The Startup Ideas Podcast - How to Build Hype with Matteo Franceschetti

Episode Date: February 3, 2022

Sleep has never been sexier, but it wasn't always that way. On this episode of Where It Happens, Matteo Franceschetti (@m_franceschetti) joins hosts Sahil Bloom (@sahilbloom) and Greg Isenberg (@gregisenberg) to discuss how he was able to transform a stale, outdated product into a hot category drawing interest from athletes and big investors. You'll hear stories about how they were able to win over Y Combinator and scale their business. If you want to make noise in a loud room, the episode explores models of disruption ranging from MSCHF to the one-and-only Elon Musk.Want more community? Learn more here: http://trwih.comSPECIAL THANKS TO OUR SPONSORSCOMMONSTOCKhttps://commonstock.com/Why settle for the old model of investing when new options offer you so much transparency to help you grow your wealth? Commonstock is the home of smart money and an innovative social media approach to investing. We both love the platform and have used it to enhance our financial strategy.Commonstock is a social media platform like Reddit, but it removes anonymity and adds transparency. The app lets you see what smart money investors are buying and selling – in real-time – all while letting you see their reason why. This way, you know whether investors have skin in the game, or whether they only talk a big game. It’s a great way to get insights that support your investing strategy.To learn more and sign-up today go to commonstock.com.CAPCHASEhttps://www.capchase.com/roomToday’s show is sponsored by Capchase.Capchase is a new financing option for fast-growing startups. They are offering Where It Happens listeners .25% off their first draw, preferred onboarding, and more. Their main product Capchase Grow lets you tap into your future revenue today, meaning you can reinvest in your business faster. We love what they are offering to business owners.To learn more go to capchase.com/room

We are so excited to share this conversation with you. We had Mateo in from 8 Sleep. He's amazing. Greg, what'd you have on it? Mateo gets community. He has basically identified athletes, moms, lawyers, et cetera, and tried to reverse engineer how to get them talking and creating a community-driven marketing approach that I absolutely love. If you're into consumer, if you're interested in community, interested in marketing,

this is the episode for you. Let's just dive right in. I hate banking. Most banking products suck. So when I was starting all these new businesses and going on this new adventure, I turned to Mercury. Mercury is banking for founders by founders. They make everything so easy and a beautiful, elegant design. There's free wires, virtual and physical debit cards. They even have a raising platform where they will connect you with other investors out in the ecosystem. Have you tried Mercury? I have. And let's be honest, when you log into traditional banking websites and apps, it's hideous. When I go into Mercury, it's like a walk in the

park. So I love using it. It feels fresh and I can't use anything else. You should definitely check it out at mercury.com. It will completely change the game for your banking experience. I guarantee it. App Sumo is the number one place for entrepreneurs. It is a marketplace where entrepreneurs can find the products they need to build and scale their businesses. It's found Noah Kagan is a creator. He's a builder and he understands what you need in order to scale. So he's created a marketplace where you can find those things. It's amazing. I've found so many unique products there and as a creator you can make and list your products at a super low cost and have this incredible discovery engine to go sell and scale your business. I highly

recommend you check it out today. Go to absumo.com backslash the room. It's red. Where are we starting? Your boy? Musk, my boy. That's your guy, dude. Elon Musk. No, he isn't. Huh?

Oh, my guy. I thought you were a Tesla guy. You love Tesla, don't you? I never owned a car. Drove in a Volvo. That's true, actually. Drive a Volvo. That's true.

Are you anti-Elon Musk? No. I think Elon Musk is, like, a big visionary. Okay. I like that he lived in Canada. Oh, that's right. Queens College. Queens, yeah.

Yeah. I think my, like. Very briefly. Queens College. Queens University. Oh, is that different? Okay. Yeah.

I don't know anything, but Queens College in New York? Queens College is in New York. That's where Alexander Hamilton went, right? Or he was trying to go. Yeah, I remember that from Hamilton. So Elon Musk, interesting guy, visionary consumer, does some weird stuff from time to time to drum up intrigue online. And recently, he does this Twitter poll that has caused a ton of stir.

he basically tweeted out about all this stuff that people are talking about with unrealized capital gains and the idea of like taxing billionaires on their wealth and he tweets out this poll that just says you know do you support me selling 10% of my Tesla shares to pay taxes basically because he doesn't take a salary he doesn't take a bonus whatever so this would be the way that he pays taxes what did you think of this what I like about Elon he's like he gets the internet yes he gets the internet he gets the internet internet.

Yeah. You know, so I don't know how many people voted. Do you know how many people? Like millions? I think it was 50 million. Yeah. So I think like he got them bought in on this decision. And what was it? Like 50 something percent said do it. Yeah, 55, 45, 45, something like that. Yeah. So I think like now he has, okay. How many of those were like burner accounts of like Nancy Pelosi? Yeah, probably. I wanted to be in there just like box hitting yes. Probably. I think like the cool, okay, what did he achieve? Step one is he achieved just like Elon Musk getting out there, his name getting out there, Tesla getting out there.

