BlueChew’s CEO has been playing the long game in a small, noisy category

BlueChew didn’t chase the telehealth land-grab — it picked a lane and stayed there. 

The company is part of a class of erectile dysfunction-focused startups that sprouted around 2017, when the patents on Viagra and Cialis expired. It is unique from its peers in that it’s self-funded, while other similar companies are venture-backed or publicly traded.

CEO Steve Sullivan says that let him play the long game in a small but noisy market. BlueChew hasn’t ventured far past ED since launching over five years ago. While its rivals have gone on to offer weight-loss drugs and hormone treatments, he’s focused on building a brand that’s "synonymous with better sex.”

“That allows me to have more of a long-term vision about the business,” Sullivan said.“I don’t have to chase fads that I’m not comfortable with because I don’t have revenue targets or any pressure from investors for short-term returns.”

BlueChew was founded by Sullivan, a former options trader at Citibank, and Dr. Alex Jovanovich, a medical doctor. The pair met in freshman year of high school and always knew they wanted to start businesses together, Sullivan said. 

I spoke with Sullivan about how he built BlueChew, where he sees it going next, and what it was like to be on the trading floor at Citi during the financial crisis. 

This interview has been edited for clarity and length.

Sherwood: Most of the CEOs I talk to are from publicly traded companies so there’s a lot of information out there. But there’s actually not a ton out there about you guys. Can you give me a quick origin story? 

Sullivan: We started seven years ago, me and my cofounder, Dr. Alex Jovanovich. We’ve been starting businesses for like 20 years, but this is the first one that really took off. Before this we were doing prescription skin care online, the brand was Dermacare. Companies like Musely and Curology are doing that business model now. 

So we had the infrastructure set up for prescription skincare, this was in 2015 to 2017. So we were prepared with the business model for BlueChew, which is very similar to the skincare business except a little easier to understand, a lot of latent demand, and a bit more brandable in the short term. 

We launched around the same time as Hims & Hers and Ro but we were the compounded version, which we thought was a good opportunity to brand our service better. You have Hims and Ro now building a platform for all types of medications, where we stick with tablets for better sex. 

The idea is to keep very true to the brand. I want BlueChew to be synonymous with better sex. Going forward we might launch other brands or other concepts — we’re always entertaining other business models — but BlueChew is specifically for better sex.

Fast-forward to now, we have in-house creative, in-house engineering, our own pharmacies, our own telemedicine group. It’s been a fun ride. 

Sherwood: You mention that you immediately went to the market with branded compounded versions. But now that’s the playbook for everyone. Do you think the market is getting saturated? 

Sullivan: Oh, for sure. I think the industry grew very quickly. 

If you add up Hims, Ro, us and some of the other brands, I think you’re probably somewhere between $1 billion and $1.5 billion in revenue from the category. So it’s a very small revenue business.

I don’t know what another example is of another cottage industry that is like us and has so much advertising. Hims is publicly traded so you can see how much they spend on advertising, it’s about 40% of their revenue. Not all of that is for ED, but it's still a huge chunk of revenue. It gets a lot of eyeballs, but it's a very small industry. 

So yes, it's definitely saturated, cost-per-acquisition is definitely very competitive, there's a lot of churn. People are trying a lot of different products, where in the beginning when there weren't that many options, the lifetime value of the customer was far larger. 

Sherwood: Hims, as you mentioned, is the only one of your peers that’s publicly traded. More recently they’ve reported softening in their ED business. Do you think the market has hit a ceiling or are you seeing a similar trend? 

Sullivan: I don’t really know how to analyze the ceiling. We’re certainly not in hyper growth any more. 

I think the number of people that know our industry exists has definitely hit a ceiling. Everyone who needs to know, knows we exist. I’m sure revenue for the industry is growing, but has it flatlined? I can’t really tell. But it's definitely approaching the top of the S curve because it's not parabolic like it was up until a couple years ago. 

I think what’s happening is you have customer acquisition, then you have customer usage. So maybe the number of new customers on a given day isn’t growing but the number of people using it more frequently once they are a customer could be growing.

