Magic Mind, Investing Criteria, and North Star Metrics with James Beshara
We sat down with James to explore his personal diligence process, DTC financing, and North Star metrics at Magic Mind.
DTC Diligence Frameworks
When evaluating potential DTC brand investments, James dives into the following criteria:
- Founding team
- Product experience
- Traction trend lines
- Entire brand
While people might be surprised to see product experience included in the list, James points out that game-changing products aren’t all that common, especially in an increasingly commoditized digital brand ecosystem.
While there’s definitely room to improve on a product—based on feedback—it's also important to evaluate the product experience upfront.
In addition to his criteria, James also looks at the brand universe and the size of the target market itself.
He adds that while some investors back small, fast-growing niches, he prefers to back companies that attack massive markets in new, innovative ways.
“When I’m in the process of buying a product from a new brand, I want to feel like I’m entering an entirely new universe. That’s the secret to someone going from customer to advocate.”
Magic Mind’s Northstar Metrics
When James first started Magic Mind, he prioritized product over growth and revenue.
While in stealth mode, his team continuously iterated on the product experience by testing out new formulations, especially on large groups of close friends who mirrored his target users.
After handing out enough samples and running through iteration after iteration (50-60 iterations before launch), he landed on a product that was ready for the public.
However, even after a full calendar year of sales and revenue growth, he is still constantly refining and improving the product. Magic Mind is currently on version 3.5—constantly iterating like a tech startup’s smartphone app.
As the business grew, data-driven metrics became an even more central part of everyday decisions.
On a weekly basis, James tracks six core metrics to help evaluate overall performance.
- MoM Revenue Growth
- Customer Reviews
- Cohort Retention
- Product Margins
- Blended ROAS
- Blended CAC
“The most important lesson I’ve learned in building startups is that direction is more important than speed, and therefore quality and retention is more important than growth.”
Consumer Brands vs. Consumer Tech
There are a few similarities between launching a DTC brand and a consumer tech business, but most of it boils down to brand and community.
Every company—whether it's DTC or tech—should be building a “brand universe” at every customer touchpoint.
However, the differences between the two models are quite expansive.
Put simply, it’s much easier to scale software than a DTC product.
In DTC, scalability requires a long payback period and credit facilities or venture capital to fund product inventory (especially if you're growing quickly and you need to order more product every month, even if your payback period is two to three months).
On the other hand, the odds of success are comparably higher for a DTC brand, at least in terms of the ability to launch, acquire customers, and scale as a company.
For every consumer tech success, there are hundreds of successful, sustainable DTC or CPG companies.
It’s rare for a consumer tech business to hit its stride. Rarely are they the next Facebook, Instagram, or TikTok.
With a DTC brand, founders can start selling an MVP quickly with just a couple thousand dollars of capital. That can't happen in tech. On the software side, founders need expensive engineering resources to build something for one, two, or even three years before they even know whether they have something interesting.
“To put it bluntly, the odds of success for a DTC brand are much higher. Of course, however, that’s entirely dependent on how you measure success.”
Credit: The Future of DTC Financing
James believes that credit will soon become a major player in the DTC financing space, specifically as a compelling alternative to equity-based capital products.
He recognizes that while credit has its own risks, it’s perhaps the cheapest form of growth capital.
Venture capital rounds still make sense for large-scale R&D needs, especially for hardware products. But, venture is perhaps the most expensive form of capital.
However, digital brands can get to early revenue much quicker, and they can actually use that revenue to then obtain credit.
DTC founders, as a result, don’t need to spend months struggling to fundraise. They can talk to different credit shops and secure a credit line that can help accelerate their business without giving away unnecessary equity to partners.
“Credit is not only much cheaper than selling equity in your company to a VC, but it’s also significantly easier to obtain in a short amount of time.”
Parting Advice: No Matter the Financing Direction, Trust the Process
According to James, there are two types of people who invest in the DTC space.
The first cohort includes more traditional retail investors who dabble in ecommerce.
In parallel, the second cohort is composed of venture capitalists—who either invest in tech-enabled companies that are the bridge between retail and ecommerce, or who represent the smaller subset of firms focused directly on DTC or CPG.
For founders looking to raise their first tranche of capital for their DTC brand, James recommends optimizing for the best process possible.
By optimizing for the process itself, specifically focusing on business metrics first (i.e. 3-6 straight months of +30% MoM growth) and then on repeatable inputs with long lists of potential partners, founders will find success.
Initially, it’s useful to go after around 30 investors who’ve invested in a similar space before but haven’t yet invested in a direct competitor. Or, maybe that direct competitor has gone through a recent liquidity event, so it's possible to reach out to their investors. James recommends aiming for a 10-15% hit rate with those investors.
To borrow from James’ philosophy, it’s not very useful to dive deep into each individual investor’s psychology about why they passed (or invested) in a brand.
Every massive business was built with hundreds of ”No’s."
Rather, it’s important to create a set of rules for different buckets of investors and develop a set of expectations about their investing style, check size, involvement level, and turnaround time.
If founders can retain that high-level understanding across different inputs and build out a repeatable process, they’ll ultimately persevere into a successful fundraise.
“The only results that matter in running a business are the results that you can recreate. If you focus on your specific key inputs and replicable processes, day after day and month after month, the results will genuinely take care of themselves. More than that, the results are in your control."
