This Week in Startups - E1014: Open Office Hours LIVE! Jason helps founders with their biggest challenges: targeting a specific segment of customers, overcoming past failures in a market, developing new nuclear energy, competing against a major incumbent & more!

Episode Date: December 31, 2019

0:49 Jason intros Open Office Hours Live at Neyborly 1:09 Sebastian from Tailpath asks Jason how to generate consumer habits to drive demand 18:37 Sana from Ribitt asks Jason how to overcome past failures in a lucrative market 38:21 Elizabeth from Deep Isolation talks with Jason about solving nuclear waste and developing new nuclear energy 52:12 John from Sircles asks Jason how to take on major incumbents in a large market

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Go to LinkedIn.com slash twist and get a $50 credit towards your first job post. Welcome back to this weekend startups. Yeah, everybody's eating pizza, having a great time here in San Francisco. We run open office hours. a couple dozen times a year. It's just a way for me to get together with founders, try to give them some help whenever their most pressing problems are, and maybe meet a few to invest in eventually.

So next up is Sebastian. His company is Tail Path. Tell me, what are you working on? And what's your biggest problem? Hi, thank you for inviting me here. So we are working on securing the tracking of goods. That's what we provide. We are a B2B company.

and our biggest challenge right now is to create demand for our products. So we are on the way to product market fit, that holy grail of startups. And while on that path, we discovered that we are selling to companies that want to securely track their goods, right? But those goods are probably sold to consumers if we take the business side. So just we are targeting free niches. So one is public sector, the other are NGOs and the other are businesses. On the business side.

Whenever you were explaining something, always give a great example. So we tell everybody examples matter. We're all wondering, in this B2B business, you're tracking goods. And so we're wondering what goods are you tracking, and why are you tracking them? And from where? So are you tracking stuff in a container ship to make sure it makes it from China to the port of San Francisco or Los Angeles? Or are you tracking stuff in a supermarket to make sure people don't check? shoplift? Are you using RFID to do this? Are you using satellite? Give us an example of who your

customer is and why they use your product. Okay, so we have on the business side, as I was saying, we have three use cases that we are working on right now, tracking of diamonds, honey, and wine. Okay, you didn't say that before. Diamonds, honey, and wine. These are the three areas that we are exploring in the business side. How do you track diamonds, wine, and honey? Okay, let's take diamonds. So we are actually inscribing inside the diamond, a tiny QR code, and then you have to magnify it 50 times and check it if it's legit or not. And they already do that now. Not really. Not with QR codes, but they do mark diamonds. Not so much. Are you saying a low percentage of diamonds are actually labeled? Because I've heard about this technology to label diamonds many times for many years.

They label the things around it or they come with some sort of certificates, but that's exactly the problem that they're actually lost or counterfeit along the way. Got it. So you want to put a QR code in a diamond using, now we all want to know what technology does this? Our client is providing the technology. So we are providing the QR code and the tracking system, the secure tracking system by using blockchain. So that's what we're doing.

Now we're starting to understand. You're taking diamonds that in some, Some other person has a technology to put a QR code on them. Then you want to take that QR code and put it on the blockchain. No, no, no. We provide the QR code. You give them the QR code. Then you take that QR code, put it on the blockchain, which is immutable.

Exactly. Which means it cannot be changed. Exactly. And we know that this 3-carat, Asher Cut, with this clarity, has this QR code. Right. And originated from this dynamite. And the traceability, yes, on the map. Got it.

On the timeline. I have heard this concept actually before as well. A lot of people wanted to do ICOs around tracking diamonds and high value assets on the immutable blockchain. Very obvious idea, obviously, if you're talking about the immutable blockchain, a public ledger for everybody to have access to the most secure stuff. What does honey have to do with this in wine? Those are consumables. Right. Wine could be collectible.

So let's take honey. So there is three times more honey sold worldwide yearly than it is produced. So the two-thirds are fake. And that leads to people dying, actually. So that's a huge problem. And then in terms of money, there are a lot of money lost, as you can imagine. You'll be able to identify the honey that is good. Exactly.

Because the people who make good honey are going to laser inscribe in the honey. It's enough just to put somewhere on the cap. Yeah, you put it on the box. On the box, and then you put on a jar. And you have to serialize each jar. So this is your job. your idea for a business. How do honey providers currently make sure that people are buying honey that is legit? Well, they sell to legitimate distributors. So they don't actually have this need.

So the distributor is the proof point. So we have four actors, the producer, the distributor, the retailer, and the end user, the consumer. So the honey producers in that example are only interested in selling to distributors. But, however, and that's our problem and our biggest challenge, how do we create demand? Tomorrow, or I hope I dream someday, the consumers will say, okay, is this jar of honey certified in some way? May I track or see the provenance of this specific jar? You think consumers want to do that? Yes, I would want to know.

Yeah, yes, because if you see the numbers on wine, on a lot of other niches or industries, we eat a lot of bad stuff. You have no idea what, I see that pizza for the high. So do you know how it was made? I'm pretty sure you don't. You kind of trust the pizza place that you bought it from? But I could see with some high-end item, the stakes going up, you wouldn't want to know that this wine was certified. And so there is a marketplace called Stock X. And what Stock X does is just for high-end sneakers, which costs, let's call it $300 and above, they, if you want to sell one, you send it to Stock X.

So if you have the pair of Yeezys, you sell it, you send it to Stock X. Stock X then sends it to the buyer. And in between, they have a group of people certifying that they're real and putting a tag on it with a hologram. And that is part of it having the provenance. And then obviously auction houses are supposed to do this. and wine resellers are supposed to do this or wine consultants. So I think it's like a very intellectually interesting discussion of the blockchain that's occurred for years of provenance, I guess.

Exactly. Provenance. Provenance. Provenance is the term that people use. And I think it's incredibly niche. And most people don't care about the provenance of their consumable items. And so that might be your problem is. Exactly.

