Trey Lockerbie (03:05):
That’s fantastic. It’s almost similar to Buffett with his, I think he had gumball machines at certain points, so something similar there. I found this fun fact before we got started here that I had to throw in because I thought your first career step was becoming a lawyer, but I’ve actually come to find out it was moving to New York to become a rapper. Talk to us about this experience. This is so fascinating. What did you learn from that trip to New York?

Brian Lee (03:29):
A friend of mine decided, “Hey, I think we should move to New York and try to pursue our music careers,” and so I went there, we created mixtapes and we’re standing outside of doors trying to hand mixtapes to as many record folks as possible. It was tough. It’s something that I really learned is that nothing is easy, no matter how talented you think you are, you’ve got to work, and it was a lot of work. We gave ourselves a certain time period to go get something done and it just wasn’t happening. After a few months of that, we decided, “Okay, I’m going to go back to Los Angeles and go to school,” and so I went to UCLA for undergrad and law school.

Trey Lockerbie (04:09):
Now, going from music to law school, that’s a big step there. I’ve heard you joke and I know it’s not true, but you’ve claimed that you were the worst lawyer ever, but what was it about law that ultimately didn’t sit with you and wasn’t a great fit?

Brian Lee (04:24):
The thing is I actually enjoyed the people I worked with. I thought they were all incredibly smart and driven and hardworking and I enjoyed them. It was the actual work that I didn’t really like. I was in tax law and I was doing a lot of corporate tax work and I just wasn’t getting the fulfillment out of the work that I would want. Part of it is because I was working for large corporate clients and even if I saved a certain amount of money in taxes doing certain structures and this and that, it’s like, I don’t really feel the effects of it. It wasn’t stuff that really resonated with me personally. That’s when I decided to move on and start my own company.

Trey Lockerbie (05:01):
Starting from ground zero without a network as I know you did there, who were some of your earliest mentors? How did you actually form those relationships?

Brian Lee (05:13):
My earliest mentor was my father, who was an entrepreneur, and I learned a lot from him. I used to work in his warehouses in the summer and work with the team and so forth. But I would say a couple of mentors of mine were probably the lawyers that I worked with. It would be Eric Peterson or Ed Gonzalez, they really taught me a lot in terms of how to manage teams and how to lead the lessons I’ve taken with me from the earliest days. Actually, I still hang out with these guys. Eric Peterson’s a great friend of mine now. I respect him tremendously and I look up to him. He’s always there when I have questions.

Trey Lockerbie (05:53):
I find it a little bit ironic that you didn’t love being a lawyer and yet you went on to build one of the biggest legal digital companies in the entire world. Before we actually get into Legalzoom, I’d like to hear a little bit about Law Garden. Why don’t you tell us about that idea first?

Brian Lee (06:12):
Law Garden was our earliest iteration of … sorry, it was me and Brian Lou, who I went to law school with and we were best friends, and our first idea was that we would have stay-at-home attorneys, answer questions online for $0.99 cents a minute. That was the general idea. We went down the path and the reason why we named it Law Garden, by the way, is because we’re both into Soundgarden at that time, the band, and so we named it Law Garden. The problem with it though, is that in order to hire lawyers throughout the country, you’d have to be licensed in all 50 states. You’d have to pass the bar exam in 50 states and neither of us wanted to do that. It was bad enough to take the California bar exam, let alone 50 bar exams.

Brian Lee (06:55):
The second thing is that the malpractice insurance was going to be pretty high, but number three, at the end of the day, you’re still practicing law providing legal advice, and as such, we would be classified as a law firm and therefore cannot raise capital from non-attorneys. There’s a lot of fee-splitting rules in law. We realized that we couldn’t really start that because we couldn’t raise outside capital to get it done, we could never take the company public, and there were a lot of regulations involved with it, so we moved on and started Legalzoom instead.

Trey Lockerbie (07:31):
Fantastic pivot there, but the timing of Legalzoom was also interesting because this is around early 2001 and that’s about the time that the dotcom bubble was beginning to burst. I imagine that was an interesting environment to start a company, and so what was it like building during that time? Did you find it that you could find talent easier as other companies were folding? What did the overall backdrop look like in the early days?

Brian Lee (07:58):
It was interesting because we were pretty early all things considered with e-commerce, e-service, online. I remember it was impossible to raise capital. It’s not like we didn’t. We probably met with probably 30 venture capital firms or so, and we didn’t get a single bite, and so we realized that we were going to have to go it alone and feed ourselves. We knew we had to be profitable really from the get-go. That’s how we started Legalzoom. It was an interesting time because, to your point, the dotcom crash led a lot of people to question whether or not the internet was viable. I remember one of the VCs we sat down with actually told us the Internet’s over, it’s not coming back. That’s how bad it was back-

Trey Lockerbie (08:41):
I wonder where he is today.

Brian Lee (08:44):
That’s the environment, but we really believed in technology and what the internet held and the potential of it, and so without raising any capital, we quit our jobs and we just started working out of our condo and just building.

Trey Lockerbie (08:58):
What’s so interesting about that is you were building a tech company even though you were both lawyers. What I’m curious about is, as you’re sitting there in the condo, who’s coding all of this? Are you guys sitting in hoodies like Zuckerberg, learning how to code? Did you have to hire people early on to help you build this thing? What did that look like?

