Sean Frank of Ridge: tariff whiplash is freezing investment, sub-$10M brands shutting down in waves

We got Sean Frank from the Ridge Wallet. Back-to-back Ridge Wallet guy today. Welcome to the show, Sean. Look at that microphone. That thing is serious. Do you podcast? Dude, I am so happy to be in the capital of capital, the fortress of finance. This is this is my my zen garden. I do podcast.

I just want to say I was listening before I jumped on that last guest you had does not work at RichWallet. I've never seen him in my life. Never seen him before. Just been laring. He's got the LinkedIn set up. He's got all the wallets.

Everyone he actually works for a rival wallet company and he's been selling secrets on the side. No, there there's an al I mean ridges are you worried about spying at Ridge? No, Ridge has had so many knockoffs over the years and from all different parts of the world.

There's an alternate reality where like 10 years ago like Shawn and Connor like uh you know have a blood feud and then like Connor goes and works at one wallet company and Shawn does the other and then like they're just always like the same because they're like you guys are like yin and yang in terms of like I think like being good you know.

But anyways, great to have you on the show Sean. How's your week going? I'm good, man. Um, yeah, Connor is my rippling. So, I'm dealing this scenario and I'm gonna I'm gonna steal all the secrets. Okay, that's great. The rippling to my deal. Fantastic. What do you want to talk about?

Yeah, I I wanted to just uh have you guys both on to just get a a highle read on what's happening in e-commerce. Uh it's certainly hasn't been a a easy start to the year with the tariffs. I mean, technology companies are are in a pretty good spot if you're just selling SAS.

Uh, worried less about um the impacts of of of all these different sort of policy decisions. Uh, you know, talk to us about how the start of the year's gone. We had you on the you were one of our very first guests, but I feel like a lot has transpired between uh then and now. Totally, man.

And I changed my mic, so hopefully this sounds better for you guys. Way better. Sounds fantastic, dude. I'm reading chat on the on the right hand side. So, I come here to support. Um, dude, the biggest thing about tariffs is just the uncertainty and the roll out.

So, like we're friends with a lot of nine figure brands and everyone would like to bring stuff to America, right? But that is a that is a 2 to four year manufacturing timeline, right?

Ridge has been working on our US factory and our our capacity for like two and a half years and I can currently make 20,000 units a month. Okay. I sell 50,000 units a month, right? And in peak I sell way way way more than that.

So it is just I've not been able to keep up with demand and maybe in four years I could get there. But with all the whiplashing on tariffs, it's very hard to know what to invest in. And what that leads to is just me hoarding capital right now. Like I'm not going to do distributions. I'm not going to hire anybody.

And it's really this freeze because I don't know where the the puck's going right. We had we had tariffs come in, tariffs come out, tariffs come in, tariffs come out. Section 321 was stopped and now it's back on. It's just very hard to make a decision when you don't know what's going to happen in two weeks. Mhm.

What uh are you seeing situations with brands that have less of a uh you know that that have less of a sort of fortress balance sheet where there's like actually you know like I imagine there's certain brands that are kind of running the calculus of like are we even going to make it to Q4 with how this is going.

Uh what's kind of like the chatter in the industry? Yeah. So there's been like five years of [ __ ] when it comes to DTOC, right? Like uh you know there was COVID which was really good for some people, horrible for some people. Famously away sales dropped 90% because people stopped traveling, right?

Um and then you have tariffs just the latest flavor in this, you know, there was IO iOS 14 issues and everything else. What we see as a credit cards going up, you know, it's going to hurt consumers. Totally, dude. Yeah. I mean, you're talking about credit cards.

Uh, BR very famously was an e-commerce credit card provider and they shut down all their credit cards when COVID happened. So, that's why I'm so glad you guys work work with RAMP, the the better of the credit card providers. Um, no.

So, what we're seeing right now is a wave of shutdowns in smaller sub10 million brands, right? Like that's always been a trend, but it's really ramped up the past like three to yeah, probably the past 3 months since Trump got elected because they just can't absorb tariff costs.

Like things things were on the water, right, to be brought into America and then costs went up 25% for these people. And when you add that in with everything that's happened, you know, iOS changes, advertising changes, consumer being softer, there's just a wave of bankruptcies and shutdowns happening.

So, um, if you haven't secured financing, if you don't have a solid balance sheet, it's just a really, really hard time to to be trying to sell stuff on the internet. Uh, talk about Solo Brands. They're currently being priced at $12 million on $450 million of revenue. They're not profitable.

I have to imagine this is a tariff thing, but like uh we were we were trying to figure out what was going on uh with the company. Have you tracked this at all? It's like I the the numbers just don't make sense to me whatsoever. Sean is like Sean's got his finger on the buy button.

He's like I could just buy like the every every share on they also own Chubbies. It's like a pretty popular men's fashion brand, too. And they're doing like a hundred million in sales over there, too. So, I know Solo so intimately. Um I know Spencer, the original founder.

I know Bertram Capital, the private equity group that bought them. I know Summit, the private equity group that bought them from the private equity group to take them public. M they had a rollup strategy. They overpaid for some assets. Um and they've they've depreciated all of them except for two.