You know, you feel that this is important, but the world doesn't, right? And so that is a very hard place to be as a founder because you have to solve two problems. One, you have to build a business, and two, you have to make people care. Very hard to do. And actually, if you look at Tesla, it's really the perfect example. Most people did not care about electric cars. They had long forgotten the EV-1. And when Elon invested in the company and then eventually became CEO of it, the Roadster was a toy.

that was super expensive that 2,000 people bought and it was a proof point and then the Model S, you know, thousands of people, then tens of thousands of people bought and that was a 10 year crazy journey over 10 years now and so it's very hard

to get consumers to care about something that's completely radically new like this, I think. That's why we are not only targeting consumers. We are actually not targeting consumers at all. These are the problems that target consumers but we do have two other interesting use cases and pilots that we've ran already, paid pilots.

Okay, what are the paid pilots? So one is with donations, tracking donations of clothing items, adding an accountability layer to the donation process. So now you have no idea where they get to. You leave them somewhere in a church or deposit or some box on the street. Somebody paid you to track old clothes. Yes. Who?

It's an NGO. Okay. That's wild. Yeah, we have a company called... aid tech that was doing something similar in the blockchain, but doing it for donations, for refugees. Of money or items. Yeah, no, more for aid.

And on one side, you know, you could donate and then see on the other side, oh, this refugee from Syria. That's a big problem. And we are actually in discussions with the World Food Program on that area. And the third thing that I would like to add, because it's pretty interesting we've been the technology providers for the largest medical military exercise in NATO's history. So NATO used the whole technology for 2,500 people from 40 countries in Romania this year in April. So because we are in a crowded space of startups on a blockchain, of course.

We are blockchain agnostic. By the way, we will not issue any kind of coin or we are not stuck into a blockchain. We are using public blockchains. what differentiates us from our competitors, let's say? But what is your biggest challenge? Getting consumers to drive the demand here? Not only consumers, but to find the product market fit and to find which target group do we solve the problem

the most stringent problem for. Because we found we solve a problem in the military, we solve a problem in donations tracking, we solve some problems in wine diamonds. So the way you're going to know if you actually solve the problem, I might pause for a second. When? No, no, hold on.

I might pause and think about if you've actually solved the problem for the military. And the way to know that would be you were able to raise your prices and they renewed and did the product again. So you did pilots. Did the pilots that you did, the three pilots, result in people saying, I need to have this technology. When can you have it up and running to do like a full-blown deployment? Or did they say thank you for that? that was interesting. So as you know, in the military, it takes a lot of time. The sales process takes forever.

So we have no idea if we are there yet. On the donations side, we have some good feedback from the market, let's say, but it's too early. So that's why we are now focusing on the business. You didn't answer my question, which is, did any of them renew? Of the three, have any of them spent more money with you? Yes, the ones with the donations. The donations? Yes.

How much did they spend with you on the pilot? How much did they spend with you on the renewal? Ballpark. So the pilot was done on a monthly contract of $1,000. It's discounted from $1,500 from our price point. And then it was almost one year ago, and it's an ongoing contract. Great. And then they paid another, let's say, $10,000 for new things to add to the platform.

So you're making custom software for them. They're paying you $1,000 a month. So that's, I think, the right way to do it is if they're willing to build this custom software and solution, because it's an emerging market, you have no idea when the market will actually manifest itself. The market for electric cars took decades. The market for crypto might take an immutable blockchain and tokens. It might take decades. It feels like that to me, actually, because here we are 10 years in and there's no real. a good application yet.

So other than speculation. Well, I hope we are one of them. Well, hopefully. And so I think what you have to do is survive until that time. And so I think actually doing paid pilots and custom work is a good idea because you'll learn. And then it takes the pressure off you're having to raise money. We have raised some money on a pre-seed.

And we are right now actually raising some more. Yeah. I mean, the space has been kind of, it's really been tarnished. by the ICO movement. So in Silicon Valley, there's no appetite really for crypto projects right now. Well, we are not a crypto project. We are a software as a service that uses blockchain as a security layer. So that's...

Yeah. So, you know, I think you're going to get it, even with that, people put the blockchain with crypto. You may think it's different because you're a crypto person. It is different. But that's not, they're not going to look at it differently. They're going to put it into the same ICO bucket because when people were selling ICOs, they were leading with blockchain.

So it's part of the ICO movement. It might eventually emerge that public blockchains that are immutable are just so transcendent that that's more important than the tokens. Who knows? But I like your strategy of doing projects, doing custom software. Now, most VCs and investors are going to say, you shouldn't do custom software. You just build a platform, whatever. But I don't think you have that luxury in this situation with a market so demolished

after the ICO madness. So I think you should just keep doing what you're doing. and take your time. Don't try to raise money. Just do these custom software projects until you start to see some pattern that actually gets traction. It's very much like the virtual reality space,

which we've had like over 30 years. There's been so many different virtual reality swings at bat. And to this date, there's no virtual reality application that people are crazy about. Did anybody put on VR goggles today? Raise your hand if you put on VR goggles. How many people put them on yesterday?

Anybody, you did put them on yesterday. You did put VR goggles on yesterday. Okay, that's strange. That's the first time that's ever happened. Did you immediately take them off and hand them back to the person? Anybody else use VR goggles, by the way, that was one out of like 60 people in the room. Did anybody use a VR headset in the last 30 days? Raise your hand.

Okay. Now, that's an interesting one. One, two, three, four, five, six, seven, eight. Do any of you own VR goggles? Raise your hand. One, two, I own them. I have never used them. I'm going to draw three.

Okay. So you can see that has been like this long journey. And if I were to ask people, how many people used a VR product? How many people use a VR product regularly? Every week. Raise your hand. Okay, nobody, including the person who used it yesterday by happenstance. So you look at that space.

I mean, we're talking about tens of billions of dollars have probably been poured into it. And still, No consumers or B2B products are really making it work. It might be that in 20 years they'll be sitting here and there's still no crypto. No, sorry, I have to, I have to kindly disagree because we've just been to OECD forum. I'm just telling you there might be. So given that there might be no product that emerges, obviously you're doing it so you believe it's going to be quicker. I think you have to prepare for winter.

So what I'm telling you is, you know, it's a little cold out there and you see the snowflakes and they're like, what they call them flurries? Yeah, no, it's really hot here. But you know, like, you come outside the door and you're like, oh, it's flurries. I don't think there's a blizzard coming. I think there's a blizzard coming. I think you're going to be snowed in.