Brian Lee (09:15):
No. We got really lucky. We have a very close friend named Eddie Hartman, who was our founding CTO, one of our co-founders at Legalzoom, and he did all the coding. We worked on the product and marketing and everything else, but he was fantastic and he’s still one of my best friends and one of the smartest guys I’ve ever worked with. Eddie, if you’re listening to this, you’re truly one of the smartest guys I’ve ever met, but yeah, we got fortunate with him.

Trey Lockerbie (09:41):
I don’t know about Eddie, but I know you and your other partner, Brian Lou were both attorneys and went from these high-paying salary jobs at prestigious law firms to now building this company and living on ramen and peanut butter jelly sandwiches and all the things it takes to bootstrap a company like that. This takes a considerable amount of grit, and I’m curious, at least for you, where do you think that side of you comes from?

Brian Lee (10:03):
I’m not exactly sure, Trey. I think I was just born with a lot of grit. I think a lot of it has to do with my upbringing, being from an immigrant family. I was born in Korea and so when we came to the United States, I remember being poor as hell. Honestly, Trey, we couldn’t afford food. It was tough times. I remember I’m watching my father work two jobs, watching my mom work a factory job. Even though they were educated, they have college degrees, they didn’t speak the language, so when we first started in America, they just had to outwork everyone and save. I think I learned from that a lot probably without even knowing I was learning, but I just saw how hard they worked and how hard it was to provide for your family. I think that always stayed with me.

Trey Lockerbie (10:47):
Your story does seem to have this archetypal American dream element to it, from the immigrant story coming in and your father who I believe became one of the biggest stainless steel suppliers in the world, what an incredible entrepreneurial story he had. I imagine that had a huge impact on you growing up. What was the takeaway? Why didn’t you want to go into that business? What did you learn from watching him go through that and make you feel like, “I want to do the same thing”?

Brian Lee (11:11):
Yeah. Actually, I have a great relationship with my father, with my dad. I actually don’t think our relationship would be as strong if I had gone into the family business. I think it’s really because we’re both super type A personalities and we want things done the way that we envision them being done. I think we probably would’ve butted heads a lot if I had joined him. He wanted me to join. Actually, when I told him I was going to law school that I wanted to go to law school, he was actually the only one that said or asked me why. Why would you do that? Why don’t you just come work for the family company?

Brian Lee (11:48):
I always just knew that I wanted to forge my own path and I wanted to make a career that I wanted to set. In hindsight, I question it. I question like, I wonder what would’ve happened if I had taken over the stainless hill company versus starting Legalzoom and starting my own path? Yeah, I guess I’ll never know. At the same time, my dad’s company has done well under my sister who took it over with my brother-in-law, so they’re going great.

Trey Lockerbie (12:17):
I brought up the American dream element because it’s refreshing actually to hear this story because it is so inspiring and it almost seems like it’s straight out of a movie. Some of these early beginnings in Legalzoom feel that way as well, like the story of actually partnering with Robert Shapiro, the famous attorney. Walk us through this story and how you ended up meeting Robert and what you ultimately learned from partnering with him.

Brian Lee (12:42):
Sure. When we started Legalzoom, the internet was still relatively new and people were scared of it. Not a lot of people remember this, you’re too young to remember this, Trey. When it was new, people were scared to put their information online. They were very scared to put their banking information online or their credit card information, they weren’t sure where it was going. We knew that we had to fix that and bring credibility to the site instantly, and that’s when we started reaching out to attorneys that we knew because we knew a famous attorney as part of Legalzoom would lend a lot of credibility. Robert Shapiro was at the top of our list because he was just coming off the OJ trial, everyone in America knew him and he was right here in Los Angeles.

Brian Lee (13:27):
I reached out to my network, which was pretty small at the time, but no one knew him personally. I honestly, I called 411, this is before Google. 411 was calling it for information. I got Robert Shapiro, Attorney, Central City. I called the number, it was about 9:00 at night, because I had my voice message written out and I was going to pitch him on Legalzoom or leave him a message. He actually picked up the phone and said, “This is Robert Shapiro. How can I help you?” I freaked out for a second, I said, “Robert Shapiro, the attorney?” He said, “Yes, how can I help you?” I told him, “Well, my name is Brian Lee and I’ve got this business idea called Legalzoom,” and the first thing he said was I’m not interested. He was just about to hang up on me, I thought and I said, “Well wait, how do you know you’re not interested if you don’t hear me out?”

Brian Lee (14:12):
He basically said, “You got two minutes.” In those two minutes, I told him the whole story for Legalzoom, the whole vision behind it. At the end of it, he said, “It’s something really interesting.” He said, “You know? I’ve actually been thinking of something similar, and so why don’t you call at a normal time tomorrow and set up an appointment to come in and we’ll talk?” That’s how we got Robert Shapiro involved and that’s how it started.

Trey Lockerbie (14:34):
Now, was Robert the only factor that built trust with customers? Did it just take a certain amount of time for people to get comfortable with the internet in general? Did you have to tread water for a little while that was developing?

Brian Lee (14:48):
It was interesting. I think Robert Shapiro brought a lot of credibility, but besides just the credibility piece, every time he would go onto CNN or this or that and had an interview, he would mention Legalzoom and we would get more orders. I think Robert played a huge role in bringing that credibility at the earliest stages. But then, what happens about in terms of building a brand, it does take time. It takes time. To build a brand, it takes time, it takes capital, but it also takes extreme consistency in your promise. I always tell a lot of entrepreneurs that it takes time to build a brand, but you’ll build brand if you just consistently deliver what you promise, and if you do that, then you’ll grow. Legalzoom was the same way. We got a little lucky with Legalzoom in terms of timing.

