E081: with Courtney Nichols of SmartyPants LLC

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about this episode

This week, we welcome Courtney Nichols, entrepreneur, advisor and founder of SmartyPants LLC, makers of brain-enhancing gummi vitamins for kids. We also have the return of Jason’s Shark Tank, news with Lon Harris and at least one Insight from Tyler.

Intro

Today on This Week in Startups we’ll chat with SmartyPants co-founder and co-CEO Courtney Nichols. And does the ‘A’ in AOL stand for Arrington? All that, and more, right now on This Week in Startups.

Hello everybody. Hello everybody. Welcome to another This Week in Startups. I’m your host, Jason Calacanis and I’m here with Tyler Crowley. How are you sir? How goes the new startup?

0:01:00

[Tyler discusses the state of his new startup and announces that he has created a fun side project to test some of his processes and mature some of his technology, called HeySweetheart.com, which he describes as a phone service for lonely people.]

0:02:20

[Jason takes HeySweetheart.com for a test drive.]

JC: You’re crowd-sourcing friendship?

TC: Yes.

JC: When did you come up with this idea and why was I not included?

[Tyler describes the genesis of the idea, and how his startup is different.]

0:03:44

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0:04:39

This Week in is giving away an iPad to somebody at random who thanks the sponsors. Take a moment to thank @godaddy and put #TWiST at the end and we’ll choose someone and random to win an iPad.

0:05:15
Interview with Courtney Nichols

I met my guest today in 1995, in NYC at Silicon Alley Reporter. At the time you were working for Riddler which is now 24/7 media. Riddler used game mechanics to get information for advertisers, which is essentially what Zenga is going today. I started a magazine at the same time. We became fast friends. We used to see each other a couple nights a week at parties. We had a hundred mutual friends. Then all hell happened and somehow we both ended up in Los Angeles. You’ve got a great new company called SmartyPants, which makes children’s vitamins, but it’s really an Internet play. Full disclosure, I loved this idea so much I asked if I could angel invest in it. I got a little slice. I’m really excited about it.

JC: I had Ecomom on the other day, and they’re doing distribution for you guys.

CN: That’s right. They’re doing a phenomenal job for us.

JC: What is the origin of SmartyPants? What are you aiming to do here?

CN: The company came out of a conversation between parents and healthcare practitioners about preventative healthcare for kids.

[Courtney goes on to explain the motivations for starting the company and how SmartyPants is different than traditional vitamin companies. She explains the emphasis on the children and how confusing it can be for parents. They are striving to be the Vitamin Water of the vitamin business.]

JC: Starting a brand from the bottom up does what for you? Help you connect with audience better? It seems like the incumbents would have some advantage, so what’s your advantage?

CN: We do have a story, which a lot of the brands don’t have. We’re made from the ground up to address this problem. From a product standpoint, it’s all in one. If you wanted to get the recommended daily allowances of DHA and vitamin D and you want a multi-vitamin, you have to buy 3 products. This is the first all-in-one product which saves money and time. Online we focus on the story and information around brain health, we create a relationship with the consumer.

JC: So you are a product company, but also a community and a content company.

CN: There is content, but we’re not a content company. I think if you try to both, you end up not doing either one extremely well. First and foremost we have to take pride in the product, but it doesn’t mean we don’t want to contextualize the product. Oprah talked about this. Brain health is going to become the next area of conversation for kids an development.

[Courtney explains the goals of the company to help a million children in 5 years by selling quality products and donating a nutrient grant to children in need.]

JC: I’ve seen statistics that show that women are 80-90% more loyal to the brands that have some cause associated. Whether it’s Tom’s shoes, etc. It’s unbelievable.

CN: And it’s a difference between adding it on, and it being a part of the brand from the beginning.

[Jason and Courtney talk about marketing and customer relationships. They refer to Ecomom as a trusted site for the distribution of these products.]

CN: We are getting feedback from our marketing in 3 major areas. 1) The all-in-one value. 2) The get-help, give-help efforts and 3) the story of building the company from the ground up to focus on this issue. So we’re focusing on that vision.

JC: Those 3 things are resonating. The bloggers have confirmed that for you. What role do the bloggers play now? People have talked about the mommy-bloggers being almost a swing vote on brands. How do you connect with these people and how important are they?

CN: I think they’re important. It’s actually a really interesting area because it’s in transformation right now.

0:13:30

[Courtney discusses the evolution of mommy-bloggers and how time has separated the real bloggers from those just wanted to get free products. She discusses OpenSky, which is a market for bringing sellers and suppliers together. She discusses the challenges of interacting with the bloggers.]

JC: Are the bloggers more than just marketing? Are they a distribution channel?

CN: I think that’s where OpenSky is going.

JC: How do they maintain their integrity?

CN: I think there was a problem with brands saying, ‘I’ll give you a bunch of product and you’ll give me a great review.’, but that doesn’t have any value. I think the readers can sniff that out. The bloggers are now understanding that it’s in their best interest to talk about the things they know and really like.

JC: I got this totally wrong. At Weblogs, Inc I thought the integrity would be compromised if we kept free product. It turns out that people have kept there integrity while receiving free product.