So like good work. And step two is now he has carte blanche to sell like a billion dollars of stock. 20 billion. 20 billion dollars to stock. Insane. Yeah. 20 billion dollars. The thing that I think is just, I like it, right?

He understands the internet. I think you're totally right. He knows how to drive intrigue without it being like a Tesla. ad, right? All of this benefits Tesla at best. Benefits SpaceX, boring company, all of his things, because it's like Elon Musk, Halo that he creates around all this stuff. But there's kind of

a dark side to it, right? Like, what if he knew about some bad developments at Tesla? And he tweets this out, knowing that, like, the yes is probably going to win and want him to sell. And then he goes and sells 20 billion of stock, which, like, is technically insider trading, I think, if he knew that there was going to be bad developments

coming out about it. But now he's like, oh, I have to abide by the Twitter poll, so I got to it that way. So I think there's like, it's gray area, it's sketchy territory, especially given he's gotten in trouble in the past for the SEC for what he did a few years ago with the whole like funding secured when there was clearly no funding secured. Can you remind me what happened again? He tweeted out thinking of taking Tesla private at $420 per share, which obvious, obvious joke, 420, and said funding secured. And there was no funding secured. And he basically said

like Saudis or someone was going to fund this deal. And at the time, Tesla was trading at like $3.50, so the stock spiked. And then the next day, it was like funding's not secured. The stock collapsed. So a bunch of people got smoked, lost a bunch of money that had bought in thinking that he was being real. And so he got like sort of slapped on the wrist. Like he has to have a Twitter babysitter now effectively. But yeah, to me, Elon is like typical entrepreneur. Yeah. Always pushing the limits. Like asking for forgiveness. Yeah. Rather than approval. Rather than approval. And he just gets the internet.

Yeah. So like I honestly like kudos to him. Like he, dude, I think Tesla's at a trillion dollar market cap. Way over. Yeah. Way over a trillion dollars. And it's all, not all through memes. Like they have a great product.

But the lesson there is like memes plus great product equals good things happen. Yeah. The hype machine and the fact that they don't spend a dollar on marketing. He's doing it all without marketing. These car companies are spending hundreds of billions of dollars and he doesn't have to because of what he's created. When you go into a Tesla showroom, you, you, you, you, you, you, you, you, you, can't, like, test drive a car, right?

You can't buy a car? Yeah, I mean, it's a different experience for sure. It's a completely different experience. You've got to buy it online. You got to buy it online. But they have showrooms, like, all over the world. Yeah. He understands the internet.

You're absolutely right. And it actually feeds into what I want to talk about today. So let's get our drinks going. Okay. And then we can dive into the conversation, which is all related to building hype on the internet. So it's morning. So, accordingly, we're going to have mimosa.

How do you feel about that? You a Mimosa guy? I just flinched. I literally just flinch for no... I was like, do I trust you with opening this was going to happen? I've never seen you open that, you know. What do you think I was going to do, spray you? Yeah, I don't know.

You're unpredictable. All right. So you know what this is going to taste like, so I don't feel like we need to describe the experience of drinking a mimosa. But I am excited for this because this is this. better than drinking whiskey at 9 in the morning or whatever time it is. So what do we want to talk about today? Building hype. Building hype.

How do you build hype on the internet? Okay. In the context of mischief. On the conscious, yeah, let's talk, let's talk mischief. Cheers, man. Cheers. Oh, that's delicious. Okay.

All right, mischief. What is it? M-S-C-H-F for those at home. What is mischief? So I think they've been doing it, a group out of New York, been doing it probably for three, four years. Yeah, 2016, they got founded. 2016, they've done about 90 drops. And they come up with ideas for how to create hype and sell some stuff.

What is it? Is it a collective agency? Like, how do you even define it? So you've seen some of their stuff, right? Yeah. Like, you saw, what did you see? Jesus shoes was a big one. Yeah. So let's actually talk about a couple of those things. So they became really well-known. It's this former BuzzFeed employee, Gabriel Wally or Whaley, starts this thing in 2016. They're like the island of misfit. They didn't want to fit in. They didn't want to do anything in the normal way. And they started building this insane credibility and hype via these crazy drops. And they were all viral. So they did this Jesus shoe that you just mentioned, which was literally a Nike shoe. And they had taken a,

water from the river Jordan and put it into the sole of the shoe. And they sold it like what did they do a thousand of them or something. There was like very few pairs. They marketed it. It went totally viral, sold all them out. Then they had the little Naz-X, Satan's shoe, which was from his music video, Montero. And they put like drops of blood in the soul of these shoes.