Brian Lee (15:36):
Not a lot of people know this, but we were one of the earliest companies who advertise pay for click. PPC advertising, pay per click advertising was super nascent in the earliest days. I had a friend who was at Idealabs in Pasadena then, they were working on a first paid search engine called goto. He called me and said, “Hey Brian, why don’t you try this out? You put money in this account and people do a search and you’ll get ranking based on how much you’re paying for a click.” I said, “Okay, well try it.” We stuck $20 into this account and after spending about a dollar or something, we got an order, like “Hey, this actually works.” We really grew with paid search. Initially, we were paying for … I’ll give you an example. The term incorporate back in the day when we first started, it was $0.1 per click. By the time I had left Legalzoom, people were paying upwards of $80 per click. It got a little bit insane, but we really ramped with paid search.

Trey Lockerbie (16:34):
What was the hero product, if you will, for Legalzoom early on? You were paying for clicks, but what were you trying to attract the customer to do and sell? What did the product roadmap look like early on?

Brian Lee (16:47):
Yeah. We really thought that we could really democratize law in a lot of ways. Incorporation services, trademark services, last will and testaments and living trusts were the core of what we did. These were what we considered very simple legal processes or documents that attorneys in general were still charging a lot for. We felt that the masses would prefer to pay, call it $99 to incorporate as opposed to $2,000 at that time. That was our thesis and sure enough, it was true. Legalzoom has incorporated more companies than any other entity in America at this point, and formed more wills and living trust than any other entity in America. We really ramped with the core legal document services. But then, we always had in the back of our heads that if we could dominate legal documents and become a brand name in law, we could extend into a myriad of other categories. That’s what was the vision behind Legalzoom, was building that brand name along.

Trey Lockerbie (17:55):
One thing you’re really well-known for is being this e-commerce expert, because you were so early on there and you almost pioneered a lot of these strategies. You mentioned the pay-per-click opportunity you had early on. Nowadays, and I don’t know if it was like this back then, but a lot of people refer to the metrics of customer acquisition cost or CAC basically, what it sounds like, the cost to acquire the customer, and LTV, lifetime value. You’re oftentimes referencing the two and how they go together. Lifetime value being the prospect of amount of dollars or revenue that’ll come from that single customer over time. These seem like relatively new metrics within the last decade, but that might just be my own personal experience talking. Given your background, you must have been pioneering these metrics early on. How aware of these strategies were you in those early days?

Brian Lee (18:43):
We were pretty aware of our metrics and our KPIs at Legalzoom. We would track them basically every minute. We knew exactly how much we were paying per click and how much revenue that was generating. Because we didn’t raise outside capital, we knew we had to be profitable within that first order. We knew how much money we could pay per click for a certain group of customers and that the payback would have to be immediate. Now, things did change over time because then you start realizing that that customer is more than that one order and that over the lifetime of that customer, they might come back and form another company or make a revision to their last will and testament, whatever that might be, but that came much later. What we were looking for initially was this is the price per click, this is how much we could afford, so that we profit along the payback on that first order.

Brian Lee (19:34):
Now the CAC to LTV ratios that you mentioned, we started implementing at ShoeDazzle years ago, more than a decade ago. We were one of the earliest to really do a lot of social media marketing and influencer marketing at ShoeDazzle. Just as Legalzoom grew with pay-per-click, ShoeDazzle grew with Facebook marketing. The earliest days of Facebook marketing, we fell into and we understood that because we were a subscription business for women’s shoes that we could pay ahead in terms of a certain CAC and over a two-year lifetime value, we could get paid back. That’s how you could get very, very aggressive with your spend. But you got to be careful with that, of course, because LTVs change. LTVs change and anyone who’s going out 3, 4, 5 years on a lifetime value, the world can change and a lot of other things could change and the costs on the acquisition side could start getting higher and higher and higher, so a lot can change. I actually always recommend, if possible, do a one or a two-year at max lifetime value model.

Trey Lockerbie (20:44):
Were there periods of growth that required deficit spending to get to where you needed to be? Or were you always growing responsibly?

Brian Lee (20:51):
No. We always grew responsibly, but we never really hit a deficit at Legalzoom. Legalzoom, it was never a sexy business, Trey. It was never like, “Hey, we’re going from zero to a hundred million overnight,” it was never that business. It was always, we grew Legalzoom call it 10% to 25% year-over-year profitably. When you look back 20 years later, it becomes a sizeable business. For us, we always just knew that we had to remain profitable. Now, we didn’t have enough profits to really try too many new things, but one big lesson I learned at Legalzoom, and I don’t share this often, I remember we got this one customer who ordered, I think it was nine divorces within a month and we were like, “Wow, this guy’s getting married and divorced a lot,” like nine times in a month.

