Scaling from $100 Million to $1 Billion in Revenue

If you want to know the value of your business and where it comes from, do the work. Take the time to collect the data, then hone in on what is the right fit for your company. Prioritize figuring out what makes your business tick in order to grow a sustainable brand.

The bulk of Babak Azad’s body of work lies in growing the Beach Body brand from 100 million to over 1 billion in revenue in eight years. Now working as a consultant in marketing for multimillion dollar businesses, Babak and his team focus on customer acquisition, retention, and the power of customer experience. Babak is here today to talk to us about building a lasting brand by helping business find a few channels that work well and hitting those home.

Episode Highlights:

• Babak shares his unique way of looking at customer acquisition in every type of business he touches.
• Why business metrics are not as difficult as people think if they start with the basics. Start somewhere and then refine over time.
• The importance of knowing what a good customer is worth in any business.
• The things business owners should be tracking at a minimum.
• Look at the levels and the patterns. Get things right for a few to start off before rushing around trying to scale up too quickly.
• It is crucial to your success as a marketer to seek out and hone in on the best channels for your business.
• What your strategy should look like once those channels have been targeted effectively.
• Use service marketplaces such as Fiverr and Upwork to find small ways to find qualified staff to collect crucial data.
• How Babak helps clients discover the right intersection of branding and direct marketing then infuses that with customer sustainability.
• Why it is so important to start taking care of the customer.
• Hear Babak’s 4 pillars of brand building.

Transcription:

Joe: So Mark I know that amongst all the Quiet Light Brokerage, Jason is probably the fittest. But I occasionally do get my butt kicked by someone online with beachbody.com. Most recently a young lady … I can’t remember her name but I keep going back to it. I love the program and I love the story behind Beachbody’s success. Because as you know I’m an old radio spot ad, radio infomercial, TV infomercial guy and that is where Beachbody started; I believe. And you had them on the podcast is that right?

Mark: I did. Yeah, I think pretty much everybody has heard of Beachbody at some point or another. I mean it’s a huge brand; huge name. I was able to talk to Babak Azad. He was the Senior Vice President for Media and Acquisitions; really fancy title, big companies … that comes with the big companies are fancy titles but his role at beach body was to figure out their customer acquisition strip. And this is what he does now. He’s no longer with Beachbody. He did leave a little while ago. He’s now with Round Two Ventures and they help e-commerce companies eight figure or nine figure, primarily e-commerce companies hone in on their customer acquisition strategies. What was great about this discussion is seeing as at scale, seeing what a … somebody who’s in charge of a business that when he came into to Beachbody they were doing 100 million dollars in revenue annually. That’s a lot of money.

Joe: It’s a lot.

Mark: When he left in just a few years later they were doing over a billion dollars in annual revenue.

Joe: Wow. How long was he there for?

Mark: I don’t know. I would have to take a look to see but it wasn’t more than a few years. So he’s really responsible for the explosive growth. I mean again a lot of people have heard about Beachbody or remember hearing about them. Way back when I was in college which unfortunately is too long ago now, so I remember hearing about them then. Now I mean everybody knows Beachbody. Everybody knows the brand and that was because of his customer acquisition strategy. We talked a lot about what that was and we talked a lot about problems and mistakes he sees especially in seven figure e-commerce businesses and even eight figure e-commerce businesses as they’re trying to grow. I’ll leave some of the mystery for the actual episode here but a couple of things that I pulled away from this that I thought were really good; one, he said that if he comes across a company and they have more than four main acquisition channels that he’s guaranteeing they’re wasting money and that they are completely … not doing what they should. Some people get all worked up and you know they think oh I need to be on Pinterest, I need to be on Instagram, I need to be on Facebook, I need to be here or there and everywhere. And he said that’s not how it works. He said find a few channels. He says it should be no more than four. Ideally, it should probably be maybe three or even two to start. And do those well and just milk those for what they’re worth. Really hit those homes. That was one thing that I really pulled away and the other thing I pulled away was his emphasis on data collection. And I run into this problem since that I own all the time as I always want the data collection to be perfect. And then I get kind of lost in the weeds, right? You get all the state in front of you. You have your analytics. You have all this stuff coming in and you’re like what do I do with this? And his response was what I’ve heard from so many other successful entrepreneurs, just start doing something with it. You know he said go out and hire a college kid, go out on Upwork and have them put it into Excel and start analyzing the data. He said the data will start bubbling up from that by itself and start giving you insights and then that can direct you into what you should actually be collecting; a fascinating conversation from somebody who’s done some pretty big time stuff.