I mean, it was crazy. It was completely nuts. But went totally viral, had a lawsuit with Nike because Nike was like, we didn't allow you to use our shoes to do this. They have this product, you know, a voluntary product, call, which was like you can give your shoes back if you want, but no one did. All these celebrities are wearing them. They did the guns to swords. That was really cool. They like, if you trade it in your guns, you could get them melted down, converted into a sword and returned to you. And

like Grimes took one of those swords on the red carpet was all around. So they do this insane, insane product drop stuff. And they sell out immediately and there's unbelievable virality around it. And did you see their reselling? What was the resour? with the Andy Warhol? Oh, yeah. Let's talk about this, because it relates to NFTs too. Go for it.

Similar concept. Tell them. So Andy Warhol, the artist, they bought a piece in Andy Warhol, original for $20,000. One, it's like a, we'll post it online. It's basically like a pencil drawing.

I mean, I'm not an art savant, but it looks like a pencil drawing to me. And they bought this piece, and they went and created nine, 99 identical forgeries of it. And they, like, documented the whole process. You know, pencil drew it out. They, like, aged the paper, made it all look exactly the same, removed any trace of what

the original was. They, like, put it into the stack with the 99 forgeries. And then they sold a thousand mischief forgeries, basically, for $250 a piece. So they had bought the original piece for $20,000, and then they made $250,000 on selling these thousand forgeries immediately. And that's the cool thing about mischief is if you go to their website, which is, it's actually a really cool website, every single one of their drops has a bunch of press. So like the Warhol thing had a bunch of press.

It was everywhere. Jesus Hughes had a bunch of press. It was everywhere. Like everything they do, like they reverse engineer getting coverage. Yeah. Like on blogs and stuff like that. Yeah. And I think that's a really interesting way of like, like,

building a startup or building a company or building a product which is okay what a what can i build so that people will will write about it so i'll give you an example yeah uh april 2020 quarantine you know uh COVID is already happening for a month two months now people's hair hair was getting long so uh we created like check out created a website called you need a haircut and it was this way that it paired you up with virtual barbers okay to cut your hair okay and it guided like you know your wife would you know it would be a face-time with like a barber in New York and and and she's cutting your hair and she's like telling you how to do it telling he's telling her how to do

it yeah cut like this cut like that yeah and it went completely viral okay you know today show you know on Fox ABC Real viral. Real viral. Wow. Like tens of millions of visits and views and stuff like that. And we built it in under four hours. Yeah.

You know, from conceptualization to building it in under four hours. Yeah. And... What's the realization? Like, what was the insight you had there? Is it just that, like, in the modern viral digital age, hype is the ultimate currency? What Mischief understands really well is that...

when you understand culture, you could create products around culture. So at the time with you probably need a haircut, everyone, like the cultural vibe was like, oh, my hair is getting long, I'm growing up my hair, everyone was just kind of talking about their hair, and you couldn't get a haircut. So we were like, okay, let's come up with like an interesting, like viral name. You probably need a haircut.com. and build something around that. So to me, like, the future of marketing is around drops.

Yeah. Like, you probably need a haircut like mischief. Yeah. And it's always, and it's about reverse engineering these, you know, cultural moments. Yeah. That you can, you know, that you can create these products around it. And the best part about it is that in software, I mean, it's harder to go and create, you know, get blood. and put it into a shoe, but with this whole world we live in where no code is a thing,

and you can go and just build a website you don't have to know how to code and piece things together, there's just a lot of opportunity just to come up with interesting viral ideas and slap it together. Yeah, I think what you're hitting on is something that I've thought about a lot. It's like the framework I have around it is it's like the modular economy. I don't know what the right way is to talk about it or call it, but that's kind of how I think about it, which is basically if you can create hype and you can create that buzz and you know that you can kind of build that and stoke that, you have all of the tools necessary to go and build a business that is highly profitable from day one.

And I think it's funny because, like, mischief, we've talked about this, they raised venture money, which I actually just don't really get. I don't really understand why they went and raised venture because they see. seemed so anti-normal establishment. And so, like, the idea of raising money, maybe they needed it for some of these things. I mean, maybe the processes around, like, replicating these things, light aging them and doing all of that. Maybe it's expensive.

And maybe, like, the net profits on these. I don't know. I mean, on that one, it was $20,000 to buy the Warhol. They made $250 and gross profit on it. But, like, maybe there was a bunch of costs that sit in the middle of that that I don't know about. So you need money because you're loss-making. But if you can do, you could start a business today.

And say, like in clothing, if you have a designer, like someone that can design a really cool product, you could do a limited drop of like a thousand of something or a hundred of something. If you had a designer, someone that understood distribution, so maybe they have a big audience or maybe they just understand how to go through different marketing channels, drive virality, and then an ops person, basically just someone to like do the back end of getting it. But you can do these things now in a very easy way and just like sell out before you actually go by the inventory. And that's the brilliance of it. Yeah, that's why I don't know why they raise venture.

So what? I actually, do you know the story of why they did? I have no idea. They raised from founders fund in a few other days. I know they raised like at least, you know, at least $5 million. Yeah. To me it's like you're building, you know, I didn't get the pitch. Yeah.

