What's up, everybody? This is Court Lund from NDHackers.com, and you are listening
to the NDHackers podcast. On this show, I talked to the founders of profitable internet
businesses, and I try to get a sense of what it's like to be in their shoes. How do they
get to where they are today? How do they make decisions, both at their companies and in
their personal lives, and what makes their businesses tick?
Today, I'm talking to JT Marino, one of the two co-founders behind Tuft and Needle. JT,
thanks so much for coming on the show. How's it going?
Thanks for having me.
Tuft and Needle is a direct-to-consumer mattress company, and I hope it's not too cliche to
say that you guys have disrupted the mattress industry. You and your co-founder, Dehi,
started the company back in 2012. You grew it to over $100 million, and revenue went
under five years, and I'm sure that's even higher today. And somehow, you did all of
this without raising any money at all from investors. Did I get all of that right?
That's right.
Yep.
So, your background is in software engineering. You had a degree in computer science, and
you and your co-founder actually met. While the two of you were working at a tech startup
in Silicon Valley, how does one go from software engineer to mattress tycoon?
Yeah, it's a little bit strange, and that's definitely part of the story. We actually
met in college when we were in school. I was studying computer science and mathematics,
and Dehi was on the Information Science and Cybersecurity College of IST. We basically
hit it off, recognized our personalities were a really good match. We worked side-by-side
on our projects outside of school, and in a matter of a few years, ended up back together
after we graduated at a startup in Palo Alto. The timespan in between had our hands in several
other startups.
So, we were essentially building the next app, as many other companies were. Silicon
Valley had a company, and decided that we wanted to change it up and start something
of our own. What we did was we outlined some criteria of what that company should be like
because we hadn't yet discovered what that idea would be, but we wrote out the rules
of what the idea and how the company would be built. We need to abide by. One of the
top of the list items was to build a company that solves a real problem. We knew we had
to search for a problem first before we started mashing up ideas or pulling inspiration from
other companies. The second item on that list was to start our company fully bootstrapped.
All of our previous experience had been a part of companies that have raised a lot of
capital, and we've definitely gotten to see a lot of the negatives and downsides of that.
Not saying that raising capital is a bad thing, it just wasn't something that we wanted to
really do with this new business.
So, with that as a starting point, we both spent a few weeks doing retrospectives on
our own lives searching for that problem. We built basically a list of problems and
concepts. One of the items that we kept going back to was shopping for a mattress, which
is strange. If you really look at everything we've ever built, it was always digital, we
definitely have some experience. I definitely have some experience in design and product
development digitally, but jumping into something as weird as a mattress was so odd that it
kept catching our eye.
We essentially took that as the starting point. We took a legal pad and we wrote at the top
the hate list. We wrote down everything that we hated about shopping for a mattress and
everything that we hated about a mattress itself. If I were to tell you this story and
it would take probably another hour of my entire nightmarish campaign for finding a
good mattress when I was really starting my career, you would understand that there were
definitely a lot of pains. Our theory was if I had all these pains and Dave had similar
pains when he went shopping, for one, then maybe other people do too.
Really using this hate list as our weapon, it wasn't rocket science. It was from the
perspective of if we were to build a mattress company from scratch, everything that we know
about customer experience and type feedback loop and product development and design and
all of those things that we've really learned from the tech industry and were to build a
company from scratch, what would it be like?
Drawing a line down the center and writing on the other end just what we would do instead
for each of those items essentially became our feature set. What we then did was we reduced
it to what would be the MVP to just be really just one or two steps forward from the status
quo or raising the bar of the industry and then we built a single page website. We used
a photo stock image of a mattress. We took those features and wrote those out as our
value proposition. We installed a credit card form which happened to be Stripe. We launched
that website and started an advertising campaign on Google. Then within the first 15 minutes,
we had an attempt to purchase this product that had not yet existed, but we didn't end
up capturing the funds. We set it up so it wouldn't fully process, but there was our
cue that we were on to something. Then we shut our site down, we quit our jobs, and
we got working on starting Tuft and Needle. That was in June of 2012 and through the summer
is when we were prototyping, figuring out the supply chain, figuring out really how
to start a physical product company, how the industry worked, building out the website
and the brands and then officially launching in October 2012. That was funded with essentially
just a few thousand dollars from each of us because we, quitting our jobs, we had to really
rely on our savings to pay the bills, pay the rent, buy food. Plus, we had to put some
money into opening a business account and firing up a few advertisements. That's what
we did. Then from October of 2012, it took us about two months, actually, I would say
about four months to really get to rum and profitable. We were able to just barely pay
our bills, the minimum required to live. Really, that was our sprint with a fire at our ass
to get going.
Okay, so this is cool. What does the math look like behind how you reach ram and profitability
selling mattresses when you started off by only investing a few thousand dollars each?
Yeah, so what we both did, we both did essentially an audit of our expenses, rent, electric,
all that stuff. What would be the cheapest amount of food we could buy to stay alive?
Then we looked at each other's minimums and then we went with the greater one. Ever since,
we've always paid ourselves the same and only increased our pay as we knew it wouldn't impact
the company's growth or success. Essentially, the first two and a half years, we kept ourselves
that low of pay hiring many people and only raised ourselves when we knew it wouldn't
have any impact on the company's growth or trajectory.
As far as when we officially started, we knew we had about four months each to float ourselves.
That was essentially our, you talk about a runway with raising capital, our runway was
our savings accounts. We had four months to figure it out. In the nick of time, it was
at the end of the third month, we saw that we were able to cross that line and finally
pay ourselves.
Were you guys bootstrapping this from San Francisco or from Silicon Valley and having to pay rent
in the Bay Area?
The rent was, yes, I was in Palo Alto at the time. You know how expensive that is. When
we did that test with the single page site, I was sitting in Cooper Cafe just off University
Avenue in Palo Alto. Dehi was in Phoenix. When we officially launched Tuft and Needle,
I at that point had relocated to his apartment. I was married. That was interesting going
to a remote relationship for almost nine months, which was definitely a challenge as well.
Sleeping on Dehi's floor, my wife's staying back in Palo Alto.
You guys strike me as having been extremely organized, extremely forward thinking, well
prepared and committed to your startup in the early days where there's a lot of people
sort of just throw caution to the wind. Who are your role models and what were you learning
to do things like put up a fake landing page to see if people would buy it and what were
you learning to do things like forecast out your runway and make sure that you could survive
to ramen profitability?
To be honest, neither of us have role models or mentors. Early days, I'd always been seeking
that kung fu master that would take me to the top of the mountain in Tibet and train
me and I would come down as like a champion to fight. I've always looked for that master
and I've never still have never found that person and I think that's a unicorn and it
doesn't exist. What we've done was just reading everything from all the top magazines to a
lot of the top business books. To be honest, I'm fully burnt out on reading business books.
I feel like I've read the majority of the good ones and I've had to switch to fiction
to kind of repair my dislike and reading. I've always loved reading and sort of cut
parts out. But Kora and friends and family, even our parents were great advisors and it
was really driven by, you hear entrepreneurs are really big risk takers and that's what
it takes and I don't agree with that and I don't think that that's always the case.
Dehi and I, yes, we take risks but we take very calculated risks. So as an example, rather
than coming up with an idea, pitching an investor, raising capital, building a team, getting
an office, building your product over the course of a few months to a year and then
launching a find out it doesn't work, we were thinking how could we do this in a week and
save ourselves some time? It's the cheapest, fastest way. We can just test it so we know
somebody is willing to pay us who doesn't know us. That's what we were dead set on and
that's the approach we've really taken with everything. Especially when you have to fund
your growth with your profits and we started with, I think it was a total of six grand,
you can't take big risks. You want to take big giant steps and take a big stance in your
marketing and all that but you have to be careful. So we've always really tested some
of our big riskier ideas before we really invested them. We never really make any bet
the house kind of moves.
On that note, what made the two of you decide to start your own business in the first place?