Joe: Yeah. It sounds like the data will speak to eventually. And even though when he left it’s a billion dollar company I think that the lessons that he’s learned along the way are incredibly valuable for those doing six and seven figures in revenue. You know a few weeks ago we had Ryan Daniel Moran on the podcast and he said: “find your customers”. Find your customers and then send them to the least half of resistance to ordering. So it’s going to be interesting to see how those two things jive with … back in what he said here in the podcast. Let’s get to it.

Mark: Absolutely, let’s go.

Mark: Babak Azad thank you for joining me.

Babak: Thanks a lot Mark, glad to be here.

Mark: Did I butcher your name?

Babak: You did not. You did it well the first time. Thank you.

Mark: We literally just rehearsed this. We rehearsed it and then I hit record. I’m like I’m so going to screw this thing up. Cool, I … thank you so much for joining me. I know you and I talked about a year ago for a piece I wrote on entrepreneur.com and I’m super glad to have you on the podcast right now. We have a little bit of a tradition here at Quiet Light where we have our guests introduce themselves because hey you’re better at knowing what your background is than I am. So why don’t you go ahead and introduce yourself real quick?

Babak: Sure. I live here in LA with my wife and two boys. I started out as a math major investment banking business school. I kind of came from that route. I started a magazine here in LA which failed miserably; best 25 grand I ever lost. I needed some humble pie, what I read that point of my life and then spent eight years in Beachbody. So the bulk of my professional experience was there; built analytics and then oversaw media and customer acquisition. So P90X, Insanity, 21 Day Fix, Shakeology, all that. Those efforts are for eight years and we kind of had a nice clean 10X. I already got there at 100 million so there’s already substantial scale; really I obviously helped to push that thing to over a billion when I left three years ago right when my second son was born. The simple version of it, I have to start something, the team fell apart really quickly and then I started working on building a consulting business. So that’s what I do right now; help generally seven and eight figure businesses, sometimes nine on … heavy on marketing, support around customer acquisition, retention, and analytics and really much more recently heavily infused with customer experience and really how to … I’m leading to writing a book about it too but really just the power of customer experience that’s very much consistent with performance marketing approach but also really layering in building a lasting brand. That’s really where my focus is today and I love what I’m doing. I have some great clients and yeah … so I’m having a good time with it.

Mark: I love that you lead with the fact that you had a magazine startup that failed and then you just kind of glossed over the fact that you were part of the team that grew Beachbody from 100 million to a billion dollars. You know just a small footnote in your career history there.

Babak: Yeah it’s a … you know I have a … I appreciate all the experiences. You never want to go through those negative ones. I think we all have gone through them and just … I had to say I’m not sure I’m as humble as I need to be at times but [inaudible 00:07:25.5] as I mentioned it was an important thing of learning what it’s like. I’ve been really much more of an analyst at that point. And then yeah I mean Beachbody was awesome. I had a great experience and … but it was time for me to go. You know eight years was a long time there and I grew a lot. I met my wife through one of my best friends there and [inaudible 00:07:41.6] me up for kind of this next chapter that I’m in right now.

Mark: Cool we’re going to be talking today about customer acquisition and also building a brand and some of the lessons that you pulled away from Beachbody and are now doing at Round Two Ventures is that right you’re doing this at Round Two?

Babak: Correct.

Mark: Okay. I will link to Round Two Ventures and then your personal blog in our show notes and anything else that you want us to link to in the show notes. But … so we’re going to talking a little bit about customer acquisition, lifetime value, and this intersection of branding. You have kind of this unique way of looking at this customer acquisition strategy, maybe we could just kind of start with kind of a general look at your philosophy when it comes to customer acquisition in the e-commerce but also in the SaaS world. You know I think metrics, being really metric heavy on customer acquisition and lifetime values, this is really kind of a SaaS world sort of conversation but you take it towards e-commerce and towards every other type of business as well.

