Preston Rutherford - Transitioning from performance to brand thinking

Speaker A: Hello. Um, bonjour, M. Nihau Comestas. Welcome to Champagne Strategy. Listen to this episode if you dare. But you've been warned. There's no going back. I do it not just to talk to people, number one, but also just as a bit of an education piece for other people. So they're sort of themes that come up when I do consulting and when I talk to people. This is one of those themes that is quite. Not, uh, a mind crime, but a bit of a. How I put it, um, a restraint or constraint on their growth potential. It's pretty devastating to watch. Anyway, welcome to show Preston. Thanks, uh, for being on the show.

Speaker B: Thanks. Thanks for having me.

Speaker A: I really like some of what you're talking about. This transition from performance to brand, obviously in the context of your work when you just exited. Chubby is correct. After a couple of years. 10 years.

Speaker B: It was a few years ago that the business was acquired. Yeah. And so now it's part of a public company. Yes. So spent the last couple of years working on this new thing. Marathon. To solve the problem we dealt with. Yeah.

Speaker A: Yeah. Well, exactly. That's what I want to get into. But, um, just take me back to the original story. You're in, what, the Bay Area? San Francisco. You started this or.

Speaker B: That's right. Business was founded in San Francisco.

Speaker A: Nice. So in the depths of, uh, Silicon Valley. I love it. And tell me, uh, how did that begin? Was it just like a random idea or was like, DTC big back then? You thought you just have a stab at it or.

Speaker B: I mean, we were the first Shopify plus store. So this was in the early days of this whole thing. So we were just kind of, uh, wanting to be entrepreneurs. And, you know, we couldn't create a Facebook or an Instagram or anything like that. But, uh, because that's what kind of the people who went to smart schools did, I guess. And, uh, so we were just kind of trying to figure out what to do and. Yeah, so it was. It was in the. It was 2011. So it was a long, long time ago.

Speaker A: Yeah. Nice. Okay. And, like, just take me back to those times. Like, what were the main sort of growth channels you're using to. To grow this business? Obviously, this was the height of, like, Facebook ads and search. Correct.

Speaker B: It was early days. So, um, trying to get people to join your email list was like a growth lever kind of thing. Right. And people weren't running a ton of Facebook ads. At least that, uh, it was tiny.

Speaker A: Right.

Speaker B: As you know, the size of Facebook's business was Was teeny tiny. Yeah. And Google for sure. Some Google as well. That truly, I mean it wasn't really our focus at the time, but it was mostly like organic, building a community, getting email addresses. Those were kind of the main things. And then, yeah, as, as time progressed, doing the paid social, um, sort of thing became more and more of a, of an opportunity and then kind of evolved a bit into a little too much of a crutch that we then had to fix over time. It was the earliest days of, I think this whole, I don't know what you want to call it, BTC movement, a little bit of Facebook ads. But most of it was trying to grow as organically as we could grow. The email list, get Facebook page likes, you know, these sorts of things. This was pre Instagram being anything obviously. Well before TikTok.

Speaker A: Yeah, I remember. So I remember those days. Like, um, you could get some really, really good organic reach off Instagram. Like reels wasn't even big then. It was just like pictures still. Uh, you know, you.

Speaker B: Yeah, no reels.

Speaker A: Yeah, yeah, you do a lot of um, there's a lot of bots that you could use for like you know, commenting and liking other people's uh, things. And if you liked or engaged with so many other people's posts, then you know, you would get a bit of uh, I don't know, um, uh, additional reach next time you posted. And there's a lot of like, like, for like kind of things going on. It was, it's pretty insane. Like they still haven't really cracked down on a lot of that sort of anti spam at that point.

Speaker B: Right, right. Yeah, totally. There were some, some scammy things going on. Always some scammy things. But, but yeah, absolutely.

Speaker A: Okay. And then fast forward, let's say five years or something. So 2016, 17 or sort of. That's when I was in SF myself actually. Um, but like that was sort of like the, I would almost say the peak of some of these, these channels, like search was sort of coming off its boil. Instagram was definitely mature by that stage. Facebook was sort of almost declining in some cohorts for sure. So what, what happened then? Did you notice that that yield decline in some of these investments or was it full steam ahead for you?