Because most of the software engineers I know, especially in the tech industry, are perfectly
happy to keep working at their normal jobs.
I think that's a very loaded question and the answer would also be really loaded. There's
a lot of aspects to it. It was really driven emotionally. We were at a company that was
a caricature of startups. The reason why Silicon Valley on HBO is so funny to me personally
is because a lot of what's happening was really happening in our company that we were at.
I'm just going to be honest, that's a lot of the similar stories I heard at other startups
as well. I was very inspired and excited ever since a kid and my dad telling me stories
of Steve Jobs versus Bill Gates. This is back when I was in middle school. I'd always wanted
to move to Silicon Valley and get my hands into building something that really, really
mattered. I finally got there and there definitely is a lot of innovation. There definitely is
a lot of great things happening, but at the same time for every great thing happening
and every great innovation, it feels like there's hundreds of other companies that are
just small iterations. Why do we have all this brain power on this? What about these
other problems? It really led to a burnout of the 80 hours sleeping under the table,
just cranking nonstop on something that you wonder, does this thing that I'm building
really, really matter? Is this a problem that really needs to be fixed? That's why I would
suspect that we were so open to the idea of jumping out of the software industry but taking
everything that we've learned and applying it to, well, in our particular case, the mattress
industry, something that's so archaic and the bar being so low, it really gave us a
serious advantage as we started.
That's funny you mentioned that because I spent a few years as a contract web developer
for a lot of tech startups. The pitch to hire me always involved some degree of selling
me on The Vision, but it never quite worked because The Vision was like, we're revolutionizing
task management or we're building the Twitter clone of the future. It's like, is this really
something that anyone can get inspired to work on?
Right, exactly. That's the feeling that it had been brewing inside of me and that doubt
every time I would hear a pitch or every time I would hear the next startup name or something,
it was, I've essentially gotten burned out on startup culture is really what it amounted
to and so did Dei. I remember the walk very specifically. We took a walk to the Willow
Market as I did a lot of nights throughout the week at night. We went on this walk and
we were just commiserating, inventing, and realized that we had to do something, something
had to change. I just said, hey, man, what if we just started our own thing? We did it
our way. We built the company we wanted to work. We've always wanted to work for. It
didn't even take an instant. He's like, let's do it. It's like, wow, that was easy. Okay,
so how are we going to do it? What are we going to start? We started framing out, well,
we didn't know what it would be, but at the very least, we would know it would have to
abide by these sets of rules. That's back to that list of rules I was talking about,
number one being start with a problem that was something that we had personally experienced.
A lot of people start off by putting together these checklists where they include all of
the requirements that their business has to meet. I think that helps them eliminate bad
ideas that would end up violating these rules, but it doesn't necessarily make them much
better at coming up with an original idea that would match the checklist. How many ideas
did you guys have to go through and how many ideas did you consider and throw away before
you landed on the idea for what would become tuft and needle?
We had about 20 on that list and we narrowed it down to four. I've not really told this
part of the story, but we actually built three of them. Tuft and Needle, it hadn't yet been
named Tuft and Needle at the time, was one of those four. Another was actually taken
off. It was taking off and going viral. The Reddit community embraced it and was really
the fuel behind that particular growth, but we weren't sure how we were going to get to
profitability without raising capital within our constraints of the four months of time
that we had. Unfortunately, and there was a recent acquisition announced, actually it
was I think today or yesterday, it was a company that was very, very similar to what we had
started back then. Another one, we made a sale and then another one really was going
to be a long-term B2B contract situation. We were constrained. I think one of the great
things about having constraints is it forces you to make decisions. It also forces you
to innovate. As an example, when we started this company, we only had a few thousand dollars.
How do you get a supplier, a manufacturer that would require a PO, how do you fund the
initial inventory that then you would sell to the customer? Then that came out to negotiation.
We negotiated terms as far as when we would have to pay for the product that would be
shipped and we're collecting the money on the outset so you have negative working capital.
Essentially our customers purchases were funding their actual products that would be shipped
to them because we wouldn't have to pay them based on the terms 30 to 45 days later. That
was an example of how we had to figure out because initially, how you would typically
set up a relationship with some of these manufacturers is you have to put that cash out front and
we weren't able to do that. We didn't want to have debt either. To this day, we have
still remained bootstrapped and profitable on track to doing between $275 and $300 million
in revenue this year. We've just had these constraints. They're great because it helps
you narrow your decisions and it also forces you to overcome some of these really tough
challenges because you have to beat your head against the wall to figure out how to get
around them.
Let's talk about these early days because I think coming from the background that you
two had, I can't imagine it was particularly obvious how to get a mattress company off
the ground. What were some of the other challenges that you had to overcome and some of the constraints
you had to deal with that forced you to think creatively?
That would really depend on what phase we were in. Let me just start with a couple big
challenges for the phases leading up to our launch. Firstly was, how do you make a mattress?
This all started this pain and this problem. It was about a year prior, me buying a big
name mattress that I'm not going to name, but everybody would really know it. I looked
at it and I took scissors and I cut the fabric and then I took essentially a saw, a wood
saw and I started cutting it open. I'm cutting my mattress open in my bedroom and splitting
it open and I'm like, all right, what are all these components? Then I had to figure
out what they were like the fabric. What is this fabric? It's not the stuff that my jeans
are made of or my shirts are made of and they later find out what that was. The second was
who makes these parts? Who can assemble and manufacture these things and then figuring
out and identifying all the manufacturers and really the supply chain across the US.
I couldn't really find much online. I found one company and now they all have websites
because they see this new emerging digital mattress movement that Tuft & Needle really
catalyzed and they all want to be discovered. At the time, it was really all on paper. I
found one manufacturer and I called and spoke to the salesman and I just berated him with
questions. What is this fabric? What is this from? Why is it built like this? I started
to essentially reverse engineer how these things were made and what were the key factors
and actually what a mattress is providing. It distilled down to pressure relief, support,
cooling and essentially your manufacturing supply chain, your cost of goods.
The next step was finding a manufacturer. I rented a car and they wouldn't take my calls.
I had to literally drive to them. I drove around the country up and down the East Coast
and West Coast and no one really wanted to talk to me because they didn't know who we
were. This industry is like one of the weirdest industries I've ever seen. They don't talk
to anybody they're not familiar with. If they hung up on me, they were still on the list,
I'd drive to them and I'd literally walk in their door and see if I can talk to someone
on the manufacturing floor in your office, see if I can get a meeting. It came down to
a small mom and pop shop that was willing to take the chance on us. Then from there,
they really were bought in the vision that we wanted to revolutionize the mattress industry
and fix it. Really, the big fix that we were dead set on, we say to disrupt the mattress
industry is our goal, but really what it is, the heart of it is making a mattress company
that was customer-centric. All of our decisions go back to the customer. Is this the best
thing for the customer? Are we making improvements to the product, to the service, to the website,
to the information, to the customer service, all those aspects? That's really the difference
and what we started here and why we are growing so fast in the face of these giant incumbents
who don't really know what to do. From that point and on the floor of this small mom and
pop shop manufacturer developing a relationship with them, I essentially lived out of my car
and was going in the office. They didn't know that, but I was walking in every day and they
carved out a little space in the factory on the factory floor and started showing me the
materials. I'm thinking about pressure relief and support and trying to understand which
materials are best for what and developing that V1 prototype, which was essentially what
we launched out the gate. Anyways, those were a couple of the pains, which was figuring
out how are these made? What are the components? Who are the manufacturers? Finding one that
was willing to work with us. You see the website and the design, all that, that wasn't an issue
for us to start. That was really in our wheelhouse. It really had to apply a lot of the engineering
mindset going back to first principles. What is the problem that a mattress solves? Then
what are my available materials and what are the available options for me? Then developing
that single prototype. I wasn't too concerned about how successful or how great it was going
to be out the door because we were essentially zero. We were small. We just want to get a
first few customers and start getting feedback. I'd say that that was really our biggest challenge.