CN: Within reason. We don’t ever send a lot of free product for that reason. One bottle so they can see it and taste it.

JC: What’s the cost of these vitamins per month? It’s a subscription service?

CN: It is. You can buy a single bottle, but that’s more expensive. Obviously we want people to buy the subscription, which is $17.95 per month. If you bought all the vitamins separately would run you from $30-55 dollars.

JC: And they look like candy. [Jason tastes one of the vitamins]. Oh my God. It’s so delicious. {Jason eats more and tosses a bottle to Tyler]. Oh my God. I don’t like swallowing vitamins, but this it…wow.

CN: We’re adding something that says ‘SmartyPants is good for grown-ups too.”, because we’ve had so many people call or right to tell us they’re taking the vitamins too.

0:19:00
[Jason, Tyler and Courtney continue to discuss the vitamins while they are eating they’re recommended daily amount. Because of the popularity of the taste, Smarty Snacks are being discussed. Jason asks about liquid vitamins as well. Future products and markets are discussed. Along with the leverage from starting online before moving to retail.]

0:21:30

JC: You were the President of Mail.com and you also worked for Clear. The crazy, insane idea to get through airports with that little badge. These two experiences must have influenced what you’re doing now.

Create Your Opportunity – .CO is the new web address that gives you a truly global, recognizable and credible option for branding your online presence.

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JC: Tell me about the early days of the Internet in NYC?

[Courtney and Jason reminisce about their early days in NYC. Sleeping in bunkbeds and working 20 hour days. It was a fun and amazing time.]

JC: How is it different to run a product business? There’s actually something here.

CN: I kinda transitioned from digital. Clear started to move into the realm of seeing your customer. That’s where I got hooked. It’s so fun to combine the community of Internet with something real because there’s a human, visceral quality to it. It’s moving.

JC: Clear was started by Steve Brill, who started Court TV. He started Clear just after 9/11.

CN: He wrote a book called ‘After’, that studied what happened with the security and the creation of TSA. He saw the disaster that would be come airport security. He wrote an article about it and said, if no one does this company, I’m going to. He always has ideas that no one in their right mind would ever undertake. Yet he manages to get them off the ground. That is his defining attribute.

[Jason and Courtney discuss their impressions of Steve Brill and his driven characteristics. The key to dealing with passionate CEOs who can be crazy and driven. And the difficulties being the driven CEO type at distance/scale.]

0:29:20

JC: The idea for Clear was what?

CN: A FastPass for Airports. You do everybody a service by moving people through the process more quickly. It’s a toll road.

[Jason and Courtney discuss the utility and the demise of Clear. Tyler points out that there is a convenience and an exclusivity component to Clear, and both were appealing. Clear was recently bought and it was re-launched.]

CN: I became addicted to the customer service and communication. We called customers everyday. That’s why we love Jody from Ecomom. That’s how you build a brand.

JC: Is there a best practice for dealing with people who are critical of your product?

CN: Right now, we always engage because the scale is small. We’ve received a lot of great feedback because of engaging with our customers. You have to be unafraid of bad news.

[Jason and Courtney discuss product improvement from customer engagement and how social media plays into that process.]

JC: The product was a little late launching. What are the things that held you up?

CN: It actually wasn’t the product itself. It was the technology.

[Jason and Courtney discuss product approval and how to keep your legal fees as slim as possible. Jason recounts a time when he had a surprise legal bill. They’ll work with you if you’re a startup if you ask them. Courtney talks about lessons learned from assuming your branding help can also do technology.]

JC: Is the company, 3 people now?

CN: 4, but Gordon and I take no salary, so we have a great low-burn situation.

0:40:00

JC: You did a lot of trading for services. How do you negotiate that? If someone says I’m going to do 100K in branding, how much equity do you give them?

CN: It’s so hard. Especially because we did it so early. As a startup you have to give yourself some wiggle room. You have no idea how much work this person will do compared to another one. We kept the process more of an open conversation, then once we got to the deliverables, that’s when the fair trade was setup.

JC: What is that? Low single points or a half a point?.

CN: Between 1% and 5% because of the amount of work and the fact that it’s the very earliest stage. Before we even raised money. It’s a big act of faith on their part.

JC: What’s next? What’s the big transformative thing that you guys have to do to grow the business? Is there something that keeps you up at night? If you had one wish, what would you fix?

CN: The most effective way to communicate the vision. We just actually launched with Trada, so we’re really looking forward to working with them.

JC: You’re kidding. Did you hear about them from the Show?

CN: Yes. Gordon loves Trada,. I love Trada,.

JC: Everybody loves Trada. So he was watching the show, and you needed to buy ad services. How have they done for you?

CN: We just started. But the feedback is phenomenal. It’s awesome

JC: Next thing you know you’re going to have a .CO domain registered at GoDaddy.

0:42:44
News

JC: It’s a slow news day.

[We’re enticed with a opportunity to see London live.]

JC: Lon, it’s a slow news day. You had to scrounge around for some stories. What’s going on?