Brian Lee (21:42):
I called him and I remember he was out in Florida. I called him up and I said, “Well, I’m just confirming your ninth divorce order here,” and he is like, “Yeah, absolutely,” and he says, “When can I get this?” I’m like, “Oh, we’ll have it to you by tomorrow. We’ll have all the documents done.” I realized that he was an attorney. He was a divorce lawyer using us to do all the backend documents for him. Of course, I “ding, ding, ding”, “Oh my goodness, we’re more than just a D2C company, we’re actually a B2B company too. We started thinking, “Wow, we could double our growth. We could grow into this other category.” This is about year two of Legalzoom, year three, maybe. We started building something called Proxy Law, which was a much more robust backend paralegal document service for attorneys, for law firms.

Brian Lee (22:32):
We were like, “Okay, we’re going to build this,” so we put all of our best resources, our best technologists, Eddie Hartman was working, we were all working on Proxy Law because we thought that was our next big venture. What we realized though was after we built it, this is a very different market. Knocking on doors of attorneys, getting them to try a SAS product was very different than marketing a last will or corporation services to an actual consumer. We almost went broke. There is one time where we couldn’t pay payroll because we sunk all of our money into Proxy Law. It’s just a lesson that I’ve always taken with me for every company. You just got to stay very focused in your core, make sure that you’re incredibly strong at your foundation before extending. Don’t extend until you’re ready. It’s just stuff that I took with me after we lost, went bankrupt at Legalzoom.

Trey Lockerbie (23:24):
It sounds like it was almost a blessing in disguise that you weren’t able to raise venture capital early on. Do you think that would’ve actually impacted the business given that it seemed to take a long time to build trust and for the internet to evolve? Do you think you could’ve even put that money to work the way you would’ve wanted to?

Brian Lee (23:39):
I think it was actually a blessing, Trey. I think I see it the same way as you do in that sense. I actually think if we had raised a boatload of money for Legalzoom, I don’t think it would’ve worked. I think just by being savvy and frugal, if you will, making sure that the growth is that we’re not outgrowing our own infrastructure and just being smart with capital, I think it really helped with Legalzoom. I think, because we’ll put it this way, there were probably five or six other legal companies that did receive venture funding back then and none of them are around today.

Trey Lockerbie (24:11):
You spent years and years on this thing and it became ultra successful. What was the day you woke up and you were saying to yourself, “All right, I think I’m good here. Time to move on.”

Brian Lee (24:23):
Yeah. It’s always tough to make that final decision to move on. But in my case, it really comes down to the best and happiest days of my life at Legalzoom, my career was at the earliest stages. You mentioned that I was eating ramen and peanut butter and jelly sandwiches, which is true, but I was happiest then. Just being in a room of four or five people, iterating and building very quickly and coming up with this ideas and trying things and so forth, that is fun for me. I’m addicted to startups in that sense. Now, once a company scales to a thousand employees, it’s just a very different company than it was in their earliest stage. I just find a lot more enjoyment at the early stages of the business as opposed to the later stages, where there’s just a lot more involved in terms of structure, organization, decision-making, a lot of outside factors, your investors and this and that. There’s a lot more going on in terms of that as opposed to just building. I like building.

Brian Lee (25:25):
I’ll give another example at one of my more recent companies. I remember I wanted to change the color of one of the buttons, the continue buttons to green, as opposed to the color yellow that it wasn’t. I remember I was talking to the product team, I said, “Why don’t we try making that green?” They were like, “Okay, we’ll do that.” Then a couple of weeks passed and it’s still yellow and then finally, we have this meeting and there’s probably 15 people in the room and they said, “Well, we’ve done all these tests and the right color is purple.” I was thinking to myself, “Well, that’s great.” Really, it’s terrific that we decided, that he did the research and did all the testing and everything else and purple’s the right answer. Terrific. Let’s go with purple.

Brian Lee (26:07):
In my head, I’m thinking, “I wanted a green.” Does that make sense? Little things like that, that’s when you start realize, “You know what? It’s not moving as quickly as I wanted to, and I really should go off the data,” and there’s people who are really good at it, Trey. Take some famous folks that probably were on your show before. I don’t know, Jeff Bezos or Elon Musk or whoever these ultra-successful folks are, they could scale from zero to billions and not miss a beat. Honestly, I’m not like that. I’ll be honest with it. I’m really good at the earliest stages. I’m probably not the guy you want running a multi-billion dollar business. I’ll be honest with you.

Trey Lockerbie (26:49):
I was interested about that because the people you just mentioned there, they’re very bombastic, they have really interesting reputations. Bezos, even Bill Gates, they’re often quoted or references telling employees that was the stupidest idea I’ve ever heard. They’d lash out because they’re so intelligent and they don’t hide it. You are not a very boastful person, and from just being with you a short while, I can tell you have this very polite manner about you. It makes me curious about your style as a CEO, because I know there’s lots of different flavors out there, there’s lots of ways to do it. What was your style building culture in those companies early on?

Brian Lee (27:25):
I think culture is extremely important at every company. I think once you establish a culture that’s working, stick with it, because if you change it, things fall apart. We all know there’s a very different culture at Disney as opposed to Zappos or Nike or name the company. They have their own cultures and it works for them. In my case, the culture that I like to set is one of understanding, communication. I like to lead by, basically, I have a lot of empathy towards people and the team, and I really love people working together and iterating together. It’s more just honest, open communication, and this worked. This worked for me. I would say, some of the hardest things I’ve ever had to do were make very firm decisions on firing people. It’s always been hard for me, Trey. I know some CEOs that have no problem, “Hey, get rid of these folks.”