Babak: Yeah it’s funny because I started really with physical products and given that distinction which I mean physical products, we sold DVDs and multi-vitamins at Beachbody. And that’s really where a lot of my real marketing and just … I would say professional experience came from. And so this distinction of physical versus info versus SaaS really was nothing I ever really considered until I started frankly getting out of that world and talking to other folks. You know when I was at Beachbody and then started to learn about this but yeah I mean … so first off I was a math major but you know I wrote a piece a bunch of years ago saying business metrics are not college math, [inaudible 00:09:12.7] barely high school math. And I think that’s the first thing is … I think I know a lot of people who are intimidated by the metrics or surely daunted by how do you do it or their systems. And you know I’m a firm believer first just to start with something. I think Peter Drucker you know said what you don’t measure doesn’t get better and so with the opposite is very much the case. That what you do measure, what you report on, what you send in an email or whenever it’s your phone because it’s fun to mine you just start to pay attention. So there’s always a bit of grounding of just the basics in fundamentals. And that’s really I think my approach. I’m not a shiny bright object guy. I believe that if you get the basics and fundamentals then much of what you need to do starts to take care of them itself. But really when it comes to customer lifetime … I mean I look at e-com and frankly all of the businesses, you know fundamental is I grew up as a paid media guy in marketing. And I think it’s evolving over time but you know from a Beachbody and beyond heavy on TV, heavy on digital, you know that was what I knew. And certainly one of the core 10X. If you’re going to run paid is you’ve got to know what a customer is worth. You know people sometimes ask like what’s a good CPA? It’s like I don’t answer that question because I don’t know your business. I don’t know what a customer is worth. You know are you … do you have business constraints around needing to be casual positive on day one, on day 30, ideal business goals. There’s so many factors that come in so this but really my belief is … and I just don’t know any other way is especially when you’re running paid media you need to know what a customer is worth because you need to know how much you can afford to pay for them. That sounds really basic and fundamental and hopefully for a lot of folks that is. But you know that’s the core of it because ultimately it’s how do you know if you’re going to spend more or less? How do you know if your numbers whether in Facebook or otherwise are good or not? You have to have some of that measure. So a lot of the core work that I do with folks … and really I’d write about and all that is really if you’re going to be running paid you need to understand those basics around customer acquisition. And then again start with whatever you have even if it’s all customers that’s … you’re not dissecting by ad said or by Facebook versus Google. Just start somewhere and then you start to refine this overtime.

Mark: All right. I love these conversations because I go into them sometimes not knowing what I’m going to ask and then after the first two or three minutes I’ve got a list of questions. So let’s start with basics, you said start with the basics and fundamentals. What are those? What should somebody be tracking at a minimum?

Babak: So let’s assume [inaudible 00:11:39.2] whether you’re a SaaS business, info product, physical product you know certainly from a from a traffic side the core stuff of spend, click through rates, CPC’s, [inaudible 00:11:50.5], cost per click,  conversions, cost per acquisition … whatever that means for you; for some folks, that’s if your lead gen versus you’re loop driving to an order. Those are just conventions and so the philosophical stuff and the strategic stuff applies to both. Certainly, you want funnel metrics, how many people hit your site whether it’s landers or blog pages … you know get through the funnel and so whether you have one step or a five step process I would say again start with … if you have GA set up or you have others tools set up, what kind of just basic tracking of how many people are hitting pages, what’s your conversion rate, average order value, and then ideally over time … and whether it’s someone converts on day zero or beyond, what is the value of those people over time. So I generally try to look in ice sized chunks of day one … day zero, day one to 30, 31 to 60, and then beyond. And depending on your risk profile, your business goals, all those things you may determine how long you want to look out and how much you want to apply towards customer acquisition.

Mark: Let’s talk about that a little bit here because this is something that I’ve run across a few times recently. You know looking out over these different strata of periods of time; zero to 28 and then this kind of second up to maybe around 60 days; why are you taking a look at that? And you’re taking a look at this in terms of the value that client is going to bring to you right?

Babak: Right.

Mark: So why break it out into those different groups?