But I imagine like the pitch was something like we're building a brand like Supreme that's Internet native. Yeah. Around drops and stuff like that. Yeah. which I totally get, but what I don't get is just do drops that are profitable. Yeah. Like, just make money on your drops and use that money to fuel the business. Yeah, it's hard to scale coolness. This is like another framework, right? Like, Elon Musk, to go back to Elon Musk, has somehow managed to scale intrigue and coolness to an insane level.

And it's never going to end in that way. But, like, Supreme, I don't think of it quite as cool as it used to be. Well, I think to me it's authenticity. Like, Elon Musk, how old is Elon Musk? 45. I don't know. I'm making up a number, 45, 50. Okay, so let's say he's 50 years old. Yeah.

Like, I feel like Elon Musk of, as a 50-year-old today, is the same Elon Musk for his 25. And he's just, but his audience is, you know, a thousand, you know, 10,000, 50,000 times bigger. Yeah. Or millions of times bigger, right? So he's scaling, he's just scaling himself. And he's being authentic.

Supreme, you can argue, lost its authenticity over time. It started off in New York in skateboarding culture, right? Now, does mischief, to me, seems extremely authentic. Amazing. They've done 90 or so drops. One through 90 have been super cool, and they've been learning and stuff like that, but it seems very authentic. Now, what Venture does a lot of the time is it takes you from being inauthentic.

Sorry, authentic. What venture does a lot of the time, it takes you from being authentic to inauthentic. Because when you have the venture influences you to grow at all costs. And when you grow at all costs, you have to compromise sometimes. Yeah, you do different things. You make different decisions. And I mean, to their credit, so first off, I've talked to the guys at mischief, they're amazing. And they are very different and they think differently about all this stuff.

but it's a different vibe that people they raise money from to their credit. Like Founders Fund thinks differently about venture versus others. And so maybe they're able to continue to bottle it up and scale it. But these drops are insane. So cool.

Yeah. I mean, honestly, we should bring them on the pod. Yeah, I would love to. I'd love to. We'll get them on to a future episode and we'll talk about some of their drops.

But one thing I wanted to do because we have a guest today who understands hype and has done a really good job building hype around, you know, it's kind of like a niche consumer product in beds and sleep. And he built out in front of a completely changing consumer perception, for lack of a better way to put it,

no one really cared about sleep five, 10 years ago. It wasn't cool. It was like hustle culture was in its prime and it wasn't cool. And so Mateo, founder of eight sleep, super interesting. They're building around sleep signs and they're building this hype wave in front of people actually caring about it at scale. And so I want to bring him in and I want to talk about it with him because I think it'll be really interesting. Yeah, that sounds like a perfect person to talk to. Let's bring him in. All right. So we are so excited to welcome in Matteo Francesetti. Did I pronounce that okay?

Yeah, you nearly. Yeah, we got it. Well, then. Mateo is an amazing founder, CEO, founder of Eighth Sleep. We talked about it a little before, but completely revolutionizing sleep performance and sleep technology. So really excited to have him in to talk about everything hype and consumer and how you build this like amazing, amazing company out in front of a changing perception and consumer perception. So thank you for coming in. No, thank you for having me. Appreciate it to share more. So what we were talking about before you joined was we were talking about it in the context of mischief, this company that does these amazing product drops and drives all this like crazy intrigue and marketing hype around their drops. And it struck us that you in particular have built something

that is like this industry that's not necessarily sexy, right? Mattresses. Like no one really thinks of mattresses as sexy, but you've created this amazing technology overlay and this amazing hype and marketing engine around it. So we'd love to just like start there. How did you do that? What was the insight you had?

And why did you start there? Yeah. I mean, all the credit, honestly, goes to my co-founder, Alexandra. She came up with this concept of sleep fitness. And I think that is what changed everything, right? Because you start thinking of sleep, not like a boring time of your day that is just wasted, but like a moment for your body to recover.

So we always tell everyone that going to bed is like going to the gym. You're doing something for your body to recover, to stay feet, healthy. And so she came up with this concept of sleep fitness. And once we define that name, we started understanding our strategy that is all around athletes, top performers and recovery. And so now if you look at what we do, we have a bunch of athletes. There was a major fight in New York last week.

And now the athlete is an eight sleep athlete. We just sign Justin, who is the number one crossfitter in the world. He just won the CrossFit games, I think in July. And so we are signing athletes and we power their sleep because now they are all educated. and knowledgeable enough to know how important sleep is for the recovery performance. But there is really no other brand that is doing that. You can think of us like a Red Bull,

but instead of giving you a drink, we give you power through sleep. I think what was cool about Red Bull as a business and as a marketing engine was it was super aspirational. So they signed surfers, skateboarders, and it's like I wanted to be like one of those people. So it's interesting that you're taking sort of a similar model, but applying it to a completely vertical. I never thought about that. Actually, the Red Bull example that you just brought up is a really interesting one. Mario, our friend Mario Gabriel, over at the generalist, wrote a great piece on Red Bull a while back about the engine that they've created. And it is super fascinating because they do all these things that you just, it's not related to energy drinks.