Brian Lee (28:26):
I’ve always had hesitancy when it came to firing people or laying people off or this or that. I remember we had my second ShoeDazzle. One of the hardest things I had to do was lay off 50% of the people in one day, and it was miserable for me. I care a lot about our team. I actually believe that you’ll hear a lot from entrepreneurs who say, “Oh, well the customer is always write and the customer comes first, do right by the customer.” I’ve always actually said, “The team comes first.” The team comes first because if you have a well-oiled team, a driven team, a team that’s working well together, that’s everything, because that leads to happy customers. It leads to a better product, better service, better customers.

Trey Lockerbie (29:12):
We’re to come back to team, but since you mentioned ShoeDazzle there, I have heard you say that was a low point and it was somewhat of a short-lived part of your career, it would seem. What were the dynamics playing out there?

Brian Lee (29:23):
Yeah. ShoeDazzle, it was a really fun business to start. Started it with Kim Kardashian and she was terrific. She’s one of the hardest working women I think I’ve ever met, Trey. She’s all over it. We grew it, we launched it, it grew very, very quickly. Then, about three years into it, that’s when I was going to join The Honest Company with Jessica Alma to start The Honest Company, so we found a CEO to run ShoeDazzle and it just didn’t quite work. Part of it was a culture shift, part of it were for some other reasons, the model was not working as well as we wanted it to. I came back in to help with ShoeDazzle and it was tough. That’s when we laid off half the people. We were rejiggering a lot of things.

Brian Lee (30:10):
Luckily, we sold it to a competitor and our investors actually were made whole, which was fantastic, but it was just hard. It was just hard. It was just anytime you have to go in and change a lot of major things, it is never easy. There are a lot of days at ShoeDazzle where we couldn’t pay our bills. We had lawyers chasing us, we had the electric company chasing us, we had everyone chasing us. It was a scary time and I know a lot of entrepreneurs have been there, but luckily we landed the plane and got out.

Trey Lockerbie (30:40):
From partnering with Robert Shapiro early on, you learned the power of media and you partnered with Kim on ShoeDazzle. I’m curious to know how that came about. Were there other considerations? Was Kim always at the top of your mind as far as the right person for this product in particular?

Brian Lee (30:57):
Yes, we knew Kim because her father used to work with Robert Shapiro, my partner at Legalzoom. We would see Kim at some of his events or at dinner or this or that. It was my wife that really wanted to get Kim involved because she had watched the very first episode of Keeping up with the Kardashians and my wife, Mira, said, “She’s going to be huge. We should go talk to Kim about ShoeDazzle.” That’s who we talked to. We really didn’t talk to anyone else. It was really Kim that we were focused on and sure enough, it worked and we couldn’t afford her today, but back then she was just getting started and so it worked.

Trey Lockerbie (31:36):
That was great foresight by your wife.

Brian Lee (31:38):
Yeah.

Trey Lockerbie (31:38):
I’d like to keep moving here onto The Honest Company, which is also now public. I have never really believed in overnight success stories until I studied up on The Honest Company, because while it might seem like it took some time from the concept to the actual launch, this business was doing something around $160 million or so in revenue in year two, which is just extraordinary. What do you think ultimately contributed to this initial success?

Brian Lee (32:08):
A lot of it has to do with Jessica Alba, who was so incredibly passionate about the product and what we were building. Honest Company, more so than any other company I’ve started, was extremely mission-driven, and that the vision of trying to create a non-toxic world really resonated with a lot of folks from consumers who, especially our own team members to everyone involved in it, we were very driven by that mission. With Jessica, she was so incredibly passionate, she would do every interview, she would promote it and it really resonated with a lot of moms. We knew that it would because at the time we started The Honest Company together, it was really a time where eco was really picking up a lot of steam. Eco was going into the mainstream, but no one was actually talking about chemicals as opposed to the environment.

Brian Lee (33:04):
I, inherently, knew that a mother would pay even a slight premium for the safety and well-being of her child. They might not pay that slight premium to save the environment necessarily. Everyone wants to do good for the environment. We all do, but do we want to pay for it? We will pay for health and safety for sure. That’s why I knew that little nuance for The Honest Company, that lane to go into non-toxic, chemical free was a pretty large lane that was wide open.

Trey Lockerbie (33:42):
It’s hard to even imagine having enough infrastructure in place to execute that level of revenue so quickly. What were a couple of the major growing pains you remember most from that year one to year two to year three?

Brian Lee (33:54):
Oh yeah. There was a lot of growing pains, a lot of sleepless nights. Yeah, it was really, again, bringing in the right people at the right time. We couldn’t have done it without the team that we put in place. We were having a lot of issues. When you grow that quickly, you have a lot of eyeballs on you watching your every move, and so we had to be ultra-careful in terms of everything that we said and did and produced and everything else. There are so many things that we learned early on that we had to fix on the flight. It was almost like flying a plane and fixing the engines in the air. It’s the same old story. Basically, I remember we created these laundry pods once and they were great products, it was great pods and we would ship them and we never really tested them in freezing cold weather.

Brian Lee (34:41):
When we shipped them back east in the winter, they would explode on people’s front porches. Stories like that were abundant, that we had to fix as we were going along. It was just a lot of hustle. It was a lot of hustle. A lot of great partners that we worked with that would iterate on products very quickly for us and work with us. We had a company called Valor that was making our diapers down in Mexico and they were fantastic partners. They would fix any issues that we would have and so forth. It was really just getting to that type of volume that quickly too, working with factories that could crank out that type of product and hit our growth rates that we’re hitting and working with us. It wasn’t easy by any means, Trey. It was just more working in concert with team, partners, vendors, all of it.

