Unlike most consumer startup founders, Scott Tannen has the perspective of both a brand CEO and an angel investor.
Tannen, the CEO and co-founder of vertically integrated and digitally native luxury bedding company Boll & Branch, is also the founder of gaming company Funtank and Red5 Capital, an investment firm. The experience he has under his belt gives him a perspective that many brand founders lack. For one, he doesn’t want to be dependent on outside capital.
“We’re profitable on every dollar we spend; we have to be,” said Tannen. “But that means slower growth — it means we’re a $50 million business and not a $200 million business. But I feel pretty good that I don’t need any capital from anyone to keep my business going.”
On this week’s episode of the Glossy Podcast, Tannen spoke to what too much capital does to a young business, why investors haven’t wised up yet and why the retail store isn’t dead.
On raising capital
Direct-to-consumer brands that raise too much venture capital have found themselves bogged down by unrealistic growth expectations. It’s a big mistake and bad for business, according to Tannen.
“The more money you have, the sloppier you can be as a company. You can’t buy your sales if you want to be in this business a long time. It’s unsustainable, and it’s only about momentum. For every company that IPOs after four years, there are hundreds of others that just don’t have those magic beans,” he said.
On how startups spend their money
That sloppiness translates into poor business decisions by startup founders.
“Big hires are made, and big advertising is done without measuring or isolating the return. If your focus is on the top line, the channels that can drive it up hardest and fastest are going to be the only ones you’re investing in,” he said. “Advertising in Times Square might get me a million customers, but the long-term value on those customers is so low, that all I’m doing is buying one-time revenue. I’m not buying long-term affinity.”
On the forthcoming bubble bursting
According to Tannen, investors still have money ready for consumer startups. But that’s going to change soon.
“I don’t think the investors have wised up yet. As soon as they do, you’re going to see a massive correction,” he said. “There are too many brands doing too many things that I can look at and say, ‘Nobody makes money on that.’”