Speaker B: Yeah, the, the way I've seen things unfold is it's less about the maturity of the channel and more about the life cycle of the brand itself. So I think things come and go, but like the fundamentals are where if we're, I think the big Truth that I learned is that if we're not actually generating demand, platforms aren't going to do it for us unless we force them to. So you can capture all the demand you want. But largely for us, we learned across any of these channels that we were largely capturing demand from a fixed well that wasn't getting refilled. And that's I think where the problems I liked to blame channels. I liked to say that Facebook was getting saturated or Instagram was getting too expensive or TikTok doesn't work or whatever, whatever. But um, it was largely just our, our fault associated with um, being kind of beholden to these short term revenue optimizing metrics because we felt like they were, it was safe and, and it was true. When you generate that click and get that purchase rather than acknowledging that um, we were just kind of like optimizing for these vanity metrics but weren't actually driving you know, incremental business growth, um, or incremental business strength, meaning making sure we were balanced in terms of how we were driving revenue. Where we had gotten to a place where most of our revenue, most of our growth certainly was coming from know last click on an ad sort of thing. So it was all just like very fleeting ad fueled growth where we were kind of, however you want to call it, renting the, the customer sort of thing. And so that I think was the big learning. And for us it was, it was around that time frame, about five years into the business that we really experienced the pain and, and therefore had to transition.

Speaker A: Okay, and um, tell me about that transition. So because a lot of people go well you know, I put money into this channel, someone ships that thing for me, whether it's an agency or internal employee, I get return. Right, so you're saying it's a bit more nuanced with that or are you talking about using different channels or how did you progress from that sort of arbitrage customer harvesting to more of a growth flywheel happening and asset creation?

Speaker B: Yeah, I think there are a couple things. One, in the early days we were still doing the things that were generating the, the brand stuff, the heat, the top of funnel, the uh, the buzz, whatever you want to call it, that was providing the fuel for the funnel, if you want to say it that way. You know, we were doing fun organic stuff. We were doing interesting, some might even say scammy. I don't think we were scammy, but just things like that. We were where we were doing fun things to get people to engage and share and participate. That I think just work, you know, I think and felt generally pretty good. And I think as time went on, we just got away from those sorts of things, as I think a business does, as it. As it looks for more sort of like systematic, consistent and predictable channels of growth that kind of lose the. Not lose the soul, but lose the openness to trying some of these fun, crazy, interesting ideas.

Speaker A: Sure.

Speaker B: So there's that. Yep. And then on the other side, there's, I think, the reality that as you do more of a thing, uh, it gets more expensive to do generally, especially if you're not taking into account the shortcomings of the thing that you're doing. So obviously when we're running an ad, we want to drive a purchase, so oftentimes we optimize for that thing, but we don't. At least I didn't truly know what I was optimizing for. Right. I was optimizing for a click and a purchase in one day and to assume that that's what, um, that that encapsulated the totality of the value that I was trying to drive. And then the other thing is, if you miss a number, right. Or if you run into some hard times, you tend to go from, you know, like a. More. Let's call it a liberal attribution window, let's say, gasp, seven days to one, and you remove the view and just not understanding the idea that, well, that was, you know, causing my CPMs to skyrocket and the level of incrementality of what I was doing. Incrementality simply meaning getting more people who would not have purchased otherwise to the. And purchase Totally, totally going down. Um, and then like the creative that we were running as well. Right. I mean, it. Maybe earlier on it was more interesting and fun and memorable, but that in and of itself doesn't necessarily drive that objective that I had, which was to get someone to purchase right away, to click and purchase. And so over time. Right. The shift of the creative that we were running I think became much more like product focused, offer focused, urgency focused, where we kind of just go through this loop of optimization, but, you know, we're kind of effectively optimizing ourselves out of business. Um, so it was all of this stuff kind of happening together.

Speaker A: Very nice.