- What to pledge
- How to improve
- Which tools will set you up for success
I think the most important thing brands can do in 2023 is to better manage their customer data—both ethically and effectively. There’s an opportunity for brands to know their customers better than ever before—a clear benefit for both the customer and the brand. When you manage your data correctly, you’ll create stronger and more personalized ads, creative, site experiences, and so much more.
This is a classic: Let the data guide you. Go where the buyers for your products are and communicate with them on a personal level (i.e. by persona and funnel position) and nurture those relationships (past, present, and future customers). It’s possible—all through data.
We recommend that Shopify brands analyze and update their websites using data-driven decisions. Using analytics tools such as heatmaps and scrollmaps can help brands better understand how customers are interacting with their store.
Store owners tend to make assumptions about the way customers interact with their website. Most never go back and analyze their design choices to find pain points or areas of opportunity. By using heatmaps and scrollmaps, they can see where real customers are clicking and concentrating their attention. Leveraging this data, brands can start to iterate on design and make their online store experience streamlined and intuitive.
Hotjar provides a simple way to implement heatmaps, scrollmaps, and recorded user sessions on your site, helping you acquire incredibly informative user data. Additionally, it gives you the ability to create on-site surveys, which allows you to obtain direct and often critical feedback from users about their experience.
Test various attribution models and analyze the impact on your business. At Fifty Six, we are always here to help our clients identify and optimize their approach—a critical step in any successful marketing strategy.
If I’ve said it once, I’ve said it a million times–Customer Lifetime Value. And even more importantly, Future Lifetime Value (FLTV). With the ever-growing importance of first-party data, it is crucial that brands take a good look at their CRM and FLTV metrics.
Stop allocating budgets to low-hanging fruit that doesn’t move the needle on conversion. Think about what’s really going to improve your CX and the return of undertaking different initiatives—not just on what’s top on your list of bugbears on the site!
One of the best ways to understand your customer behavior is by using HotJar. Their heat-mapping and screen recording tools shine a light on where customers are navigating to and from on your site, where they're rage clicking and experiencing frustration, and where conversion is dropping off within real life customer journeys and flows!
Understanding your customers’ pain points via data and analytics , will allow you to work with your CRO/CX Agency to solve customer frustrations and improve conversion.
Rewind backs up all product, customer, and order data for Shopify sites—essential since Shopify itself doesn’t provide this solution. It's saved so many of our clients time and money from administrative accidents.
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33% of customer service inquiries are pre-sale questions. What does this mean? If you’re not investing in customer service, you’re missing out on revenue-generating opportunities.
The benefits of elevating your customer experience:
- 10% to 25% increase in AOV for customers who engage with live chat pre-purchase
- 21x higher conversion rate for customers who reach out via Live Chat or SMS compared to other site visitors
- 87% of customers who have a great customer experience will make another purchase
- 72% of customers share positive experiences with 6 or more individuals
Gorgias is our favorite Helpdesk platform. They can reduce costs by 35%, primarily by decreasing the average ticket handle time. Their machine learning algorithms are trained on millions of ecommerce-related interactions across Gorgias’ customer base and provide accurate, automated replies for the most common ecommerce inquiries. This helps our agents resolve tickets faster, which provides the customer a seamless experience.
Trust your agency! Agencies do the same things across multiple brands and niches, so we see the trends and have the practice and experience!
Don't be afraid of data and insights. If customers aren't clicking on your emails, try a new CTA. If your ads are driving good metrics at a small spend, start scaling. If your customers are complaining about a product, look into QA! If the data tells you something isn't working, let it go and try something else!
I'm supposed to say Tydo, right? 😉
Double down on differentiation. There will be a lot of headwinds this year and standing out from the crowd will set you apart.
A picture is worth 1,000 words. A video? Probably millions. In ecommerce that value translates into engagement, acquisition, and retention—everything you need to impact your bottom line.
At soona, we've seen the we've seen the impact of creative and the continuous split testing of it yield results. Our resolution is to challenge ourselves and double down on innovation and creative optionality so that each brand we work with can distinguish themselves in a crowded sea of D2C ecomm. We'd love to see our brands share this resolution and keep pushing the creative limits.
Klaviyo. We're using it to power our email and newsletter at soona too!
Optimize your returns strategy! This can lead to valuable customer insights, enhanced user experiences, and increased revenue and customer loyalty.
Brands need to dive deeper into understanding their customers to set themselves up for success. Conduct research to gain insights into customer needs, preferences, and behaviors. By doing so, you can develop targeted strategies that will enhance customer experience and boost overall retention.
Right now I would say Gorgias. Having a good customer service tool is crucial to building strong customer relationships.
Start paying heavy attention to data, specifically around retention. We see a lot of effort put towards acquisition with the assumption that once someone buys, they are your customer forever. Instead, get to know your customer, understand their needs, and analyze their behaviors once they are on-site and judge their sentiment after they have visited. Work with a retention focused and data-driven agency to implement tools that contribute to repeat business and customer delight. It will pay dividends.
When surveyed, about 80% of ecommerce merchants think that they are delivering a great experience to their customers. However, when the same customers are surveyed, only 8% of those customers think that they are getting a great experience from the merchant. Now, more than ever, retaining loyal customers is an essential part of any online business and you should spend time with your customers to judge their experience with your website and products and offer improvements based on that feedback.
Tydo's report cards are an essential tool, along with Klaviyo for email and SMS, Recharge for subscriptions and memberships, Okendo for reviews and surveys, Rebuy for AI driven collections and upsells, Loop for self service returns... each tool is great on their own, but their strength as the ultimate tool comes from when they are used together!
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