Trey Lockerbie (35:33):
Having a celebrity like Jessica Alba as a partner is obviously very helpful. There’s a lot of exposure that comes with that, especially early on, but having a celebrity isn’t everything. A lot of celebrity-driven products have failed, a lot. In your opinion, what is missing in some of these brands that don’t make it?

Brian Lee (35:53):
I actually think it’s not necessarily the celebrity, it’s mostly the team. It’s mostly the team. If you’re a celebrity, you have to surround yourself with the right team that can execute on your vision. Also, it has to be authentic. I’ve seen a lot of times where a celebrity will promote something or an influencer will promote something that just doesn’t make sense to promote. You’ll have an MMA wrestler who wants to start a furniture company. What do you have to do with furniture? I don’t know. Sometimes there’s that disconnect, but if there really is authentic belief in what you’re doing and people find it, consumers find it to be authentic then, and if it doesn’t work, it’s probably the team. I actually always, as an investor myself, I invest in teams. I don’t invest in ideas. Ideas are a dime a dozen, as you know.

Trey Lockerbie (36:44):
With The Honest Company, you set out and raised quite a bit of money. Unlike Legalzoom, you raised $27 million, I believe, at the launch. How did you end up at that number? I’m also curious how you set evaluation given that the company was pre-revenue?

Brian Lee (36:58):
I knew we had to raise a significant amount of money, because I knew the roadmap, the volume of product that we had to bring in the door for these types of products from the baby shampoos, the wipes, to the diapers was significant. You can’t just order 10 packs of wipes to get started. You’re going to have to order millions of dollars worth. I also knew that the advertising was getting expensive. Unlike Legalzoom where it was cheap, it was one cent per click or unlike ShoeDazzle where we latched onto the earliest years of Facebook marketing where it was inefficient and so we took advantage of that inefficiency. That wasn’t the case for The Honest Company. We had to raise enough capital to go out there and really promote it and market it and advertise and so forth, so we needed some more capital.

Brian Lee (37:46):
Fortunately, we had the right partners who gave us that capital, Light Speed, General Catalyst and IVP. Those three believed in it. IVP was an investor in Legalzoom, Light Speed was an investor in ShoeDazzle and General Catalyst were friends of mine. I’m still close with Neil Sequeira, who’s now at Defy. They just believed in us. The craziest thing happens, Trey, is when you’re an entrepreneur first starting out, it’s tough, honestly, to raise capital and we all know that, and you really have to hustle and round up as much money as you can. When you have a company that’s already successful, it is so much easier to raise capital. Success begets success. Raising that $27 million was actually not that difficult. We had even more than the $27 million available to us. We could have probably raised $50m or $60m to start the company, but we needed about $27m, $28m to hit our plans for the next two years.

Trey Lockerbie (38:40):
A lot of entrepreneurs romanticize about the day of going public because it represents a finish line to some degree, even though it’s a starting line in a lot of ways, but for a lot of founders, it’s the opportunity to cash in on the sweat equity they put in early on. Not that was necessarily or your route, I’m not sure, but I’m curious because The Honest Company and Legalzoom are both now public. They both went public about a year ago. Was there anything meaningful to you about the companies actually going public? Were they too far in the rear view at that point to really care or feel anything from that?

Brian Lee (39:13):
Well, no. Absolutely felt a lot of pride in having these companies go public and being part of them, part of their history. But to me, it was just, I don’t know, it’s more just a check mark. I’m taking a company public, started a company that went public. It wasn’t a cause for celebration. That’s the new structure of the company, you have public investors and that’s that. It’s just another period, a season of the company.

Trey Lockerbie (39:42):
See, I find that so funny because it’s often that you romanticize about these things and when they finally come, you’re just like, “All right, another day, let’s keep going.” Was the idea of going public for either of those companies something that got you out of bed in those early days with that dream or something of that sort, was that something kind of driving you early on?

Brian Lee (39:59):
No. I never was driven by taking a company public. I’m driven by building something great. I like building things that will last and be around for decades. That’s what drives me. It is the impact that I like to make as opposed to dreaming of taking a company public. It’s more, can we build a beautiful business that has staying power? That’s much more fulfilling to me than the IPOs or even selling a company for a large amount. It’s really, is this company going to be around? Will my grandchildren say, “My granddad started that company or helped start that company.” That’s what I look for.

Trey Lockerbie (40:40):
I think that’s exactly why you are as successful as you are. You’ve had this opportunity now to sit on the other side of the table as a VC and one of your early checks was into a company called Honey that’s now gone on to sell to PayPal for $4 billion, and PayPal’s obviously another public company now. What did you see in this company, Honey, early on that led to such a massive success?

Brian Lee (41:01):
I saw a strong team. I saw George and Ryan. George Ruan and Ryan. I remember I gave us a talk once at an accelerator program. I remember they came up to me afterwards and they were describing what they were working on and it sounded interesting. I took a meeting with them afterwards and I just really liked them. I thought they were incredibly smart. They seemed very dedicated to what they were going to build, because this is the earliest stages of Honey is where we invested. I honestly just like them. It’s hard to describe, but I just have this sense of entrepreneurs and if they’re the type of entrepreneurs I want to back, meaning will they just keep going? Are they going to give it their a hundred percent all the time? If this doesn’t work, basically, what happened? You want entrepreneurs like this has to work for them and I’ve got that feeling from them, from George and Ryan.