The other one I would say was time. It was working against us. We had to move fast. Especially
I'm used to pushing changes to a software stack and delivering it production multiple
times a day. Tight feedback loops with a customer and whatever problems, bugs, pains, launch,
launch, launch all day long. The cycle for a physical product, you are at the mercy of
your supply chain. If a factory person that you're working with isn't available, they're
going to make some changes and then get back to you next week and then they're going to
ship it and then you have feedback. That was killing us. That's why working hand in hand
on the factory floor was really how we zipped forward in time. Otherwise we would have run
out of our, we would have burned through our personal cash. I would say those were really
those initial problems we had. Then we start. That's the whole next phase was our first
year which I would say is 2013 was a whole other chapter of challenges.
Let's talk about some of these challenges, specifically how you found your first customers.
I asked some people from the Andy Hackers Forum if they had any questions for you. One
Thomas Gorzenski, who actually owns a Tuft & Needle mattress, wants to know exactly how
you found your first 100 paying customers or your earliest paying customers.
It wasn't any one thing. I don't really believe in silver bullets. I believe in the sum of
all things. It was a lot of avenues. It started with family, friends, some Google ads. Some
of them, the few that did work and we had to figure that out. Another was online communities
going out and saying, hey, I just started this company. Here's the purpose. What do
you think? What's your feedback? Not going and trying to pose like a sham. I'm posing
as a normal user and I'm trying to sell under the hood to you with a link. It was actually
just being straightforward. Just launched this company. Here's why we started. What
do you think about it? Actually, that worked. People were giving feedback. We were taking
it. We were listening, iterating on it, and we were actually starting to get customers
from that. Reddit was a huge, huge source for us. Reddit was one of the key sources
for new customers and it was really feedback-driven and how we did that. That was holding us over
as we were just starting to figure out some of the digital marketing on that side.
About a year later, about the end of 2013, we wrote a post on Hacker News saying how
we wanted to show and share some of our learnings, how we essentially bootstrapped to the number
one mattress on Amazon. That really was the catalyst on triggering an enormous amount
of growth because one of the readers happened to be a journalist at Forbes. Actually, it
was Fortune. When he wrote that article, that's really what started the national press and
the discovery. That's when we started getting a flood of venture capital reaching out. Really,
we were prepared for that opportunity that presented itself. In the meantime, we were
scraping it together, starting this small cycle of customer feedback which was driving
sales through these forums and family friends.
I have so many questions I want to ask you about everything you just said. Let me start
with a quick one. I hear a lot about early distribution channels for startups being Reddit
and Hacker News and other online communities, Product Hunt, the tech press like TechCrunch.
Were there any other channels that you can remember that were particularly effective
for you guys in the early days?
It was Google Advertising. That was a big one for us. It's available to you. You can
spend a small amount of money. That's how we ran our test. Google is still a key partner
for us and we collaborate with them on their platform. I would say that's definitely one
and that's one that you can use a small amount of money to test a hypothesis. If you can
figure out how to get your value proposition, which is going to be based on your pricing,
your features, and being able to communicate those very well, and if that matches with
the serious problem customers have, see, we didn't have to worry about product market
fit so much because we were starting with a key problem that we experienced that other
people also happened to have. It was really aligning the features, benefits, and pricing
with the fact that that problem was already there and communicating how it solved it because
it's very counterintuitive to sell a mattress online, very counterintuitive at the time
it was. It was crazy. It seems like a step backwards. You're taking a step backwards.
Our customers couldn't see the product. They had to essentially bet. It was a step backwards
in the sense that our company brands and that's a whole another area I can run with. We had
to learn what brand actually was and how important it is.
This is something I wanted to talk to you about because buying a mattress is a huge
psychological hurdle to get over. I mean, it's expensive. It's a rare purchase. It's
physically big. Moving it into your house is inconvenient. It's not something you want
to get wrong. I think people must be pretty hesitant to buy a mattress online that they
haven't touched or seen or felt. It's got to be a hard sell to make.
You would expect that launching and selling a mattress online would be a regression. It
would be a step backwards in the face of brands that people aren't familiar with and a product
that's very intimate and has a tactile need for people to experience before they buy it.
It's a big ticket item as well. We had a lot of things working against us, but the thing
that was working in our favor was the fact that mattress stores were so bad. You have
to walk into the store, which seems like you're going back to 1980 or 1985, and you're looking
at a room that's drop ceiling carpet, posters on the wall, and a salesman is trying to sell
you. You know they're trying to sell you. It's difficult to trust them. Then you have
to figure out which one you like. You can't really know. I'm telling you, even after all
my experience, I have evidence of this, you can't know if a mattress is going to work
for you until you slept on it. Laying on a mattress for a couple of minutes. Of course,
you don't want to get into your fetal position or your weird position that you get into when
you sleep with a mattress person standing over you breathing on you. Even though it
was a step backwards really going online because you can't experience it, you don't know who
we are, it actually was two steps forward because it was removing a lot of the pain
points that people had. That's what we had going for us really in the beginning. Tying
that back to nailing your value proposition, the key features, your pricing, and communicating
the benefits very well and matching that to an important problem that some segment of
people have out there, it really set us up to be able to figure out how to advertise
on Google pretty quick. It really set us up as far as getting the drum rolling and getting
the bar rolling with customers. There's something to be said and it was really critical about
calling your customers and being honest with them. Telling them you're a new company and
asking them for their genuine feedback like, what did we do good? What did we not do good
on? They're talking to the founder of the company and they know it. When you say something
and then follow up and tell them how you made an improvement and thanking them for it, maybe
even sending them a new product or giving them a little discount for the pain that they
had, it goes miles. Those people, even when they've had pains, will turn around and they'll
tell 10 people. Since the beginning, we had to get a lot of things right. It was no one
thing. We had to get service right, policy, features, delivery. We had so much stuff that
was just wrong and not good that we had to sprint on.
We always viewed the criticism and negative feedback, the one stars, the low NPS scores,
customer satisfaction. Those are the gents. Those are the things that you take and you
feed that into your product roadmap as the very next thing to fix because if you can
fix it for those, you're going to fix it for your future customers and developing that
relationship with your early customers and asking them. When a customer is delighted
with you, hey, we're new. We don't have a lot of funding. Anything you can do to spread
the word would be really, really helpful. That actually works. If they really care about
what you're doing and you really solve the problem for them, it'll work.
That's been a competitive advantage. Several years later, we had our first competitor launch
and they were essentially a lookalike, almost exactly like our model. We had this disadvantage
of not having capital, not being able to acquire and buy our customers and be able to go in
the red to capture market. We had to grow profitably. We've had to really lean on our
customer word of mouth and virality to help keep our cost of advertising low. Still, today,
if you look at the numbers, and they're not public, but there is some stuff you can find,
our cost of advertising as compared to some of our direct competitors that have launched
later is almost half. We're profitable and we're leading them in unit volume.
We're not talked about very much because we're not so much in the press and the VC, journalists
echo chamber. We don't really gain those benefits, but we're still growing like fire in the face
of very serious competitors who are very, very heavily funded. Part of that is getting
so many of these aspects right and people being really bought in on what you're doing
and knowing that you're genuine about solving this problem.
As a founder, people ask, what's your exit strategy? What's your plan to liquidity? We've
never had a plan. There was never a plan. It wasn't until, I don't know, a few years
later when people started to ask because we've given equity to team members, that we started
to really think about that. I would tell you that when you start a company,
and this isn't everybody, but let's just use this as an example, we wanted to solve a problem.
That's always been our mission. Another is, of course, we would want to be rewarded for
it and to make money someday. If you were to order those in priority, is number one
growing this thing and flipping it or selling it or IPO-ing, or is it fixing the problem?
I can tell you in the majority of my team, I wouldn't need to prep them. You just walk
in here randomly and start asking them. You'll see the number one objective for me and my
co-founder and this team is to solve this problem and to cross the finish line there.