If I had to guess, the whole industry is growing at 10-15%, which is still pretty good for a cottage industry like us. 

Sherwood: As you mentioned, marketing is a huge cost in this business. Can you talk about how your strategy has changed over the years?

Sullivan: The premise was always for BlueChew to not be marketed to any segment. It's an attainable product that’s not marketed to a particular subset of Americans other than men.

We started with influencer marketing. We always partner with creators and let them talk about the product as long as it is compliant. We let them do the creative that they wanted and let them put that on their own platform. That fueled our growth. As time went on and it got much more competitive, we scaled it. We work with thousands and thousands of creators every month. 

Facebook and TikTok have also scaled their creator content algorithm. So what’s happening now is we’ll feed TikTok and Facebook thousands and thousands of pieces of content from creators and we’ll license that content. It's not very lucrative for them to post it on their own social media but we do feed it into the AIs at Facebook and TikTok. 

I don’t know what their systems are doing behind the scenes but there was a flip of a switch about two years ago where we could feed thousands of pieces of content to Facebook and TikTok. They are now freakishly good at allocating our ad spend on an ad-by-ad basis to microaudiences. 

So, the strategy that we started early on — we’re not fragmenting the market, we’re not trying to think about branding in terms of what we like, we’re trying to make this your go-to tablet for better sex — that strategy became far more easy to execute once Facebook and TikTok were finding these microaudiences and scaling all of our creative content so efficiently. 

Sherwood: Has giving creators control over the content promoting BlueChew led to situations where you had to trust the process and sign off on content you didn’t feel great about? 

Sullivan: I don’t love all the content we come out with. It's not for me to like.

I approve the TV ads, more so because we’re casting such a wide net that I want the brand to be portrayed in a specific way. But for the creative content I don’t really approve any of that. It doesn’t go through me. I see it, and sometimes I will ask for it to be taken down if it's a little bit off. 

I don’t like when someone says “Hey, your wife’s not having sex with you? Try BlueChew.” I’m not trying to come in there and offer to fix your problems. I’m trying to say “Hey look, BlueChew is a positive, good product that might benefit you.” I try to always be positive. If it feels like its “problem/solution,” that’s where I would stop it. For the most part it's just compliance issues and being positive. 

Sherwood: Where do you see growth coming from for your business? What is BlueChew going to be five or 10 years from now? 

Sullivan: I don’t really know. I don’t know when we’re going to hit the top of the S curve. We’ve been lucky to have been early, grow very quick, and have good market share. I don’t put targets on revenue or growth, I just like to take what the market offers me. 

There’s a good chance there’s a cultural change or tadalafil daily becomes very popular, and people really see the benefits of increased blood flow for other purposes besides just great sex, and the industry could go 5x in the next five or 10 years. That could also not be the case. Generally, the wind’s at our back because it's such a good drug, and it benefits people’s lives in a positive way, and it's very affordable. 

We are coming out with some new products that I think will increase the category. I’m sure Hims and Ro will probably copy or come up with other products that increase the category using these ingredients as well. Fundamentally, BlueChew is a solid brand that doesn’t have that much influence in growing the market; it has to take what the market gives it. 

I do have some other brands that I’m launching in the next year that I’m excited about that will take advantage of the pharmacy infrastructure, in-house marketing tech, engineers, web development that we’ve already built. 

Sherwood: You’re also self-funded. What does that allow you to do versus a venture-backed startup or public company?

Sullivan: I think it's a huge benefit for me in my industry. I’m very comfortable with how much the company makes. I don’t have to sell any shares or anything to that extent. 

That allows me to have more of a long-term vision about the business. I don’t have to chase fads that I’m not comfortable with because I don’t have revenue targets or any pressure from investors for short-term returns. I think generally speaking in my industry as you get bigger and bigger, it becomes more and more of a regulatory burden. So being public is another regulatory burden that compounds when you’re also regulated in other areas. If you were able to look at my percentage of revenue allocated to legal and compliance, I would guess it's very, very competitive compared to a publicly traded company of a similar complexity. 

