A Product Market Fit Show | Startup Podcast for Founders
00:00:39 · Alex Back, Pablo Srugo
[00:00:39] S0: Thank you so much. [00:00:40] S1: I'm excited. I'm particularly excited for this episode because in this podcast, we talk to mainly tech founders and most of the times the sort of things that their startups are doing are esoteric. It's niche, it's a vertical, nobody has heard of it. While the episodes are still interesting because things still repeat across different verticals and so on, I find it's hard for people to understand what the company really does. In your case, you were selling couches online. It can't get any simpler than that. I think everybody's going to get it. You bootstrapped it to about six million in revenue, you exited and then you kept growing to 40 million pushing furniture. I mean, I think it's going to be an incredible story. I'm excited to jump in. I guess for my first question, if you could just set some context. I think you started about 2010. What did the landscape look like back then when it came to online for online selling and especially e-commerce for furniture?
00:01:35 · Alex Back
[00:01:35] S0: Great question. The landscape for online furniture sales at that time was like, you ever see Mad Max? It's just like – well, I picture low, like desert planes where there's literally nothing. It was a very interesting time because there was really no big ticket items being sold online at that time, as crazy as that sounds because 2010 feels like it was just yesterday in some ways. There were no independent furniture brands really to speak of. There were a few that were popping up here and there, and I'll tell you in a second our first foray into understanding that this was something that could be big. At the time, IKEA for instance, the biggest furniture retailer in the world, they weren't even transacting business online. There was no online payment gateway. It was just like a store finder, essentially an online catalog. That frames the conversation. Back, a few years before that, there were some early players in the online furniture space. Now furniture was super-hot in 2005, '06 and '07. This is when the housing market was going insane. Obviously in 2008 and '09, it was terrible because the furniture market generally follows the housing market. My best buddy at the time was a sales rep. He was pushing big bubba recliners, the type of couches that you know exist and they sell extremely well in this country, but you don't really see them that often in modern homes but there's a lot of business going on. It's an old traditional Mississippi manufacturer that sold these reclining couches. His territory as a sales rep was coastal California where we live; southern California mid-coast, between LA and San Francisco. He's going into these stores and I worked with him and we're selling containers of these huge bubba recliners to these stores. All of a sudden he gets an email out of nowhere from someone who wants to open up an online account. He calls a sales manager in Mississippi. I'm not going to do the accent, but you could picture what this guy might sound like. He's basically like, no, we don't have any online accounts right now. My friend is like, hey, can I open them up? Can I bring them onto the – he's like, yeah, let's see what happens. What do they need? They just need a spreadsheet of all the information and images and they'll do the rest. Okay, so he supplied them with this and the next day he wakes up to an order immediately.
00:03:20 · Alex Back, Pablo Srugo
Two days later there was five orders. 10 days later there was 20 orders, every single day going to different parts of the country one at a time. This is a company that was used to selling a hundred at a time in a shipping container coming over from Asia. Now they're selling from their domestic inventory one here, one there, one there. They grew so fast. My friend made a lot of money and so much so that they took the account away from him and made it a house account because he was just literally making too much money off of this. [00:04:39] S1: Was this dropshipping in terms of how that worked at that point? [00:04:43] S0: Yeah, it was early dropshipping. This company had never even done that before. They were going through the process of figuring out how do we even palletize single shipments to go to one place like that? That's something they had to adapt to as well. The retailer that was buying all this furniture was called CSN Stores at that time, and eventually they became Wayfair. [00:05:05] S1: That's crazy. [00:05:06] S0: That's how we got into the furniture business figuring out that, oh, there's somebody who's doing this and doing a really good job. There's a ton of opportunity.Yeah, it was early dropshipping. This company had never even done that before. They were going through the process of figuring out how do we even palletize single shipments to go to one place like that? That's something they had to adapt to as well. The retailer that was buying all this furniture was called CSN Stores at that time, and eventually they became Wayfair.
00:05:06 · Alex Back, Pablo Srugo
[00:05:06] S0: That's how we got into the furniture business figuring out that, oh, there's somebody who's doing this and doing a really good job. There's a ton of opportunity.Yeah, it was early dropshipping. This company had never even done that before. They were going through the process of figuring out how do we even palletize single shipments to go to one place like that? That's something they had to adapt to as well. The retailer that was buying all this furniture was called CSN Stores at that time, and eventually they became Wayfair. [00:05:15] S1: Was he supplying then one of the first pieces of furniture that Wayfair would've sold? [00:05:19] S0: Wayfair got out this early, early 2000s. They started as CSN stores. Even before that, there's just these two guys. They were not in the furniture business. Their story's really interesting. They have a great, like how I built this with Guy Raz, if anybody's interested. It's just a good business story. They started with just a very robust SEO driven e-commerce strategy where they had bartos.com or awesomemediastands.com. They bought up these URLs and then worked backwards and found the product to fit those. Essentially used keyword research to back their way into the furniture industry to figure out what were people interested in buying online. Then as I said, they worked backwards from there. Very, very interesting story. [00:06:09] S1: Your buddy sees this, let's say market pulse is this new model of selling furniture. Where are you in the picture? Are you all also working with him or how do you enter?
00:06:18 · Alex Back
[00:06:18] S0: I was an actor living in Hollywood. I used to sing and dance. I was singing on cruise ships when I wrote the business plan for Apartment 2B, our former company. That's a whole other story. I was always a very entrepreneurial person. I didn't want to wait tables. My friend was selling furniture. I was like, "Hey, let me sell some furniture with you." My side job was, we had this deal with Costco where we do all these special events and we basically sell our couches at Costco next to the guy sampling hummus or whatever. I was the sales manager for our Southern California operation. I just did this on my off days. If I had an audition, I would go do that, or if I had a show, I would take a couple weeks off. All that to say I was doing that, he was doing this, and I started working more in that direction. At some point it was like, hey, I have a good concept for making an online store where we're just bridging the gap between IKEA, which at the time was seen as much more lower end quality, as promotional as you can get, and Crate & Barrel, which at the time was seen as a little bit more high end. There was nowhere where people in their 20s who could go to buy furniture and feel confident knowing that they got a good piece of furniture that's actually good looking. That's where we started. I was like, that seems like a pretty good idea. I moved back to LA from New York at that time with my wife and we started the business in his apartment and hence Apartment 2B was born.
00:07:47 · Pablo Srugo, Alex Back
[00:07:47] S1: What was the first iteration of the business? What were you selling? Where were you getting it from? [00:07:53] S0: We basically ran Apartment 2B like a retail store. My friend had run a retail store. I had worked with him too. We understood the basic ins and outs of running a mom and pop furniture store. We just did it online. We didn't have this grand scope or scale to the concept. It was just first let's see if we can support ourselves with this lifestyle business of just selling furniture online and let's see where it goes. Initially we just got connected with a number of different suppliers. We used his prior connections in the industry to literally just get people to sell to us because nobody in the furniture industry wants to sell to online businesses. They saw it as a threat to their brick and mortar businesses, which still, by the way, 20 years later drive the majority of the business in the furniture industry. They're very protective of these players. A few people allowed us to put their products online for sale. We put together a catalog. We spent a number of months building a website and we basically just flipped the switch and did all these alternative methods of advertising and marketing that were – we advertised on TV before. This was before Google ads was even really a thing. [00:09:11] S1: Where did you get the money to do TV ads?