The second is reward. That's always been a source of passion and eagerness to break through
some of the challenges that we face and take things to the next level and to battle in
this field with the competitor. Customers feel it and they help you get there. They
know you're the real deal and that's really helped in our virality and keeping our advertising
costs low. One of the ways that we've really communicated
those things and that authenticity is in our writing. We have a medium channel that several
of our articles have gone viral. We don't write often. When we do, we put a lot of energy
behind it and we share. Even on our website and if you were to talk to our customer service
team through email, but if you were to buy, you get that feeling. Customers see that authenticity
and they know you're in it. They know you're the real deal and that's just really helped
keep the flywheel going. You guys have written quite a lot on your blog.
I was checking it out before this episode and I was pretty surprised to find out that
you've written some posts that are behind the scenes at your company. You've got one
called how to grow from $6,000 to $250 million in addition to the posts that you've written
about the philosophy behind your mattresses and what differentiates you from your competitors.
In the early days, you guys are tiny. You're trying to take on these huge mattress companies
and you're trying to sell really this no name mattress to people online. If I put myself
in the position of somebody on Reddit, considering buying a mattress from you guys, there's no
way I'm going to pull the trigger. What messaging did you eventually settle on and what strategy
did you use that convinced people to take a chance on you and buy your mattresses online?
That's going to be a brand question. I don't necessarily think this is a big challenge
for a digital startup, but especially for the physical product, the customer behavior
is a little bit different. If you have a name that people don't know, you need to lean on
something else. That's going to be like credibility markers. You've been mentioned in this press
or you've become a thought leader in your writing. Another aspect is reviews. That's
the whole reason that we launched our product on Amazon. We never actually thought anybody
would really buy mattresses on Amazon later to find out they really do. We listed our
product on Amazon and started asking our customers to write reviews there. That was essentially
one of those key sources of credibility. We would send people to Amazon to go and read
about it. The more reviews we got, the more credible we became. Eventually, we became
the number one rated mattress on Amazon and one of the top sellers. We dominate that market.
Even in the face of a lot of these other companies, we still dominate that channel. It really
is a testament to getting that product right and service right and being authentic.
In the early times, we had to be able to point to reviews. We had to be able to point to
our story and who we were and why we were. Credibility markers as far as press and thought
leadership, it was a lot of things that added together. Of course, we had to focus on a
few because you can't do it all. You don't want to lose focus. It really was writing
the thought leadership piece every few months and then listening on Amazon for those reviews,
developing a nice, tight feedback loop with our customers. We still have a 35% response
rate from all of our customers to our survey as far as their satisfaction and why they
like or disliked the service. That's led to us having one of the lowest, if not the lowest
return rate in the entire industry, which is below 5% return rate for a mattress. Now,
it's a lot easier. As you get bigger, it actually gets easier if you're satisfying your customers
because people start to recognize your name. I can wear my shirt. I have a Tuft & Needle
shirt in New York or San Francisco, LA, Austin. People will stop me and ask if I work there.
Now brand awareness is happening. We don't need to focus so much on these different aspects
of credibility building because people now have your name in their head and they've heard
it or they know somebody who has one.
You mentioned that you and your co-founder have read a lot of business books. I also
tend to read a lot of business books. One book that I finished I think late last year
is called The Everything Store. It's about Jeff Bezos and Amazon and really the entire
history of the company. They sort of portray Bezos as being particularly ruthless when
dealing with partners and competitors. I'm curious how you think about your relationship
with Amazon today. In the early days, the reviews on Amazon helped you build your brand,
but now that you guys are much bigger, are there any risks in dealing with Amazon that
you're careful to mitigate?
Yeah. I think the way to really evaluate risks is to look at what your partner's incentives
are. Our incentives don't fully align with Amazon. They do partly, but not fully. Amazon's
goal is to grow their own markets on their platform. I would suspect that they'd want
all the top brands and all emerging brands to be within their platform and help grow
that channel and also to have a nice balance between all of those brands as well.
And as those markets mature, it will be most likely more and more difficult for that particular
market. Let's just say furniture are narrowed down to mattresses as time goes on because
they're competing with the Walmarts and the other big box stores like Target and et cetera.
Yeah, it's always been a very big concern for us. If we were to have too much of our
volume going through Amazon, then what about our direct channel? What about our ability
to get a feedback loop with our customers or show our customers who we really are and
how great we really are? It really started with what is the amount of risk that we're
willing to take? Let's just say, hypothetically, Amazon was 50% to 75% of our business. Amazon
at any time can decide to not sell your product. We obviously want to make sure that our product
is always good and we have a good relationship there, but you still never know.
We had done an analysis on it and decided, well, it may make sense to have a couple other
channels to balance Amazon just in case that went away. Another aspect is just keeping
our direct channel very strong. What value can we provide on our own website and in our
retail stores that maybe isn't even worth the time of Amazon and that some customers
would really prefer to have. Some customers really prefer Amazon, some customers prefer
going direct. There are these particular services and value ads that you can add. Here's an
example. You can go into Best Buy and you can buy an iPod. You can buy an Apple product,
but why would a person go into Best Buy to buy that product but still yet go into an
Apple store? That's because there are particular values that the Apple store brings that maybe
isn't really worth Best Buy's time but is really important to that particular customer.
If you think about it, they've got a really great lineup of merchandise on the wall. They've
got curated, let's just say, their toys. They have all kinds of toys and gadgets and accessories
that are always ever-changing and a lot of times best in class. That's something new
and interesting. You're in the mall. You want to just pop in and see what's there. Another
value is you have the genius bar, someone there that's dedicated to fix your product,
people that are there to train you and teach you. You get to see the full product lineup.
There's a lot of benefits to going direct to Apple's channels. That's how we've always
viewed it as well is that we need to provide specific values and continue to push the bar
and the envelope with our direct channel. That's going to be one way to help keep balance.
It really is in Amazon's best interest too because this is the channel that we really
figure out and do our R&D and our iteration which would trickle to products that would
end up on their platform. Figuring out what is that balance as far as wholesale and distribution
channels that you're really willing to take on as a risk, what happens if they go away?
Wouldn't you be able to survive? Do you track your P&L separately from your wholesale channels
and distributor channels? If they all went away, can you survive? We do these exercises
and we track them very regularly just in case. Also, our customers want to find these products
and other channels as well. They'll tell you. If you listen to them, they're going to say,
I just wish I could find your product here or there. That just goes into a backlog of
new channels for our head of BD to go and capture.
Just like customers are asking for new product, they're also asking for new ways to find your
product. They're asking for new ways to pay for your product. Without going into... I
don't know how far you want me to go with this, but we just had to evaluate those risks
and they certainly are risks.
You guys are located outside of Silicon Valley. You're an e-commerce selling mattresses and
yet somehow you feel like a tech company. I don't know if it's because you've got a
snazzy website, you're hiring developers or you're doing content marketing, but you feel
like a tech company. Is that intentional?
Oh, well, Dehi and I are tech guys. We are engineers and product developers and designers.
We built our company that way. It's awesome because a lot of people in this company, everyone
from supply chain to customer experience, we've never worked in Silicon Valley. They
all know what a scrum is. They all know what agile development is. It's awesome because
I essentially took all those concepts and applied it to everything else.
We have agile development when it comes to supply chain and customer service tools that
we have in the backend and even customer service policies. We treat everything like a product.
Everything's tied to a feedback loop. Everything that we do is for someone else. Our engineering
team may... Their customer may be the customer experience team. It might be the supply chain
team. It might even be the financing team or a factory. They're building the tools for
those customers and they have feedback loops and we treat everything the same all the way
back to even the mattress itself or the pillow or the sheets and all of that.