I think you're going to run out of provisions and all the crypto. Bring it on. We're ready for it. So thank you. Let's hear it for Sebastian. Good. Well done. Thank you. Good job. Wow, the holidays. It's so stressful.

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talking about right now. And you see it in the app store. You see it in the app store in the rankings all the time. It's because so many people are getting such great value from this company. All right. Let's get back to this amazing episode. Hey, everybody. Welcome back to this week in startups. We are live here at a neighborly in the Mission District of San Francisco. My next guest is Sana. She is from Ribbet. It is a neighborhood-focused rewards app that unlocks and empowers mom and pop shops, which have obviously been struggling in the age of Amazon and Walmart before that. And her biggest challenge is that investors have a negative bias towards mom and pop towards the mom and pop market during meetings they've had. I will tell you, Sana,

there's a reason why they have that negative feeling. What do you think the reason is? I don't think that maybe I didn't frame that correctly because it's not that they are negative about the mom and pop market. In fact, I think it's an exciting market because it's huge, and it has been, it's still largely untapped, but I think the negativity or the biases around it are that multiple failed attempts have taken place in this space.

Got it. And so the biggest struggle is that we spend the vast majority of our conversation about distinguishing ourselves and setting us apart before we can dig into the opportunity further. Right. Because people have historical institutional knowledge and you are acting in a system called the history of startups that have been attempted. One of those startups that was attempted was Groupon. The early investors made great money.

A lot of people lost money and people, for some reason, consider Groupon a failure and living social failure now, and I think that was largely expectations, but you have to fight against that. And also, Amazon's ascension means I think we can all see the end of the mom and pop shop. I believe there won't be mom and pop shops. There might be mom and pop experiences, but you actually think there's going to be mom and pop shops 10 years from now? So it's been super interesting. The way we look at the mom and pop shop market is... What about my question? Do you actually believe there'll be mom and pop shops? Absolutely. Absolutely.

because I think that Amazon can't replace an experience that takes place in store. We're always going to go out on a date and you're going to want to go to a really nice local shop, which says something about why you went there. You mean a restaurant or a store to buy goods at? It could be. So when we say mom and pop shops, it's of every category. So whether it's- So I believe restaurants and experiences.

Absolutely. Yeah. So I believe restaurants and experiences, I'm talking specifically about e-commerce versus buying stuff in stores. Yeah, I think that there is, I think that there'll always be a space for. brick and mortar. It's a different experience. People focus on wanting to spend their money on products that are sustainable, that tell a story.

And people are focusing on, so actually an interesting thing. So despite Amazon's growth and people buying e-books, in New York, there has been a 35% increase in independent bookstores. Groceries, like small grocery shops. I think it's just a lot of, you know, Just the read- No, why in New York specifically? Why did that happen?

I think there's a huge focus on- Was it like a 35 increase of like there were six shops and now there's eight? Because two rich people love books and they started a money-losing bookstore? No, I think it's actually the focus on people being more conscientious of where they're spending. Local shops collect-

Did Strand shut down in New York? Sorry, which one? Wasn't the Strand, the big bookstore? And I think they shut down in- Not entirely sure. Ah. So just so you know, when you quote something like that as a proof point, like that's your proof point, your evidence, you better be able to back it up and know the knowledge, just if you're going to deal with an

investor, because they might think that's a really interesting point you have and then research it, and you want your credibility to go up. So you should have that a little bit more backed up. There are six stores. There are two more, so it's gone up 35%. But what's really interesting, those two stores are sold out making this amount of money, and they're now opening the third and fourth locations. That's a much better proof point. Because as you're saying your proof points, I'm disagree. agreeing with every one of them. Right. So you have to make sure that you're actually registering that I buy into what you're selling.

I think D to C, direct to consumer, is going to be the nail in the coffin of local retail. I think people do care about what they're buying and putting it in their body, but I think they'll just want to order it from their phone or from Instagram. So your business is going up against all of these trends and what VCs look for is, and they have historical knowledge and signaling that says, if a market is rising, all the startups and it go up and you can become part of this groundswell. So we call it internally when somebody is selling, when somebody is going against the market like this, the market trend, we call it, you know, like selling ice cream on the Titanic.

Like, yeah, maybe you'll sell some ice cream on the Titanic, but it's going down. and there was a whole cohort of companies that sold solutions to local newspapers to keep them from going out of business and let them compete against Craigslist. Do you know how it went? No. Go ahead. Do you know what a local newspaper is? Yeah, for sure. Which one do you subscribe to?

None. No, that's true. Have you ever subscribed to one? No, I have not. Got it. And you're a millennial? You're 25? Yeah.

Everything's online. How old are you? I'm 27. 27. So when I was growing up, I'm 47, 20 years old. Like, local newspapers were everything. And, like, people started new ones, and it was, like, vibrant. So the point is, people are having a negative bias towards, not you, but they look at the market

and the trend data they see in their successful companies is against what you are, you're actually believing. So it's really a belief system, again, about, like, the system that the startups are going to work. So tell us a little bit about what your company does and what's your traction. Yeah. So we're unlocking the collective power of independently owned mom and pop shops. Okay, hold on a second. Not in marketing speak.

You sell software to a mom and pop stop and for this amount of money that lets them do this. Yeah, so we actually don't sell software to the mom and pop shop. That's what's different. So we reward people for shopping at local stores. But it's not a rewards program just for one store, but the entire network. but the entire network of local mom and pops. Great. So I have like a visa card or an American Express card and I get points.

And anywhere I shop, that's the value proposition, right? They say anywhere you shop, use your card, get rewards, anywhere you shop. You're doing that, but with an app or something or one of the little kiosks? Yeah, so it's an app that people can pay directly through the app and collect points. They equal to dollars that they can respend across the network of shops. Got it. So you give cash back and then you can use it out. other shops. Where are you based and how many stores do you have in your first market?

