This Week in Startups - E1012: Open Office Hours LIVE! Jason helps founders with their biggest challenges: goal-setting, starting a sales flywheel, converting bounced customers, capitalizing on investor feedback & more!

Episode Date: December 24, 2019

0:52 Kenny from Bacarai asks Jason how to start a flywheel with paid pilots as a pre-revenue company in the group airfare space 13:30 Elyse from Bloom Bras asks Jason some tactical questions around converting bounced website visitors 32:05 Pranav from Glyph asks Jason about goal-setting around raising a Seed round 50:31 Mark from Recapped asks Jason how to better understand & capitalize on investor feedback

Hey, everybody, welcome to open office hours on This Week in Startups. And, wow, that was pretty good. I'm here at the Live Studio audience, and we're going to answer questions from founders who've got great ideas and who are struggling through major problems that you as a founder might have right now or you might face in the future. It's going to be an amazing episode. Stick with us. This Week in Startups is brought to you by Zendesk.

The best customer experiences are built with Zendesk. Qualifying startups can join. their startup program and get Zendesk products free for a full year. Visit Zendesk.com slash twist today to get started. LinkedIn. A business is only as strong as its people and every hire matters. Go to LinkedIn.com slash twist and get a $50 credit towards your first job post. Hey, welcome back to this weekend startups.

We'll keep working on it. We'll get there. First up is Kenny. Tell me, what are you working on? and what's your biggest problem? Sure. So thank you for having me first. We are building Expedia for group airfare with a twist,

where we partner with airlines to automate their offline group sales. So before that we really get started, we really want to explain what group airfare is. It's a product that every airline sells. It's about 5% of their total ticket sales. And most of the world's airlines sell it offline, meaning that if you're a school, a sports team, or a tour operator, you have to call multiple airlines just to get pricing.

The product is unique in the sense that it allows the user to hold large blocks of space with just a deposit that's refundable, and then it allows them to split their payments and pay their final balance 30 days prior to travel and allows for free name changes. So over the course of the last year, we've been working on recruiting airlines to either test out our white-labeled product or integrate directly into our marketplace. And our issue is that now we have, we're a pre-revenue company, and we have multiple airlines

that want to do pilots at once. So we have a really simple revenue model. We charge $6 per ticket, and a mid-size airline would basically do about a million group tickets a year. So each integration is worth about $6 million in revenue. Okay. So your issue is you make a percentage of revenue and you have the chicken and egg problem. You don't have a flywheel going.

Correct. Because of the way you've chosen to price this, taking 6% you said? $6 per ticket. $6 per ticket. Yeah. But thank you for the education, by the way. This is a great way to ask a question. You explained to us what group sales was.

you anticipated that my first question or anybody's would be what percentage of that is, you know, what percentage is group sales anyway? Sure. It turns out it's 5%, which is actually meaningful. So I was like, okay, checkbox. I wrote that down. And I was trying to figure out what the discount is or why they even do this. Sure.

And you hit, you headed off at the pass. It's not necessarily about the discount. It's about the features. And one of the features is the name change. The other is locking in the pricing. and the other is the pricing term. And you're able to cancel for free. Oh, and it has cancellation.

Yeah. Like full fare tickets do. Yeah. But you're locking in a lower price for a group at this fair. So group airfare is typically more expensive. Oh, it's more expensive. More expensive. Because you're blocking out those seats?

You're blocking out about, say, 50 seats at one time. So you're taking the 15 cheapest seats and then you take those and then the price goes up. Got it. And then it goes up. And then the airline gives you an average. Got it. And then with all the benefits, they put a little premium. So now I understand it even more.

Because they do demand-based pricing, the less is available, the higher the price. They do demand-based pricing. If you're booking for a group, you'll book 15 tickets, and then the next 15 people to book, pay the price, and the final 15 people truly take the price. So if we were all in the traveling version of Cats, the Broadway show, show, the beloved show, which is not a bad idea. I don't know what anybody was doing for the next couple of months, but we could do that. The 16th person gets screwed. The 31st person really gets screwed and whoever the last five people are, if they want to be on the same flight are super screwed. So I get it. So I think that what, there's two things. One, if you're

fabulously wealthy, then fund the company yourself if you believe that this is a great opportunity. If you're not fabulously wealthy, try to convince somebody who is to give you an angel check, who maybe isn't in the professional venture community, who probably wouldn't fund this until you prove it out some more. Then there's a third option, which you may not have considered, which is your pricing might be the wrong pricing. Okay. And I understand why you came up with the pricing.

Airlines typically pay Expedia and those type of people $2 or $3 a ticket, right? About that, yeah. And so you decided to double or triple that thinking, hey, that would be great. But all of those companies actually now make their money from hotels, as you know, because they get 20% of hotels, 30% of hotels, and people stay in hotels for three or four nights. So they almost book the tickets as a loss leader to get your email and then upsell you on the rent-a-car and the hotel, which they get a bigger percentage of is my understanding, having sat through hundreds of travel pitches like this. You're making enterprise software, and you're doing lead gen and demand gen.

So I would pause for a second and say, what if I made a tool for the person responsible for the travel planning and sold that tool to the person on the team who has to book the travel? Sure. And you just said to them, hey, if you're booking travel for $50 a month, you can use our software to coordinate. What are your main pain points and make them booking software? Because they do that right now in an Excel document or a Google Doc or on an e-a-month. or on an email thread. I'm assuming. There's nobody out there who made SaaS software for the people who are booking travel on a regular basis,

like the coach or the person who runs the team. Sure. Is that correct? That's correct. And you did consider it. Yeah. So in full transparency, our founding team comes from a travel management company, and we did exactly that. Got it.

So we already have basically a contract management system for the customer. and essentially what we've done is we've taken that to the airlines like a Delta or Virgin Atlantic. And we said we have a contract management system. Now we want to integrate with your back office. Do you charge for that though, that function for the people who are the group travelers? How do you charge them? Like a travel agent would 10% on top? Yeah.