LH: Some reasonably sized stories. TechCrunch Disrupt is going on in San Francisco right now. AOL CEO Tim Armstrong made a fairly big announcement stating that AOL will purchase the technology blog, TechCrunch. No specific terms have been announced. Since the show started Mike Arrington tweeted you ‘@jason miss you buddy. Really.’ What are your thoughts on the terms of the deal, and what are your general thoughts on the deal itself?

JC: This is tough. I said what I needed to say on Twitter. I can’t say much more because my lawyers have said to shut-up. What I will say is that I’m happy for the staff. I enjoyed working with them on TC 50, and I wish this could have ended differently. That being said, I will be launching The Launch Conference and some sort of editorial product will be associated with that. So onward and upward. Congratulations to AOL. I’m very happy for everybody, except for myself because I did get short-changed. But these things have a way of working themselves out, and I don’t think we’ve heard the end of it. Courtney would you like to comment?

CN: I think not. I’m smart enough to know when to stay away from that.

LH: Mike Arrington has raised concerns about possible collusion amongst prominent angel investors, come to be known as AngelGate. Still hanging heavy over SV. Ron Conway slammed Dave McClure. Some of the topics Arrington claims were discussed complaints about valuations, keeping VCs out of deals, keeping new angels out. Do you believe all these claims and is this even possible?

JC: The illegal allegations are not true. Dave McClure runs the Open Angel Forum for us in SV. Great guy. For some reason he’s getting thrown under the bus. At an OAF, we discussed things like the legal costs around starting a business, and we discussed how we could ‘collude’ to lower those costs. Basically, as a united front, speak to the lawyers to lower those costs. We’ll pay you to make cheaper paper. Is that colluding or collaborating? Now these angel investors would step on their mother’s face, then kick their dog in order to get into the right deal. This is a competitive business. It’s impossible. Mike is a tremendous voice and a hustler. Mike said he will throw something out there and see if it sticks. He’ll use the ‘people said’ or ‘sources have reported’, and that’s exactly what this is. This is Mike floating an idea [More on Arrington’s methods and the eventual fallout is dicussed] .

JC: How many times do I tell companies at the OAF that their valuation is reasonable or too low?

TC: About 20-25% come out too high. They don’t know.

[Jason and Tyler discuss one example of a valuation that was incredibly high and how they advised him. Ticketmaster for ballet and all dance.]

TC: Chris Sacca wrote a post about here’s what we discussed at the meeting. He covered exactly what was covered at the OAF, where we discussed these ideas. Almost bullet for bullet.

JC: It’s undoubtedly where they got it. Who were the guys saying we should have some more discussion on this?

TC: McClure and Clavier. The point that they were bringing, it that they were all pro-company. I think that’s why Sacca said, ‘look if you were there, you’d know.’

JC: That’s why it was so weird how Ron Conway slammed the other angels

TC: I think he was just misinformed or made some wrong assumptions. I have the upmost respect for Ron. Also the companies were in the room when we were discussion those things at the OAF.

JC: There’s nothing to see here. Move on. What’s your thoughts on this?

CN: This isn’t some packaged goods. It’s so wild and wooly and changes so quickly I can’t imagine how they’d do it. To truly price fix would be nearly impossible.

JC: It’s not about how much money you put into the company, it’s about how much you take out, and at what price. Usually you want other people involved. There’s strength in numbers.

[The coupon code spJason gives you 50% off your purchase at SmartyPants]

0:54:30

[The horrible realization that London has left the building is manifest. She’s camera shy]

0:55:00
Insghts from Tyler

TC: It’s like Trader Joes pancakes. It’s sweet but it’s not quite right. Something doesn’t quite feel right.

LH: Twitter is hoping to monetize followers by having businesses pay to be a part of the who to follow list. Promoted tweets are going for almost 100K. There will be an algorithm to align promoted accounts to users. For example, if your following PETA you won’t be suggested Tyson Foods to follow. You had already talked about doing this, where you actually said you’d pay to be on the suggested users list.

JC: I offered them 250K for two years. I’d have 2-3 Million followers.

LH: Are you still bullish on this idea?

JC: Yes. I would have been getting a bargin. Real followers might be worth a quarter or fifty cents. There’s some formula that they’ll create to figure out the ROI. It’s brilliant and Twitter is incredibly effective at marketing.

[Jason, Lon and Courtney discuss the Twitter business model and some of the potential revenue streams.]

CN: We’re still trying to figure out how to turn twitter followers into actionable customers (@smartypantskids).

LH: LinkedIn founder Reid Hoffman announce he will be forming a new 20M dollar seed fund n=known as Greylock Discovery, which will allow Greylock to move more quickly on early stage rounds. Any partner can trigger a deal for between 25K and 500K. How important is the nibleness?

JC: It’s critical in the angel space because you have to move quickly.

[Jason tells a story about one partner holding up a deal and the impact of partner’s being able to start a project.]

JC: This has been a great episode. Courtney, thanks for being on the show. They can find you at Courtney@wearesmartypants.com if they want to email you directly. Where can they buy?

CN: Either ecomom or Wearesmartypants.com

[use the spJason and get 50% off and free shipping]

JC: thanks to Tyler, Courney all the sponsors for a great show

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