This Entrepreneur Made A Small Fortune Playing Poker. Then He Gambled It On Oatmeal

Key Concepts

• Oats Overnight: A company founded by Brian Tate that sells pre-made, cold oatmeal shakes.
• Direct-to-Consumer (DTC): A business model where a company sells its products directly to end consumers, bypassing intermediaries.
• Subscription Model: A sales strategy where customers pay a recurring fee for access to a product or service.
• Customer Retention Rate: The percentage of customers who continue to purchase from a company over a specific period.
• Customer Acquisition Cost (CAC): The expense a company incurs to acquire a new customer.
• Influencer Marketing: A marketing strategy that uses endorsements and product mentions from influencers or key opinion leaders.
• Money-back Guarantee: A consumer protection policy that allows customers to return a product and receive a refund if they are not satisfied.

Brian Tate's Entrepreneurial Journey: From Poker to Oatmeal

This summary details the entrepreneurial journey of Brian Tate, the founder of Oats Overnight, a company specializing in pre-made, cold oatmeal shakes. Tate, a former professional poker player who amassed nearly $10 million in winnings, transitioned to entrepreneurship by investing $500,000 of his earnings into Oats Overnight in 2016.

Founding Oats Overnight

• Inspiration: Tate recognized a need for convenient, healthy food options during his extensive poker sessions, which often lasted over 12 hours. He sought a pre-made version of his homemade oatmeal shakes but found none available.
• Initial Investment: He invested $500,000 of his poker winnings to establish a manufacturing facility in Tempe, Arizona, and launch Oats Overnight.
• Initial Product Offering: The company launched in 2016 with three initial flavors: chocolate, strawberry, and green apple. The product is a cold oatmeal mixture containing 20 grams of protein, which is shaken with milk and refrigerated overnight.
• Early Skepticism: Tate's e-commerce director and poker friend, Thomas Keller, initially expressed doubt about the concept, stating, "I thought he had genuinely lost his mind. I didn't know anyone who ate cold oatmeal."

Business Model and Growth

• Revenue and Valuation: Oats Overnight is projected to generate over $200 million in revenue this year, with Forbes estimating the company's worth at $350 million, despite past profitability struggles.
• Direct-to-Consumer (DTC) and Subscription: The company began as a DTC brand and quickly adopted a monthly subscription model within two years.
• Subscription Incentives: To encourage subscriptions, Oats Overnight offers a free branded shaker with the first order and a one-time 25% discount.
• Subscriber Base: The company currently boasts 300,000 active subscribers, who account for 90% of its e-commerce sales.
• Marketing as a Key Expense: Tate identifies marketing as the company's largest expense.

Strategic Approaches and Data

• Poker to Business Parallels: Tate draws parallels between poker and his business, emphasizing the importance of controlling key levers. He stated, "One of the big translations from poker to oats is really focusing on what levers you control."
• Product Development and Retention:
  • Flavor Expansion: The flavor portfolio grew from 3 to 30 retail flavors, plus 30 subscriber-exclusive flavors.
  • Customer Feedback Loop: Since 2020, new flavor samples are sent to subscribers for feedback, often through a 100,000-member private Facebook group.
  • Retention-Focused Flavor Ranking: Flavors are ranked by their "retention power," and underperforming flavors are continuously adjusted.
  • Customer Retention Rate: Tate attributes Oats Overnight's customer retention rate of over 60% to this feedback-driven process.
• Retail Expansion Challenges and Solutions:
  • Initial Concerns: Expanding to grocery stores presented a challenge in educating consumers about the spoon-free, cold oatmeal product. Tate admitted, "We had a lot of concerns about putting that product on the shelf. We knew customers would probably not understand that it's a spoonfree product and make it in a bowl."
  • Innovative Packaging: To address this, Tate proposed a pre-filled disposable cup with a fill line for water or milk.
  • Retail Partnerships: Wegman's was the first major chain to distribute the product nationwide, followed by Whole Foods in 2021 and Walmart in 2022.
  • Retail Sales Growth: By 2023, retail sales reached $100 million, representing 30% of total revenue. Oats Overnight has since expanded to Target, Costco, Sam's Club, and 15 other smaller chains.

Financials and Future Outlook

• Funding for Growth: The company raised nearly $65 million from VC and private equity funds to finance its expansion.
• New Facility: $10 million from the latest funding was used to open a new 310,000 square foot facility in Westchester Township, Ohio, in September. This facility is expected to quadruple output, reduce shipping times by 2 days, and cut shipping costs by over $3 per box.
• Profitability: Oats Overnight became profitable this year, and Tate does not anticipate needing further funding. Remaining funds will be allocated to facility improvements, equipment, and inventory.

Influencer Marketing Experiment and Lessons Learned

• "Scam Oats Overnight" Campaign: In 2022, Tate engaged Gen Z influencers to encourage TikTok users to "scam Oats Overnight" by exploiting its money-back guarantee.
• Calculated Risk: Tate calculated that this campaign would profitably lower customer acquisition cost, even if refund rates doubled or tripled, given an initial refund rate of only 1%.
• Unexpected Outcome: The campaign initially reduced CAC by 40% within days. However, refund requests surged by 500%, resulting in a six-figure loss and the removal of the ads.
• Tate's Reflection: Tate acknowledged the outcome, stating, "We ended up getting absolutely destroyed. I guess they did scam us." Despite this setback, he remains open to similar opportunities, saying, "I still believe that's a win and I still look for those opportunities."

Conclusion

Brian Tate's transition from professional poker to founding Oats Overnight exemplifies a bold entrepreneurial spirit. By leveraging his winnings, understanding consumer needs for convenience, and employing data-driven strategies for product development and customer retention, he has built a significant business. While facing challenges, particularly in retail expansion and a high-profile influencer marketing misstep, Tate's willingness to experiment and adapt continues to drive Oats Overnight's growth and profitability.