Speaker B: And it's. It's a lovely thing to experience.

Speaker A: I'm sure it is. So. So I'm just reading between the lines here. Then it was this, um, Just to summarize your focus, you sort of found out yourself that you were, you could measure some of these Investments on a shorter time frame than the effects was actually happening to the market. So you might have this positive effect that would, um, maybe get a return in a long period of time, and you were sort of optimizing for a very short window, and then you realized that, actually, no, you know, the effect of that that we did may sort of have a longer trailing effect, and therefore it's sort of, what, inaccurate to measure in a shorter window? Is that kind of what you're saying there?

Speaker B: Yeah. And caused us to do things that maybe drove some number to go up in some dashboard that wasn't, but wasn't really associated with fundamental revenue growth or contribution growth or just equity value growth. So it was a little bit of a realization that, hey, we were trying to increase the wrong number. And that was a humbling realization.

Speaker A: Okay, and you sort of refer to this as the being stuck on the hamster wheel of performance, correct? Yeah, yeah, I think it's pretty accurate.

Speaker B: Performance plateau, the hamster wheel of tomorrow, the, uh, discounts and Dr. Doom loop. There's a lot of names for the, for this place.

Speaker A: I love that. Okay, and then, um, tell me then, because a lot of people are still in that, um, sort of that loop, I call it, or like a holding pattern, um, what caused you to break away from that? Was there a particular moment or was it just your own realization, looking at the figures and forecasting, that, hey, um, we need to layer on something else. We need to break out of that cycle. Like, how did that happen for you? And what would you recommend other people to do, to do the same?

Speaker B: There's a little bit of, like, realization as you get a little bit more sophisticated, that, uh, you learn more about, like, metrics that matter. So there's a little bit of that, then there's seeing that those things that matter are going down and. And then there's like, the obvious feeling that, gosh, I just don't feel like I have as much momentum or tailwinds. Like, all. I just. It's just harder and harder to grow feeling that as well. Um, so it's a little bit of a mix of all of those things for us. You know, we had the added blessing of almost going out of business. So, you know, we, because we were having a lot of troubles with moving our manufacturing because this was around, you know, Trump first time around. And so there was a lot of this crazy tariff stuff that. That required that we do some stuff. We were also trying to take our manufacturing from San Francisco to international as well. We're also opening Stores. So there was crazy inventory management issues that we were dealing with. We're implementing an ERP system which was hellacious and complicated. So there are all these things happening roughly, broadly at the same time that just caused a lot of strife, uh, and we were just not growing, uh, and becoming less and less profitable or not losing more and more money, I should say, which is a more true way of saying it. So, so yeah, all of those things were happening, but you know, getting a little bit more sophisticated. Right? Just learning that all of our growth or if you break down the composition of our revenue just on like a last touch basis. Right? Did my purchase come from a click on an ad? Did my purchase come from a click on an email? Did my purchase come from someone who clicked on an organic link after performing a branded organic search? Just the mix shift of our growth, even our overall revenue was shifting more and more toward that last click on the ad. And so as, as you just kind of look at the quality of, hey, what am I m. What does the totality of my revenue look like? Is becoming much more volatile. Right? Much more low revenue per session too. I mean, just generally the revenue per session was trending down as we were shifting towards these lower quality kind purchase behaviors, if you will, for the E Com context. And um, then you have the classic experiences where for instance you, your credit card payment doesn't go through on your meta ads and ad stop serving and revenue plummets and you're like, oh my gosh, this is like crazy. I'm so beholden to a single platform for growth. Um, and then you kind of go through the classic experiences of trying to, you know, hit my 20% growth number off of, off of a, a crazy comp or last year it was a 20% discount. Well, I'm not trending toward the 20% growth this year, so I've got to add an additional or deeper discount and then again start going through that, that loop or I only see the roas goal that I want to hit. If my ad is some, you know, margin eroding offer kind of thing, all of those things, you just kind of pick your head up and just be like, what the heck am I doing?