From the root, we've always wanted to build to start the company the way we wanted to
finish it. Knowing that the more people that come in, the paths that you walk down, decisions
you make early days are really going to set it up for the later days because you're going
to bring on leaders and you want to have proven that these methods work so that they're adopted
and the leaders accept them or maybe even future investors. That was one of the reasons
we decided to bootstrap was we wanted to build a company in a very specific way and prove
that it could work before we would potentially bring on an investor or potentially go public
and have all these additional outside stakeholders.
In our core, we are a product company and really through a tech company lens, taking
what Silicon Valley has really innovated and we've kept building the whole company that
way.
I know you guys have done a lot of iteration on your products themselves to make your mattresses
the best that they can be, but I wonder how much iteration you've done with your growth
and your marketing strategies. You mentioned using Amazon as a channel for experimentation.
What are some strategies you've used to attract new customers that ended up not working out
and how do you know when to continue pursuing a strategy that's not doing as well as you'd
hoped and when to call it quits and move on to something else?
Yeah, that's a great question. There's a lot of those. Let me see. Let me narrow it down
to something that didn't work, but then we figured out. Retail is one of those. We were
warned about going, they call clicks to bricks, going from a digitally native brand to actually
being in the experiential world, going to the tactile world and opening a brick and mortar
store.
Some of the variables and the advisors I've had on retail are insane. I'm not going to
name drop or anything, but I've had a lot of really, really great advisors from people
who have figured out retail from some of these digitally native brands to some of the biggest
brands in the world actually advise on retail, but the culmination of all the advice and
a lot of the advice from different people was conflicting was, you don't know if it's
going to work or not, you just have to do it. That's what we did. It started with opening
a store in our office. If I were to describe this to you, it was a really bad part of Phoenix
in the strangest location. It was in the warehouse district in downtown, which is the ghost town
part of the area, up a rickety staircase that we had and that we've since moved out of this.
We took one of the front offices, which was right inside the door, and we converted it
into what we thought maybe would be a prototype of a retail store for mattresses. What we
did was we just listed our retail store on Yelp and Google, and we didn't even put it
on our website. The first week, nobody came. Second week, we had one. Then the third week,
we had two. Then zoom forward about six months at 11 a.m. on a Saturday, you would literally
see a line of people standing on the staircase. You'd walk in and there would be roughly anywhere
between 50 to 150 people standing in our office all around us while we're jamming away, working
on our computers, waiting to try this one mattress, which then expanded to five display
areas in our office. We knew, and our attorneys were yelling at us because of the staircase
and all this, that there was definitely a need, and this was definitely serving a need
for our customers. The question always was, can we get the unit economics to work? Because
if you look at our mattress, in a lot of cases, it's half to a third, even a tenth of the
price of some mattresses out there. Can you actually get it to work with all the overhead
and a staff paying your lease and all that, let alone just a focus loss that you would
have in setting up and putting a lot of focus towards figuring out a retail store? It was
working in our office. We weren't sure if we had the unit economics right. It gets very
difficult to measure success of a retail store when somebody can just walk out and buy online.
If you try to collect their email when they walk in, they might use a different email
online. Their husband or wife might use their email. It's very difficult to attribute sales.
We hadn't even figured out how we could even measure if it would be successful. We knew
something was there because we saw the volume. You could literally drive to the next 10 mattress
stores within the region, and they'd be empty. Yet, we'd have 100 people standing in our
store getting upset because they have to wait in a queue.
Our next move was to open a store in San Francisco. We signed a short-term lease, which has then
expired. We intend to reopen the store there. We now have five other locations, not in San
Francisco, but around the US. We made a lot of mistakes, but that's what we were told.
We were probably going to need to open three to five stores before we would actually figure
out how to measure if it's working and if it was worth our time and figure out the staffing
model to figure out how to negotiate leases and how much square footage you needed. These
are all questions. We just had no clue what was the right way of doing any of that.
We had to just guess. We guess and we earmarked some cash and decided that this thing totally
bombs. Were we fine? Were we in the red or were we fine? That's when we knew it was okay.
We would be fine if it totally bombs, that we could pull the trigger and sign a lease
in San Francisco and do a build out. Then there's construction and all that was a whole
another nightmare until you really figure out that process. I would say that in our
retail store, we proved that there was demand. San Francisco, we had not figured out how
to attribute sales and to measure success and it was very expensive. When we opened
our Scottsdale store, that's when we finally figured it out. We took a lot of the learnings
from San Francisco and we baked those into our Scottsdale store here in Arizona and the
store's on fire. Now we are just sprinting to opening as many stores as we possibly can,
especially next year. We have a few more coming this year. I think we just announced Kansas
City and there's another city. I'm not sure if we have or not. We have Seattle already
open. That was definitely one of those things that we weren't sure. Another one would be
out of home marketing. It's also a very difficult way of advertising that no one has really
seemed to be able to attribute sales, profit, and success to in the face of digital advertising
blended with it. I would say the first time we ran it, we got one billboard and then we
were told, well, you're not going to measure anything. Then we got 200 billboards. Those
are a couple of examples.
You guys didn't raise any money at all and yet you've been able to grow your business's
revenue as fast as most successful venture backed companies are able to grow. You started
off buying and then selling mattresses to people basically on Reddit and today you're
doing expensive things like taking out billboard ads across the country and opening retail
stores. How do you grow that quickly when you're limited to only being able to spend
what you've made in profit?
Really it's casting bets and staying focused. I would say from that third month when we
finally figured out how we could, in a minimal way, advertise and really lean on our customers
and rely on them to help spread the word to expand it, having a lot of ideas. There are
so many things that at this point we know what to do. We just have to wait until we
have the resources for and that's between cash and overhead and we have to stay lean
as well. It was really balancing our budgets and there was a point in time where we realized
we needed to get our finances in check and we had to hire a bookkeeper and then later
on a CFO. Thank God because that was right when we needed to bring him on and we started
doing forecasts and plans and all that. But really staying, we would always earmark some
percentage of our budget towards testing new channels without sacrificing really the speed
of growth and the channels that we know are working. We generally measure as a percentage
of revenue how much we are willing to market what that budget is and then we then take
a percentage of that and then delegate that towards potential new channels and that's
money that we're willing to throw away for the sake of experimentation in the hope of
finding a new method of advertising. One of those was billboards and radio and television
and it took us about two and a half years of experimentation to finally figure it out.
Another dynamic is just debates within the company. There are people that are more risk
averse than others and want to give up. This is where founder power matters and just really
pushing forward and without putting too much of a risk of your growth and profitability
in your main channels to keep going, keep going, don't give up on it and divert the
money too soon. I also believe there are other channels that we've tried that we gave up
on too early that we need to get back to. I think that we've been given enough time
to really figure it out. I think to answer your question, it comes back to staying totally,
not completely totally, but mainly focused on what is working and writing that until
it really starts to slow down. In the meantime, be incubating with a percentage of that spend
some new concepts and new ideas in the hopes of finding something new so that when this
primary growth channel, let's just say Google, let's say Google AdWords. When Google AdWords
sort of reaches the top of that S curve and starts to round, you're going to need an innovation
or a breakthrough to kick it back into gear or you're going to need some of one of these
new incubated channels to sort of pick up this slack and fix that S curve and hopefully
you found something new. Maybe it's YouTube, maybe it's Facebook. One thing I can tell
you is when you've got just a couple people doing marketing, you don't want to spread
them across like five or six things too soon. You want them to be fully dedicated on what's
working and use those profits to then bring somebody on to do that experimentation. It's
sort of a mindset and a discipline, setting budgets and abiding by them. A key strategic
meeting you do every month as founders or some subset of your group is to look at the
P&L and the percentage of all of your line items and deciding if you're going to move
some money from this line item to that line item. For us, it always seems to be profitable.
Do we want to go a little bit leaner to move some of those percentages to marketing? That's
part of the strategy. That's where we've used a lot of advising, a lot of guess and check.
That's really like the key activity, I would say, and the idea and how you drive a lot
of those decisions.
