurship. The pursuit of finding solutions, or capitalistic-based solutions. So when you lose your job, do you go collect unemployment? Is that the first thing that you think about? For a lot of people, that should be the first thing that they think about. But for me, it wasn't. It was like, "What can I start? How can I get my family out of the situation for good, right?" AThere are a number of people that react that way. A lot of entrepreneurs have lost a job or missed out on a big opportunity, and that's how they respond. I think that's a form of dynamism, and they're looking for a dynamic way out of a stale or isolated situation.

In the article, you talk about America making a move away from dynamism. Can you explain a little bit about this shift?

Web: We're at a rate of decreased entrepreneurship in America. If you look at a number of the top brands, you have, Google, Facebook, Microsoft, you name it. If a startup begins, typically what you see is Facebook will knock it off, or Google will find a way to sidestep it and make their own feature. That was the entire company that started you know, there's an attraction. Working for Google is attractive. Right? You're an engineer, you're making hundreds of thousands of dollars plus stock options. Why would you start a company? If your company doesn't stand a chance against failing, why would you go out of your way to feel that temporary discomfort? And so, that's why I think dynamism is stumbling. American antitrust issues are on the chopping block, and that if these companies do get broken up a little bit, then you're going to see a spike in people willing to start companies that could compete, in some ways with with these major, major corporations.

Calmness is valuable. Why?

Web: I mean, look, day one or day two of this pandemic, and you saw people scrambling to immediately discount their products by 30 to 40%. I'm getting in trouble on Twitter for telling people to just wait. It's like what are you doing, slow down for a second? It's been 24 hours. You don't have to completely throw away your entire business model because of 24 hours. I'm looking at a chart from Wallaroo Media right now, and everything is improving. As of March 23 2020,  avertising metrics for that company's entire portfolio has improved across the board, minus click through rate. So six categories, and only one is in the red. Versus on March 8 categories, and five were in the red. Be calm. So that you can play a longer game, and don't react to short term short term inputs.

When do you think is an appropriate time for a brand to start discounting? And I did follow that exchange on Twitter with Patrick. When do you think is the right time for a brand to do that?

Web: First of all, I don't think that all brands should avoid discounting. I think that brands that are positioning themselves as modern luxury or premium brands should avoid discounting. I'm only going to speak to modern luxury brands here because frankly, I've never really dealt with a mainstream company that sells to mainstream audiences. I think that there are situations where I think you can use Nike, for example. Nike is bordering on becoming a luxury brand at this point. They do a really good job of positioning end of season sales. Like "we made too much; we're gonna get rid of this for 25% off." That's a really interesting framing. It's not a "people didn't want this." It's a "our projections were off, and we overestimated the demand for this product." You can look on Stock X and go and wherever else they resell Nike shoes, and you'll see that it's likely that six or seven of the top 10 shoes that are for sale are from the Nike family—Nike and Jordan. So that premium status is always there. It's the shoes that people didn't like as much that are still standing at the end of that season. And I think that's an appropriate time to say okay, rather than burn these shoes, we're going to clear inventory for the next quarter. That's a completely different strategy. Then every single time I click on your site, you're looking at four different sets of percentage signs. Here's a great example you go to verishop.com right now. I don't know if your computer is in front of you. I'm going to count the number of percentage signs above the fold—123456789. Nine percentage signs above the fold. The entire first impression of the marketplace that they're advertising is "everything's always for sale, all the time. So anything, and you're going to get a percentage off." Under no circumstance would anyone ever pay full price for anything. You know what I'm saying?

I agree. And I think Lululemon takes a similar approach to their discount items, which I think they actually have a section called, "we made too much" Much better positioning for luxury brands than clearance.

Web: Yeah, I mean, if you walk into their store, they have a rack. You know, if you're a specific type of shopper, if you're a purely luxury shopper, you don't even look at the rack. It's like insulting to you, "like why would I buy something For Sale." I'm pretty sure that some people actually walk into Lululemon and say that. It's not hidden but it's not prominent. And still, if you ask people have Lululemon discounts they they're more than likely say no. It's just a it's a different framing. It's a different way to incentivize the purchase. And I think masking that incentive is really important.