Speaker A: Okay, great. So, so just to be clear then, because I think this is, uh, somewhat confusing, people, um, people think that this shift from performance to brand is a channel choice. It's like brand is a different channel investment. But you're saying it's more how you use the channel and how you view it and optimize. Am I getting that Right,

Speaker B: totally. I mean it can be, it can be channel but starting a new channel is like a very, very high risk, high cost thing. Ah, there's shiny object and then there's quick wins. But then after that like you've, you've effectively added. It's like giving birth to a new kid. Right. Pros and cons. You got a parent the thing. I mean diapers are expensive and sleepless nights and all that kind of stuff. But yeah, I mean for, for us and I think any brand as you grow you test a bunch of channels. But, but broadly it was a different way to run media on the existing channels. Um, optimizing for trying the, trying the, the blasphemous non sales campaigns. Right. Trying the uh, purchasing follows. How blasphemous is that? Or optimizing for engagement. Wow. Follow. Everyone's very got strong opinions on the value of a follow or the value of an engagement and many people, myself included were thought it was extremely valuable for some period of time. And then, and then either as you know, organic reach started to plummet or you just had this theory that if I could just grow my community I will grow but didn't have a way to measure it. Most of us get very jaded that uh, in this, the value of this kind of engagement sort of thing. Um, so I was no different and, but, but had to learn that well I was just measuring it wrong. And no it wasn't going to show up in revenue on a one day click basis. But if we did it right with the right creative then we would be driving like fundamental shifts in branded organic search volume and clicks from branded organic searches, direct traffic revenue from direct traffic and all of these sorts of things that we just had no way of measuring previously but realized that wow, not only did it serve as like a wonderful kind of like mid funnel audience of like engagers that we could target maybe even like one level above website visitors from like a mid funnel or retargeting perspective. But it was also driving all of these other purchase behaviors that were not even having to go through the sort of like Mark Zuckerberg toll road. And so when we started realizing that doing the data science to connect this growth in these engagements and obviously organic as well. Right. Wanting to grow that piece, wanting to grow the mentions piece like all of that stuff not just paid but for us it was largely paid and we could say I can confidently predict how much money incremental dollars I'll make from an incremental set of 10,000 follows. For instance it's just a cohort forecast. So that yeah, changed the way we ran media on the exact same platforms. You hover over the little I under all of these metrics and it says this data is modeled and then you actually do the math and know that um, and not that this is the only data source, right? But what is it? 80% of people on iPhones, 85% of people opt out of tracking. And again not that that's the only way that uh, but it's a huge data source, right? And obviously they've got a bunch of a lot of smart engineers, but it is definitely heavily modeled data. And that's okay, but we just need to know that it's not gospel truth. And we just need to know it's just as imperfect or probably more imperfect than all of these other ways to measure modeled statistical. That uh, probabilistic, right? That is just as modeled as the thing you look at 57 times a day when you check Ads Manager. I'd say we used any and all tools on the short term side, but still really up until this point had nothing on the long term side. So in platform ga, MTA tools, incrementality tools, um, any kind of like mmm geo holdout, like the whole thing. It's our view that if we're spending that much money on something then you should darn well measure the hell out of it because the cost of an uh, incremental measurement tool is so small in comparison to if you just spend that those dollars more wisely. So that was the short term side. But yes, I mean we were blessed that um, A, we had Tom M. One of my co founders and then just a bunch of other smart people on the team who were kind of like moonlighting data scientists, just very brilliant people who, who there's this thing called Facebook analytics that gave you a lot of these audience type insight is no longer available, blah blah blah. But that effectively gave us a lot more insight into our Instagram following and how we could just much more closely connect an incremental follower to future revenue and that that insight ended up being pretty transformational for us. None of that exists now. Um, so we've, that's kind of like what, um, and not that we would have been able to build this back then because it, it's taken 10 engineers two years to build this. But that's effectively the broad inspiration for what we're building now at Marathon, which is just the ability to predict future incremental revenue off these sort of like non purchase brand actions or brand behaviors. Just people like opting in in some form on our content. But yeah, it was um, but highly recommend having smart data people on any team if you're, if you're running any kind of performance media. I mean, that's such a valuable asset to have for sure.