That's great advice on multiple levels. You're talking about this S curve and how it sort
of levels off over time and mapping that on to your marketing and grow channels as a startup,
which will eventually start to see diminishing returns. I think, how do you navigate that?
That's one issue, but for a lot of early stage founders, just hearing that this S curve exists
is useful information because I think the most common mistake and belief is that there
is no such thing as diminishing returns. You just find a marketing channel for your product
and you start pouring resources into it and you sit back and you watch all the customers
and the revenue come in and it just lasts that way forever. But the reality is that
as you grow, you start to saturate these marketing channels, they end up becoming less effective
over time. And you've really got to find some way to break through that ceiling or you've
got to move on to a different channel. And obviously, it's not easy to decide which one
of those two is the right option.
Yeah, I mean, if you've got if you get any traction on one channel and you for every
dollar you put it in, you get some number of dollars back, you want to be careful about
starting to spread those dollars to something else that is an unknown. And at the same time,
you also have to think about mindshare. If I have somebody fully dedicated on the channel
and then they have to pick up another channel, are they thinking as deeply about the one
that you know works or are they really taking it to its fullest potential? If for something
that's so important, let's just say this is an example I keep going back to because it's
a good one to talk about because I think a lot of people are familiar with it is Google
AdWords. Do I want my person who's fully focused on Google AdWords thinking about how to make
a breakthrough or how to how to compete in that on that channel, from the time they wake
up to the time they go to bed versus spreading their mindshare across several other channels,
especially in a market that is very, very competitive. The mattress industry is ruthless
and became even more ruthless as we had new entrants and new new lookalike companies that
were heavily funded that can sort of just raise your CPAs just by throwing more money
at it and have the freedom to go into red and we don't. That's sort of how we've always
viewed it.
Let's talk about that for a second. You mentioned earlier that you guys lean a lot on virality
and word of mouth growth to keep your cost of customer acquisition low. How do you do
that in a way that your competitors can't? Can you just walk us through how you look
at your competitors and maybe how that's changed over the lifetime of your business?
Our focus has always been the customer and I'm very cautious about the team thinking
about competition too much. The general rule here is to stay focused on ourselves and where
we're going, but to keep an eye on what's happening because you can learn a lot of things
from competition. At the same time, if a competitor announces, hey, we're going to launch this
thing or we're going to go over there, it doesn't mean it's going to work. Also, their
game is totally different. If we were to take some of our funded competitors into account,
they can play the game totally different than we can. We're competing, but we're playing
two different sports.
Being fully dedicated to the customer and our one key metric, our one metric to measure
as a company, as a whole, is NPS, which isn't a perfect way to measure. I would say most
ways of measurement always has its pros and its cons, but it's good enough. NPS is a way
of measuring customer satisfaction. Our goal was always to get to the level of the greats,
the household name brands that are most loved in the greater market like, and I'm sure you
can name them, I'm sure you know them. Our target is always a 75 NPS. I can say, as of
this morning, we're at 76, we'll bounce between 80 and down to 72, but generally, we're around
75, 76. We've gotten there. It's correlated to word of mouth and it's correlated to virality.
One of the best ways of marketing is having a friend tell you to get something. That's
what we've really had to lean on. If we go into a new market that we know we have a lot
of customers and we put up advertisements and people start talking about them, when
they say that to their friends or family or around the table at Thanksgiving, if someone
at that table has one and they are really happy, they're going to say, oh, trust me,
get it, versus it's okay or bad experience, I'm telling you, you're making a mistake.
What is happening there? That's one of the ways it's really reduced our costs. If we
have to fully rely on our advertising to convince somebody to take a chance on us, that's expensive.
If versus if we were to go out and advertise and then those people are hearing their friends
talking in their ear telling you about this company that they know and they can even tell
you that this company's founding story and why they exist and what's special about them,
that's even better. That's back to brands. That's been a competitive advantage that we've
had and why we've been able to keep our cost of advertising low.
On the other side is also creativity. If you look at how we advertise, we're not like this
lifestyle falling and blending with other companies. Here's an example that speaks to
a question you asked of something that we did that was a mistake. We did this really
expensive video shoot for a television commercial. I think it cost something like half a million
dollars. The output of that was a single commercial and it was polished, it's beautiful.
We ran this commercial and we just didn't get much response. As I'm watching it and
I see it running on TV, I realized it looks like every other commercial on TV next to
all these big brands, really cool, awesome. We have a commercial like them, but it just
looks like them all. It doesn't really stand out.
What we did was we took an approach of actually being a little bit polarizing or taking our
content and advertising or messaging in a way that really stops you in your tracks.
With our billboards, which originally started with lifestyle imagery, okay, that's cool.
It's a sexy photo. The product looks really cool and some clever line. What we did was
we went up with these black billboards and all it said in white text was, Mattress stores
are greedy. Learn the truth, tn.com. That billboard was on fire because people were
taking pictures, posting it on Reddit like Tuft and Needle Savage and there's people
that hate it and people that love it. In the meantime, they're talking about our company,
our television commercials. We have one that's silent. We have a commercial that's upside
down. People think we've made a mistake. We're about to launch some new advertisements, which
I'd love to share afterwards, that are unlike anything you've seen. They look like they
were made by some college kids with no budget, like almost how Blair Witch Project status.
People that really stand out. That's another aspect to keeping your advertising low is
developing content that speaks to your customer, stops them in their tracks. They're like,
wait, what was that? They turn and look. You've got to catch their attention. Then the next
part is you've got to get them the rest of the story. It's your hook and then you tell
them who you are. tn.com, if you go to tn.com or you go to Tuft and Needle, tn.com directs
to our homepage and it puts a video on the hero image. You go to Tuft and Needle, you
get a different experience. That video tells the other half and completes that narrative.
Now you know who we are and why we are. That's also been extremely relevant because if you're
battling in AdWords and all you've got is this one line piece of text and you finally
figure one out, but then your competition realizes it and then they start using the
same line. It's so difficult for customers and it causes so much cognitive dissonance,
which is one of the key problems we were solving for the customers when we started was a paradox
of choice and not knowing how to shop and what's good, what's bad and just general confusion.
That's what really a lot of times happens. You have to constantly be thinking outside
of the box on advertising methods and ways and tricks of catching someone's attention
and getting out of the noise. That also was helpful in keeping our costs low as opposed
to just throwing some money to some outside agency and saying, make us a viral commercial
and then they come back with something that looks like everyone else.
You mentioned earlier that part of bootstrapping is that you just have these phases where your
strategies and your plans have to wait for your revenue to catch up because that's really
all you've got. You have no other way to fund these experiments, but it sounds like what
you're saying now is that you're somehow using this limitation to your advantage, which is
fascinating. Is it that the constraints that you're under force you to be more creative
and do things that your competitors won't do? What's stopping them from approaching
TV commercials and billboards the same way that you are? How do you outpace them when
they have this additional advantage that they can afford to go into the red whereas you
can't?
That's exactly it. Being bootstrapped means that you have to really focus on what works
and or making something work because if it doesn't, you have to stop. Let's say working
with an agency, if we raise a lot of capital, our objective would be to grow, grow, grow,
grow as the number one priority. Like I said, our number one priority is to disrupt the
mattress industry to be this household name, sleep brands that is the most loved, highest
MPS, highest customer satisfaction. That's our goal. It's not to grow as fast as possible.
If we were given a lot of money and our objective was to get to a certain multiple and a certain
hockey stick, if you're just a set of small founders, you're going to have to go higher
like crazy. You're going to have to hire a bunch of agencies and just give them money
and just do it. I don't have time to work on that. You see, when we work with an agency,
we're always a little bit nervous because we're nervous that they're not going to understand
what the caliber of work is and the output needs to be for this to work.