So essentially that's what roughly it comes out to. So all of these things where you take a piece of the action are very hard to get started. if you're an outsider in Silicon Valley who hasn't built and sold a company, hard to get funded by default. Sure. But SaaS companies are easy to fund and easy to get the flywheel going if you build something of just rudimentary decent capabilities. So the other possibility is that you create the software for the agents who book group travel on their side. And you make it super easy to solve three or four of their problems. In other words, and now they have their own archaic systems,

but if you had a fresh system and there were a couple of airlines who didn't have anything, you know, if Southwest doesn't even have a program or they have deprecated it and they don't even want to answer the phone and they just try to push people to not do it, which is probably what's happening here? It's true. Is that what's happening?

I didn't predict it. So, yeah, so some of the airlines are basically trying to push you to book in groups of nine and just instant purchase. So it is happening. Yeah, they don't want to do this, right? They would rather you just pay full fare, and they want to get those flights full and get there. And they know you're going to do it anyway.

You have no choice. If you're a flying team, you have no choice. So they're doing this begrudgingly, so maybe setting up a system where they could just manage it better on their side or bringing them groups and then charging them again a SaaS price. So instead of saying, I'm going to take $6 a ticket, which then, I don't know, they've got to get some business walk, MBA, to build out a model. What if this grows? We're going to lose our margin because our margin is

$30 a ticket. Sure. And we're giving these clowns $4 and they're going to take 10% of our actual profits. That's going to be terrible. If this thing works, it's bad for us. That's a bad place to be. If you're building software, I'll just say it again. And the customer who has to use that software says, if I use this solution, it's bad for me. That's not good. And with the exception of drugs. because the value proposition is so great for fentanyl and heroin. I'm just like, well, I know this is terrible for me, but I have no choice. It's just that good. It's kind of true.

It's funny because it's true. So I think making software that actually solves this, and then there's even stepping back and thinking, is there another way to solve this acute problem for teams and travelers and groups. So I would study what their problems are and maybe think about enterprise a better route than a percentage of the marketplace. So can I share with you a little bit about the one customer

that we are working with now? Sure. So we have an airline that we're doing a pilot with now and essentially... And they're paying nothing. It's an unpaid pilot. Yeah, exactly. So basically we have to prove ourselves in order to get up and running. Because that company is poor and doesn't make any money, I assume. No comment.

But you were scared to charge them because you were afraid they would say no. That's exactly right. Yeah. So let me just give you a pro tip in life. Don't be scared. Sure. It's just like if you're fearful, it's not going to work well as a general strategy in life or in business.

I think you got to come out of it guns blazing and you got to make them pay because you're providing value. And if you get nine knows and one person gives you $300,000 to build this out for them because they were going to build it themselves for $2 million. Yeah. Well, that would be a better option than just getting one person to say yes for a free pilot. Got it. Yeah. I mean, and also if they say yes to the free pilot, they have no skin in the game. Which they can bail out.

Yeah. When that person quits, whoever you're a rabbi over there is, who's like looking over you and making sure everything goes well, they leave. And then you're like, is anybody in charge of this? And they're like, yeah, I'm not inheriting that project. No, I don't believe in group sales. So you got to have some skin in the game where the company goes, oh, you know what? We invested a, we put the first hundred of $250,000 into this project. even though that person left,

we need to finish this project because we already got the budget for it approved and we want to see the results. Got it. So I think you're making those two big mistakes. One is taking the percentage and the other is doing for unpaid pilots. But I want to keep hearing more about it.

So send your updates to Updates atlaunch.com and let's keep the dialogue open. Let's give them a big round of applause. Awesome. Thank you. Appreciate it. All right, well done. You already know Zendesk because it's the world's best customer support system.

We all use it. all love it. But what you may not know is that they have an entire range of products now, and they call them the Zen Desk Suite. And that includes integrated customer support that lets you track and prioritize and solve customer tickets across all channels in just one simple-to-use dashboard. And of course, the Zen Desk Guide. It's a knowledge base for your customers so they can solve their own problems quickly and easily. Plus, you get live chat. Yes, you don't need a company to get live chat and you can engage with customers in real time. I prefer live chat. I hate picking up the phone. And of course, there's a call center if you're one of the few people left who

likes to pick up the phone. With all these customer support channels connected, it's going to be super easy for your agents to be hyperproductive. And information will be shared across your company so all those tickets could result in product getting better. All of this comes in a startup-friendly pricing package with a flat pricing structure. So you're not going to get murdered on crazy bills, surprise bills. Nope, you get that flat rate, which is what you're looking for. Qualified startups defined as series B or below, and under 100 employees, which is probably most of you listening, can join the startup program and get Zendes products for free for a full year. How's that for commitment? Zendesk loves the startup community. They came from the startup community, and now they want to help you.

If you're series B and below, you're going to get it for a year for free. You got nothing to lose and you get to use the industry standard. Go to Zendesk.com slash twist to get that free first year. That's right, a year free. Can't do better than that at Zendesst.com slash twist. Hey, everybody, welcome back to this week in startups. Good. Next up is Elise from Bloom Braws.

Okay, Elise, tell us what is Bloom Bras? So I found a Bloom Bras out of frustration. I could not find a sports braw that worked for me. And when I started to look at the marketplace, I found out that there were so many women who are in the same boat that I was. So 70% of women now are a decup and above, and that number continues to rise. Most of the brands stop at a decup. And so when I started looking at the product, I said it's not really an engineering, I'm sorry, a design flaw. It's an engineering challenge. So I brought in people from NASA, the shipping and packaging industry, a woman who does all of the

corsetry work for ballerinas, opera singers, Oprah, etc. And I said, I want to create a system that's going to take the weight from the front, pull it into the back, be completely adjustable, comfortable, breathable, and something that doesn't make you feel like you're wearing a suit of armor. So we've been shipping for about a year and a half. We've got partnerships now with REI, Macy's Title IX and Universal Standard. That continues to grow. And we're building out our community. That includes curvy women. So again, our size range is now the most body inclusive on the market. 28 C to 56 L. L. L. Yes. D, E, F, G, H, I, J, K, L. Which we can't keep the larger size than stuff. Are you telling me that all those letters exist in bras? They more than

exist in bras. Yep, take a moment there. Let that settle in. There's like eight more sizes that you carry, you carry eight more sizes beyond D? Yes. Wow. Yeah. I didn't know that. Let me ask you a really dumb question. No such thing.

You said that this was a booming market and it was like expanding market. No pun intended. So many puns. I live in puns. It was not intending that one, but it is an expanding market. Is that because of obesity or because of augmentation? So not augmentation, such a small piece of the market. So a couple things.