Trey Lockerbie (42:00):
Well, you’ve now had an opportunity to become a CEO again, which is also interesting. This time you’re partnering with Derek Jeter. Talk to us about Arena Club and why you felt compelled to start building again.

Brian Lee (42:13):
I’m so happy you asked about Arena Club. Yeah. I’m super excited to be CEO again for the fourth time. We’re launching the company on September 8, knock on wood, hopefully. Derek Jeter’s been fantastic to work with on this. It’s in the trading card category, and so baseball, basketball cards. We were using computer vision and machine learning to grade sports cards and then we digitize them, put them on blockchain and then create these digital marketplaces where you can buy, sell and trade cards with other showrooms, other online showrooms. That’s really the idea. I’ve been collecting cards my whole life. I started as a kid and I never stopped collecting cards in high school, in college, law school. I remember when I was Skadden, my very first paycheck from the law firm, I bought more cards. It’s something that I’ve been doing for a long time.

Brian Lee (43:03):
I started collecting with my son probably about six years ago when he was about seven years old and my happiest days are really going to the card shops and card shows with him. I took this hobby/passion into starting a company here. I’m building something that I would want as a hobbyist, as a collector, and it’s just something that’s never really existed where you have this social marketplace as opposed to what exists today, it is much more about community and a club, which is why it’s called arenaclub.com. We’re super excited to launch it on September 8 and hopefully some of your listeners will come check it out.

Trey Lockerbie (43:42):
Absolutely. Derek Jeter is obviously a legend, but there’s a lot of amazing baseball players out there. Why Derek Jeter? How did that relationship come to be?

Brian Lee (43:51):
Well, he’s a captain. That’s why. I actually considered Derek Jeter one of the greatest ball players who have ever lived, who have ever swung a bat. Just his leadership ability, his demeanor, he’s incredibly smart and dedicated, and so I think, and this really resonates with him, and so through some mutual friends, I got to know Derek and I think it’s going to be a fantastic launch for us and we’ll see what happens. You never know, so we’ll see what happens.

Trey Lockerbie (44:21):
Now, are you finding that you are bringing a certain playbook to each company that maybe iterates over the life of each company or is it starting fresh and dependent on the opportunity and the team? Are you starting from scratch when you get down into it? Is there a platform you’re jumping off from?

Brian Lee (44:39):
There’s a little bit of platform, because it’s more just experience as a platform, but it’s completely different categories. Legalzoom, from law to selling women’s high heel shoes to selling diapers to a trading card service, none of them are all that related. I don’t know how to explain this, but I think I actually am missing an antenna when it comes to not understanding things and just trying things without the experience. It’s never stopped me because I figure, “You know? None of this is rocket science, it’s business. It just is.” It is like, “Yes, are there different margin profiles, metrics and different marketing tactics and everything else?” Sure, but it’s stuff that you could learn. Sometimes, as an outsider, sometimes you bring a fresh perspective into an industry and that’s what we’re trying to do again with Arena Club.

Brian Lee (45:29):
I’ll give you an example. At ShoeDazzle, back in the day, I remember we had the capital raised, we had the website built, we had the marketing geared up. Kim Kardashian was ready to promote. We had everything, but we had no shoes, because none of us knew shoes. We were told, “Oh, you could just go to this area and they’ve got all these warehouses that will sew you shoes,” and so we went and we were picking out some shoes and we’re like, “I’ll take a hundred pairs of that and a hundred pairs of this one,” and they’re looking at us like we’re nuts. They’re like, “No, the minimum order is 2,500 pairs,” and we’re like, “Uh-oh.” We got to stop the launch and find partners to work with us to create ShoeDazzle shoes, and so that put a delay on things.

Brian Lee (46:12):
Then I remember, when we launched, I went to my first shoe show. It was the World Shoe Association in Las Vegas. This is when the WSA was gigantic. They took over two big convention centers. I really think if I had seen that before we launched ShoeDazzle, I don’t think I would’ve lost ShoeDazzle for fear. Seeing how many companies were producing shoes and trying to sell shoes, I was just like, “Oh my goodness, this is nuts. I’m not going to succeed. I’m competing against a thousand million retailers and people trying to sell shoes.” Sometimes it’s better not to know. Not always, but sometimes. Sometimes it’s better not to know. Even with diapers, I didn’t know how to make a diaper. I remember the first time I saw a diaper machine, they’re gigantic. I’m not sure if you’ve ever seen one, Trey, but they’re the size of a convention, it just goes on forever just going and makes these diapers, I was like, “Wow! That’s fascinating. I had no idea.”

Brian Lee (47:08):
You learn, and that’s the one thing about me, I’m not scared to learn, Trey. I think a lot of entrepreneurs are probably the same way. I actually enjoy learning. I enjoy learning new industries. I enjoy meeting new networks. I enjoy everything about it. Starting a company in trading cards, I meet a lot of cool people. People I like, “Wow. It is so neat that you have this Honus Wagner PSA 2 or two or whatever it is.” You’re meeting so many people, it’s fascinating to me, so I’m having a lot of fun learning again.