So we're based out of Toronto and we are in a 1.1 mile radius. We have 170 local shops. Got it. So you convinced 170 people to do this. So by the way, now your credibility is going way up with everybody. But what you said in the beginning was not credible. So here's my suggestion when you pitch the company. Most people don't believe in local retailers. We have 170 shops in a one-mile radius in Toronto, one of the most cosmopolitan and sought-after cities that's growing, and we make $10 per shop per month. And we've increased, for the top 10% of our base of 170 stores, we've increased their sales 3% in the first six months.

Something like that would then, you'd be proving to us that our position is wrong and that you have some special sauce, right? So let's talk about how long have you been in market? So 18 months. Great. And how do you make money? So we take a transaction fee. So people pay directly through the app and we take a 10% transaction fee, which includes

the payment processing. Is this also for like ordering ahead? No, so it's just for the in-store experience. So whether you're getting your coffee in the morning or you're going to go get a haircut or buy a gift for a friend, you can pay through the app, get the points, and then use them at any of the participating stores, but it's inside the location. So I open up my app, which is called Ribbit. Yes.

And I scan my QR code at the checkout, which is a separate system than their POS. That's correct. That's your hardware? So it's just an app that they can download from the App Store. The store? Yeah, the store. So there's a merchant app which they can download from the App Store, and we provide them with a little QR code. So there's no additional hardware.

So they take their phone and they scan my phone and they get paid? So the merchant through their app will put in the amount that you owe in store. As a user, you just click pay on the Ribbet app and you scan the QR code and accept the total. And what would I get cash back? What is my reward? If I spent $100, what would I get? Yeah, so you'd get a thousand points. So it's a tier-based reward system and it starts at 1% and goes all the way up to 2.9.

And that's your basic rewards, which then what's interesting is because we have a, Okay, hold on a second, so it's still confusing. Always try to make it, anticipate your answer is confusing and work on answering as concisely as possible. I spend $100, I get a dollar back? Yes. Or if I spend $1,000, I would get 2.9% back. Correct.

Got it. So I would get $29 back if I spend $1,000. Correct. But I can only get that money and spend it in another store. That's good. Or that store. Or that store. Any of the network.

Let's go with the $1,000. and I got $29 back. Of that $29, how much do you get? We take 10%. So we take 2.9. So you're getting 10% of 2.9.29 basis points or 10 basis points of 1%. So you're getting 10 basis points of every transaction.

Yeah. So let's say a $100 transaction goes through. We'll take $10 from there. That's our revenue. No, no, no, no. If somebody spends $100 in the store on coffee, you get $10? That's correct. Why would they do that?

So, because when, so that's what, traditionally what's been happening in this space is people have been selling software to independent mom and bob shops, saying the Starbucks across the street has got a killer rewards program. But the value for a user of a Starbucks rewards program is that there's a Starbucks at every street corner. But I just want to make sure we're clear on the math here. If I buy a $100 worth of coffee and cake for everybody, you take $10 of that from the merchant? Yeah, so they get 90% of the sale. They get 90% of the sale. So if they have a 20% margin in their coffee shop, you take half of their margin. And then you also take a percentage of the 2.9% kickback or no?

No. So the 10% covers it all. And we're a centralized rewards program. So we run the rewards program. Let's say you go and spend. No, no, we all get that part. I'm just trying to figure out what store in their right mind would give you 10% of their customer's revenue.

So a lot of it is that there's incremental revenue. When a merchant is joining the Ribbet Rewards Program, they're joining a network of other local shops. So every time a shop signs on, their existing customer base signs up as well. So when you're joining, you're not convincing your customer base to say, hey, sign up for my rewards program, but you're getting an existing group of people who already share the sentiment of shopping local. And the interesting with rewards is you can get your existing customer base to spend more. So we do things like bonus points where we can say get 10 times the points when you spend $15 at the store. So that increases the bottom line.

Why somebody in their right mind in a low margin business that makes 10 or 20% margin? Because that's typically what they make. They make 10 or 20% themselves would give you 10% of their revenue and then make no money every year in profit. Do you do the credit card transaction then for 3%? That's correct. Yeah. So the 10% includes everything. So it includes two or three percent is what they normally pay to a credit card company? Yeah, it ranges between that.

So you're actually taking more like 7 to 8 percent. That's correct. So let's just call it 7.5 percent. They'll give you 7.5 percent of their margin. Has anybody run their entire point of sale through the system? Or is it just 10 percent of their users? Yeah. So we're not saying that we're going to go after the full 100 percent of their transactions.

I would say our comfortable spot is about 15% of their sales. 15%. That's correct. And on average, on the lower end, a local coffee shop would make anywhere around 300,000 annually. So they make 300,000 annually. 15% of it would go through the program. So that would be 45,000 goes to the program. If they made 10%, just to make it simple,

they would be giving you 4,500 of their normal $30,000 in profits. So you'd actually be taking 15% of their profits for the year. Right. But in exchange for that, your promise is, that they will get more, more than 15% more customers. Yeah, so they're not having to, yeah. So most of the customers who are on the app have either been sold a software solution where they have to manage and run their own loyalty.

No, no, I get that, yeah. What is the, how many people transacted yesterday? So on average, we have 51 transactions that take place in a day. Got it. So yesterday, you assume you had about 51? Yesterday was 51. It was. Yeah.

Okay, great. I was asking you that question. That was like a probing question. just to see if she, like, is obsessed with her metrics dashboard, which I assume you load, like, 10 times a day. So you got 171 stores. One out of three has a transaction every day. So it's early days.

You've got to get consumption up. And that's fascinating. So it's interesting. Like, I didn't buy the business, but through your sheer force of will and performance, I kind of am fascinated. And so this is a great moment for founders to understand. As investors, we ask all these probing questions, and we are open to be proven questions. And we are open to be proven.

wrong. So if you can prove me wrong that mom and pop stores are not going away or that you can make a business selling into them, that's great. It seems like it's a hard business and you need a lot of scale, but because you're taking 7.5% maybe less scale than Square does, which takes just... 2.9. Yeah. And Square doesn't have a rewards program across Square? No. So what they do is they have a store can activate, or I think they actually close down, or pulled back that division, but at some point they It started a store-specific loyalty program where stores could unlock it for $10 a month. I got pitched on a couple of different companies doing this just for independent coffee shops, trying to kind of create the Starbucks app for all the other stores.