Babak: Well first and foremost depending on the business goals and constraints, that can oftentimes going to define how you’re going to approach managing. Let’s say … I mean I’m going to talk about paid media for a moment, that’s going to manage that because if you look at … if you need to be breakeven based on credit terms, cash flow, whatever that is; if you need to be breakeven by day 30 or day 60 then you need to know what that customer is worth. And so based on a margin basis not just certainly on a revenue basis but on a margin basis you need to know how much you’re making by day 30, by day 60 cumulative and that’s going to help to define what your CPA targets are. And then it’s … again for me, there is no right and wrong whether you’re managing to a breakeven, to a margin percent, and if you are just revenue driven and you’ve got venture funding and you need to be driving those are not for me to say. And I never have a perspective of right and wrong … it’s those are personal and business decisions but you need to understand that. And then frankly once you have some of these base lines then it’s a matter of how do you start to improve those things over time. So if you know what day one, day 30, 31 to 60 then presumably someone in your team whether it’s the owner, the single person, or someone on the team is spending time testing to say how do we actually start to drive this and improve that. And again different models you may need to look at 180 days, you may look at a year … I mean I work with folks that have a one year break even because they can afford to do that; some folks breakeven on day one. And so different businesses and different models can allow for that and some it’s much more difficult. So you just have to understand the nature of your business and then what kind of things you’re trying to constrain with.

Mark: Yeah, by the way, some example … so something that I’ve run into in a business recently where we had a solid lifetime value number, and we were able to calculate it pretty well by taking a look at customers that had … this was a subscription based business, we took a look at customers that have canceled over the last six months and looked at their average lifetime value. And you know the number was something like I don’t know $130, $140 but the average ticket value for any single sale was maybe about $30-35. What we found was that there was these whales and there right? These whales in there that were spending $3,000 and it took them years to be able to get to that point. So when you take a look at that lifetime value analysis we say okay that they might be worth $140 or $130 whatever the number was but was in order to do that you need a couple of these whales to wait for three, four years before you can actually get that value back.

Babak: Right.

Mark: So we had to kind of take a look at that from that kind of strategic way [inaudible 00:15:50.3] okay actually what are we getting from clients on average in month one and then in month two and then a month three and beyond that. We’re not going to care too much about the lifetime value because it’s going to take too long to recoup that cost.

Babak: Right. Yeah and some businesses may not be able to afford to wait that long for those whales to kick in. And really then it means A. you’re managing your risk in a certain way. Again, whatever is appropriate and then you’re basically operating at a higher margin than maybe you could operate if you could tolerate that and maybe you want to take some of that and spend it into media. But if you can’t wait that long and there’s just too much risk and it’s too small of a percent and too inconsistent then that may just be the way you run it. I think I get in some ways the same question when you’re first starting,  it’s … that’s great if you have five years of data and you have a much more sophisticated and robust [inaudible 00:16:37.1]  data in your business. But if when you’re just starting you probably need to start more conservative right? An owner that has bootstrapped the business knows that you start with what you can afford and then as you learn, as you develop and have this history… the history in the business then you start to understand your customers better; what they’re worth and then maybe you can start to manage your media and how you think about that better and surely hopefully concurrently you’re optimizing the funnel so your customers are worth more, you’re converting better, all these types of things right? But that’s just the nature of again where businesses are in there maturity and how long they’ve been around.

Mark: Yeah one of the common objections I hear from people … because we ask people who are selling their business all the time what’s the average lifetime value of a client? And one of the biggest objections I get to that is I have no idea because customers are still with me. And you said something at the beginning and that is just start. There’s a lot of models out there, just start with something. Do you have a basic model that you like to follow? I know for myself I just like to take a look at okay I might sell if a customer is with us and from the Quiet Light perspective we can say the same thing. Our business is typically one off but we have people who have sold two, three, four businesses. All the same, we don’t want to assume that, we’re just going to take a look at what … the lifetime value I spend right now with the assumption it could grow. Do you have a recommended model for people that are saying I don’t know how to [inaudible 00:17:58.7] for these people that are still with us?

Babak: So the fact that a customer is still with you for me is not a reason to not understand what a customer is worth. And so let’s say they’ve been with you for … let’s say the businesses have been around for a year and you’ve got 20%, 50% of the customers have been around that long. Do the average based on how ever long that cohort has been around. And if the other ones are … you know seem like they’re directionally going that way then great. And then as you get more information you can start to build your model and add to it. But you know I think part of the thing also to be careful over depending on how long the business has been around is how many people are you looking at? So if you’ve got 100 customers versus 10,000 you trust more volume, right? And then the other part is just looking at I like to break things down into monthly cohorts. Let’s assume it’s just purchase, so I’m not lead gen but it’s purchase, I like to look at who are all the people who first transacted in January, and then in February, and then in March and look at their relative month one, month two, month three revenues and certainly again margin and then start to see what kinds of patterns start to form and then again. And starting really that at that level and then you just start to refine this thing and as you get more data and … then great then you start to layer in. So worst case you’re being conservative because you have customers who are going to stick around a little longer but that’s a good thing and that’s a good worst case to have as opposed to certainly the opposite where you may be overestimating or you may be overlooking at one group that’s worth a ton and everyone else isn’t remotely tracking towards that super high value group.