From my perspective, I wouldn’t be able to be the CEO of a financed business with VCs and private equity folks. I’m very much a bootstrap entrepreneur. When you get used to that lifestyle of not having financier backers it's kind of hard to keep them abreast of your strategies and ideas because they come and go so quickly. So if I were to take financing or if I were to go public I probably wouldn’t be able to be the CEO. 

In terms of the disadvantages, there were times early on when I wished I would’ve had a little more infrastructure. We could’ve grown faster in hindsight with a little more investment. For example, we outgrew our pharmacy footprint kind of quickly and we had to leapfrog our pharmacy buildout where if we had more money I probably would’ve built more infrastructure. Now I think we’ve caught up. 

Also, hiring. When you’re not public and not doing financing rounds, you don’t really get press and it's harder for people to know we’re a stable, profitable company run by stable people. I think we overcame that in the last couple of years. 

Sherwood: You mentioned that some of your peers offer more drugs, which becomes a regulatory burden. I think a clear example of that is GLP-1s. Is that something that crossed your mind? 

Sullivan: I did consider GLP-1s very early on. Around the same time Hims was building a sterile facility, I was considering building a sterile facility, but I don’t really understand the long-term profitability opportunity. I understand the short-term profitability opportunity very well. But in the long term it gets very competitive. I didn’t have a very good long-term strategy and because I didn’t have the capital at my disposal as well as the pressure to grow revenue very quickly, I decided not to do it.

In hindsight it was definitely the right move because we have some other ideas that we’re pretty confident about. It was the biggest blockbuster compounded telemedicine drug of all time. But it grew so fast that the regulatory burden and the capital expenditure to compete with Hims or Ro would've been so high it would’ve overshadowed what we’re doing at BlueChew. It would’ve had to have been set up as a separate entity with different investors.

Sherwood: A lot of pharmaceutical companies are pivoting to direct-to-consumer to lower prices for patients. Do you see an opportunity there? 

Sullivan: No, I don’t see an opportunity there for us. I don’t think of ourselves as a telemedicine company. I think there’s a great opportunity there for the industry.

I don’t see an opportunity there for us but I’m always open to suggestions. I think that brick and mortar is where there is a big opportunity for telemedicine, ironically, because there are only a handful of drugs that are pure telemedicine. But a lot of drugs like testosterone or hormone therapy in general, the vast majority are not made for pure telemedicine. What I think is an area that is really going to boom is the clinics — longevity clinics and general health clinics — that take advantage of telemedicine and use the simplicity to grow the brick and mortar clinic. 

It's tricky. There are some products that work for telemedicine and are scalable but for the most part, I’m pretty old school in the sense that I don’t think everything that people are trying to bring online should be. Specifically hormone therapy, I looked at that as well, and my gut feeling is that it’ll be a good industry, and it’ll be fine if telemedicine enables it. But at the end of the day, I think if you’re playing around with your hormones, you should have an in-person clinic where you build a relationship and they know you as a patient because you want a continuity of care and you want a more holistic view than what a pure-play telemedicine service is going to be able to deliver. 

Sherwood: You were a trader at Citibank before starting this business. What exactly were you doing there? Do you ever miss the trading floor? 

Sullivan: I can’t say I miss the trading floor because I had a lot of it. I was there for almost 10 years. I was an options market maker in the SPY and SPX options pits in the CBOE. 

It was great for being young. Looking back, if I had to do that now, I don’t know how I would keep the energy and the attention. I was there during the financial crisis so it was a boom time for that business because of the liquidity and the risk that people were trying to get out of was really good for the market-making industry. 

But coming out of the crisis, going into 2010 or 2011, it really became algorithmic trading. Companies like Citadel and Susquehanna really stole the thunder from the big banks and the smaller options market makers. So at that point I asked myself, am I going to be an algo trader and write code for algo trading or am I going into entrepreneurship? And I’ve always been trying to start businesses, and with the same cofounder, since we were 17 years old. I always had ideas that were doing OK throughout the years. I went back to business school at The University of Chicago and met some great people and started some other businesses, which eventually led to this.