I think it's hard to make money. And then there's a thing called five stars or something that I tried because it's all over San Mateo. I think they might be located in San Mateo. But it's a little machine at the front of stores, like a little iPad. And you type in your phone number, says, hey, do you want any words? You type your phone number. And then they SMS you, hey, and I did it with this archery place. I took my daughter to.

And they said, hey, two for one archery. And I was like, oh, yeah, I forgot about the archery store. And I was like, yeah, we should go. And I was like, yes. And then I went and I got two for one archery. And I was like, oh, my God, I don't need to like save money on this, like poor. I felt guilty. I was like, it's like $25 to come and shoot arrows with their equipment for an hour.

And I should have paid $50 and I paid $25. And I felt like a jerk. that's a really good point. And most times how, so let's say five stars, for example, they've got, each shop has got its individual loyalty program, which you can access to the five stars app. So you have to go, let's say, it's a boutique store where you want to go buy a pair of jeans. You're going to go buy a pair of jeans and get, let's say, a thousand points. But to get a reward at that store, you have to go multiple times to be able to redeem that there. And so it would happen across. They just do one, but you would need to, it's store specific. So you're not. That makes

sense. All right. So your original question, the negative bias towards mom and pops during your meetings is just start with the numbers and own the fact that most people believe mom and pop stores are dying and they're right. Many of the stores are dying and retail was overbuilt. However, it's building back up and we've got a solution that has traction in the market. Let me share with you our traction and why we think there's going to be a renaissance in retail. As opposed to you, you, you trying to convince me with metrics like that I think are bullshit like, yeah, there's 35% more independent bookstores in Manhattan. It's like, yeah, like dilettons who have trust funds started and they'll be gone in 10 years

or maybe they all lose money, right? So start with your performance as opposed to industry stuff. Industry stuff is like anybody can pull that shit off of a Google search. We don't need that. We could get some McKinsey report. What matters is what did you build? What did you build and how is it tracking? And what are your customers say about you?

So you could also lead it with, here are five of our customer stories. Let me tell you exactly how transformative this has been for them and how people are going to make the decision. You think we're going to make the decision as investors based upon some industry average or the trends and stuff like that. We might have perceptions of the market based on the trends. But if we see your numbers are irrefutable and your top 5% of your customers, 10% of your customers, we're going to talk to them during customer interviews during diligence.

We're going to base our investment decision on those 10 customers and what they say. So your job is to make those 10 customers transform their lives and make sure that they can't live without you and that you make a great margin off those 10 customers and then sell us on those 10 and that you can find the other 10,000 of them. Let's give her a big round of applause. Well done. Thank you. Listen, if you're a founder, you're probably using a million different techniques to be better at your job. You know what the number one thing is?

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Get the sleep you need and deserve by heading to 8Sleep.com slash twist. 8Sleep, E-I-G-H-T, Sleep S-L-E-E-E-P dot com slash twist. And you get to try the product, risk-free for 100 days. They'll take it back if you don't like it. You're going to love it. That's how confident they are. Great job, A.Sleep. And really happy to be an investor in the company as well. Thanks for making some room on the cap table for me. All right. Let's get back to this amazing episode. Welcome back to Open Office Hours with Jason Calacanus at Neighborly. I am Jason Kalakannis. That is so weird. I need to get an announcer to say, welcome back to open office hours with Jason.

Open office hours is a program we run. I come down to the mission when it's over 90 degrees and we have no air conditioning. sit in a room and sweat and eat pizza and talk with a dozen founders about their biggest, most pressing issues, and we try to help them solve those issues, or at least think about them and contextualize them. Next up is Elizabeth. Her company, Deep Isolation Inc. is in the nuclear waste disposal solutions. She's brought some nuclear waste here with us. It's in a lead content.

Don't panic anybody. I'm joking. And she's got a challenge, which is managing the balance. between investors and strategic partners and managing rapid growth. So tell me, is there a lot of nuclear waste to be disposed of because we haven't created a nuclear reactor in this country since 1973 or four? Yes. Am I right?

Well, there are a couple that are in construction right now. Right. But you're right. I mean, there has not been a lot of new nuclear in the United States, but there is a massive backlog of nuclear waste that has been building up since the 1950s. So if you look at how much nuclear waste is there today, it's about 80,000 tons. 80,000 tons. And that's just the United States.

In the United States, that seems like a small amount to me, given the value that was created by that nuclear energy. I mean, we're talking about almost a century of nuclear waste for the population of the United States. it's what would, how much space would that nuclear waste take up? Is that the size of a trailer, of 100 trailers? So we would say the size of 100 drill holes. A hundred drill holes. Sorry, 300 drill holes.

300 drill holes, which seems like a small number of holes. A drill hole is what? Educate us. So we're looking at putting the nuclear waste down horizontally, taking advantage of the incredible innovations in the oil and gas, drilling industries. We don't frack. No, I know, but fracking means you go down and then sideways into bedrock. Exactly. That's right. So you can go down deep and you can go horizontally for a mile, two miles, gives you lots of space at the bottom. How are we dealing with that nuclear waste today?

Is it on tractor trailers in like the middle of the desert? Where is it? So it's near the reactors where it was generated, either still in the pools where it was put temporarily or in some cases they've removed it from the pools and put it on in concrete paths near the reactor in temporary storage. So we have been temporarily storing nuclear waste for decades. Yes. Either we leave them in the pool, which is a fine solution until whatever, 30 or 40 years in, there's no more room. So it's fine for a short term, but as you start thinking longer term, you want to start

thinking about incidents that could happen. in the case of a terrorist attack? What about in the case of a, you start getting into earthquakes? I mean, the longer you leave it there, plus concrete starts to degrade with time as well. So the best practice today is put it in concrete, and then the radiation can't permeate the concrete. Is that correct? So the radiation can't permeate the concrete, but this is meant as a temporary solution, not as a permanent one. And when we define time periods, educate us. temporary in concrete means 10 years or 100?

20 to 40. 20 to 40. Let's go with the low end 20 years. So if there was a nuclear reactor putting stuff in concrete in 1970, what did they do in 1990 or 2010 to deal with that? Did they put it in more concrete? Yeah. So in the early days, the Department of Energy, this is specific to the United States, but the Department of Energy promised to take the waste by 1998.