One is, yes, hormones in our food, obesity, women, our girls are developing earlier. And then a lot of these women just have never been able to buy a proper size. And then you have vanity sizing. So somebody like Victoria's Secret knows that their psychology saying if your measurements, let's just say are a 34C and they tell you you're a 32D, you're going to buy a lot more product. Okay. So there is a phenomenon known as vanity sizing. Yes.

If you give people the extra cup size, they feel so encouraged by achieving a D instead of a C, they'll buy more? If they are below a certain range, yes. The curfier women, they don't really want that. Wow. Well, I'm learning so much now. Well, thank you. And so people have been ignored. Yes.

Hormones are kicking in. Augmentation is minor, but people are bigger, generally speaking. So bras need to be bigger. and more supportive. Got it. And there's always room. One of the great things about this D to C movement

is that the direct-to-consumer movement is consumers love incremental, continuous improvement, and they won't shut up about it. So I have this eight-sleep bed and I tell all my friends about it. You know, Tesla owners won't shut up about it.

And so if you actually make a direct, and both of those are direct-to-consumer products, order them on the world. web, whether it's a Tesla or the AteSleep. I'm an investor in AteSleep, but not in Tesla. If you make something that is that much better and consumers find out about it, they'll spread it for you. So you just have to be really focused on product, which it seems you are. What is your biggest challenge today? So our biggest challenge is, we've got two. One is actually sizing. So that's specifically to that market. A lot of these women have never bought a bra

online. Let's define sizing. Sizing. Not sizing of the cup size. We're talking about sizing of the market? No, sizing of the cup size. Got it. Okay.

So we lose. So we're getting right now between 100,000 and 300,000 unpaid to our website each month. Great. Through SEO? No. Yes, through SEO, but no paid. But they drop off. So we're not getting the conversions.

They bounce. Okay. Yeah. But it's an extremely high. high bounce rate. And then the second one tied directly to that is returns. Got it. Oh, so people buy the bra and return it because it's not the right size. And can you reuse that bra or no after they do it? It depends on what condition it gets returned in. Okay. These are very specific tactical questions, which is good because I deal with tactical questions all day long. Literally my entire life is

talking to founders about tactical questions. Sometimes we move up to strategy and sometimes we move up to to the mission of the company. But you got the mission. It's pretty good. And on a strategy basis, seems pretty solid direct to consumer, but let's get to tactics. If people are bouncing off your site, do you A-B-Test your website? And if so, who's in charge of that and how many experiments did they run in the last 30 days? So that's a great question. So we are just starting to A-B-Test now. We tested a lot of different concepts. Remember my question. Is there somebody in the company in charge of it? Me.

Okay, great. And then how many tests did you do in the last 30 days? We have probably, I mean, I would say, no, we've had about 8,000 people that have in the last Right. You know what I mean by A-B testing? You have one web page go to 4,000. The other page goes to the other 4,000. Do you have software to do that set up yet?

No. Just using keeping. Which is fine. A lot of times we meet companies who have not started this part of the journey yet. And what you're going to find as a CEO who's a product-centric, CETA, who's a product-centric CEO is that you have to take that passion you have for product and then translate it into a passion for marketing and growth tactics and all the tools set there. And every time you level yourself up with those tools, you're going to answer your own questions. But as a founder, you're kind of like,

I'm just going to hand that off to somebody. It turns out for you, I would give yourself zero credit starting from right after we finish our conversation. So from now on, when you look in the mirror and you wake up every day. I want you to give yourself zero credit for the product you created. I want you to be disciplined about that. Because as a founder, you can get really excited. Like, oh, you know, I invested in Uber. I'm a genius, right? But that's over. That was 10 years ago. Let's forget about the fact that you made a great product. Start judging yourself on your ability to run a DTC company at the highest, most professional level. That's what you give yourself credit for. In order to do that, you have to master A-B testing of your homepage. And that means learning,

about why people bounce, what sources they're coming from, and just how to yourself run A-B tests, you're going to need to learn how to build those pages yourself and set them up and look at the metrics. And you know what? It's not that hard. Building a world-class product and being brave enough to start a company, those two things are much harder than learning those techniques. Now, you can buy it. You can have people teach you. If you really want to ramp up fast, find a consultant for $100 an hour and have them set the first three or four tests up with you. and then you take them over. That's a great way to do it.

Maybe hire two of them in parallel, have one person doing one set of tests for you, have another one doing another set of tests. And that's what I like to do. I'll use these consultants from time to time to just level me up in my own knowledge. And that's what you're going to need to do is start going on that journey

of leveling up your knowledge as the CEO. Because I can tell you, the CEO of the DTC companies that are working, that's what they give themselves credit for. Okay, I got the product. it's amazing, great, table stakes. That's what you're supposed to do. Now all that growth stuff, you've got to learn yourself.

How many tests can you run? How can you change the creative? Copywriting, what the offer is. One thing, as you know, probably, I think it's the company Allbirds that makes quarter sizes of shoes. So I'm sure you've been inspired in part by that. Absolutely.

Okay, so most people don't know about that. Anybody here ever buy a pair of Allbirds? Who's bought Allbirds? It's one, two, three, four. Great. And when you bought them, did you, by a show of hands, did you order, did you wind up with two different size feet? Or the same size feet? Okay, well, everybody had the same size feet.

Did they ship you multiple shoes? Oh, that's Adams? Yeah. Oh, it's Adams that does it. Okay, sorry. Adams, you're right. I juxtaposed it. Has anybody ordered Adams?

There's some hipster shoes. Anyway, what they do, their concept is they send you three versions of the shoes. So I'm nine and a half. They'll send me nine and a quarter, nine and a half and nine point seven five. And for each foot, I try each one on and then I send back the others. So that's a really interesting concept that you might want to go with, which is send three bras or send two bras and say send back whichever one on the first order and then lock them in.

