As a bootstrapped founder and startup junky, I’m a big fan of podcasts - surprise? I feel that podcasts and entrepreneurship go hand in hand…why is that? My running theory is that most founders are constantly treading water and when they are sitting down to look at a screen, 9 times out of 10 it’s their email or a disgruntled colleague on Zoom staring back at them.
Podcasts allow me to kill 2, maybe 3 birds, with one stone: fitness, entertainment, and little bit of education. Just throw in the AirPods, close the laptop, get a little cardio in and maybe learn a thing or two along the way…all while attempting to silence the part of the brain that refuses, no matter how hard I try, to exit startup mode…
One of my favorite podcasts is the My First Millions Podcast, hosted by Sam Parr (@TheSamParr) and Shaan Puri (@ShaanVP). Each week Shaan and Sam deep dive into different business opportunities and chat with the Founders behind the businesses; picking apart the different business models and founder psyches along the way. What sets their Podcast apart from the dozens of other “techie - how I built this” style podcasts is their ability to source the ugly ducklings that aren’t covered by Tech Crunch or Business Insider. They cover everything from one-man chrome plugins with millions of downloads to mom and pop PE pool business roll-ups. I’m still baffled that someone built a $100M/Y online quilting empire…maybe I’ll save that episode for another deep dive…
Anyways, I was listening to a recent episode (Episode 382) where they sat down with Kevin Rose (@kevinrose). Kevin’s mostly known for being the founder behind Digg, a Web2.0 Reddit like business that rocketed to fame in 2012 but ultimately crashed into the sun. For those concerned, don’t be. Kevin’s done just fine since the Digg days (Being an Angel investor in Twitter and Facebook certainly must take the edge off).
One of Kevin’s latest ventures is a content - eCommerce chimera that caters to luxury watch enthusiasts called HODINKEE. Now if you’re like me, you’ve probably never heard of HODINKEE. Turns out they’re incredibly popular and just crossed $100 Million in annual revenue. WHAT? $100 Million in revenue with a watch blog?! Yes…I was in shock by the whole thing and I couldn’t help but think…what’s that business model look like?
So I did what any co-founder of a fledgling financial modeling software startup would do, I built the damn model myself using our awesome software.
HODINKEE is a content pumping machine. To be honest, machine probably doesn’t do it justice, I’ll let the numbers speak for themselves…
Content published just in the month of October 2022:
All of this content along with some help from Ads on Facebook and Google Search Ads led to a staggering 3 Million + site visits according to Similarweb…and all of this content seems to be paying off because their site visits are growing between 5-8% month over month.
HODINKEE primarily monetizes through 5 revenue streams:
Direct sales from their shop:
It’s clear from just spending a couple of minutes on their site that they prioritize capturing emails. It’s hard to navigate between pages without a suave pop-up modal invading your screen prompting you to join their newsletter.
They lure you in with a flood of beautiful engaging watch content and next thing you know it you’ve given them your Email address which is just about as potent as heroine to a good Email marketing team. You’re just one quick drip-campaign away from buying that new Rolex Submariner that you may or may not need.
The watches they sell on their site range from $65 on the low end all the way up to “holy hell you could buy a house for that amount of money”. But when you figure they also sell straps, accessories, etc. I’m estimating that their AOV is somewhere around $495.
Now here’s the crazy part, if they have an AOV of $495 and 3M+ monthly site visitors and the company as a whole is doing $100M+ annually in revenue, they only need to convert about 0.5% of that monthly traffic to purchasers.
Assuming 2% return rates, AOV of $495, and a conversion rate of 0.5% of traffic to paid, here’s my best guess as to what HODINKEE’s direct watch sales revenue looks like
Watch Insurance:
Recurring revenue is the Ace of Spades for online businesses but how could a watch blog generate recurring revenue in a more meaningful way than paywalling content? Ohh I know, let’s insure these incredibly expensive hunks of wrist bling!