So that was a promise that was signed into the agreements that were made with the utilities. It was going to be sent to Yucca Mountain. So that was the intention. Where's that? That's in Nevada. Got it. So there's Yucca Mountain? It doesn't exist, but it has been a program on the books, or it was a program.

Well, we were going to dig a hole into the, dig a big tunnel into the mountain. Got it. Okay. And that never happened? It never happened. It ran into a lot of challenges. I would say technical challenges. So the only solution that anybody has ever really started taking forward for nuclear waste

are vast underground repositories. So this is where they mine out, Yucca Mountain, 18 feet in diameter. And then they bring people down, they bring trucks down, and the idea is to eventually put the waste into the cavern. Now, clearly that hasn't happened. So then they're looking for solutions. and all this has been building up, and you have deep isolation ink,

which is going to use that new technology perfected with fracking, which goes sideways, and then you don't have to build these giant underground spaces. You build these little tubes, essentially, that are what diameter? So we're looking at 18 inches in diameter. Got it. So then you have to take that waste out of the concrete?

If it's in the concrete, it has to come out of the concrete. How do that? Well, the good thing is that a lot of really smart people have been thinking about that for a very long time. So we've recently partnered with Bechtel, and they have a 100-year-plus reputation of doing tough things with concrete. So we're very happy to be working with them. So there'll be a way to break that concrete and get the material out.

Which it would have had to happen anyway to send it to Yucam Island. Is that material like a rod? Would I think of it like a rod? Yeah, so it's actually little pellets that are then assembled into what they call fuel rods, and then those are put together into fuel assemblies. And we would take each individual assembly and put it in the canister and then slide it down the hole.

So genius. Are you the first person to think about this idea? Amazingly, yes. Oh, my Lord. Were you in the fracturing business or in the drilling business? We had a startup company, a failed startup company in the drilling business previously. Amazing.

So just like when I talked to other failed startups, I say, always keep your eyes wide open for another opportunity to use the work product to maybe come up with something. So here we are. And your biggest challenge is managing investors and strategic partners, I understand. So you have strategic partners

who want to buy the company or control the company or have controlling interest in it and then you have to then figure out having investors, correct? So we're looking for the right balance between those strategics and the VCs. Okay.

So if there's a really big opportunity, VCs, the best ones, do not want the strategics anywhere near it, because they want to slurp up all that equity for themselves at the best price. Strategics when they invest, and a strategic in this context might be somebody who makes nuclear reactors. It might be somebody, it might be the government. Could be any number of people who want to own equity in it, who are already in the space. It could be the people who make the drilling bits or the drilling technology, I suspect,

would like to have a piece of this. Now, you can extract something from those people. So let's just say it's the drilling company. Well, the drilling company is a potential competitor. I mean, it'd be hard for them to do, and they've got other things on their plate. But the best practice would be if they do participate, they agreed not to compete over some period of time, if that's an important thing to extract. And then the other thing to do is they would have a small amount of money and only have light

or predefined information rights as to what's going on. So they're not in the board meeting where they would hear you evaluating, placing their technology with another one. So if they make some drilling technology and their competitor comes out with a better one, that's one-tenth of the price. You're not stuck to using theirs. So the commercial agreement might be, we'll use yours for the first two years. You'll give it to us at a 20% discount, but we're free to use whatever technology we want

and pilot whatever we want, but we're going to buy this much from you in the first two years. So you just have to make sure you clearly define it and understand their motivation. Sometimes the motivation is they're a fabulously wealthy company. and they just like to get information from the market to make big strategic decisions. So Google has a venture arm called GV Ventures, and they're a great venture capital firm that invest in a lot of companies. And the people at Google don't know what they're investing in until after they've invested in it.

They don't have any say in it. They have complete autonomy. However, if they have 10% ownership in a company and that company is going to sell, obviously they have to sign off on it, or at least they have to know about it. about it, they may not have to be able to block it, but they'll know about it, which might be an early warning system for them to make an offer to the company. So you have to understand that motivation. Some people do it explicitly because they want you to use their product. All things being equal, if there's no strategic advantage to having them on your cap table, go with the pure

venture capitalists. If there's a strategic advantage, you want to be able to call them on the phone, you want the CEO of that company and the board of that company to know who you are because you need, when you're using their drill bits, you need their engineers' attention to come and be on site and it's a requirement, then sure, have them on the cap table, but keep it small and contain them, firewall them from having access to information or the ability to deal with any big corporate governance issues like selling the company or raising more money or working with competitors. And advice on managing rapid growth was another one of your questions.

High class problem. You know, it's a high class problem. the best people you can find and maybe have extra capacity. So if you're in that high class problem of rapid growth, you're going to just want to have extra capacity. So in my companies, I try to understand what's the most important area and then overstaff it by 20, 30 or 40 percent when things are going really well. And then having a little bit of breathing room for the executives and then having them do special projects like looking towards the future or learning each other's skill sets so they can advance their skill set.

And then if one of them were to leave, the other two people know how to do the job. So I did that actually at one of my companies. I had four people each learn how to do the other one's job. So each of the four people could do all four jobs, their own and the other three. And what that does is if somebody leaves or two people leave or even if three people leave,

you as a CEO plus at least one or two of those people can, handle and maintain the reactor. You know, like we can keep the reactor running. So I love your business. Where are you based? Berkeley. Oh, wow. And what's the state of the company?

Is it just an idea phase or you've raised money or where are you at? So we've raised 14 million. Oh, wow. We did a demonstration in January and the government sales cycle is long and slow. And nuclear is. But we are in procurement with more. more than one, and we will be announcing for sales soon. Amazing.

And are you a nuclear physicist or something? Or are you just a... My co-founder is. Got it, got it. Elizabeth, it's amazing. And when you start actually doing this work, I think it would be a great time to come on the podcast and maybe share it with the world. Okay, big round of plus for Elizabeth.

Well done. Hiring the right person takes a ton of time. You know this. And what do we lack as founders? Free time. We don't have any free time. urgency can be your enemy when it comes to finding the best candidates. You might make a mistake and you might just hire somebody to fill a seat and that's always a mistake.