We tried that and some of them came back in pretty bad shape. That's the only reason. And just it was a lot of being at this stage of the company. There was a lot of work managing the who sent it. Yeah. So, I mean, it could be a differentiator if returns are a big one and a way to deal with it. The other one is to send maybe three, if people want to order, they order their first bra and you send them or you get their mailing address and their email and you do a consultation

online with them. And then when you do the consultation, you send them three like fitting bras or some sort of measurement kit to actually do the measurement. That might be another opportunity. So we were investors in a company called Benchmade Modern. And what they did was they would make a 3D CAD drawing of your customized sofa,

which was 56 inches or 54 inches. And they would send you this printout that had a 50 inch couch on paper in a tube, 50 inch, 51 inch, 52 inch, all the way. to 60 inches and you tape it to your floor and you be like you know what you know if we were you know like married and this was our like living room we'd be like oh here we are like what do you think honey do you want to make it 52 or 56 should we put a side table there and you actually can tape it to the floor yeah and it actually worked yeah so there might be a creative solution there now what was your

second problem you had another challenge i want to make sure returns and exchanges which are tied to so this might be a pricing issue yeah um i'm assuming you charge 24 or $34 for this bra? 80. 80? I don't know the last time you've bought a bra, but... I haven't bought any bras. I'm kind of like a natural guy.

I just let... So our price point is somewhere between, you know, a Athleta and a Lulu Lemon. Oh, right, it's athletic bra. So it's 80. Ah, perfect. So at $80, they cost $20 to make or something like that. About that.

So you have... You might just need a little more... margin to absorb the stuff, or you might need to sell them in three packs or something to absorb this kind of an issue. So it might be a pricing issue. And this is where you're going to find out really quickly if you actually do have product market fit. Because if people aren't willing to pay extra for them, you know, then you might have a problem. Like the Tommy John underwear are not cheap. No. They're not competing on price. But they are competing on the quality of the fabrics, the feel.

And I, like, every year or two, I try a different type of underwear, and I just go back to Tommy Johns every time. Yeah, it's interesting. And I buy Tommy John. It's like 12 at a time. And then I take the other 12, and I just throw them away. I put 12 new ones in every whatever, 18 months. Yeah.

It's interesting. When we do pop-ups, we sell out, like we just did one a couple weeks ago in New York, sold out in two hours. But it's translating that onto online sales. Yeah. So if that's the case, you might be in a clicks in bricks. kind of situation was the term people used to use for this. You might want to find somebody who doesn't carry bras currently and do a bra party and just use

that. It might also another interesting idea if everybody's buying up all the Instagram ads and Facebook ads and Twitter ads and it's not a good place to buy anymore. Maybe you do, I don't want to say MLM because that has a bad connotation, but an ambassador program where you find your most passionate customers, you say them, have you. have you ever considered being an ambassador, we'll pay you, you know, $200 a month or whatever, $100 a month plus give you, you know, your bras for free. And all we want you to do is do like a bra party and sell bras or whatever.

There might be people who you can empower to be, to start this whole company off as a, from the ground up. And if there's that much margin in a bra, if you say to them, listen, the bras are $80. And if you sell them, we'll give you $30 a bra. Yeah, we're doing right now. giving them eight, we give them the bra at a very, very discounted costs, and then we're giving them 8% up until they hit a certain number, and then it jumps to 12%. For the affiliates.

Yep. For brand ambassadors. Oh, yeah. And are you using a third party for that? No. Just, I mean, there's a, there's an app that does it for us. Yeah. I mean, there's a bunch of different websites that do that kind of stuff.

I think the ambassador programs in the early days are quite effective. Agreed. Because then you build this base of really passionate users. How many bras have you sold to date? About 2,300. Great. So you're really in an interesting position. You have a database of a couple of hundred people who love the product.

Well, you probably have a database of hundreds of people, of which dozens might be super passionate about it. Do you know who those dozens are? And do you have a formal tactical way of operationally identifying them? So the answer is kind of. We're still too small and the market is too vast to really. There's gold nuggets in there. So our big consumer markets, curvy women, obviously, and then new moms, women who have gone through breast cancer, and then women who are older.

So as they've gone through kind of their menopause journey, they're not stopping being active. They're coming back, and they're the ones that are buying repeat. But they're not on Facebook and Instagram. They see an article that's written in the Pittsburgh B, and that's where they find us. Yeah. So there's so many tactical. things start's great. And I think you should really take some great pride and joy in the fact that you got it to hear and now you're faced the next set of complex problems. Yeah.

Which the fun part about these problems, they're very tactical, right? And the way to solve these is to test stuff and to talk to people who have done it before. Right. And that's my hope for you. It's one of the reasons the accelerator that we run has been very effective is once people go through the accelerator, we have a Slack channel or Slack instance with two or 300 founders in it. And, you know, one of the rooms is about DTC, one's about growth hacking, you know, one's about fundraising, et cetera. And they kind of can help each other and share notes because even though it might not be a sim, it might not be the exact playbook, it might rhyme a little bit. and there's all kinds of different offline techniques that you're experimenting with that are very powerful. And you're not going to solve them all instantly.

I think you have to get comfortable with maybe between three and ten times trying to address these problems to actually solve them. Yeah. That's the hard part of this journey is you're like, okay, we've got to solve the landing pages, and we have to solve paid, and we have to solve influencer. And fundraise. And fundraise. It all feels like really difficult.

The good news is if you can find just one thing that works, even on a modest level that you can control, lean into it. So find something in there. If you know it's boomers and whatever, 40 to 70 years old and that works, those people do exist somewhere online. And knowing that ideal customer and just leaning into it. I'll give you an example. We had a company that applied to the accelerator called PantyProp, which then rebranded as, Ruby, you know it. And they make swimsuits and underwear for when you have your period that don't leak

and that don't require a tampon that can be used with a pad. And they wound up getting incredible SEO for some reason about swimming when you're on your period and how to deal with that without tampons. And they just knew the moms of teens were, this was a very important problem to solve. Yes. And when you have that ICP, the ideal customer profile like that, that can be very freeing. Yeah. When Crystal knew, and she was just spoke at one of our events, scale, when Crystal figured out that her ideal customer profile was the mom whose daughter was just having her period or had recently started having her period, that really became the north star of the company.

Yeah. And then they made a kit for your first menstrual cycle. and they started doing events around that first kit and kind of celebrating womanhood and that process. And boy, did they figure it out. So for you, if it's people who have menopause or post-childbirth and the breasts are larger for whatever reason, because of the hormones and breastfeeding, lean into one. Get the SEI dialed in and find that ideal customer profile that buys six or seven of them. And that maybe isn't price sensitive.