Mark: I think a problem that people run into a lot is they’ve up the perfect be the enemy they good, they want to get that perfect model and if they think they can get it then they don’t do it. I know I’ve fallen victim to that quite a bit as well. I want to [inaudible 00:19:41.4]

Babak: Quote I have on my phone that shows up is perfect … done is better than perfect. And it’s really easy to get stuck in that analysis paralysis perfection like … and also frankly this idea that everyone else has it better. I think a lot of people think that bigger companies or those using better tools always have better data but is definitely not the case. Like a lot of times the bigger companies they have too many legacy systems so I think oftentimes that comparison can pull people back because they think I’m never going to be able to achieve what someone else is doing or all that big data stuff. I mean just start with what you got and literally it could be Excel with a college kid and then you start building from there. Like literally it can be that that can be very very effective and I’ve seen it be that way.

Mark: Yeah that’s a good lead into my next question because you know you started at Beachbody with 100 million in revenue right? So you guys wanted to go ahead and start digesting data, you put a million dollars towards hiring on a new team just to be able to digest data. The entrepreneur who has an e-commerce business doing three million, four million bucks that’s a lot more of a challenge for them to bring on that much of a team. Excel, analytics, are there any other programs they may want to look at or systems that you know of that might be a good starting point or would you even recommend going out and hiring a college kid or going onto a place like Upwork to be able to have somebody to crunch numbers?

Babak: Yeah I mean so first of all when I joined again it was seven, what you think maybe a hundred million dollar business has in terms of systems and processes I would say first of all the tools today are so so much better. But I looking back, I work with some hundred million dollar businesses now that have dramatically better systems and reporting frankly because the tools are just much easier. So you know it took a year or so for me to get correlatively cleaner data and not even clean. So first of all even back then it wasn’t like everything was so dialed in, that’s kind of part of my point. And then second again like depending on people whether on Shopify or Magento or whatever your platform, honestly the basic thing is do a data dump. I’ve hired for multiple clients someone part time on Upwork to basically do some slicing and dicing; basic stuff, get some things in place. And we’re not talking … so first of all even if you hire someone full time and let’s say that person is 50,000 a year just picking a number, your exposure to that person is not 50,000 because within 90 days you should know whether that person is going to be working out or not. So let’s say it’s a quarter of that plus maybe a little bit more so oftentimes first people think about if you’re going to bring on someone full time that that annualized cost that’s really not what it is. You should know I think within 90 days that you’re getting what you need and they’re on a path. But at the very least there are definitely folks on Upwork and really just looking for someone who’s got some similar work; I put people through an Excel test to make sure they can do the basics. It’s all made up information and yeah you start with that and I’ve literally had college kids help out just … who were good at Excel. They don’t need to know that much, they just need to know how to slice and dice some information. And maybe it’s an MBA, I’m not saying you have to go there but certainly Upwork, Excel, using again basic tools. You do not need certainly anything remotely close to enterprise so you get stuff going. And I will say I do, I run some numbers for some of my clients and it’s literally … I did one about a week ago, Excel, Hubspot, Shopify, GA piece it all together and we had a pretty rich view. It took some time obviously but we then had a pretty rich view of what those customers look like.

Mark: So with somebody who has a Shopify store or an Amazon store where you can’t really track customers as well with Amazon, but let’s say Shopify store where you can track your customers, or a SaaS application or anything else where you’re tracking those customers would you literally just go out and do a dump of that data of the customers and go back and start to calculate okay this is what … you know graphing it out, these customers are worth this much in those first 30 days and then it starts to look like this when we move out?

