Episode 848 | What Liquid Death Can Teach Us About B2B SaaS (Rob Solo)

Rob Walling: You’re listening to Startups for the Rest of Us. I’m your host, Rob Walling. And in this episode, I’m going to talk through lessons that we can learn about where startup ideas actually come from and why validation still matters even when building has become incredibly cheap. Before we dive into the episode, I’m looking forward to catching up with everybody in Iceland, September 21st through the 23rd. And as expected, MicroConf in Iceland has sold out. This is like our seventh event in a row, I believe, that we’ve sold out. Producer Sonya has set up a wait list in case someone drops out and you decide you want to buy a ticket. Head to microconfeurope.com to get on that wait list. It’s going to be a fun time. And if you missed this MicroConf and you want to go to the next one, you should head to microconf.com/us to grab a ticket to our Austin event happening next April.  

That of course will sell out as well.  

So one of the YouTube channels I subscribe to is by Michael Girdley. And he started the channel doing videos about big business failures. So airlines that failed, chain restaurants and such. And oftentimes you’ll find it’s once private equity gets involved, which is a whole other conversation. But in a recent video, he was talking about Liquid Death, which is a canned water company. And he talked through the origins of it and where the founder actually got the business idea from and how the founder validated this idea. And I love this example because it isn’t SaaS, it’s water. The two most common questions I get from early stage founders or aspiring founders is I don’t have any startup ideas, or I can’t decide which idea to pursue. So those are two of them. And to the first one, I usually say, well, here is a framework, seven different ways to come up with startup ideas.  

Look at how you spend money at your day job. Look at the problem of a friend or relative, et cetera. And I give examples of these. I have these in my new book, Idea to traction. I’ve given away this framework probably on this podcast. I’ve definitely done it on my YouTube channel. I give folks ideas for how they can come up with startup ideas. And usually it’s starting with a problem that someone has. Inevitably, I get this question of, well, I don’t have a day job and I’ve never had one and I don’t have any experience. And basically, I just want ideas to be given to me, or I want to do a quick Google search and have ideas just appear in my feed. Or I want to just go on Reddit and find a business idea. And it feels a lot like the, I don’t actually want to do any work and I want to find a really great business idea that no one else has discovered.  

That’s often what I hear. But it’s the idea of, I don’t have any industry experience. I don’t have the day job to pull from. And usually my answer is, well, then go get a day job. Don’t make the excuse that you haven’t gone and put in the work to get some industry experience and to get some exposure to problems day-to-day so that you know how a company works. And that you will inevitably see problems that you run into at the day job. And you will inevitably see how they spend money at your day job that you think, boy, that’s really a waste. This software sucks. Maybe I should replace it. And to the second question I get, which is, I don’t know which idea to pursue. I usually say, well, do some validation, do some research, put up a landing page, have customer conversations. It’s the same thing that I’ve been saying for a long time and it holds up.  

And you don’t have to do validation exactly the way I say it. You don’t have to do the 22/00 framework. You don’t have to use the 5:00 PM framework, but do something. Don’t just sit there in analysis paralysis flittering between 10 or 12 different ideas, and don’t try to build 10 things and see what sticks because none of them are going to stick. Surprise, none of them are going to magically take off and you’re not going to learn anything if one of them does. So that’s what the story’s about. It’s about A, what if I don’t have any industry experience? And B, how do I decide if an idea is worth pursuing? So the founder of Liquid Death is Mike Cessario, and I hope I’m pronouncing that right. He was a designer and an advertising creative who’d spent about a decade working in advertising before starting Liquid Death.  

He’d also grown up in the punk and hardcore and metal scene. And he played guitar in bands. So myself, I played the guitar. I was in a couple of punk bands. Oh my geez, about 25. Well, one of them was in the ’90s, that ages me, but 25 years ago, I think I played my last show. Is that right? 24 years ago. Yeah, it was fun. I have super grainy footage of it recorded on literally a handicam that recorded to tape, to these micro tapes. And I swear the resolution’s 480 by something, but it’s a fun one. So anyways, rolling back in 2009, Mike Cessario was working at an agency in Denver and friends who were playing the Warped Tour invited him backstage. And so the Warped Tour, if you don’t know, was it. Oh man, it was such a great tour. I don’t know if it was still good in 2009, but I used to go in the 1990s and early 2000s and just a big collection of really good punk bands.  

