Why Portal decided to bootstrap and pursue profitability
Portal is the sleep hygiene company helping consumers make deep restorative sleep the new normal. We sat down with Portal co-founder, Dan Foussard, for a three-part series on the nitty-gritty of building, financing, and scaling a winning DTC brand.
In part two of our deep dive, Dan unpacks Portal’s advertising and acquisition tactics, covering:
- How Portal is building healthy unit economics from the start
- Why it’s crucial to rigorously benchmark product financials
- Organic growth tactics and Portal’s subscription play
"At Portal, we think a lot about how people use the product every day. We're really just trying to build the best product companion for folks on their sleep journey."
Portal’s north star: scalable financials from the outset
From day one, Dan knew he wanted to build Portal for the long haul, ensuring that the brand would be profitable early while maintaining strong foundations for scale.
He took steps to lay that foundation thoughtfully, leveraging his financial and economic understanding and not just tapping on venture capital as a bandaid for fundamental core issues.
He didn’t want the brand’s value to accrue to the capital providers, rather than to himself and his founding team, and have the team receive nothing down the road.
Why profitability is key
Instead of designing for sales growth, “Portal for profitability” is a mindset shift relative to that of other recent CPG brands.
Intrinsic design for profitability meant Dan had to be thoughtful about taking the time to experiment and figure out the levers for lean growth.
In his words, he wanted to avoid the position, "The plane is already flying. Now we have to shift things." To do this, he implemented guidelines for the company, including:
- As a rule of thumb, at a steady state, 20% of spending will go into marketing – the table stakes for CPMs for the supplementation category.
- Sell a consumable that has to be repurchased. Don’t sell t-shirts or items that people only buy once because you have to reacquire a customer every time.
When the Portal team looked at the addressable world of things to sell or businesses to be in, they knew consumables were the best way to create long-term leverage.
"If 20% is the napkin math on what you have to do to acquire the first order, you want to make sure that 20% at least can be capitalized over multiple purchases."
Pricing techniques: benchmarking from the top down
Dan tackled pricing and strategy from the top down. He looked at what people spend per night to get a good night's sleep. Then he added the inverse of what people pay in the morning to “fix” a bad night of sleep. If a consumer buys a $12 pack of melatonin from CVS, that is 30 or 35 cents a day if you take it every day. Add to that a $6 frappuccino at Starbucks every morning.
The key is that consumers spend much more than just the melatonin to impact the sleep itself. Dan built Portal’s pricing on a per-day basis. At $50 MSRP, it's about $1.78 for a daily dose, “A fair price relative to other offerings."
People should see this as a fair trade-off, and if it works for them, it’s a more economical way to optimize energy levels. Dan did some benchmarking against competitors, but it wasn’t exactly an “apples to apples” comparison to melatonin gummies with sugar or $120 for a CBD dropper. There's no direct comparison to Portal’s product in the sleep hygiene category.
Instead, the team thought about it from a consumer perspective regarding what they’d consider a fair deal for a good night's sleep.
The mercurial nature of raw materials
As with many businesses that rely on raw materials, margins and gross profit were slightly outside the Portal team’s control. They quickly learned that the raw materials market is mercurial, especially with COVID. When they initially sourced ingredients, there was a worldwide magnesium shortage.
On top of that, the team decided to do all production in the U.S. to ensure quality control. Buying vitamins from China yields no transparency around what they contain. This lack of ingredient knowledge would have been antithetical to Portal’s approach to functional, purpose-built supplements. Not to mention, international shipping container rates went from $3K for an 18-foot container to $28K in a few months.
When Dan took a long-term view at margins, having one of their most important line items go from $3K to $28K would have really hurt. Importantly, Dan points out that Portal works with partners they can talk to without a language barrier or a time zone difference. And, the product is produced in a facility outside Long Island.
Currently, the production process is a bit more expensive than Dan would've liked, but he thinks the benefits of a tight feedback loop and trustworthy partners outweigh the costs.