Babak: Yup that’s exactly. I mean … so and that’s what we did. Let’s say you’re looking at 2017 data it’s literally [inaudible 00:23:52.4] all the new customers and that’s part of the thing is making sure they’re new versus repeat. But let’s just say you can identify that hopefully relatively easily; who are the new customers who purchased for the first time in January of ’17, February of ’17, March of ’17 and literally track those people. Look at their February orders for January, look at the March orders for both like you know January and February and really that’s literally started that way. And you can then start to slice and dice by traffic source, by product, by offer, by ad set. But that’s next level, for some folks they just want to get the pure basics. Just start with that average thing and then once you have that and then you start to refine over time. But literally it’s a data dump and you know if you can marry it with GA or with your CRM or ESP then great but at the very least start with the overall, start with maybe one line and then you just start to get better from that point. And frankly again that’s what I did with Beachbody, that’s what I do with my clients. And whether it’s me or working with their teams you just start and then you start to refine over time.

Mark: All right so let’s go to the other side of this conversation. We started to get a good sense for our lifetime value and what a client brings to us in terms of different time frames; the first 30 days, the next … the first 60 days and so on and so forth and we know our cash flow requirements. Again, people listening, you have to keep in mind if you’re going to spend $50 on a client and they’re not going to pay you $50 until month six you need enough cash flow to be able to get to that payback period. Let’s build a strategy, what does the strategy look like then at that point from acquiring the customers and going through different channels? I know obviously with Beachbody you guys did television, you did radio, you did a lot of media which was hard to track. And we see this a lot with … you know online platforms are really good right now at tracking with view through conversions and everything else but there’s still some of those mediums out there that aren’t great and imperfect. How does that sort of factor into your decisions when it comes to acquisition channels?

Babak: Yeah I mean so no matter what channel you’re in attribution is the bane of everyone’s existence. A very very few people have it down and like oh I know what that means to have it down. You want to get to the point where you feel like a level of comfort and confidence. You know these days again most of the work … I have one client that I work with on TV and it’s a very rare exception of how good their attribution model is but let’s say that for the most part, most people are doing … I mean it’s digital heavy. So for me, I basically focus and work with folks on really only a few channels so Google … which for me is Google and Bing. I mean people always forget about Bing, it’s another 5, 10% and my joke is if you don’t want that 5, 10% can I have it? And I’m joking but no one ever says yes. But it’s using higher ROI’s especially when you’re talking slightly older demos. But Google and Bing, Facebook and Instagram, your internal e-mail and affiliates, and frankly just … and I said just but if you focus there I’ve seen plenty of businesses go well into nine figures; focus there. And then certainly you can layer on radio and podcast, TV, direct mail; but honestly Google, Facebook, affiliates, e-mail and internal … you know that’s really where I put a lot of time and attention. And I’ll say even then attribution is a bit of a mess because Facebook and Google don’t talk to each other. So they’re each one who takes some credit … you know or using GA last click, what’s happening are people opting in through Facebook and then converting through e-mail? But you really just have to start to piece together things, at the end of the day again depending on your business model your PNL and bank account are the true measures of it. And so that sounds like a totally average overall view but yeah that’s again I work with folks that have that and then they’ve got to a certain level of sophistication. So you start with … you know start and piece together what does Google say, what does Facebook say, like if you add up those two do you even have that many orders? You’re going to have to be very careful about double counting but you just start to piece together this … the data starts to tell a bit of a story. I would just say one thing you mentioned view through, I am a very very very conservative on view through so the point of it I basically I ignore it; certainly from a GDN side and really even from Facebook. I just think unless you prove it I’d rather start with a [inaudible 00:28:07.2] and it doesn’t work. I mean you got to prove it as opposed to just proving it. But I know that you know 28 day click one day view on Facebook is the standard set up. I moved most people to 7 day click not because it’s right but mostly because it … we got to account for double counting, AdWords, what’s going on in email, things like that. So there’s … again there’s no right and wrong but that’s one of places I’ve kind of dialed in a little bit is looking at 7 day click. But honestly my biggest  … the biggest mistake I oftentimes see with people with channels is they have too many. And so I think if people say oh I heard someone’s doing something on Pinterest or YouTube or I got to do this, frankly if I see people who have four channels where it’s 25% in each, that says actually something is not being done well enough. And usually, it’s people who are really scaled, I kind of have this thing of two offers two channels, most businesses that have scaled substantively they’ve gone deep and hard in a couple channels which basically means they’re left probably some money on the table elsewhere maybe but it means they’re focused. And that means they’re exploiting where things are working. And so I think that’s one of the things, people think I got to be in so many places, I don’t … I have not found that to be the case at all. And even though it sounds like you’re concentrating your risk it also means you’re exploiting an opportunity. And that’s really I think oftentimes what you’re really trying to do.