Trey Lockerbie (47:37):
What’s an example of how Brian Lee approaches work today versus the Brian Lee that was starting Legalzoom?

Brian Lee (47:45):
I think I’ve always been a really, really hardworker. I’m pretty focused once I’m in the groove. I think I’ve gotten smarter in terms of time management. I understand how to structure my tasks a little bit better and how to lessen my workload in certain areas that I know others can do better, and that’s something that you’ll learn over time also as an entrepreneur is that, you like to control everything, like I like to control everything, but you can’t, and it’s something that I’ve learned over time, is that delegation to the right folks at the right time is key. You’ve got to let people run and you’ve got to trust them to run. That’s something that I’ve learned over time, to let go of that control.

Trey Lockerbie (48:32):
I know when you’re building like this and getting a team around you, it’s similar to when, in a marriage, where you have to fill up your own cup to be there for the other people. I’m curious how you foster or develop your own personal growth in order to be a leader for your organizations.

Brian Lee (48:49):
A lot of us just like self-analyzation too. I’m pretty self-aware of my limitations and I work on those limitations, but there’s only so much you can do also, because you’re born a certain way. Really, you can try to change yourself, but at some point it’s hard. I understand how to buttress myself with the right team, with the right people. For example, even my wife and my home life, it says, I luckily found the right partner who is really my partner and it really makes me a better husband, a better father. It’s the same way with being a CEO, you got to find the right partners that are going to help you be the best CEO you can be. That’s really understanding what you’re lacking and being understanding and self-aware of your weaknesses.

Trey Lockerbie (49:39):
Because you’ve been on both sides of the table and I know adventure is its own thing, but are there investors that you studied or you look up to, or you feel like your style matches up as closely with theirs? Where did you pick up your investing style?

Brian Lee (49:54):
Yeah, I really look up to, really, two investors. It’s Jeremy Lou from Light Speed, who has just recently left Light Speed to take some time off, but he is fantastic. Also, Neil Sequeira over at Defy Ventures. These are probably my two favorite investors in the world. The reason I say that is because I’ve gone through so many ups and downs in my career and they’ve always been supportive. That’s a true sign of, I think, a great investor. It’s someone who is absolutely there when you need them, when you need their advice, when you need their help, but they let you run when you don’t. They’re not all up in your business trying to get metrics from you every day or trying to insert themselves into whatever. They understand their role and they like to be helpful.

Brian Lee (50:45):
The other thing is that I think great investors don’t change their colors in good times or bad times. They’re there for you, again, when you need them, but they let you run. I’ve had investors in the past who, when things go south, they’re all up in your business. Many of us have dealt with these types of investors and they actually think that they could go and fix it themselves, so they start inserting themselves more and more and more. It doesn’t work that way, man. It just doesn’t. As an investor, you could suggest things you could try to advise, you could try to mentor, but you can’t run the company. The only thing you could possibly do is fire the CEO, bring in a new management team. Sure, you could do that, but you’re still not running the company yourself, unless you decide to fire the CEO and become the CEO yourself, but that rarely is the case. That doesn’t happen with the [inaudible 00:51:36] or rarely. I think, again, the best, I think, investors are ones that are supportive when you need them and lets you run when you don’t.

Trey Lockerbie (51:45):
Given that team and culture is such a cornerstone for you and your investment style, it just dawned on me that with public companies, you don’t often get that insight necessarily, or it’s a little bit harder to tease out what a company culture is for a public company. You know what the management is doing oftentimes and you can pick up a lot from that. I’m aware of stories around Southwest Airlines, for example, putting up photos of each employee and hugging each other. There’s a lot of stories you pick up here and there from certain public companies. If you were investing in the public companies, how would you be looking for if a company had great culture or not?

Brian Lee (52:23):
I would actually probably do as much research as I can in their team members and understand. Just as you named off Southwest’s culture, you could probably do a lot of digging and just find out what that culture is for the company and whether or not it resonates with what you believe in and what you want to invest behind that. It doesn’t take much to reach out to some folks and on LinkedIn even, and just talk to them.

Trey Lockerbie (52:45):
We are super excited to see what happens with Arena Club and congratulations on this. It’s very, very, very exciting. Before I let you go, first of all, I want to just say thank you for all the time you spent with us today. We know how valuable your time is and we really, really appreciate it because you’re providing so much value here for our listeners. Before I let you go, I just want to make sure everyone has a handoff to where they want to find you or Arena Club or any other resources you want to share.

Brian Lee (53:12):
I think it’s just arenaclub.com. Come check it out. If you’re a card collector, try it out, and I think you’ll enjoy it.

Trey Lockerbie (53:19):
Fantastic. Again, Brian, thank you so much for coming on and best of luck.

Brian Lee (53:24):
Thank you, Trey, for having me. Thank you so much.

Trey Lockerbie (53:28):
All right, everybody. That’s all we had for you this week. If you’re loving the show, don’t forget to follow us on your favorite podcast app and if you’d be so kind, please leave us a review, it really helps the show. If you want to reach out directly, you can find me on Twitter, @TreyLockerbie. Don’t forget to check out all of the amazing resources we’ve built for you at TheInvestorsPodcast.com. You can also simply Google “TIP finance”, and it should pop right up. With that, we’ll see you again next time.

Outro (53:51):
Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by The Investor’s Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or re-broadcasting.