And it was hardcore and metal as well, but I went for the punk. That’s where I’ve seen Blink-182 a couple times there. NOFX. Green Day. I saw Green Day a couple times. I don’t know, a bunch of great bands. And so they invited him backstage and he saw something. There were stacks of Monster energy cans everywhere. And it looked like the musicians on stage were pounding Monsters. It was like a hundred degree heat. And they’re pounding Monsters. And he’s like, “How the hell are they drinking that much energy drink without just imploding?” And the thing was, they weren’t, because Monster had created special cans of their water. They called it Tour Water for sponsored musicians. So it looked like a Monster Energy can, but there was water in them because Monster understood that bands didn’t want a bottle of water out on stage. And they also knew that bands weren’t going to be drinking energy drinks all day in that heat, but the cans of Monster look cool.  

So Cessario thinks, why doesn’t anyone just market water like this? Why do you have to be a sponsored band to get this? And the challenge, of course, is healthy products are boring, especially if you’re in this counterculture, right? The punk metal hardcore scene. Beer is considered cool. For better or worse, it is. Alcohol, energy drinks, they get the cool branding. So this observation became what would ultimately become Liquid Death, which is now a company that does hundreds of millions a year in revenue. And the most recent valuation that I can find is $1.4 billion in their March 2024 funding round. Now obviously, these are just headline numbers and we all know how those can be inflated, but $333 million in sales in 2024, which is what I have numbers for, is still really impressive and a fast trajectory. It’s so hard to build consumer products like this, and these products with physical goods that have to be shipped.  

And so a lesson I take from this is that ideas come from being in the arena or from being around the arena. You can say, well, he didn’t have a job at Warped Tour, but for him to get backstage, he had some type of network. Maybe it was through his job. Because back to the emails I get from aspiring founders saying, “I don’t have any industry experience. I don’t have a network. I don’t have any particular skills. Everything I list is like, well, I don’t have that. I don’t have that.” And it’s like, how do I find a great startup idea? Well, go get some fucking industry experience. Go build a network. Go develop some skills. Work for someone for a couple years. You don’t get a magic pass to not put in the work and not gain some experience just because you want to be an entrepreneur.  

There’s this idea I think some aspiring founders have that you should be able to go to Reddit or ChatGPT and type in, give me 10 great SaaS ideas I can build this weekend that no one else will build that will work. And somehow these are going to drop out of the heavens into their lap. And frankly, that’s just generally not how it works. When we’ve surveyed entrepreneurs who have businesses with revenue, SaaS businesses, it’s only 3% of them that say they’ve found their idea through online research and forums. It is three out of a hundred, 30 out of a thousand, 300 out of. You get the idea. It’s just almost zero. It’s approximately zero. So don’t think that that’s going to happen. You do have to have some type of luck or network or a day job. I will tell you, I worked for nine years after college before I was finally able to quit my day job.  

Nine years. See, I worked construction for like two and a half of that. So I wasn’t launching anything because I didn’t know how to code. And at that time, you had to know how to code. I wouldn’t build your stuff for you. And so counting the time where I actually started, I learned how to really update my skills in coding nights and weekends from the library at first. And then I bought books and then I eventually got a job coding. So once I kind of knew how to code well enough to build websites, well, then it was maybe like two or three years until I was launching my own stuff. And frankly, almost all those early ideas were terrible because I didn’t yet have much history of solving actual business problems. I was trying to mimic the big B2C venture funded style businesses, but I was trying to bootstrap them because I didn’t know how to raise money and probably couldn’t have.  

I needed reps. I needed to put in the repetitions. So imagine you’re a musician and you say, “I don’t know how to play the guitar. I don’t know any musicians. I’ve never played in a band, but how do I headline a festival?” And it’s like, “Well, you don’t. The first step is you learn the instrument. You learn how to play. And then you play crappy gigs. And then you meet musicians. You do open mic nights. You write some songs. They’re not going to be very good.” My early songs were not great. You practice, put in the reps, and eventually you might get to the point, if you put in enough years, that you get to quit the day job or headline the festival. So the idea here is that this founder, Cessario, Mike Cessario, was in the right place at the right time, not because of pure luck.  

He had spent years working in advertising, playing music, hanging around that scene and learning how brands work. This opportunity didn’t magically appear in his living room. He was doing something, developing expertise and paying attention. So that’s the first piece. And that’s around being in the arena or doing something. And I’ve said this over and over. Doing stuff in public creates opportunity. Building things in public creates opportunity. And it doesn’t necessarily one-to-one link to it, but it is. If you start blogging, if you start launching things, if you start a podcast, if you start launching software products, if you get out there and start doing things, you’ll get the reps in. And if you work a day job, whether you like it or not, I mean, I liked some of my day jobs, didn’t like most of them, but you learn things. And be deliberate about learning from that job, about where they spend money, about where the gaps are, about all the problems that could be solved with software.  