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LinkedIn.com. It's already in your browser's history slash twist. That's all I need you to do. LinkedIn.com slash twist to get that $50 off your first job posting. Terms and conditions apply, of course, because it's giving you $50. All right. Let's get back to this amazing episode.

Okay. Welcome back to Office Hours. My next guest is John Circles, S-I-R-C-L-E-S, which is a social recommendation app focused on positivity. And the biggest challenge is finding the right investment partners, breaking into Silicon Valley out of Sacramento. Well, Sacramento is becoming quite a hub of startups.

We've had two or three investments there, and it's the number one city that people from San Francisco report, people leaving the Bay Area, report that they're moving to. So that's pretty amazing. And over 50% of people surveyed in San Francisco said they plan on leaving in the next five to 10 years, and that's the number one destination. So you couldn't be closer to the Silicon Valley scene. Let's talk about your social recommendations app. This is something that's been tried many times, socially recommending stuff. And it happens all the time on Twitter and Facebook and Snapchat and Instagram. People are old. That's like the number one thing to do is to flex and be like,

yo, check out my loving the new iPhone, you know, loving my new Tesla. So why does the world need a social recommendations app. What is Instagram or Twitter not doing that you're doing? Well, that's very limited. Let's start there. But I'll give you a little background on Circles and what Circles is. Thank you for having me, by the way. Circles is an app, as you mentioned. It's essentially Yelp meets Facebook for recommendations. And what we do is we strip out the negativity, as you mentioned. So there's nothing negative in the app. It's just recommendations. If I were to talk to my friend and say, hey, I need a recommendation. I don't say, please tell me five places. you hate, that's silly, right? Likewise, if he needed a recommendation, let's say, take his car in

somewhere, I got a good car guy, he's like, great, but is it four stars or four and a half stars? No, so we trust recommendations. There's a lot more value than that than reading reviews. And since there's no reviews, there's nothing negative. So this all started a couple years ago. I'm here. So you want to take on Yelp? Absolutely. Yelp, and I'm going to get into a bigger, yeah, we actually... So your concept is people going to Yelp who are looking for a restaurant, are being done a disservice by being given negative reviews in addition to positive ones? Well, there are two problems. The consumer is facing a problem because the reviews can be unreliable and untrustworthy.

Okay, that is a different problem than positive versus negative. Correct, correct, correct. And then the businesses have a problem. We're a small business. I'm here with my partner. We founded an IT company in Sacramento a decade ago. Very successful. We have multiple locations up and down the West Coast.

we take our reputation very seriously as any small business does. It is not fair how Yelp is treating small businesses and what they do. Right. So let me give you an example. Hold on a second. We all know we're aware of that issue. So the concept is Yelp, their business practices towards small businesses is unfair. Everybody knows that.

There was a South Park episode I think made about it. So there is no need to convince anybody. that small business owners in some cases don't like how Yelp treats them. And we'd all agree that Yelp isn't perfect at giving recommendations, but it is one of the best ways to find places in a new city where you are or even your own city. It can be helpful, sure. But it also can be difficult. You might read three great reviews for a restaurant,

and you might get to the fourth one, and it's horrible, and you're like, okay, am I going here? However. It could be improved incrementally, sure. But I don't, does anybody here, has anybody here, used Yelp in the last 30 days. Raise your hand. Okay, that was two-thirds of the audience. Does anybody, has anybody deleted Yelp off their phone out of complete frustration with the product? One, two, three, four, five, six? Wow, seven maybe. So that's interesting. There is a level of frustration with Yelp then that I was not aware of. It's deep. It is deep. And it's not just

the businesses, as I mentioned. No, these are consumers. I'm assuming. Let me just ask the question one more time so I'm sure. Raise your hand high if you've deleted Yelp because you're frustrated as a consumer, not as a business. One, two, three, four, five, six, seven, eight, nine, 10. Eleven. Wow, that is incredible. People are deleting Yelp. Yelp is universally loathed. Okay. I don't know. I love Yelp. I don't loathe. And it's not just Yelp that we're going up against. So you're going to like this part because we're actually, we're kind of building in a social element because Circles is about your circle, your social community. We're going up against Facebook, too. So you might, you know, we also hated, but everybody. We love Jason's book, by the way. Brilliant

author. I recommend to anybody that's not just an angel. Let's say focus here on you. Yeah. But the point being, we might be called delusional in some cases, but I'll tell you what, the timing is right now. Okay. To bring something positive. There's a difference between what we're doing and what they've been doing. At the core of what we do, it's all positive. So there's no way they can copy that take that or steal that from us. All right, that's fine, but let me just understand the product. I go on the product. I went to this specific cafe,

and the person was incredibly rude, got my order wrong, and told me to F off. I go into the program, I write that, you delete that review. No, no, no, nothing like that. Let me tell you a little bit about that. Okay, so. No, I don't want you to tell me about the industry and educate me on the industry.

No, no, the app. Yeah, so if I load the app and I write a recommendation. There are no reviews. No, absolutely. No, no. You have favorite restaurants. You have favorite movies. You have favorite.

You have favorite. Okay. So I only can write in my favorites. You don't need to write in anything. You favorite it. You walk around town. Got it. The location tracks you.

He says, would you like to add this restaurant? Yes, I love this restaurant. By favoriting it, you are now instantly recommending it to everybody you know, everyone who follows you. It's that simple. Got it. Okay. So you don't, there's no reason to be negative.

So it's favorite or nothing. Correct. No reviews. Out. That's it. Right. Correct. So either I endorse this or I don't.

Can I endorse things on different levels? Like this is... Now, here's the thing. If you ask me, hey, do you have a favorite movie? You have a favorite dentist or whatever. You know, I don't need to tell you about, well, there's this one as an A and this one's a B. Is there a limit to how many I can pick? No, absolutely not. No, I have hundreds in there already.

So, no, and it follows you around. So it does two things. You get to store your favorites. You travel, I'm sure, a lot. I do too. So it's like my bookmarks. Exactly. Exactly.