Mark: How do you know when to give up on the channel if it’s not working or would you?

Babak: You know it’s a good question I think at some point you have to make a call so it’s … I don’t have a rule around it and I put it that way hard and fast. I think it’s … first of all, I like modeling off of other people; not copying but modeling. And so it is … it can be dangerous because you can see all these other people seemingly running a bunch of ads and yours may not be working but you may not know what their goals are and their goals may be different than yours. So I think it’s always … you got to be careful about comparison but you know I think at some point you have to take … just like a lot of things you have to take an honest assessment and say do we feel like we’ve given this a fair shot? How much time and money have we invested? Frankly, what is it pulling because we all have tradeoffs whether you’re a six figure business or a nine figure business everyone is resource constrained in their own relative way. So you have to pick and choose your battles and really where you think now. I guess … and sometimes the market maybe telling you something too that it may not be the channel but maybe the way you’re executing on it right? Which may be kind of the same thing for you but I think that’s one of the things too is really you have to take an honest assessment of what have you done, what have you tried, have you talked to people, have you pulled in whether experts or friends or done some research and you know. I think then it’s relative to other things that you have in front of you, where is your time, your capital, your resources is better allocated.

Mark: Yeah all right that’s awesome. I told you before we started recording this that we were not going to get to the one thing I really wanted to talk to so I’m going to get to it now. And that is something I find fascinating about your approach to direct response marketing because direct response marketing we often think about in terms of the money that goes in we want to make sure that we’re getting a positive ROI out of that and we’re just measuring that and that alone. And we see it almost as this opposite of brand marketing which is splash it out there splash it out there and splash it out there and it’s kind of a long play. But you have this intersection and you do this a lot with Beachbody as well, you have this intersection of brand and also the direct response. If somebody is focusing on those four that you put out, the Facebook, the Google, affiliate, and internal e-mail, what can they do to start building a brand and why is that important?

Babak: So I think the first distinction is around something you said and I think a lot of people will latch onto which is brand marketing. And so really what I focus on and try to talk to folks about is building a brand. And so for me the distinction is brand marketing oftentimes is associated with you spend a bunch of money on media marketing whatever that’s basically non-trackable and that is trying to build brand awareness but without necessarily tying it to some kind of metric. And I say that as opposed to focusing on building a brand. For me, that really comes down to the customer experience. And so those are totally can be integrated with a performance marketing direct response model. And really that’s about how do you start to take care of the customer and treat them frankly like you would want to be treated if you were the customer. So I think it’s less about brand marketing initiatives and it’s more about this idea of does the word in the Lexicon around building a brand, about building something that’s lasting; how often does that come up in the organization? I had breakfast actually with a friend this morning and we’re talking about the idea of what’s on brand versus off and what that means. But really at the end of the day, it’s are you building something that’s got some sense of sustainability? And I think oftentimes especially when you’re earlier on the idea of shortcuts of doing things that are maybe … whether it’s not as clean or not as brand building, I get that everyone’s got to make their call all around those things but ultimately if you want to build something that’s got some sense of scale and got some sense of sustainability I do believe you have to be focused on building a brand. Because when you do that you start to treat the customer better. You start to invest more in your product. You start to invest more in the kinds of media and frankly, that kind of stuff can be infused in your acquisition efforts. Did I mention that I’m writing a book on customer experience and that really came from how do you start to bring DR and brand together and really things like tapping into a sense of identity in community. That’s not just brand marketing that’s non-trackable, you can start to build that into your video ads on Facebook, Dollar Beard Club … now The Beard Club and they’ve done a phenomenal job of there’s this sense of identity in association with you’re a man with a beard. And so they tap into that and who you are, what that means, and so that is one layer of customer experience and building that brand that is clearly tied to performance marketing but it starts to infuse that. I would say two things like … you know so my four categories is really around the human and emotional stuff; there’s product, there’s the transactional experience, and then there’s content like video. And they’re not mutually exclusive [inaudible 00:34:16.0] stretch. But I’ll say like with subscription businesses whether online … I mean media, SaaS, or physical box, one of the best places or best examples I see people have make some mistakes is around order notification. So this is not brand marketing, this is are you treating the customer better? Are you letting them know that next order is going to ship, that next feeling is going to happen? And oftentimes I see people say well if I send an email before that billing my churn rate is going to go up and my response is absolutely you’re correct but also you know what happens is your customer is actually aware of that billing. They’re not annoyed. I mean I think we all faced that thing where whether it’s a meal subscription or otherwise, a billing happened and we didn’t know about it we’re annoyed we got to go cancel. We tell our friends, we post. That kind of stuff actually has an impact on the brand. And honestly one of the best examples I’ve seen of how to use that notification positively is Dollar Shave Club, they send a notification but they use that as a promotional opportunity to say your order is about the ship do you want to add something to it? And so whether it’s their shaving cream or any of their other products they use that … and again 20 or 30% of people are going to open your email if you’re lucky. So it’s not everyone but you get the brand benefit of notification but then use that as a promotional opportunity and say do you want to add something more. And I would much rather be playing in that kind of world rather than trying to sneak in what you think is a one or two more orders but it’s very hard to quantify. But you absolutely are hurting the brand if you’re playing a longer game when you’re trying to sneak stuff in and not be as clean and upfront. And yes Netflix and Direct TV don’t do that but again those are very very different businesses than subscription boxes or something that you start on a risk free trial that frankly doesn’t get the kind of use that Direct TV and Netflix would.