Laying the groundwork for intentional user acquisition
As with the other elements of Portal, Dan is incredibly thoughtful about how much money he spends to drive acquisition. The iOS privacy update changed their marketing strategy, they can no longer "run $150/day on Facebook, which will yield $350 in sales, regardless of the product or copy."
Now, you have to be more intentional with acquiring customers because a thousand views on Facebook might be a thousand useless views – throwing good money after nothing. Dan has been reluctant to go into the pure performance advertising space until he knows who Portal’s target demographic is.
Anyone can add Portal to their daily routine. For the brand, that's both good and bad. Does it resonate more strongly with new parents who have kids that never sleep, with athletes who need to recover, or with students pulling all-nighters in the library?
"This would work equally well for anyone, but we need to ensure that we're getting the right messaging out instead of throwing spaghetti at the wall."
Portal’s profitability playbook: leading with organic growth
Dan and Portal have an incredible price for value, control their costs and inputs, and have the levers to ensure that they can be thoughtful about acquisition to manage profitability.
Using that playbook for profitability from day one, Dan explains how he put together the tools to be confident that he had the company in hand. Dan built a North Star around knowledge shared with him by a friend at Carta Ventures. That guiding light is 13-week P&L cash flow statements.
They help brands know where their money is coming from and where it's going, as well as roll that 13-week cash flow forward weekly. Right now, Portal manages it in Excel.
Organic growth strategies
Portal is in a lucky position where it can pull many organic levers. Even before launching, the founding team had friends and audiences online and in real life, where they could pitch their brand, and customers would start lining up.
The founders didn't need a big splashy launch outside their networks. The first X number of sales, no matter what X was, could be done without paying to acquire early customers.
This rendered early lessons essentially “free,” and Dan could see where Portal resonated before putting money behind what already drove sales organically.
"We were in a great position to test and find a product-market fit at low cost and low lift. That allowed us to learn before spending and then build accordingly."
Entering growth phase: Portal’s subscription play
There are applications for the Portal ethos outside of sleep. Sleep is the first building block; it's a third of your life. Dan wants to translate this mentality into other aspects of a daily routine.
Rather than building supplements from an ingredient and making the customer decide what they need, the Portal team wants to create products for functionality and purpose. Is it focus? Is it concentration? Is it alertness? People feel these are different variables but don't have the toolbox they need to differentiate them.
Dan sees an opportunity to position Portal long-term as a friend who mixes supplements, tells you what you need, and puts together ready-to-go solutions.
Subscriptions to simplify health
Dan is looking to build out the subscription business model to reach a hundred monthly subscribers and then expand from there. He sees subscriptions as a method of simplifying supplementation in the health business down to, "Well, what do I want to achieve? What should I take?"
Subscribers can just choose a target outcome and click subscribe. With regards to Portal’s approach to growth, Dan draws inspiration from a range of consumer brands, including:
- Super Coffee – Dan went to school with the DeCiccios at Colgate and is fascinated by how they took on a difficult, crowded category crushed by scaling thoughtfully and selecting good partners.
- Obvi – a bootstrapped collagen brand that's nailed simplifying their message and making it understandable for people who might not be Googling collagen on their own.
- TikTok brands – there are 19 and 20-year-olds launching brands exclusively through TikTok, leveraging their personal lives to get one-to-one with customers.
- Nik Sharma's brands – the medium is D2C, but the message is what is additive and impactful to your life.
Dan looks to brands repackaging misunderstood items, conscious about partnerships, and redefining the brand-consumer relationship. He sees nailing a personal relationship rather than just trying to sell something as the future, as eCom created an infinite number of “spots on the shelf.”
It's no longer just about getting into the store. It's about getting in front of the right customers.
Rather than competing for the middle or for the average consumer, Dan wants to target the people that will be the “thousand true fans”, in the words of Paul Graham.
"You can't be everything to everybody, but you can find authentic connection with customers. And, if it resonates with them, they'll be a customer for life."