Yes. Like boomers are not price sensitive. Right. And that's why they've been our most successful market. Yeah. But it is a market that, you know, it's not as easy as writing a Facebook ad. All right. This has been amazing.

We went double over time, which means it's super promising as a company. You should apply to our accelerator. Let's give it up for a lease from Blue Bras. Well done. All right. Nicely done. All right. Welcome back to this week in Startups Live.

All right. Well done. Pranav. or pranav? Pranav. Pranav. Yeah. That's right.

Pranav. Got it. All right. These are orange and blue shoes in front of me, which are the Nix colors. So you're trolling me. Great way to start this out. I love how terrible Nix are and we'll always be. Yeah, thanks for that.

All right, next guest. No, I'm joking. It's brutal. All right. So you have a company called Glyph, G. G-L-Y-P-H and you make these are these slipper shoes slides what do they call these what are the kids call these they're loafers lowers right I knew that so you have a company that makes loafers that's right that's correct all right so it's a direct-to-consumer a loafer that's right

why should I buy your loafers and not whatever comes up first on Amazon well I wouldn't buy what comes up first on Amazon. Or whatever's got the highest rating. You know how that algorithm works. It's a little suspect. A little suspect. Yeah. Okay. So whichever one has the highest rating on there. Why are yours better? So glyphs are made with digital knitting technology. And our goal from a design standpoint has been to make the only pair of shoes somebody needs to own their most versatile pair shoes. So for guys, specifically a lot of guys we find like they'll wear them to a wedding with a suit. They'll wear them on the beach and like kind of everything in between. So if you like to travel light, that could be one reason.

You a fan of these? Yes. These are loafers you said? Yes. You're a fan of the loafers? Yes. You said digital knitting. Is that what you said digital knitting?

That's right. Nobody here knows what that means. What does that mean? I know what digital means and I know what knitting is. What does digital knitting mean? So it means that the upper of the shoe is designed with the computer and it's constructed with factory automation. And so this technology to do this kind of thing has been around for a while,

but in the last few years it's gotten a lot better. And so these automated knitting machines have become much more precise than they were in the past, and they've become a lot quicker. Why is that important? It's important because you can make products like this. So maybe five or ten years ago you couldn't make these. How were loafers made previously if it wasn't done with digital knitting technology? Well, so usually you'd make a loafer out of a different material.

So this is a blend of recyclable fibers, Loafer's are made with leather. Ah. So you can use a different material. Is it more expensive or less expensive? It depends on the loafer. We sell them for $125. I'm talking more about your cost. So if I were to buy a leather or a pleather or vinyl or digital knitting technology, those are all different technologies.

Is it more expensive for you to make it this way? Or is it cheaper or the same? It depends on the shoe. so if you get, you know, a pair. Let's go with your shoe and the equivalent, yeah. Yes, if you, I think. By the way, just as a note for everybody says, we're all entrepreneurs, it depends is the worst answer ever. You're the expert. So when I ask you a question, like, or any investor, plant a flag and have a position. And it depends. We know it depends. What we're looking for is for you to, you know, it's like me saying, is, is there a coffee shop nearby?

And people are like, it depends. And it's like, well, what does it depend on? How far do you want to walk? What kind of coffee do you want? Just be like, there's three coffee shops within 10 blocks of here. The most expensive hipster one is X. The cheapest and closest is Y, and the middle of the road Starbucks is two blocks away and a Z. That's like crisp. And this is one of the things we train people in our accelerator

is to answer questions that keep the dialogue going and don't frustrate the investors who are trying to invest in your company. So let's try it again. is it cheaper for you to do digital threading or do you make a leather loafer for you as the producer of these right so i think it's comparable to you know maybe like a kohlhan loafer so what what it does depend on is the quality of the leather that's being used so most leather out there it's pretty cheap doesn't last very long it's comparable to that cost if you you know if you have a bunch of really high-end shoes then that leather might be more more expensive right let me show you how to answer

that question. Great question, Jason. For a comparable lifespan, the comparable lifespan of a quality leather is going to be about $30 to make that loafer. For us, our loaferes that are made with digital threading will last twice as long as even the highest quality leather and costs the same. And in some cases, for the most premium leather, which is about $50 a loafer, we can do it for 40% less. So it's a great question. So just so like your, your, your, doing the sorting and normalization of all the variables for me to understand. So basically, it costs you what to make this $120 shoe ballpark? 10, 20? Yeah, about 25. 25. And do you own that machine? Is that a big expensive machine? Or you just make these in China or

Taiwan or something? We work with manufacturing partners in China. I think in the long run, you can do it yourself, but the machines themselves are very expensive. What do they cost? And who makes them? There's two companies that make these machines. So there's Shimaseki and Stoll. Shimaseki and Stole, okay. That's right. So Shimoseki's Japanese, stole is German.

But the people that are great at operating these machines and the engineers on them are primarily in Asia. Got it. And so the machines themselves are about $100,000, so they're prohibitively expensive. $100,000, by the way, it's not prohibitively expensive. For us right now, it is. Yeah, okay.

Yeah, not for you. Like, we're talking with the venture capital kind of like show. So, like, just so you know, we hear $100,000. thousand dollars were like buy two you have a backup have a spare um the reason i answer that question i'm just going to give you a little background that was a probing question that i don't care the answer to i actually don't care that much what i wanted to know was do you know who makes them and are you like so obsessed with this that you could tell me the names of them and how much they cost It's a probing question.

That question wasn't about the shoe, it was about you, and you passed it with flying color. So congratulations. Did everybody feel his credibility go up when he answered that? And that's what investors are doing. They ask you a question, which is why you have to be great at answering questions. You're not yet. 50-50, but we'll work on it. Okay, tell me your biggest challenge.