We learned really quick that when you outsource something, the people that you're outsourcing
that work to doesn't care about your objective as much as you do. When you work with an agency,
whether it's like PR or an advertising agency or your branding or even developers or something
like that, we don't really do that because we built an engineering team, but let's just
say you have to think about the strategy. If you're going to work with a PR firm, they're
not going to come up with all the greatest ideas you have to. That was hard for us because
we weren't necessarily creative in that way, so we had to learn to become creative in that
way.
We have to come up with the ideas for them to pitch. They'll come up with stuff, but
it's not necessarily going to be relevant to your customers or to the market because
it's as relevant as something you could come up with because you have that context. You
know what those customers are. We learn like you can't just hire an agency and let's say
PR and just expect that they're going to come up with all the greatest hits. You have to
come up with a lot of that direction yourself, and that was something that was tough for
us to swallow. You have to put a lot of energy towards thinking through and being creative
in those ways. I think that's an example of something that I think is a competitive advantage.
It's also a challenge. It's a pro and a con. Our competitors don't really have to put that
much energy towards it because their primary objective is revenue and not profit.
You could have a crappy television commercial and then sign a national ESPN campaign and
just blanket everything. It doesn't have a return or is it creating market awareness?
Their primary objective is to buy customers as fast as possible and get awareness as fast
as possible. For us, we want to grow as fast as we can, but we need to grow profitably
and sustainably. Another thing that it's taught us is it's taught us how to become creative
because I would say this team, especially early days, wasn't as creative in the ways
that we needed to be early. We had to learn it or hire the talent that we knew really
truly was and truly understood how to do these things. It's also taught us how to build a
healthy business. Back to an example I used earlier, which is how to manage budgets, how
to build a hiring plan, and be very careful about who you bring in because it's a very
expensive move to bring someone in who's not a good fit.
We've just had to move a little bit slower and a little bit more methodical. We've had
to be very, very considered with most of our decisions. Honestly, I would say we're very
paranoid. We like to take risks, but they're very test-driven and methodical. We're paranoid
that we're going to just screw up with everything. We collect as much information as we can,
get as much advising as we can before we take each step. That's developed into experience
and know-how and the ability to then attract talent that can take things to the next level.
I love that. Your disadvantages as a bootstrap company have forced you to be paranoid in
a way that actually gives you an edge over the competition. It's something that's in
your DNA that they're not going to be able to replicate just because they don't have
the same fire under their ass that you do. A lot of bootstrap founders have trouble,
in the early days at least, with hiring. It's very difficult to hire the top people in any
given field when you're bootstrapping and you're trying to be conservative with money.
How did you guys handle hiring early on? What were some of the first things that started
to break that convinced you that you needed to hire more people in the first place?
Dehi, my co-founder, and I were really lucky because between the two of us, we had the
competencies to do most everything. We had the competency to build a website, do the
design, to build a product, do the service, and do the finances. We were able to really
do a lot of that and wear all those hats and carry the full burden on our shoulders. That's
an advantage that we had that I know a lot of startups may struggle with. That aside,
it was extremely difficult to hire, extremely. That was one of the reasons why we decided
to incorporate in Phoenix because when we were first starting, no one wanted to join
a mattress company. No one. It was like the dumbest idea they had ever heard of. It's
not in the tech industry. In Silicon Valley, it just seemed like everyone I was talking
to and trying to convince to join was either at a big company with golden handcuffs or
they were a founder in their own company. You have to convince them to leave those things.
They'll change their lifestyle, take this bet. It was just really tough. Then on top
of it, the cost of living there and the expectations of compensation were astronomical. That was
also a huge limiter. That's why Phoenix really worked well because Phoenix has a huge talent
pool of tech and design and a lot of those key talents that are tough to find in cities
other than San Francisco and the Silicon Valley region, LA, and New York. It has a lot of
great talent like Austin and Vegas. As they say, these cities, I don't think they're really
second-class citizens, but they're not as the PR and how well-known that they really
aren't as much. Phoenix is one of the top 10 sources of talent that goes into Silicon
Valley, so we have first dibs on them. The cost of living is so much lower that we can
actually pay them comparably better. It's far lower in total cost for us. It was really,
really great. Our first office was in a transmission shop of all places. I still can't figure out
and remember how we found that. We were working out of an automotive transmission shop that
had a front office. It had Wi-Fi, clean floors, and we just put some tables and then it worked.
The cost of that was something like a few hundred dollars a month versus a tiny little
office in Palo Alto might have been $5,000 to $10,000 a month. There's no way we could
have done it. Anyways, moving to Phoenix was definitely helpful for recruiting. Another
thing I've learned is as you become successful and as you build, especially as a product
company, I'm sure digitally as well, as you become more well-known, it gets easier. Honestly,
I bet all the talent we would ever need to hire for the rest of the history of this company
is somewhere in our customer base and as a fan. I would say about 30% of all of our
talent now as a customer started as a customer. You have traction, you have growth, and you
get press and it gets easier. As you get bigger, things get easier, which has been honestly
great. A lot of the challenges we had early like hiring isn't a challenge anymore. As
you grow, it gets easier to recruit. People see, hey, it's working or they now have heard
of you, now all of a sudden mattresses make sense and now it's a sexy industry to be a
part of. The second is getting the first few key talent. They're like a magnet. An example
is we have a badass architecture team. There's a whole reason why we have them and it gives
us another competitive advantage, but that first architect was really, really hard to
get to join. Once they do and if they are doing really great work, what happens is other
architects see the work that they've done and see and then they buy into your purpose
and they want to be a part of it and it's easier to have them join, just like with engineers
and designers. If you have a crappy software developer as your first hire and then if you
hire some more crappy developers, if you're going to bring in a powerhouse or a 10xer,
do they want to work with those people? Do they feel like they're going to be learning
from them or are they going to be the one teaching? Bringing in that talent as soon
as you can then helps get the flywheel started because if you bring on, let's just say, I'm
going to take it to an extreme, let's say you were to hire a very famous software developer,
that right there is going to draw on developers because they want to work with them. It's
really getting that brand awareness, getting that press, building that page and your, your
website and that story, something that people want to be a part of, then proving that it's
working and then getting those first key people, which is going to be super hard, that's going
to be the founder's jobs early days. That's what really then gets the flywheel started.
So you kind of have to hold yourself over and hope to get lucky when you're, when you
start out and be okay with a lot of people saying no. Now, if I look at it, we get something
like a few dozen software developers applying daily and if I go back to year one, no one
was applying and I had to convince, it's like pulling teeth to get somebody to join. The
way I did it, the way I first got the first developer to join was I had to get in front
of them, sell them on the vision, show them it's, it's starting to kind of work and it
was in a coffee shop and I opened my computer. I opened a terminal VI dot and then I switched
my computer around and I showed them the code. I'm like, look, look, we built an e-commerce
site. It was really me. I built the e-commerce site from scratch, but look at some of this
automation I've got going on here and that's what got them excited was, oh, you haven't
done this yet or you haven't done that yet and I would like to, you know, and then that's,
that was really the hook for them. So really posing the possibilities of what they could
learn or really what they can get their hands on and knowing that, that thing that they're
going to build is going to have a direct impact or correlation to the growth and success of
the business that they would have some equity in was really like how we got a lot of our
first key key talents in the different teams that we have.
What is the future of Tuft & Needle look like? What do you envision happening 10 or 20 years
down the road?
10, 20 years. I'm a little bit of a visionary and so what I would tell you, you probably
think I'm crazy. Let me just go to five years. Yeah, so five years, our objective is to disrupt
the mattress industry and to define what that means with some context because different
people would assume that means different things. We view it as the mattress industry as a whole
and generally companies have not put customers at the forefront, at the center. They don't
care about them as stakeholder number one in the decisions that they're making and that
really goes back to how this industry has organically developed over time. The brands
sell to stores and the stores sell to people. The people in the stores are run by salesmen
and their incentivized for commission, just getting that customer to buy no matter what.
I'll never see that customer again because I'm not going to have this job in six months.