So you're storing it for yourself to recall later. You can map it later, whatever. But you're also storing it for your friends and followers to see it instantly. And it explicitly says, this is my favorite. Correct. It's your favorite. It's a recommendation. Yeah.

You can save things for later. If I share 10 restaurants with you, you might want to save 10 of them and check them out later. Okay. So there's two functionalities. Yes. what everyone else did with a list view. It's very innovative. It's very simple to use. It's based on actual circles. There's a wheel with categories. So you can go, let's say I'm looking for a restaurant. I go to the restaurant category. You can have as many restaurants as you want. They're broken down

and in the different times. You got Italian food. You got Asian food, et cetera. So you can have, and it's all mapped out too. So you have a map with pin drops on it. So you can easily see. So if I go to Italian restaurants, it ranks them by the number of people who've said it's their favorite? No, no. It's going to show you your friend's favorites. Ah. So will it show me three of my friends like this one? Absolutely. Exactly. That's exactly right. So in order for me to get value, my friends have to be in my circle. I knew you're going to, no, well, no, because you can put the filter to most popular. You can even put a filter to daily deals. So there's a subscription model with coupons.

The default is I have to have my friend's circle, but I can change it. So maybe when I first sign up, I don't have my friends and it shows me everything or? Yeah, yeah. Oh, yeah. You can use it in. single player mode and get value immediately. Yeah. There's a community. What's the biggest challenge then? Well, the biggest challenge is, you know, we could be accused of being delusional. You know, as you mentioned in your book is taking on Yelp and Facebook. We raised $500,000 in two weeks in Sacramento from, from, we have huge community support in Sacramento. And I know we're right next door. Angels, the VC firm. Angels. Yeah, angels. Small bites. Five thousand, 10,000, 25,000. Got it. Right. And so. That wasn't easy. So you have 100 unique investors? No, 30. Yeah.

Okay. And it's been great, and we have huge community support. But obviously, we want to go to the next level. Sacramento, understandably, people are conservative. How do you make money? We have a subscription model. The businesses pay $20 a month. Very simple to sign up. We give them unlock features for them. They can... What's the number one feature that you sell to them, or that they report they use the most? The best one, we're still in beta, but the best one by far is the ability for them to create coupons that show up on the daily deal. So they can do deals. Yeah, yeah.

But full management or the page, the opposite of Yelp. You call Yelp and you say, this is a fake review, they say sorry. I have a better idea for you. Sure. If you're open to it. So the deals is one, but I think an even better one, since you've decided to do positivity, I'm warming up to your idea, by the way. I was poking a little bit to try to see if I could knock you off your thing.

So just so you know, sometimes an investor like pokes a little bit, just to see if I can knock you off your position. If I can knock you off your position, you're not so sure about it. you've just eliminated yourself. Sure, absolutely. But you wouldn't back down, despite me being like, well, no, people love Yelp. I don't know what you're talking about. Okay, so now you've got only favorites in there. Now you can go to the businesses and say, listen, we're the anti-Yelp.

We just have people who love your restaurant. And when they say they love your restaurant, if you're a premium account, we give them a separate screen that says, meet the owner, Jason owns, or Sonny owns the Red Rooster. would you like to join Sunny's mailing list and add Sunny to your circle? I like that. I like that. And they can click to add Sunny to their circle and now they know the owner of the Red Rooster. Right, right.

Or would you, or you could follow them, whatever. Or would you like to join their mailing list? And when they join that, you give their, and it says, it pre-populates their email, or would you like to receive updates by SMS because you have their phone number as well? Would you like to do SMS? And you tell them, that's a great way. dollar per email or SMS that we give you or you pay $25 a month and unlimited. I like it.

Because they want to build their mailing list and they want to give offers. So putting an offer in your app is like level one. But level two would be they go, they go into the app and they say, send an offer to people who favored your restaurant. Yes. You have 300 people favorite to your restaurant. You know that your slowest days are Monday and Tuesday. And you say, since you favored our restaurant, we wanted to let you know Monday and Tuesday,

we do favorite, you know, we do a private menu. it's our secret menu and we'll give you the pre-fee for $50 and it's $100 value and you SMS that to people or something. So like even taking it a step further, I love the idea now. Yeah, yeah. Yeah, and that dovetails nicely into another feature we want to do because people do want to be able to say something if they had a negative experience, but they should be able to go through the back door and so have that access to the owner like you mentioned.

If you had to rate the design of your product, user interface and design, gorgeousness on a scale of 1 to 10, you can use half points, but you can't use the number 8. Okay, all right. Okay, all right. Well, let me say, I'll say our prototype that we did a couple years ago was about a 2, it's about a 2. Now I'm going to say we are almost to a 10. Okay, so if you're a 10, have you been featured by Apple yet?

We are still in the beta. Oh, okay. We just launched our beta a few years ago. So anyway, I would like you to invite me to the beta. Absolutely. I'm intrigued. Yes. And I think, again, back.

to investors are willing to be corrected. The reason I was pushing you on that is because I want you to push back, I want to see if you're going to push back, and I want to see if you could change my mind based on my perception. And when I did my call and response here, how many people use the Elbin the 30 days? In two thirds, I was like, well, I know everything. And then I was like, and how many people, I was like, what's another way to phrase that? What would be like, if you really hated something, you would delete it? So how many people deleted it is like the biggest of hate? And I thought one or two people, I didn't think 10 out of 40 would say they deleted it. That's a pretty acute problem for Yale, but an opportunity for you.

And get out of the Bay Area and the number gets higher. So here's what I want you to do. I want you to invite Jason at calicanus.com to circles with an S. Circles. Yes. Really don't like the name. I love it the name. Come on.

We're going to have to work on that. I would just call it circles and then do get circles or go circles. It is the circles. But it's spelled with an name. mess. Yes. I think it's a horrible. We got circles.com. There's a whole thing behind it. You know. Oh, okay. All right. I'll, I just have a thing about

like spelling things wrong, but like neighborly. Yeah, it makes me crazy. No, trust me, this conversation we've had. But okay, I would have just called it neighborly and had go neighborly or get neighborly like this idea of miss, because people all search in the app store

like one word name of it. Okay. Let's hear it for John. Well done. Thank you. Thank you, Jason.