Mark: Could you repeat those four categories again? Those are great.

Babak: So the first one is really I talk about as like the human and emotional aspects. So that’s things like identity, community, exclusivity, things that are raw human needs and traits. The second is really product, and there are multiple layers on it but I think it’s kind of crazy that I have to focus and emphasize it but the number of people that I see that don’t have the attention to  detail on product. I’ve talked to people who’s starting they want to private label fine but the better your product [inaudible 00:36:35.0] part it doesn’t always win but a better product gives you a better chance at that. Third is the transactional experience, so how do you take people through your funnel, what is it like to get a refund, what it’s like to get … I talked to customer service those kinds of things. And the fourth is content, so how do you use video, music, spokesperson, or a character. I mean really each of these things, there are plenty of examples of companies that are using all of them or just one of them to really start to enhance that experience and really start to rile their customers. That’s the [inaudible 00:37:05.3] kind of thing but you basically need customers these days to be blown away. It is … you know I like to say it like it’s … when people say it’s the easiest time to start a business because generally the tools are easier but it’s also like that means it’s brutally difficult to compete and to differentiate. So you’ve got to be just a ton better than everyone else. And my experience is that customer experience and these kinds of things is really what you need and again it’s infusing this idea of playing the longer game into performance marketing and direct response. These two are not at odds.

Mark: Cool. All right you got a book that you’re writing right now do you have any idea when that’s going to be done?

Babak: Best case is Thanksgiving time but I’ve started … I mean I’m happy to post a couple of links to some of the things I’ve started to write about whether in LinkedIn or in Twitter to just to kind of go a little bit deeper into these and show some specific examples. But yeah we’re still talking a few months out.

Mark: Okay I know we’ve had a couple of other people that are reading books and we always get e-mails after saying “Hey can I get notified when that book is out?” So do us a favor one when you do have that out send me a message and I’ll make sure I update everyone that wants to be updated on that. And then where can people learn more about you? Obviously Round Two Ventures, any other place?

Babak: Yeah I mean my business is Round Two, it’s Round Two Partners. Visit the website. But yeah the same thing and it’s like a holding company but my blog is the easiest. It’s just my name, it’s Babak Azad B-A-B-A-K-A-Z-A-D.com And that’s what … I put a lot of content there and then frankly there and LinkedIn. I’m @BabakAzad pretty much on everything other than Gmail of all things but … another Babak Azad stole that from me but … he was earlier but yeah I’m on pretty much every platform. But my blog and LinkedIn are the two easiest platform.

Mark: Fantastic, this is great. So thank you so much for coming on, I really do appreciate it.

Babak: Thanks a lot Mark I’m glad to be here.

Links and Resources:

Round Two Partners

Babak’s Blog

LinkedIn