So the second part of this story might be an even better lesson for a lot of entrepreneurs. I hear all the time, “I just want to build. Validation doesn’t really work anymore. AI makes software so cheap to build, you might as well just build it instead of validating.” Or, who actually validates things before they launch them? Well, me for one. And I validated or invalidated ideas before putting a bunch of time into them. My books, MicroConf, multiple SaaS ideas, TinySeed. And in addition to me, and I talked about this a couple episodes ago, most of the second time founders and third time founders, the serial entrepreneurs I see, they do more research and more validation before they select an idea rather than when they were first time and kind of flailing. So validation doesn’t have to be exactly what The Lean Startup says, and it doesn’t have to be exactly what’s in my books or my podcasts or my YouTubes, but it is just the idea that you do some research and you put some thought into this.  

And some maybe conversations or testing of the idea or the assumption that what you want to build is valuable before spending the time to not only build it, but to launch it, market it, get behind it, push your way behind it. It’s a way to avoid spending months or potentially years building stuff nobody wants. So guess what Mike Cessario did before he started manufacturing Liquid Death? He validated it. The Liquid Death MVP was basically a fake product. He knew something important that if he walked into someone’s office like an investor and he said, “I’m going to sell water in a tall boy can with a skull on it. I’m going to call it Liquid Death. And I’m going to tell people this tagline is murder your thirst.” He was going to have a tough time raising money. And frankly, I’d imagine he didn’t know if this was going to work.  

Even if he thought it was a great idea, he didn’t know. And he was going to put his weight behind it and years of effort trying to raise capital. It’s a lot to ask. And he didn’t have the overconfidence to be like, “This idea is genius and the world needs it.” So instead of going asking for money and instead of manufacturing the water, he manufactured the marketing. So he collaborated with a few people and he created the whole brand, the design of it. He mocked up what the cans would look like. There was no production line, right? There was no inventory. They didn’t even have actual cans. And they made a video ad for a product that essentially didn’t exist yet. And they put it on Facebook. So the video cost about $1,500 to produce. And according to the VP of Creative of Liquid Death, there was a relatively small amount of money spent promoting it.  

So within about four months, the video had 3 million views. It had garnered them somewhere between 50 and 80,000 Facebook followers, depending on Mike Cessario’s telling of the story. Obviously memory and stuff. He remembers different numbers, but it was a lot, tens of thousands. At one point, their Facebook following was larger than Aquafina’s. And comments ranged from, “This is the greatest thing I’ve ever seen. Where can I buy?” to, “This is the dumbest fucking thing I’ve ever seen,” which is also validation. But here’s where it gets interesting. They started receiving messages from 7-Eleven franchisees asking how they could carry it. And a New York beverage distributor contacted them and asked them to speak with sales. So there was no sales because they didn’t have any cans. So they had generated demand. And it’s really interesting that that is some validation that people are at least interested.  

Does it guarantee it would become a successful beverage company? No, because you can’t get to 100% validation until you build something and sell it. But did he go from 5% confidence to 50%? 60, 40, some number bigger than 5%? He did. And at that point, he had something to then go show investors. And obviously bootstrapping a water company would be really hard. So in this case, I do fully understand why he raised it. So then he went and raised money and he raised 150 grand from friends and family to get the first production run going. And then he raised institutional capital after that. So I don’t know, 1.6 million and 2.25, whatever. It doesn’t really matter how much they raised. It’s just that they raised enough to then manufacture and then sell. And doing hundreds of millions a year in a CPG, a consumer packaged good, is really, really impressive because breaking into that is tough.  

And it’s water in a can. The point of this is not copy Liquid Death. I’m not saying every SaaS founder should make a fake viral video. And I’m not saying that you need millions of views in order to develop. It’s none of that. I’m certainly not saying you need to raise venture capital. Those are the details. But the mental models are what I want you to pay attention to. What did Cessario do? Well, he developed some expertise, some network. He noticed a problem. He formed a hypothesis. He did not jump on and just start building and shipping things wildly and randomly. He found a cheap way to test it. He observed actual market behavior, gathered evidence, and then he invested more resources. So that’s almost exactly the framework that I talk about. It’s what I’ve used to build software companies, launch books, start MicroConf, start TinySeed.  