Jason, our biggest challenge is around goal setting. Just to give you some context, you know, we're on the ground and China for eight months, came back, sold out a pre-sale, really just, you know, selling them out a backpack, people trying them on and buying them. Did that, got into 500 startups, sold out another small batch. Now we're doing a few thousand dollars in revenue per day. We just launched again last week. So the question for us is like really like what our goals should be in order to raise an institutional seed round. And like we kind of have this thing where we're selling them online. We're using, you know, social media channels. We're doing some paid, some organic. And there's kind of

this thing. We're like, we can sell them profitably at one amount, but we can also, if we want up the spend and crank things, we can sort of break even or lose more, but we'll grow more quickly. And so it's really hard for us to know, like, what our goal is to raise that around, like, what we should be doing. We've kind of taken in, you know, a few hundred K now off some great angel investors, but we'd love to really scale the company up. I think we need institutional money to do that. I just want to know how to get there. Great. Great question. Okay. So I'm going unpack it a little bit for the audience, and you can tell me if I'm wrong. You've gone through an accelerator. Great. You sold a couple of thousand pairs of these in one or two runs of shoes.

You did it, guerrilla style. Maybe you tested some paid. You did it in person. You did whatever it took. You made a little bit of money. So you've sold how many pairs total? Yeah, we've sold about, probably about 500 now. So we've done 50K. We've done 50K before we launched last week. Since last week, we've done around 20K in revenue. Okay, total number of shoes sold then is 1,000,000 pairs? Yeah, less than that, probably like 800. Okay, great. So you're still in the product market fit phase.

So you're still trying to figure out what consumers think of these, do they want them, and you're just starting the go-to market phase. So that's a little bit early for venture capitalists. Venture capitalists today are looking for in D to C companies, I would say, a minimum, of $5 million in sales. Let me say that again. Five million dollars in sales is what a venture capital firm would want to have to invest. Venture capital firms are now doing typically five and $10 million investments for a Series A for 20% of the company. In order to have a 20% of $5 million, that's $25 million post-money valuation, right? The company's got to be $25 million. In order to be worth $25 million,

you'd need to have about $5 million in revenue. Five or ten times, five million would be 25 to 50 million, right? So that's how people will value the company. That's the goal to get VCs. And I'm talking about like a benchmark, a Sequoia, a craft ventures, Indrisen Horowitz, Kleiner Perkins, light speed. They tend to invest in my experience

when there's more traction in these type of companies. Once in a while, if they know the founder, they've worked with them before, maybe they would do it pre-funding. So you're now talking about seed funds. So we're talking about a home brew or a K-Poor Capital or a cowboy ventures or pair ventures. Now, how do they make their decisions? They would look at this, I think, and we would look at this the same way.

What's the unit economics on this? Who's the founder? Do they have some unique insight with this product? And what do the customers think of it? And that last part, I think, is super important. One of the reasons a D to C company can break out is because the consumer, Consumers are so passionate about it and the product market fit is so extraordinary that repeat sales and refer a friend metrics are off the charts. So I think birds or all birds, what is it, atom or atomic?

Adams. Some of these things had very passionate user bases. So I think having a passionate user base really matters here. people who've ordered many times, many different versions of it. And then the economic works are important. You're also in a very crowded space, I think. Is that right? I think that's right, yeah.

Yeah. I think people are a little spooked right now because of what happened to all birds and they got copied by Amazon basics and stuff like that. So I think people fear Amazon. You're going to need to have an answer for that. And so I would look at building this as a sustainable business with great margins. I would not try to have growth at all costs

because it's a little bit out of your hands the venture capital community's current view of D to C products in highly competitive space like shoes. Because you're not early. You're later, right? You're a couple years after all birds and other options in shoes. So I think you've got a challenging situation,

which is why I would figure out how to make this unit economics work. How much has it cost you to acquire a customer through paid marketing channels today? Our paid KAC is $27, and then about half of our sales to date have been free, so through referrals or people finding out about it. Great. Tell me about the referral program. How does it work? We don't have a referral program, so it's just people telling each other.

Got it. Word of mouth is what you refer to. Yeah. Okay. Word of mouth means there's no compensation. Referral means there's some compensation for the people doing the referral. referring. So that might be something to turn on as some sort of referral program. If you're a friend, they get $10 off. You get $10. Refer a friend. Anybody here ever tweet or share socially

a Dropbox, give five gig, get five gig or Uber, give 25, get 25? Everybody ever do that? I have. Okay, good. Looks like half the people in the room. And that's all you need. So that's great. That's a great opportunity to turn that on. So now, since you said these cost $120, and it's $27. They're 125. Yeah, in the CAQ. KAC is 27. Customer acquisition costs is $27. You totaled us already these costs 20 or 30 to make and ship?

Yeah, yeah, in that range. Okay, let's round it up to 30, the bigger of the two numbers. Let's round the KAC up to 30. That means every time you acquire a customer online, you get $65 in profit. And if some percent have returns, 5% or 10%, I don't know what the breakage winds up being, you might be clearing $50 per order. There's also shipping to people's houses. There's tariffs.

There's some other cost baked in. Let's make another 10 in. So you make $40 of the $125. Yeah, I think that's fair. $40 would then let you, since the KAC is 27, every time you get a customer and get their money, take that money and spend it on a next customer, correct? That's right.

I think so, you know, the KAC you have is something you can kind of control. And so the more dollars that you're spending per day, the higher your tax is going to get, but the more revenue you're going to have. Right. So I think to your original question is like what you should do here is I think you should run a profitable business

and get passionate users and then be able to sell that in 2020 to investors. This is profitable already. We can just keep acquiring customers. If you give us more money, that's not going to office space or me giving myself a raise or paying back some loan I took.

It's just strictly going into paying for more online advertising, and I've proven it over these 12 months or these three months. So three to six months of 10% growth month over month in paid advertising, resulting in growth profitably, I think it's a no-brainer that you close a seed round. But you don't have that. You have spike you. Yeah, we just kept selling out. We'd have these really small batches. We don't have any money when we started the company. So we'd take all our money, buy more shoes. You have a four-month lag from when you place an order until when the shoes are sitting in a warehouse in the United States.

We've got that down to three, and because of 500, I think now we've got enough cash to have consistent inventory. Yeah, so I think that you're on the cusp. I would not go for growth at all costs. That is unnecessary because I think the investment community, after we work, we're now moving into a post-growth era and moving into a profitability era,

the public markets want profitability, the private markets want to growth, and now growth at all cost. I would say. And now we're going to move into a new era, which is growth is, we want growth. That's reasonable. And we want strong growth and strong profits, as opposed to, don't worry about the profits. We'll raise prices later. Let's raise prices when we get to 100 million customers, right? That may have worked for Uber or Airbnb to like raise prices later. I don't recommend it for you in 2020 because remember, you're operating in a system known as the world.