Jokes aside, the insurance model is super fascinating…I had never heard of watch insurance but it makes sense for the luxury market and there’s very few business offerings that are as sticky as insurance on prized possessions. Insurance on luxury goods has EXTREMELY low churn and in general is an incredible money maker. Apple Care for example, makes up around 3-3.5% of Apple’s total revenue aka $12.8 BILLION dollars for you napkin math people.
Here’s how HODINKEE’s watch insurance works:
Get a quote, subscribe to an annual insurance plan, your watch is covered up to 150% of it’s value. No deductibles, no nothing. They’ve also got a handy little table with estimated coverage cost on their site:
To model this revenue stream I had to make some assumptions…I’m assuming that the average watch insurance plan is somewhere in the middle of that chart; I used $126/year as the average coverage. In my model I’m also assuming that there’s already somewhere around 50,000 customers and the annual churn rate is somewhere around 3%. Again here’s where it get’s crazy, if HODINKEE converts just 0.25% of their traffic into insurance customers, they’d bring on around 8,000 new customers per month. Now I’m guessing that this number might actually be lower but the beauty behind this business model is in the compounding nature of recurring business models. With these assumptions, by the end of 2024 HODINKEE could have somewhere around a quarter million watches insured.
Here’s what that growth looks like:
Maybe more impressive than the growth are the projected revenues ($126/yr plan):
Other HODINKEE revenue streams:
HODINKEE also has paid ads on their site for luxury watch brands, they sell a magazine for $38 an issue, and they have a buy/trade/sell business model. I’m not going to cover them in this post but I added them into the model.
Here’s my projections of HODINKEEs total revenues across all revenue streams:
Projecting and estimating expenses for a privately held business is a bit more of an art than a science but I was able to find some publicly available information regarding their team size, and tech stack.
HODINKEE Team Size / Payroll Cost:
They pump content like crazy so you can assume they’d have a large team, which they do…HODINKEE has 135 employees on LinkedIn and they look to mostly be US based employees headquartered out of their SOHO office in NYC.
In my model I broke things the staff org down into 7 groups:
I broke each org aside from Executives out into hiring tiers Sr / Director, Middle Mgmt, and Jr. employees and assigned dynamic hiring rules for each. Assuming modest salaries and modest team growth over the next 24 months, we get something that looks like this:
Now in reality, I’d guess that they’re going to scale the team much faster than this…They raised a $40M series B round in 2020 so jumping from 135 employees today to 200 by the end of 2024 is pretty modest growth.
HODINKEE Tech & Infrastructure Costs (COGS):
Again these things are a little tricker to project but it’s important to note that HODINKEE’s shop is on Shopify…Shopify charges somewhere between 2-2.4% of revenue to process all payments plus has some additional recurring fees on top. I was able to scrap together a few other insights about their tech stack and made some liberal estimates around the cost of the watches and fulfillment as a percentage of revenue.
HODINKEE SG&A Costs:
SG&A is quite boring and even more of a shot in the dark, all things considered I estimated cost of rent for their boujie SOHO office at $75K/mo growing 7% YoY and was able to scrap together a list of marketing related tech products they use:
All in all I’m estimating that they spend around 1.5M on SG&A per month:
HODINKEE clearly has an incredible business model. They lead with great content realizing that monetization will come if you control the eyeballs and continue to drive traffic. Kevin mentioned that the luxury watch market is much bigger in Non-US markets where the norm is to not wear a watch or wear a dorky smart watch but like many great entrepreneurs he looked beyond his backyard and saw a sea of watch enthusiasts itching for content and community.
I’d suspect the HODINKEE team will continue to grow over the next 12-24 months, ultimately being acquired by some larger brand with customer-synergies…what do watch enthusiast also like? Cars? Sunglasses? Suits?
Who’s to say what the future might hold for HODINKEE but I can safely predict that we will see more of these content-first, ecommerce-second chimera type companies over the next 3-5 years.
If you’d like to checkout the full interactive model for free, you can do so here. Or if you’re looking to create your own financial model for your business, checkout Sturppy. The HODINKEE model took me about 30 minutes to build and requires no knowledge of finance or complicated Excel-y formulas.
Cheers!