The fourth of the five important lessons that you lean on, is to seek out opportunity in everything. Can you tell me more?

Web: So, you know, when I talk about opportunity, I tend to talk about arbitrage quite a bit, right. You know, everyone is looking at the same news, and I try to balance the news that I featured in newsletters. The news that people typically hear is this is going down. This is falling. This is crashing Losing here, things are bad. Somewhere, someone is making money on all that, right? And every situation, someone is making money no matter what. So it's like if you are thinking about opportunity you're finding, you're looking for what's changing in the moment, and how you can best account for those changes. Right? I think that's a really important attribute to have. I mean, consider this going back to historical context, the Kennedy dynasty wasn't formed in the 60s, or the 50s, or the 40s. That was built at the onset of the Great Depression. Like, you know, Joe Kennedy saw something at the beginning of the market crashing and capitalized on that thing that's looking for opportunity. And I'm not saying capitalism is everything and all that, but I'm just saying if you're trying to survive, at some point, you have to lift your head up and see where the opportunity is for your business to grow. You know, just just this morning, I said, Hey, for CPG brands that are on the national or the local platform, Next door, maybe next door is the next advertising arbitrage for them. If Facebook's not working, or Google's not working, you know, next door is basically a nascent platform. It's not really known for its ad sales. And given how many people are using next door right now to communicate with their neighbors, maybe now's the time to get in front of a whole lot of people that would have otherwise ignored you. That's opportunity.

This last one is my favorite because I think it's at the heart of the 2PM brand. Can you explain deep generalism and why it's important?

Web: It's a sufficient understanding of a number of industries, that number being three or more. And so for me, I tend to focus on consumer psychology. sociology, media and practice, retail and practice, commercial real estate—something that I spent a lot of time on (after this call, I'm advising the CEO of a large multinationals real estate company). All these things that I'm focused on. Not just skimming off the top of that industry, or that practice, but like actually spending time studying these things. And so when moments like this happen, I understand the full picture. I know what's going to happen, or at least I'm better informed to understand what's going to happen as commercial real estate continues to falter—like where does that energy go? If energy cannot be destroyed or created, which obviously is a physics law, but if it's applied to our economy, or the consumption of goods at least, then where where is it going? like where is that energy going? If it's not, if it's not going to be distributed through physical retail. How do you account for that? Where's the energy going if it's not being consumed on Facebook, or Google? How do you account for that? I think that's where deep generalism becomes an asset.

I like that you call it deep generalism and not just generalism, because I do speak to people who have superficial understanding of many things, so I like the nuance there. What new areas of learning are you exploring right now?

Web: I'm getting back into advanced math. I think that it's really important because I want to be able to quantify the things that I tell the people that I communicate with. Long story short, if I have great theories, but those theories aren't backed by science, sometimes people ignore them. So I need to be better about communicating a lot of my theories and numbers.

I love that you're a student of history, and we've talked about it a little bit already. Your words here: "history anchors you in ways that modern commentary cannot." It instills the optimism we've talked about calm, and for certain people in pursuit of dynamism. I'd love to dive back into some examples from history that will encourage founders and leaders right now. Why don't we start with Alibaba and SARS in 2003? Because there was a big shift there to ecommerce.

Web: I mean, that's a really practical example, especially given what we're experiencing right now. You know, one thing that I communicated several weeks ago when I wrote "on the fourth day of quarantine" was, you know, essentially going back to my thoughts and comments on energy, right? If retail can happen in the way that is that it is traditionally intended to happen, what can take its place, and I think Alibaba in 2003 is a wonderful example of that. They were focused on B2B for a while. I think they were at 10 million in sales in 2002. And they launched Taobao, the peer to peer marketplace to help people sell to one another without physically interacting. And Alibaba went from 10 million in sales, in 2002, to 1.4 billion in sales in 2005. And long story short, I think that's a really important ancedote for a number of reasons. But most importantly, because at the time, America's ecommerce penetration was 4x China's. We've always been too heavily reliant on physical retail in the United States. We are over retailed to an extent that, you know, there's 23.5 square feet per capita, for every US citizen. In China that number is close to six. So as retail continues, physical retail continues to crumble, you can deduce that given China's ecommerce penetration growth at 36.6% of all retail being through online channels, there's an inverse relationship between the stores that are available, and e commerce as a primary retail means of transaction. So it's easy to see that we're in a period right now where physical retail is not available. And you're seeing a number of spikes in essential goods, grocery and CPG products on the ecommerce front. Even for the non-essential products you have a number of portfolio companies and agencies that are reporting that they're seeing a minimal drop off in their non-essential categories from the companies that are advertising. When it is all said and done, when America realizes that e commerce is an efficient way to buy groceries or to buy deodorant, or to acquire the apparel that you want, will they go back to depending so heavily on physical retail? You can't have both. And so that's what 2003 taught me. And I think we're seeing a real time here.