It's just a holdover until I get my next job. Then even those stores aren't developing product
so they don't have a direct feedback loop to the customers and they don't have really
the ability to delight their customers and iterate on their feedback. It's the same thing
with the brands because the brand's customers are the retailers. The retailers just want
something that'll sell. They want flash and gimmicks and whatever it'll take to get that
single sale for their sales force. They're trying to sell to retailers and what they
want but they don't actually have the voice of their customer and their ear to that voice
brands feel accountable to the quality of their products in the technology and innovations.
Anyways, that's the context. Our goals is to disrupt the mattress industry and our goals
to we know we would have done it when we become a household name brands with the highest customer
satisfaction in our industry but hopefully setting the bar for the industry's customer
satisfaction. The mattress industry is in a dark corner in the business news and in
something that people can point to and aspire to. That's really our key objective. We've
certainly catalyzed the disruption. We proved the model. We went through all the hard work,
the late nights in testing and figuring out how to do returns and donations and all of
that stuff, free trial, true warranties that really set the playbook out there for our
lookalikes. They had the playbook to follow which is great. It catalyzed this movement
and it's going to change the industry and the customers are going to win in the end.
We catalyzed it. We have not successfully gotten to that household name status. Technically,
I guess if another company had the highest customer satisfaction and became a household
name brand, we would have completed our mission indirectly through that other company. As
I see it, none of our competition really has this as a priority. We really have to do it.
I see us getting there in five years. We're now in several big box retailers. Some of
them have been announced and some of them haven't between Amazon. Between the channels,
we're in the right channels. Our direct website is still the majority of our volume. It is
very, very busy. Then even in our retail stores, we have a very aggressive retail rollout plan.
It's going to take a few years to get there, but we should get there in five years or less.
In five years, you're a household name. Let's hear these crazy visionary 10 and 20-year
plans.
I'm not going to speak to them. I'm not going to do it. You're not going to get it out of
me.
What?
People are going to be eating Tuft and Needle mattresses? Are they going to be building houses?
How do you do mattresses?
As we grow, here's a big difference between us and some of the bigger companies that people
know. We don't view ourselves as a mattress company. We view ourselves more as a sleep
company. If you listen to customers, they're not just wanting a mattress. They want a pillow.
They want sheets. They want bedding. They want frames. We don't want to just private
label these things. We want to design them from the beginning. We want to treat those
with feedback and iterate just like everything else.
Our other products are not second-class citizens. They're not just some accessories in a dark
corner. They're great products that could be launched as their own independent companies
in and of themselves. Our pillow should stand up and beat most of the other pillows other
companies have in sheets. We're not looking at mattress companies as in the comparison
to how our sheets perform. We're looking at sheet companies, bedding companies. How can
we meet that bar and raise that bar?
If you were to define us as a sleep company, what you can imagine some of the products
that we may develop. If we did this interview a year ago, I would be telling you there's
a lot of new products coming, but now you can go to tn.com and see. We've launched a
lot of new products from bedding to bed frames and the like. We have a lot more coming. I
believe we are now leading some of these newer brands and product lineup. We'll definitely
start really pulling ahead later this year as far as what we offer. But all of those
products have the same attention to detail of customer feedback, customer satisfaction,
and the whole goal of blowing away all the other products that are in the markets and
those particular product segments.
I see we're running pretty close in the end of our time here. But while we're on the subject
of vision, I've got to ask, what are your personal goals? And I know that most successful
founders that I talked to are very aligned with their business' mission. But at the
same time, you're a human being, you've got to have your own individual goals, your own
individual personal desires. So what are those? And what do you hope to accomplish by running
tough to needle and growing it to be huge?
I would say so selfishly, what my personal goals are my I used to game, you know, game
a lot when I was when I was a kid, business has become my game now. So I actually have
a lot of fun in business. But generally, I want to be proud of my work. And that's going
to come from solving a problem that matters to the community. And delighting customers
a lot in our team members, you know, all of that stuff is just, you know, pulls on the
emotional strings for me. So being proud and being in crossing the finish line and completing
and accomplishing what we set out to start is really my primary goal. Secondly, is time.
So as you grow, founders have to fill the gap and take on some of the toughest challenges
that the customer that the company faces, as it's, you know, and your job as a founder
is also, you know, find people that are smarter than you and better than you in this in this
boss and hand the keys over. So my secondary goal is time. So I need time to be able to
pull away and be able to think more strategically, time to study and read and pursue my own personal
interests outside of work too, so that I can, you know, keep moving at a sustainable pace
and not burn out. So, you know, and then I think my third is just to have fun as I go
along. I mean, I have a, you know, I'm married and Dehi has a family and kids and, you know,
my parents, I convinced them to pack up when they retire to pack up and move to Phoenix
and make sure I spend time with them. So yeah, I mean, it's really to be proud of my work,
to accomplish what we set out to do, and to be gaining time as we go along so that I can
continue my own personal development as a business person, a culture champion, a product
developer and all of that as I go along.
What's your advice for people who are on the opposite end of the spectrum from you, these
brand new entrepreneurs who are just now considering starting a business? What would you tell them?
Well all I can really speak to from experience is what I've done and what has worked for
me. But I would say when you're sitting down and thinking about what you're going to do,
think about the problem that you're actually solving and ask yourself, is it actually important?
Are there other people other than yourself? Yourself is the best customer because you
know whether it's fixed for yourself or not. Start with a problem and then break it down.
What are the things I can do minimally the fastest to actually solve this problem in
a way that would be enticing enough for somebody to take the bet on you when you're brand new
and you're just starting? What you don't have is you don't have, if you're going to bootstrap,
you don't have all the capital and the press to drum up that excitement. For those early
adopters and early evangelists to just take the plunge just to see if it works or not,
you have to convince people and it's tough. So start with that. Make sure the problem
is needed and test it. I would say like how can you reduce the amount of time it would
take for you to get an answer? How can you get somebody to pay you, someone you don't
know, to actually pay you for what you're proposing to do? We did it in a week. We may
be an outlier, that may be an exception, but how can you do it as fast as possible without
wasting too much of your time? Because if it doesn't work, don't you want to know about
that right now or as soon as possible so you can get on to the next idea?
That's probably the biggest piece of advice that I wish I was told early on and thankfully
we ended up there before we started. But maybe it'll help you, maybe it won't.
I think developers especially need to hear that because it's so tempting as a programmer
to sit down and hack on something for two months, six months, two years without ever
really putting it out to see if it's going to work. So I think that's great advice. People
are going to kill me if I don't ask you this, but earlier you mentioned that you've burned
out on reading business books having read most of the good ones already. What do you
consider to be some of the good ones?
I have no favorite book. I only have snippets from different books that I like. One that
I like to recommend frequently is The Halo Effect. What I got away from that is the difference
between reality and perception. The reality and the truth I've always viewed is what really
mattered but perception matters a lot too. The Halo and how you tell your narrative,
how people perceive you is such a critical factor when you start your company, when you
talk to your team, even in how you present yourself as a founder amongst your team in
the outside world is the Halo and the narrative that you're crafting.
That book probably would be distilled in five or ten pages, but there's some really good
stories in there that really sets the context and the why behind it. That's definitely a
good one. I'd have to think about it a little bit more because I wouldn't want to just throw
books out there and set people down a path. That's one I would say for sure.
Listen, JT, thanks so much for being on the show. I appreciate you going the distance
and doing an extra long episode with me. Is there anything else that you'd like listeners
to know about what you're up to and what Tuft and Needle is up to you?
I would say, well, we covered a lot of material, but I would say check us out, tn.com. Go to
our About page. Check out our Medium page if you want to see some of our pieces that
we've written. You guys are welcome to reach out to me anytime. My email is jt at tn.com.
If you ever have questions or want about ideas.
You got to be careful just giving your email address out like that. I'm going to end up
emailing you for advice. Anyway, thanks so much, JT.
Right on. Have a good one. Thank you.
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