Speaker A: Yeah. So you had these really brilliant data engineers and you sort of created your own system internally, right, Rather than using off the shelf. Mmm, correct.

Speaker B: Right, right, right. And that was, and that was more just for this particular component. But, um, but yeah, that was effectively how we did it. And then we just started thinking of doing like crazy things like boosting posts or running engagement campaigns or follower growth campaigns or just optimizing different things for behavior change action. But not necessarily that buy button as the be all end all for what we're trying to do.

Speaker A: Love it. Okay. And um, so tell me about, uh, you've sort of piled some of this knowledge into your latest enterprise. Um, if I'm not mistaken. Can you tell me more about that and how that's going?

Speaker B: Yeah, for sure. I mean, problem to solve. The reason we started this is we don't think we're alone and at least we've found this to be the case as we've been now doing this for a couple years and working with a bunch of awesome brands, uh, and not able really to handle the incoming demand, which is again like great problem to solve, but not a great thing that this problem exists. But it's just this idea that, hey, I'm running into these diminishing returns or things, it's getting more expensive to just kind of stay in place or whatever the problem is. And this feeling, right, that um, I'm not really building overall desirability, I'm becoming more discount dependent and I don't really feel like I have a moat where, you know, if another competitor comes in and undercuts me on price and is able to spend more than me, you know, I really don't have a business. But when you have a strong brand, which I simply define as the number of people who will automatically choose you when they go from out of market to in market and proactively seek you out and buy from you, which I think is a pretty imperfect but simple and operational, uh, definition. Right. Rather than like your logo or your color scheme or whatever it might be. Right. And it turns it into much more of, I think like a performance marketing head of growth and CFO friendly definition. Right. Like clearly. Because then you start things like top of funnel or blah blah, blah, like it's not, it's soft and fuzzy. But I think when you just talk about like total number of people who will automatically choose me when they come to market, I think that's a little bit more performance y I'd say so yeah. I mean the, the general idea is we don't have the measurement tools to confidently do the things that drive that number of strengthen that brand, increase the number of people who do that. You've got surveys but that, that obviously is not actionable. It's qualitative and like that's traditional brand measurement. Um, you get some brand awareness number. But then like the actual then so what question of just like well what am I going to do with this information? Uh and then like the ad platforms don't show you anything having to do with like how am m I building my resilient baseline to where if I spend this money, run this creative I'll have this much more baseline revenue. Facebook doesn't even know about baseline revenue. Um and at the end of the day right when you want to get acquired for big number, the more baseline revenue you have which is just revenue from branded organic searches, direct traffic, organic social referral, like that's where you get the revenue multiple. And I think that's something I did not acknowledge until we learned some of this stuff. But um, that being the problem to solve for performance marketing led brands. Right? For modern started D2C now going multi channel. I mean if you're Coca Cola I'm sure you would benefit from Marathon but I, I don't know, you're not my target customer. Target customers people who live and breathe the same thing that I did for long, long, long time. And it's, it's basically just a new way to think about growth. Right? Um and a new way to think about like if I'm a performance marketer, if I'm a growth led organization and I'm trying to grow while maintaining or growing profitability, particularly contribution dollar growth. How do I, how do I do that and how do I measure it in a way where I get a read immediately, I don't have to wait three months or whatever. So yeah, Marathon's a, like a, it's like a next gen software platform powered by like AI predictive models. Right. But just trained on ah, big data but many years of your, your actual data to then give you a feel for well give you actual hard numbers for like how much money will I make if I do this thing? Um and it tells you how much brand value you're driving with your existing um, ads and organic Socials and stuff like that. It just puts hard teeth to everything that has been completely missing. Like if you think about like 50% of your spend should go to generating demand or building the amount of people who will automatically choose you when they come in market, which is a far cry from where most brands are. Right. Pretty much everyone's at 95 to 100% going to demand capture, which we were for a long, long, long period of time. And many brands aren't at this 50, 50 split. Right. Many are. Our best customers are on the way. You know, they're 25, 30, 40% and it's, you know, these buckets aren't even that useful. But the general idea being I need to drive both this future demand or number of people who think of me or brand value, uh, and I need to capture that demand. And that's kind of like what the platform's helping people do. It's all validated by geo holdouts. Like, so I'm not, I'm not in the, I'm not in the, the, I'm not interested in convincing people. Right. So it's just like, here's, here's the data. This is the right way to operate. I know it. I've now seen it myself and I've now seen it with hundreds of brands and um, who've gone like, transform their business and they're not optimizing for click roas, they're optimizing for building balance and they're optimizing for building these new metrics that we've come up with.