Like they have the Formula One team. They did the like crazy jump from space that the guy did, the parachute. and they're generating so much buzz and hype around something and just around the name brand. And so when you bring it up like in the context of athletes, you're creating that same hype by having someone that's this crazy high performer all of a sudden talking about sleep and how it changes them. Because if he, I mean, the first principle is the same is to give you energy, right? To achieve whatever you want to achieve in your life.

You could be a mom, you could be a doctor, you could be an athlete. And so actually we are looking at some other sports like winter sports. and surfing because the content is really cool. These athletes, they have a lot of energy. They do the, now they make the impossible possible. And for that to happen, you need to have the energy and you need to be fully recovered. And that matches our story.

When you and the team came up with the idea around, or the insight, I should say, around sleep fitness, where you like, okay, this is going to be huge. Let's go create a mattress product. Or like, can you walk us through a bit about how you came up with the idea and why, you know, because I look at it, I'm like a software guy. I look at it like, oh my God, how does he deal with supply chains? How does he deal with?

It's hard. Designing. You know, it's hard. So I'm just curious, like, how you got from A to Z. So I would say there were almost two phases for us as a company. There was phase one. There was 2015 to 2017. We launched with the first product.

It didn't even have cool. So it was more like really a sleep tracker. Okay. We sold 8,000 units in pre-orders, go to YC. I moved to China for a couple of months to build the units. But we didn't have sleep fitness at the time. And then everything changed when Keith, Kittra Boys at Kozla invested in us. And so we raised our A and that is the moment where we decided to substantially rebrand.

And the money was also used to build a business. was also used to build the pod, which is the current product, which is not the one that now is really 90% of our sales. And so at that time, I have been an athlete all my life. Keith, obviously, you know, he's really into fitness. He's like a thousand-day streak of Barry's boot camp or something like that, right? It's crazy. Delian, the same, they invested together. And so, I mean, we were just speaking the same language and we said, this is not a mattress company at all. We don't even have a mattress expert or a foam expert. But we always and immediately thought of these like from a fitness angle. Then Alexandra came up with this word that now looks so simple and

obvious. But when you have never heard of sleep fitness, you would never think of matching these two words. And we started pitching to people and some people love it. Some other people who were saying, does it really make sense? But then we started developing the whole brand strategy and then this started looking awesome and we went all in for that. Yeah. It's really interesting. interesting when you kind of bring up like how it all played out that way because like I in every industry and in consumer in particular there's always someone doing the same thing and it's like how do you bottle up something much more exciting drive intrigue around it like I remember it's probably 10 years ago now there was this thing called the chili pad that I remember like seeing out there it was like is

a pad that had like tubes in it that you could feel and it would put cold water into your bed and it never went anywhere right like it had an insight and there's probably something to it and it helps you sleep. But you guys have created something, obviously a better product, and I love the product. I'm a huge fan of it, by the way. I was talking to Greg about it yesterday and just like trying to convince him on it to buy one now. But it's something different about the way that you bottled up like coolness alongside this amazing product and science insight that is so intriguing to me. When you say coolness, do you mean like temperature cool? No, no, no, no, no, like sexiness around sleep, which that piece of it, I think is so amazing because sleep is

something that no one has ever thought of as like this sexy fitness thing. Everything's all about working out and you want the like muscles and you go Barry's boot camp and all these workout companies. But suddenly science started to build up that sleep was actually the most important thing for longevity, for your health, for the way you have energy on a daily basis, but also for how long you're going to live. And so it's just interesting because you built out in front of that and you built this thing and now people are starting to realize it. You go listen to some of my favorite podcasts like Huberman or some of these other science podcasts like half their episodes are about sleep and how important it is now.

So it's pretty, yeah. And this angle at the beginning was quite controversial, even inside the company. We had a lot of people inside the company that they say, but this now is going to be a very small segment. It's only about athletes. but at a certain point I realize look I mean this is what I like I used to be an athlete so even if you guys really want me to be the face of this company

be out there and be passionate about taking a flight to do something it needs to be about something I like and so that is how we force the thing a little bit and I think now is proving to be successful because it's aspirational right we're making sleep aspirational and it's all about recovery and energy it's the same thing

I always go back to frameworks, but it's the same mental model as what Nike did with making athletics aspirational. Anyone was an athlete. They did that whole brilliant campaign to Just Do It stuff when they first started launching it,

which was, it's not just Michael Jordan, it's not just Tiger Woods, it's not just Serena Williams or whoever it is, it's you. It's the normal person on the street getting up and grinding away and going to the drive a truck and wants to go for a walk

to be healthier on a daily basis. And like that, it's almost an emotional reaction that you feel associated with it. when you have that feeling where you can take something that was previously only for the elite and suddenly it's applicable to everybody. Exactly. We call all our users everyday athletes.