So they have Solo, which makes the stoves, and they have um Chubbies. And they used to not break out revenue. Last quarter was the last quarter they actually broke their revenue out. And what you have is Chubby does roughly $100 million in sales and is EBID positive.

And then you have Solo, which is a shrinking business and shrinking 25% year-over-year. um losing, you know, $50 million or whatever. And the reason why their the market cap's so low is they have so much debt on that business. I think it's over over $250 million in debt for a shrinking business that loses money.

So, you know, they will sell chubbies that like when you break out the finances like that, that's they're looking for someone to buy that asset to pay down some of this debt and then they're they're just a take private. It is just some somebody will swoop in. Does it happen before or after bankruptcy?

That's the whole challenge, right? Yep. Yeah. You're not just going to pick that up for 12 million bucks. You're going to pick up $250 million of debt with it potentially. And that's a big that that's a big decision. You got to be ready to do something with that, right? Refinance that or pay that down somehow, right?

Yeah. Yeah. I mean, look, the obvious suitor is Yeti, but um there's there's a bunch of outdoor rollups. I mean, there's it's one side that's somebody it makes sense to own that asset, but it's just it's a it's really really hard to be solo stove right now. Um That's rough. Well, good luck to them.

Is uh do you believe there's potentially another ad platform uh on the horizons that will save uh the industry uh swoop in and provide cheap ads that allow everybody to scale? Every one more ad platform. That's a banger. Just one more. Yeah. I mean I mean we've you know you guys have talked about this a bunch, right?

Ridge benefited massively from the rise of just meta platforms and and being able to buy cheap ads and scale very profitably, but uh what's your conviction level? Are are LLM's going to LLM ad networks going to be a thing? Uh or are you are you short there? Well, they will find a way to monetize, right?

I mean, Google is the most profitable, best business on Earth, $80 billion in in [ __ ] revenue or whatever. It's all straight profit. Uh, and it's all just people searching and them getting in the middle of that.

So, you know, if you're trashy or perplexity, you could probably build an amazing, you know, sales business on top of that. Uh, but dude, this year meta meta is working.

Like last year, Meta did not work and we are giving so much of our money to like the big blue beast and we're spending more today than we spent in December, right? Um, it's just because I think they're taking AI seriously and they're really trying to bring AI across their ad like their ad networks. They do have threads.

That's new ad space, right? Um, you know, Twitter is looking to highly monetize its ad space. I think their daily users are going up. Famously, there's Reddit, which has never been able to monetize well.

The revenue per user is dog [ __ ] So all we're hoping for is that AI helps people bring the power of the Facebook ads engine to more places. We think apploven did that in Q4, but just more ad space to be more higher powered.

And dude, unfortunately, if we're in a recessionary environment, the first thing that gets cut is marketing budgets and then Ridgewald swoops in to buy those cheap CPMs. So podcasts crushing it right now. It makes so much sense why Ramp bezel Wonderpublic.

com Adqu are sponsoring this podcast because podcast that's for us crushing right now. Yeah, I love it. Uh what what's your take on I need to redownload threads. I deleted it because I'm just so loyal to the everything app. Uh but uh do you are you using it at all yourself?

Do you think it do you do you think it will be like if anybody could make the sort of like textheavy format the sort of conversational format uh be have good ad units it would be meta platforms? Um are you guys spending like can you spend on threads yet? Are you getting invited to spend on it soon?

So I don't use threads. I'm trying to spend less time on the internet, dude. Trying to touch some of that that delicious sunshine that's been hitting my face lately. Uh, but dude, ne ne never bet against Zuck. You give him dig, you give him pixels, he will monetize them. So if he's got users, he's going to monetize it.

The rumor is that Threads ads are coming in Q4 of this year. And with that, they're also going to better monetize messaging and WhatsApp in general. So, you know, WhatsApp still has 100 million users in America.

like if you're not logged in every day using it, a lot of people are and they do have, you know, just DMs and everything that hasn't been monetized. So, Snapchat launched messaging ads last Q4. Whatever Snapchat does, Meta will just scoop up and do it, too. So, we got more ad units coming, guys. Are you long?

Are you long or short Apple ever doing a an ad platform? You' think that they sort of like handicapped the American online ad industry. Uh it would have been nice if they had offered up like you know a stick and a carrot at the same time.

Uh is there any you know if Apple's entering this era of just like you know op toll road operations you know squeezing margin everywhere getting these sort of incremental fees. Do you see a world where we do app store ads but yeah appto not much for direct to consumer companies if I'm correct.

So my wife uh was interviewing for a role at Apple years ago and she she when you interview at Apple they make you do these like presentations and her presentation was the advertising opportunity at Apple and they you know the executives there were very much like we're never going to do that like that is so so against who we are but then you know what we've seen in the past two years is that no they're actually totally it'll it'll be a it'll be an ad exchange right so I don't think they'll actually monetize any of their ad They have the app store, right?