And it’s what I talk about in The SaaS Playbook. I mean, it’s what The Lean Startup talks about. This is not novel new information, but people still don’t want to do it because they want to build. They want to make. And even though this is a different industry, it’s the same underlying process. The thing I’m tired of is I’m tired of excuses. But I don’t have an audience, but I don’t have your network, but I don’t have industry experience. I don’t know how to validate. I just want to build. And it’s like, how about instead of building product, you build your network. Get your experience. Learn the skill. Figure out the cheapest, credible way to test your hypothesis, which is that people need this software, this idea that you have in your head. And you can follow the 22/00, The Lean Startup, whatever it is, because that’s a nice guideline.  

If you had no knowledge of this, then that’s great. If you have your own knowledge and you’ve seen the way someone’s done it, great, do that. But don’t make excuses of why you can’t do this because there are principles, there are mental models and loose guidelines that will dramatically improve your odds. And I see them working in B2B SaaS and you can see them working if you’re going to launch a conference or an accelerator or write a book. And apparently you can see them being applied to things like canned water. And I never would have thought of that example if I had not been watching Michael Girdley’s YouTube channel. But I’m glad I did because I enjoy looking outside my own disciplines and taking lessons from other entrepreneurs. And even not entrepreneurs, right? Taking lessons from musicians like The Beatles, from artists like Picasso, you’ve heard me integrate.  

Genius performers like Bruce Lee or Michael Jordan, Wayne Gretzky. I’ve talked about these folks on this podcast in the past. I love learning lessons from people who are so good at what they do, that they are complete outliers in terms of their performance because I think each of us in our quest for personal growth and business success, I think each of us can learn from these folks who had the commitment and put in the time to become great. Not just great, but some of the greatest in the world. And even if you don’t become one of the greatest in the world, that doesn’t matter. That’s the beauty of entrepreneurship, especially of bootstrapping. You don’t even need to be in the top 10,000 SaaS apps in the world to have a completely life changing outcome, whether you sell, whether you just take profits. The idea that to make millions or even to make a living as a professional athlete, how many NBA players are there?  

There’s professional basketball players in the US. There’s like 400 and something, 440, 450. Those odds are brutal. Those odds are brutal to get there. How many legitimate SaaS apps are there in the world? 50,000 at least. And if we include all the little hobby projects or all, I don’t even mean hobby, but projects that are making five grand a month, 10 grand a month that aren’t included in that. Could there be another 10,000, 50,000? Yeah. It’s not millions by the way. Most people are shocked to hear this, but it’s a lot. And you don’t need to be in the top 1% of the 1% like you do to be a professional athlete or to be a professional musician or to be one of these kind of other outlier industries, even to start the next canned water company or bottled water or whatever. It would be tough.  

Odds are against you. But you’re a bootstrapper and you’re in software where you can build and iterate quickly. And you have the luxury of being able to do this nights and weekends without asking anyone for permission. That is a beautiful thing. So don’t fuck it up by making excuses that you don’t have a network, you don’t have an audience, you don’t have any experience and you don’t want to validate. You’ve been handed a gift, which is the ability to launch something at almost zero cost except for your time without anyone else’s permission. And there is prior art. When I thought about building startups, software startups in the 1990s, there were zero books, zero magazines, zero blogs, podcasts didn’t exist. There was nothing that was written on this topic. There was no one talking about trying to bootstrap. There weren’t even people really talking about venture capital.  

I mean, there were some magazines and stuff, but it was just assumed you were just going to go big and everything’s a huge endeavor and you sell a 30 year company in your first round. And it was just not great. The information asymmetry made it really tough. And then in the early 2000s, as folks like Joel Spolsky started talking about bootstrapping and then it was Basecamp. And then it was like me and Patrick McKenzie and Peldi were talking about it in the ’05 to say ’07 timeframe. This is where we were all learning. And there was not really prior art. There was very, very little. You exist at a time where, yes, I know it’s more competitive. I know more people are launching things. I know the tools today allow you to build faster, but it was hard back then too. It was hard back then.  

There was no social media. So how are you going to market your product? Well, you had these different approaches and hosting took place usually on a bare metal server and it was very expensive and blah, blah, blah. There are headwinds at any given time that you want to build your business. And so making excuses today or figuring out a way to justify not doing the thing that most successful entrepreneurs do, which is to get some experience, get the idea or the problem from that experience or their network or one of the other seven ways that I’ve talked about. And then coming up with a hypothesis and actually challenging that instead of just going off building and launching is something I feel like you owe to yourself to do. So I hope you enjoyed that story of how we can learn from someone launching a consumer product and how it can make us better B2B entrepreneurs.  

Thank you for listening this week and every week. This is Rob Walling signing off from episode 848.