Yeah. And you don't have to be an athlete. Again, you can be a doctor, you could be a mom, you can be whatever. We want to unlock your full potential. Yeah. Doesn't matter what you want to do. We want to give you the energy to achieve your peak performance and your peak happiness. Yeah.

And that starts with sleep, right? And then there are couples fighting around different temples. There are athletes that want to recover faster. There are people that are just sleeping hot. There are women in menopause that have hot flashes. So then the category or the audience is pretty broad. But again, and that is the key thing that we had to really explain internally is, it's not that we are for athletes.

Athletes are just the maximum expression of the energy that we want to give to our 100,000, 200,000 users. But every person is a user exactly like. is a user exactly like Nike. Nike is a perfect example for us. Now, companies that we really admire, it's Nike in terms of branding of the Peloton and from a technological standpoint, Tesla. Yeah. Yeah, we were talking about Elon Musk earlier and how he has this unbelievable capacity

to create hype around. And he's scaled authenticity. You said that very well. Like he has managed to, despite how big he's gotten as a person, continue to scale the authenticity of Tesla and these other things he's building. So I think it's a great example. I have to ask you about supply chain stuff because we're in the midst of what is probably a generational disruption to supply chains globally. I assume you have Asia manufacturing to some extent.

How are you managing? What are like the key things you're focusing on as you try to work through a period of disruption like this? Is the shit show? I think that the team is doing a pretty good job. I mean, at the end of the day, the way we are, the simplest, but most expensive way for us to fix the problem is to airship units, which obviously for us is quite problematic because they're big. It's not like a wearable. Right. But we are, so in terms of having all the units and all the components, we're fine. It's just really a problem of catching up with demand because we are seeing a lot of demand on our side. Plus, obviously, ocean shipping right now is not really an option with the holidays. So we are shipping a lot of units and that is costing a lot of money.

The hope is that in the second part of December, we will be able to switch to ocean shipping again. Yeah. It's a really crazy environment right now because the ocean shipping, obviously, is traditionally the most cost-effective. Air freight somehow has been better for a lot of companies and getting things over and you take the margin hit because you just need to fulfill the orders. You guys have the benefit of being direct-to-consumer. Is that 99% of your business or all of your business? And so what I've seen with some of the companies I'm involved with is like the wholesale orders are the hardest part. Because if you're delayed, they just cancel the order.

And now that's revenue that's gone. You're never getting it back. For you guys, I imagine you own the customer. You own the relationship. You've built that relationship with them. And so if it comes in four weeks versus six weeks, people survive and they'll wait until they can get it. And you're also building something that there's not really an alternative. alternative to. You're the only business out there that's really building on the forefront of this.

Yeah. I think the only challenge is now with the holidays because that is a hard deadline if it's a gift. Yeah. We were so in when we are perfect we ship within a week. This year multiple times we were shipping within three to four weeks because we couldn't catch up with demand. Good problem to have. Yeah. A lot of demand. Yeah. Now we need to make it on time right for for the holidays. holidays. Obviously, the port in Long Beach right now is not getting your units on time. More than anything, it's really hard to predict when you will get your units. And so you have to derisks and by the risk and you fly in units and that is super expensive. So that is what we are doing just to make sure we can respond properly to the month. So Greg and I have an ongoing discussion and debate that I feel like is a common thread

that goes through a lot of these discussions around raising venture capital and raising capital and the process around it and why to do it versus companies that don't necessarily need to do it. We talked about it in the context of mischief that company we were talking about earlier, that they raised money actually from Founders Fund as well, and I think Keith is probably involved. And it doesn't strike us as one where they necessarily had a big need to raise capital in front of it. So can you talk a little bit about your thoughts on venture capital? why you should raise versus companies that maybe don't need to yeah I mean for us it was not even really an option because you know hardware at least for us

when you develop cutting-edge technologies are expensive right there is no way you can do it without raising money I still think if you raise money from the right people they are extremely valuable we there were a couple of things that worked really well for us first obviously you know the round being led by some of top VCs, now from Keith and then Thray and now Antonio, Antonio, Antonio Grazzias with Valor. Oh. He was the first investor.

He's fantastic. Yeah. He's fantastic. He's fantastic. He's fantastic. He's a great group. So Antonio has been now in the board of Tesla since 2007 and now he's with us. So that type of experience has no price, right?

Another thing that worked really well for us was we raised money from a lot of individuals, operators that are extremely valuable. now Patrick and John Coll is on, Naval, Pump, Yeah, people with big audiences. A lot of friends in tech, right? Exactly. So then they can open doors, they can help you with recruiting. They just become friends so you can pick their brain as needed.