And in that world, there are subsystems, and the subsystems are the public markets and the private markets and investors. Investors right now are feeling very cautious about growth at all costs. So under no circumstances would I tell any of our companies to go for growth at all costs? And I'm on the board of a lot of companies where this does come up. It's a really prescient question, so I think you're thinking the right way. That doesn't mean you can't have growth goals. It's just that the goal of five-xing revenue year-over-year is no longer, I think, really interesting to people

if you can do three times year-over-year sustainably. So five or six times year-over-year growth unsustainably, not as attractive to investors, I believe today, as three-xing year-over-year sustainably. Make sense? Cool. Yeah, that's really helpful. I appreciate that.

Yeah, okay. Well done. Let's give pranav. Pranav. Yeah, pranof. Pranav. A big round of applause. And thank you.

These are amazing. How did you know nine and a half? Listen, hiring takes a lot of time and you're the founder. It's going to fall on your plate and you know how much time it takes. And that's time you may or may not have. Likely, it's the latter. You don't have the time. So urgency is your enemy when it comes to finding the best candidates.

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and of course our marketing maven manager, Maureen. They are doing a great job, amazing team members. And we're at it. Hiring again. Here's Prash. He's doing my associate Prash is creating a job posting for our new position. He quickly selects the skills needed, writes a description, and adds additional screening questions, my favorite. And he sets the deli budget and is off on his way to finding a great candidate or within a few minutes. Here is your call to action. With LinkedIn jobs, you pay what you want and the first 50 is on them. That's right. A fitty coming to you right now at LinkedIn.com slash twist. You will get $50.50, a great offer. I love when they give a cash offer. That's LinkedIn.com slash twist. To get $50 off your first job post terms and conditions, of course, apply because they're giving you a fitty. All right, let's get back to this amazing episode.

Hey, everybody, welcome to this week in startups. Ah, now we're talking. Now it's getting crisp. I like it. All right. Next up on the show is Mark. And he's from a company called Recapped, a company which recaps failing startups. No.

No. No. Okay. What does recap do? Yeah, great question. So we found out that it's a terrible word for finance after we started the company. Yeah, recap means this is a total shit show. How do we fix it?

We just take everybody on the cap table. We destroy any equity they have and then give it to the next people. Yeah. Great. So we don't do that. So we are the first project management platform built specifically for businesses to use with their clients. You're the first project management software for companies to use with their clients. So as opposed to using Asana in my organization, which we do and love, I would use, I can't use Asana with our clients.

Have you ever tried inviting 12 different stakeholders in there? I actually haven't. No. Okay. So that multiplayer, a multi-org mode, not multiplayer. Yes. Project management was single player, went to multiplayer. Yep.

You're a multi-organization. Specifically around closing complex deals, managing pilots, and, you know, and the project. and then onboarding those customers. Got it. So who would be your ideal customer? Tell me about your ideal customer profile. Yeah, great question. So we actually have two right now that we're experimenting with.

One is startups of any size, you know, if they have a complicated sales process or an implementation where there's a lot of checklist, a lot of moving parts, and deals fall apart. That's the ideal one. The second one that we're having good luck now with closing are the Fortune 500 enterprise companies that have 12-month sales cycles, again, a lot of moving parts, a lot of complexity, everything falls apart at a certain phase. Okay, so I'm at an enterprise software company, and I need to sell into a big company, and it's a three to six-month sale cycle, and there's a bunch of things that have to be done in order to close that sale. You make some

checklists for us to, on both sides, work on the implementation, the scope of work, et cetera. So if I'm just doing this internally, I can use whatever task manager I have, whatever plug-in for Slack or Asana, perfect. But if I wanted to have my client, let's say the client was Goldman Sachs for my SaaS software, and they have a compliance department, they have a technical API department, they have IT. You can invite their IT department. You can invite all of their people and stakeholders into the checklist and say these are your action items in order to get the deal closed. Exactly. Okay. How'd you come up with that idea? I wonder. I needed it myself. So what? So as a of sales leading a couple sales teams and I spent years before that in what company it's called

app academy it's like the pre version of lambda school got it so you would have uh enterprise partnerships enterprise partnerships that's interesting so you had an it you scratched it great um how many is is the product launched recap to launch yet yes so we came out of private beta a couple months back and yep we already have decent amount of customers a dozen two dozen or three three dozen three dozen customers. Of those customers, how many are paying you? All of them. Okay.

Now you got my interest. On top of that. So we did an alpha launch earlier last year, and we got about 1,200 one-time payments. So we have a couple hundred monthly active users. Got it. Perfect. Great. You're testing.

So just so you know what's going through the mind of an investor, I'm like, I don't understand if this product is really necessary or not. This sounds like maybe it's too niche. but then you sort of the results were so good, you know, you can fake a half dozen customers, my two fraternity brothers, my cousin, the two companies I worked for before, I convinced them to buy the software on their corporate cards, and you can kind of fake it. I'm not saying that other accelerators do this kind of stuff, and they've other companies encouraged this kind of like faking stuff, but I do see that little bit of faking, and I'm like,

where did you source these first five or six companies? and then eventually they're like, and then I just cut them off the past. And I'm like, did you work at that company before? Because those usually make the best customers, or is it a friend of yours who's doing you a favor and doing you a solid? Because that's really good if you can sell into your own network.

So I could give them permission to admit it. Then they admit it. And I'm like, okay, well, this is a complete fraud. I just say that in my mind, not outlined. So I usually think, let's talk about the sixth, seventh, and eighth customers. So for you, 36, can't be faked. What's your biggest challenge today? Yeah, so actually to your point, so really when we're talking to customers, and this is kind of twofold because it's customers and investors.

So there's really two buckets. One, we get on a call and someone's like, oh my God, this is a huge problem for me. Never thought there was a solution out there. All buying the spot. It makes up about 30% of the people we talk to. The other 70%, whether they're investors or customers, are like, they need educating. So how do we balance or how do we find those early adopters? and when we're also talking to VCs, even though we have revenue, we have traction,

we're sometimes told that we're too early, even if they invest in pre-revenue companies. Okay, so if you ever break up with somebody, like in a romantic relationship? Once or twice. Okay. In the hours, days, or weeks before, months before making that decision, would you say that it was anxiety-producing or no big deal? anxiety. Okay. So now you know what it's like to be an investor.