Speaker A: Yeah.

Speaker B: So yeah, that's, that's marathon. And I mean I'm, I'm pretty. The reason I'm doing this podcast, the reason I'm like getting back to square one of being this early stage startup founder going and like again, asking these new businesses to like use this product and you know, like becoming a newbie again is, I think this is important. I mean, I think this is a problem. I know this is a problem that a lot of us do.

Speaker A: So do I, I said every day. I mean I don't work in DTC or product, but I work in services. But the same kind of thing, the same concept of, hey, you know, we pay this agency X amount per month. Um, and at the end of the year or financial year, well, we didn't grow at all. You know, like we lost a couple of customers, we gained a couple, but we're at the same sort of growth that we were before, which is basically stasis, nothing but the agencies reporting, hey, we've got lots of conversions and our CTA is X. And you've got lots of leads flowing into your CRM. It's the same kind of problem, just in a different context.

Speaker B: So is your focus more B2B?

Speaker A: Uh, more professional services? So that can. Mostly B2B, but it can be B2C as well. Um, normally complex services. So the sales cycle is a lot more complex and a lot longer, a lot of time. So these problems are accentuated because your time horizon has to be extremely long, sometimes years, uh, for the sales cycle. So. Right. Um, yeah, we're not thinking in days. We're thinking in, like, months, weeks. And the same.

Speaker B: Yeah, yeah, it's the same fundamental truths.

Speaker A: Yeah, yeah, yeah, exactly.

Speaker B: Because all we're doing is. Is just trying to understand you. You generate all of these engagements, paid, organic, social. Like, you just get people to do things. Could even be like email signups. Right. All these precursors that are truly just statistical markers that you can explore the relationships with your actual future revenue. And then to the extent we get some kind of referral traffic source. So if you have revenue in GA by traffic source and you spend money on Facebook ads and have an Instagram account, then, um, 100%.

Speaker A: Yeah. It's just funny, like, you just said email address. Like, um, I was working with this firm, didn't have any owned media, newsletter or email address at all as a leverage. So one of the things I did was, like, the first event, and there was. There was no list to email. You know what I mean? That is a massive asset that is, like, should be the core of this. And there was just nothing. So did the first event now got an email list and, like, just that asset itself that, like, hundreds of people that are. You have permission to email and alert them about. Like, that doesn't appear on any balance sheet. Um, but for me, that's like an owned media, almost a brand asset that you can then leverage at a later point in time. So something as simple as that, just explaining that concept was new for a lot of these people. Really think of your time, Preston. I don't want to keep you any longer. I know you're a busy man, but, um, I really liked what you said there. And hopefully some other people who are in the same situation can identify that, hey, they need to move from this mindset or this way of operating to this more mature measurement and operational framework for growth. And, yeah, if they want to reach out, what's the best method to reach you or your company?

Speaker B: Yeah, we just look me up on the old LinkedIn or Twitter. Preston Rutherford. I think I have a little shorts emoji in between my first and last name. Um, Marathon Data Co MarathonDataCo.com is the website if you want to check that out. But um, follow me on the old socials and see if you buy into all the shtick I talk about on the Internet. And if you do, then maybe check out the website.

Speaker A: Well, I did. And uh, yeah, thanks. Thanks a lot for your time. Really appreciate. Preston, I'll about talk talk to you again soon.

Speaker B: Sounds good.