Another great investor for us was YC, right? So we built a very close relationship with them. I also just went through the YC growth program. right so that was amazing because you know there are great speakers coming in or no you just work with the partners and so they tell you okay the company is reaching a new level and inflection point is what other CEOs did so you just need to cherry pick the right people yeah but these people they can ten X the value of the business because of the of the knowledge that yeah yeah could you talk more about your YC experience and how important that was

Do you recommend people look into it and just a little more comment there? Yeah, I would say it was a major inflection point for us. We got rejected twice. I love stories like that. You kept coming back and now clearly, I mean, it's a multi-billion dollar business. It's amazing business. I love that. Yeah, it's a funny story because so we apply, we get rejected.

We reapply, we got rejected. And so we say, we forget it. And then I think a new, I mean, a new partner. specifically for hardware, just get higher. I meet him and he says, oh, you have to apply. And I say, no, I don't want to apply again to be rejected at the third time. I have a dignity at a certain point. You say, no, you have to apply.

So I go back and with my co-funders, we say, do we do it? We don't. And we say, we do it, but we apply within one hour. So we are not going to waste more than an hour on the thing. So if it doesn't work, who cares? And then we get in. But even after we apply, there is a funny story because, okay, we apply and then if you get selected, then you have the in-person meeting. And you go there, they interview for 10 minutes, but it's known that to be successful, you want to show your product.

The problem is our product is freaking huge, right? So we rent a truck with a bed and the cover, but part of the experience was also with lights and other stuff that, you know, the nest that you would have in your room. bedroom because it was an IOT connectivity. So we also bring nightstands and the lights that go on the nightstand. And we go to Y Combinator and in the old way, we essentially build the bedroom. So we take the interview. I don't think they were really convinced during the interview. They were a bit probably skeptical about the opportunity of the business.

But then like after nine minutes, it's a 10 minutes interview. After nine minutes, we say, oh, come to see the product. And they say, what do you mean? we have the whole mattress right there so you can see it and so they come out and they try the product and I think they were so shocked that we know that we were there with the whole not that we built a bedroom inside Y Combinator office that probably they said these guys are resourceful enough that it's worth giving them a chance but that was pretty weird because in in this hallway there were all the other founders for not that they were taking interviews but they were there just with their

laptop because most of them are software founders and then there were no We were there with our mattress. I love that. I love it. It's so funny. It's like I keep coming back to this whole idea of like variant perception. Have you ever heard that concept? Variant perception.

It's like you have a perception of what the future is going to be like that is different from the consensus. And time and time again, you see these amazing businesses that have been built, basically where a founder had or a founding team had a variant perception of what the future looked like. And then they were proven right. And this is a classic example of that to me. like Shopify, Toby had this variant perception that the future was going to look very different in terms of how people shopped online and that e-commerce was going to take over the world. And so he built something that enabled that future.

At the time when he had the idea, no one really was thinking about it. And so you capture all the alpha from that because you're the first one to really have that idea and go build something. And you guys, I see it in the same way of you have this variant perception that sleep is going to become a mainstay and a pillar of people's fitness, performance, life, health, etc. and you build something out in front of that trend. And so it's a classic example of that to me. And it's so cool to see those like pound your head into a wall failures

and then it breaks through. And you end up kind of having that moment. And now you're clearly, you know, you're at the beginning of your S curve and you're starting to see it. So it's really exciting. I call the same concept you need to be contrarian and right. Yes. That is the only way you can be successful.

And we are far from being successful. But very successful people, they were contrarian. So they were saying something no one else was seeing. But then you also need to be right because just being contrarian doesn't mean anything. Yeah. You screw up your decision. There are a lot of contrarians out there. Not all of them are right. That is true. That is true. And remarkable, right? I feel like who else is setting up a bedroom in a hallway, right? Who else is sponsoring pro athletes for this particular vertical?

Like, you know, Seth Godin, the author talks about remarkable being something that you make a remark over. And I think that that's the key to great. marketing and great storytelling is and it gets you far in life yeah being willing to do that one thing we want to yeah one thing we always language we always use the with our board was to cut through the noise right because particularly in consumers there is so much noise so you need to do something different or no one is gonna pay attention to you and then the other thing that is working well for us is really word of mouth even if our product obviously it's it's

It's kind of expensive, right? It starts at $1,500. But 20, 25% of our revenues were mouth. Yeah. So that helped us to scale really fast. Yeah, customer acquisition costs down. Yeah, acquisition costs. Yeah.

Yeah, that's interesting. The whole idea of like driving word of mouth with consumer businesses. And like, how did you actually do that? Like, how did you bottle that up and kind of try to drive that as a core business strategy? Honestly. just happened. I could try to say that we were super smart. I mean, I think the way we did it is because people like the product. So at the end of the day, it's product driven. So if we deserve any credit because of that. It's like in software, they talk about product-led growth. It's like the

same thing but in consumer. And I still think there are a lot of tactics that we are not leveraging yet that will probably accelerate word of mouth. But the main concept is on one side probably is also branding. So it's what we were saying earlier, right? People start being proud of having innate sleep. Like, do you have an aid sleep or no, you're missing out? Right? It's a bit like having a Tesla, obviously on a small scale.