I believe it was in report 351, the other day, you were talking about fitness, and how wellness is no longer a luxury as the stress of isolation continues. Community is more of a priority right now, and I think you even cited peloton—their stock at the time of writing and report was up 12%, or something like that. Tell me more about wellness and fitness category.

Web: I mean I've I personally have been investing in private health and fitness for quite some time. Whether it's our garage, we have a Rogue set up in our garage; we have a peloton in the house. It's become an efficient way to stay fit if you have if you have kids, and you can't always get away to go to the gym at the time that you want. Listen gyms are going to struggle long after this is done. I got a notification today from Orange Theory, which is a premium fitness chain in the US, and I think it was a mistake to be fair to them, but they announced that classes would resume on March 30. You have to be a special person to go to a fitness class on March 30. Even three months from now, people are going to be a lot less eager to sweat and bleed, and whatever you do, in large groups. And so, I do think that one of the benefactors of that is certainly the fear of getting sick, but one of the beneficiaries is the fact that Americans will want to own their own equipment in case anything like this ever happens again.

For a long time now you've talked about fitness and the community around fitness, specifically things that peloton and Tonal provide to people. How important is community for people, specifically in that category,

Web: Listen I I'm a huge fan of the community aspect of peloton. There's a large part of the peer pressure function of their software that drives you that extra 10%, and the growth is where that extra 10% is. So when you are when you feel like quitting when you're on a climb, and it's 45 minutes in, and this person that's been nipping at your heels, is finally going to overtake you. If you have an ounce of competitive fire in your body, you're not gonna let that happen, right. There's nothing else that can do that at home. I mean, that's essentially you're digitizing what their group fitness classes like. And I think that's what makes peloton such a brilliant tool. It's not just the hardware. It's not just the instruction by the fitness instructors. It's the actual class alongside of you that's doing the work. That's the future of at home fitness.

How do you think brands who are in this space right now should be messaging? How should they approach distribution? How should they approach their positioning, so that they're being sensitive and empathetic, but they're also driving the business forward?

Web: That's really interesting. It's gonna sound sort of cliche, but I would say the number one thing is to be authentic. I think Nike did a good job, with its recent advertising. But Nike is essentially the god of copywriting. I don't think they could have said anything wrong. You know, sometimes the best play, you know, this goes back to wargames, the movie from the 1980s (I don't know if you saw it), but the best move is to not play at all. Brands don't have to advertise right now. They don't have to have COVID-19 messaging. If I was running a brand that wasn't absolutely essential right now, I would probably say something along the lines of "we'll be here when things get back to normal." And just shut up. I don't I don't think people care about performance dress shirts right now. No one cares about buying Gucci loafers right now. What are you gonna wear them around the house? So it's just really important for brands to contextualize the moment appropriately.

Web, any final words of encouragement for founders or leaders who are listening?

Web: I would just recommend that they become practitioners of information synthesis. One of the scariest things that I've heard a CEO say recently was, I don't have the time for information. And for methat's a scary thing. That's not understanding what the playing field is. And so you're essentially flying blind because you're personally incapable of synthesis. Don't put your business in that situation. So whatever source you choose, find a source that can keep you abreast of the things that you think matter and the things that maybe you don't think matters. But But in this situation, as everything changes at once, you're going to find a lot more matters and you probably initially believe.

Web, I really appreciate you being on the show today. Thank you.

Web: Thank you, sir. I appreciate it.

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