It's incredibly anxiety producing to tell somebody who's sharing their hopes and dreams that you spent an hour with and maybe our mutual friend introduced us. And now I have to tell you, oh my God, thank you so much for sharing your life's work. No. I mean, it is hard. So that's why I always say not yet. And I try to give founders the candid reasons why. that makes me the unicorn of investors because most investors do not like to be honest about this

because it could hurt people's feelings. And if you hurt people's feelings and you're like, listen, I don't want to date you. You're just really annoying. You know, like imagine saying that to somebody. Like, I can't stay in this relationship. You're very annoying. Is that person going to come back and date you if you made a mistake? And what are they, you know, so investors are not honest with their feedback.

So I would, whatever they're telling you, I would. write it down, and then I would do probing questions to try to figure out what the actual reason is. So if they say not enough revenue, not enough customers, you say totally get it, that's awesome. If there was a certain number, I'm not going to hold you to this, but if there was a certain number of customers or revenue, that would be a great time for me to reengage with your firm, what would that number be? And if they say $50,000 a month, okay, they probably are being honest. If they say, yeah, I'd have to give that some thought and talk to my partners or there's like any pause and the pause is not followed by a number, then that reason was probably not the actual reason.

It was probably they don't like you, they don't like the idea, they don't have any money left in their fund. I would just not take it personal. I would just move on very quickly because it is a numbers game and you only have to get one. You need only have one person say yes for everything to go right for you. So you can't take it personal. most VCs meet in person with 100 or 200 people to make one investment. That means 99 or 199 people are getting bad news.

So you seem like a very logical driven person to me. And for you, it must be short-circuiting to get a no. So I treat it very much like a sales process. And for me, it's the same thing, right? Every no is one closer to yes. But I guess for us, it's really just when we see them investing companies that have nothing. more than a slide. Okay.

I guess that's what I'm trying to get into. Now you're in the dark place. Now you're in the really dark place. So, um, jealousy, anger, frustration.

To the dark side, they will lead you. This is the road to darkness. I literally have this happen all the time. And it typically correlates with the most driven founders. I just saw X company raise $100 million for less than a fraction of what we've just done.

How on earth did that happen? I'm going to go raise $100 million for my company. And it's like, I have to sit them down and say, okay, you don't know what happened on the other side of that relationship. They could have been in a fraternity together or worked at Goldman Sachs together and they are just sympathetico and they want to do big projects together. Or that could be a first-time investor who is about to lose $100 million making the biggest mistake of their life. And that was the stupidest bet you could ever make.

But you're sitting there going, why can't I get somebody to make that kind of investment? I.e., imagine you are running a co-working space that launched before WeWork. And then you watch, WeWork raise a billion dollars and then $2 billion, then $10. billion dollars you would be bouncing off the wall you're like I know I looked at that building I I know what they paid that the broker told me what they're paying doesn't everybody understand that they're losing money on that office every customer they get they lose $100 a month and that person just invested in that company they're gonna lose all their money you're right yeah so I have this

happen all the time and there are weird things that happen in this world all the time and you have partial information. Your job is to ignore the outliers and then focus on the normal. Companies, VCs invest today in SaaS companies that have low churn, that have land and expand, and VCs tend to engage when they have $2, $3 or $4 million in annual run rate.

Are you anywhere near those numbers? Everything except for the revenue. Great. So you're not in the VC court yet. And when VCs do jump the fact, fence and give a fabulous amount of money to somebody, it tends to be somebody they worked with before who took up company public. Did you take a company public or sell it? Or did you work with them before? Not yet. Do any of your current investors, are they friends of yours who knew you before?

Our angels will be. Correct. So now you've proven it. Because there's somebody who doesn't have rich friends who can't get the angels who's like, I have more traction than that guy and he got angels to do it. And he doesn't know that those angels are people who trust you from your previous relationships. right? So that's what's happening in the world. And so if that's what's happening in the world, you have to look at the average, not the outliers. So if in their portfolio, there's two or three things they invested in pre-revenue, that's fine. They probably know that person previously and had success with them. Right. That makes sense. Don't take it too personal, right? Because you're looking at it with logic and a lot of this has to do with relationships and also people make mistakes.

like Masayoshi-san looked like the smartest guy in the room, which, by the way, I know him, he is, one of the smartest guys in the room, and now he looks like a fool. I can assure you Masayoshi-san is the furthest thing from a fool and closer to brilliant, and amongst the best investors of all time. He just happens to have made maybe a mistake or two here,

which can happen. So what are the things you can control you can control getting those meetings, being gracious, and trying to figure out, ignoring what people tell you the reason they're not investing, and just trying to get, when should you reengage with them? It is a numbers game. Your job is to figure out why they said no. Press them a couple times to figure out what could have resulted in a yes if they're willing to give it to you. If they're not, you can just dunk on them later when you actually have revenue. And then there's a series of investors who like to take, make investments in companies with under a million in revenue.

Kind of my bread and butter today is finding companies that have three to $50,000 in revenue and getting them to come to the accelerator and solving this very acute problem, which is how do you get people to make a decision here because there's too many companies to deal with? I'll give you a handful of examples. FitBot had $3,000 a month in revenue when they came. They're out of a million dollars a month in revenue. two years later. Lead IQ had $200 a month in revenue. I can't say what they're making

exactly because they haven't been public about it, but it's millions of dollars. And so people will make the decision as your credibility goes up. So all you can do is focus on getting your credibility and delighting your customers. Just delight your customers. I introduced Uber to 21 investors in a room, half the size of this. Three people said yes, including me, 19 said no. The defining company of the last 10 years is Uber. That's the highest valuation, double the nearest competitor, the most important company the last cycle. The company before that was Facebook.

The company before that was Google. Company before that was Microsoft or Apple or both. So most investors miss. So for you to try to put any logic into it is a fool's errand. Makes a lot of sense. Okay. You should apply to the accelerator. Great job.

Let's hear it one more time for Mark. Thank you. Awesome. Well done. All right. This has been great. And we'll see you all the next time. Bye-bye.