But there is not that kind of connection with the device. Then on the other side, we're solving a problem, right? We are improving your sleep. If you sleep hot, we are helping with that. If you're fighting with your partner, like 50% of the couples, we are helping with that. And so it starts becoming a very easy conversation when people have dinner with friends. And they start talking about the device. And the other thing we did, we focus, we call it concentration, right?

So because it's not an impulsive purchase. And so what we do is we try to focus on specific communities and try to dominate the community. Right. And that is kind of happening in tech where now if you go on Twitter, everyone talks about eight sleep. And so that is driving a lot of word of mouth instead than just being a drop in the ocean in many different places. I call it narrative domination. You just dominate the narrative around a community. But it's so interesting for sleep in particular because with a Tesla, you bring up the example of Tesla, it's a physical status signal because you see me in it.

I don't drive around my bed. You don't see me when I walk around the street or like even NFTA. tease now, you can have it as your profile picture. It's like a physical manifestation, a status signal that you can put out into the world. With a bet, it's much more difficult. So you really do have to perform above and beyond so that people do naturally want to talk about it with people. I think that's fascinating. That's the challenge. Yeah, it is. It's a really, it's an interesting challenge. Well, this was awesome. I know we're running up against the end of time. Before you leave, I got to ask one question, because I live in Miami, you live in Miami,

not far from here. How has the city of Miami been supportive of the business? And are you happy that you live here? Yeah, I love it. I used to be in New York. And then we moved here now probably a year and a half ago. We were really early. But I love it because first,

not the tech community right now in Miami. It's great. It seems to be in San Francisco in 2015. So I play tennis with friends in tech. I have dinner tonight with you guys and a bunch of other friends in tech, you know. So that was probably my biggest fear when I moved here, no, a sort of formal. Well, instead, what happened immediately after, no, I was so lucky. There are more people here in tech than there used to be in New York.

But then at the same time, you live in a beautiful place where I can play tennis. I can do some sports. Sometimes I wake up early and I go running at the beach. And then I can keep pushing during the day to build the business. Yeah, it's amazing to see what Mayor Suarez has done in terms of fostering the tech community here. And I know Keith has been a huge proponent of Miami Tech and bringing people in. And it is really cool. I mean, in a short period of time here, I'm spending time with more amazing CEOs and founders than in any other city I've been to.

I was in San Francisco for 12 years. I now live in New York. And I'm down here and I can feel the energy of it. So it is very, very cool to see. Yeah, I mean, for me, I was living in New York too before. When I moved to Miami, my stress levels just went down. And it's similar to like when you have a good night's sleep too, right? Yeah.

When you have a good night sleep, unlocks creativity, good things happen. When you're stresses, yeah, sunlight, like the weather. Like I feel like it's a good situation to be very creative. Yeah. And then there is also a secondary order effect where even if certain people don't live here, right now everyone is visiting in, let's say, really November to May. And people start knowing. maybe not that we are here. And so they ping you.

And so these people, if you were flying to San Francisco, some of these big guys, they would never meet you because they're super busy. But when they come to Miami, then they want to meet as many people as possible. And so you have the chance to meet them. Right. And so there are CEOs of public companies that came here. They are sleeping on the pod. And so maybe they ping me and say, oh, Mattel, I'm in Miami.

And I had the chance to meet them, which would have never happened before. Amazing. Amazing. I love it. Well, I'm long Miami. So I'm looking forward to coming back here. Thank you so much for spending the time with us. This has been a blast. Thank you for having me.

Cheers. And where can people find you guys? AitSleep.com and the pod is the pod pro. Yep. And it comes as a cover or as a mattress. So you can retrofeed any mattress you have with our cover or if you're just looking for a mattress, you can buy the Lamborghini of beds. Just go on AitSleep.com. And I am a user so I can personally vouch for the fact that this thing is amazing and has completely, completely changed my personal sleep.

So I appreciate you. Thank you. Thank you. Awesome. Thank you. That was an awesome conversation with Mateo. Absolutely loved it. What did you have for your one big takeaway?

My big takeaway was be remarkable. If you're creating a product, if you're creating a drop, you're creating marketing, you need to be remarkable to cut the noise. Yeah, I loved that. I loved when you brought that up in the Seth Godin, quote. For me, it was variant perception. Like this whole idea that you get paid for having a different view of what the future is going look like and then being proven right. Like the whole thing, I think Mateo said it, of being

contrarian and then correct. I really loved that and I came away with that. So what do you think we can get into the community and hammer around with? I feel like we've got a lot of smart people in the community. And I actually think we've got a lot of contrarian people in the community. So I want to know what sort of contrarian ideas that you can share that we potentially could work on together. Yeah. So just share it in the Discord. Yeah.

So let's jump in the community after this episode drops. We're going to get in there with you. Let's bat around some ideas. Contrarian views of the future that we think are going to be proven right. Let's jump onto that and we're looking forward to it. We'll see you in there. Contrarian, right, remarkable. Go.

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