They have, you know, Apple TV. They have, you know, iMessage is a social network. I think we all spend way more time on iMessage than anything else. They won't monetize it, but they will sell your data. And that was the whole iOS 14 breakdown, right?

Is that Apple wanted to mon they wanted revenue from Facebook in exchange for that data and Facebook said no, so they shut it down. So it they will get a they will get probably $40 billion in the next two years from just ad data exchange. I think that's a phone number.

They should AI telemarketers like they have your phone number. So you pick up your iPhone, it's just ringing and it's just an ad on the phone. Hi, this is Sean Frank here. I was just calling to see if you are interested in the Ridge Wallet and it's just AI Sean. Uh last question.

Uh are the are the various platforms treating you nicely enough? Are they taking you out to dinner as frequently as they should?

Uh do you feel like you have uh do you do you feel like uh they're they're you know you you're a huge uh customer for them uh and client didn't ramp send you like a huge like tombstone for how much ad you've spent? Uh has has Meta sent you anything? No, dude.

I mean I I think I'm at you know over a quarter billion dollars in Meta spend. So I'm wait I'm waiting to get to a billion and then maybe maybe they'll give me dinner, you know. May maybe just a cameo from Mark Zuckerberg being like, "Hey, man. I appreciate all the work you're doing.

" But no, dude, Ram Ram's a great partner. I got a little tombstone from him. Um, you know, Snapchat is the in terms of like understanding and client relations. I think they're best in class. Dude, Evan Spiegel, super involved in the ad platform.

I've I've I've had lunch and breakfast with him probably three or four different times and he's he's just like, "How can we get these ads to work? " That's all he cares about. So great. Um yeah, dude. Uh love all of the network. Also, Shopify is the best partner out there. That's amazing.

Uh one, uh one breaking news story that I want to get your take on. Uh Door Dash and CLA signed a deal where customers can choose to pay for food deliveries in interestf free installments. There's a lot of chatter on the timeline about this. I know Ridge Wallet has Afterpay installed, Shopify integration.

Uh what's your take on uh paying with your paying for your Chipotle burrito over several years? Well, so the previous guest you had on a good friend of mine, Connor, we live together and when when these things rolled out, he was he was so bullish. He's like, "Dude, I can smooth out my my my burn.

" He's like, "Everything should be financed interest free, everything. Take advantage of the the ZERP environment. " Uh surprisingly we see a large percentage of our purchases go through a firm. It's probably 15% of all purchases are running through a firm. So they they do do serious revenue.

There is needs from consumers. And I think people it's probably it's probably more bearish for the credit card industry than anything else. Like like alternative merchant provided financing eating high interest rate credit cards. Uh who pays for it in that transaction?

A firm takes a higher payment processing rate than Visa does. So, like that's how they're actually funding this whole exercise. Do I think people should ha should be putting Chipotle burritos on layaway? I do not think that's a good purchase. So, that makes me very very scared.

And for me, it's such a contradiction because like leverage is awesome and then burritos are awesome. So, like you would think you putting them together would would be, you know, this sort of 10x experience, but it feels very dark, risky. What about uh like conversion rate effects for Ridge when you rolled that?

Do you remember when you rolled that out? Was there actually a lift in in conversion or revenue that you could see or is it just something you kind of feel builds like a better customer experience over time when you roll out something like Afterpay?

So the reason why we did it is because you know at at one point not that long ago 2020 2021 e-commerce was the hottest industry. Everyone was rushing into it. The glory days um all of those providers would pay you money to to actually add it to the website.

So, I think it was either CLA or a firm gave us $50,000 to have it as an option on there. That's awesome. And and then also, I mean, Ridg's product portfolio has grown a lot.

Like, you could easily wind up checking out with, you know, a whole Christmas gifts of luggage and wallets for a lot of people, wind up in the several thousands. And at that point, you know, Yeah. doing something after pay makes a lot of sense. Yeah. Yeah.

I mean, if you know, everyone listening is probably billionaires, you know, mult multi-billionaires. But if you need to get gifts for your staff, ridge. com/shan. Use code sean for 10% off. There you go, guys. Fantastic. Sean, I love you. Uh good luck in the trenches.

And uh hopefully there's not news in the next week that is so dramatic that it requires us to call our e-commerce uh correspondent. But if there is, expect a call. You know what? I I would like to go on your guys' payroll as the e-commerce correspondent.

I'll get a whole outfit and I'll just I'll be out there in the warehouses telling you what's going down. So, I appreciate you guys. Goodbye. Well, I don't know about payroll. I mean, we're trying to be the most profitable podcast here, but uh we'd love to have you on. Yeah, we'll do it if you quit.

We'll do it if you if you quit your show. We can if we can buy if we can acquire uh uh if we can acquire your show, we can we can work out a deal. You don't have to do All you got to do is turn on All you got to do is turn on Zoom. Yeah, there you go. I was I was going to pay you guys.

Now, okay, now there we're doing Yeah, this is the CLA firm strategy. Yeah, you can pay over time. Uh, great to see you, Sean. Great to see you. Bye. Uh, our our new studio, if it goes where we think it's going to go, will be much closer to