A Product Market Fit Show | Startup Podcast for Founders
00:23:37 · Pablo Srugo, Alex Back
[00:23:37] S1: How steady was the business? Obviously you're selling. One of the challenges with furniture is somebody buys a couch, they probably don't come back frankly for a view. I mean, maybe if they got a new place, they buy a few things all at once, but oftentimes they'll buy something and they won't come back for many years. It's certainly not SaaS. There's no recurring element to it. How did that translate, especially at the beginning? At some point you get to scale and things take care of themselves. You understand what seasonality looks like, but what was that like the first few years? Did you have some quarters that just things seemed to come to a halt and you're just wondering if the whole operation makes any sense? [00:24:10] S0: I don't remember in the very early days too well, but what I will say is our volume and revenue was very consistent, very, very consistent. This was probably due to a few reasons. We just stuck to a lot of formulas that worked for us. We did a lot of experimentation. When we found something that worked from an advertising perspective and at some point, obviously, yes, we started really advertising, but things worked. We stuck to them and tried to find the formulaic approach. [00:24:44] S1: What was repeatable from the advertising because Groupon didn't work? Costco obviously did, but it was like you can only do so much of it. What was the thing that just was always running?
00:24:54 · Alex Back
[00:24:54] S0: Costco was a through line for us for a long time. We can depend on that revenue. Early on we started advertising, I remember first doing Facebook ads when they just came out and doing a lot of things like that. When we found something that worked, we would work it really hard. When we started doing Google advertising and saw something that was successful, we would just stick to it and really try to establish the baseline. The other thing about furniture is we really were aware of when people are buying furniture. I wouldn't call it seasonality in the traditional sense. People buy toys. 90% of the toys that are bought are bought in the month of December. It's nothing like that. It's very consistent. It's like the wave is like this throughout the year. The market is driven by holidays and major sales events. You have like President's Day, Memorial Day, July 4th, Labor Day, Black Friday. Those are the big five. Then you have all these other ones like Martin Luther King weekend. It's just like the car and mattress business and furniture runs along the same cycles. During those times, if we showed up with a good promotion and we put our advertising focus on those time periods, we are able to achieve consistency because there's something like almost every six to eight weeks in the furniture space that we can hang our hat on from a marketing perspective. That really contributed a lot to our consistency. There are just this promotion. Inherent promotional calendar that we followed in the furniture industry was very helpful.
00:26:35 · Pablo Srugo, Alex Back
[00:26:35] S1: Do you remember any specific promotions you ran that worked especially well to the point where you're like, whoa, we just struck a nerve with that one? [00:26:44] S0: Yeah, no, I just think we realized early on the power of being promotional. That's not the answer to the question that you're looking for, but a lot of new brands are like, how promotional should we be? We have a premium brand here, should we even be on promotion? Our thing was once we saw that promotions worked, we're like, no. We learned that early on with coupon. We got all these people to buy furniture that weren't even interested in furniture. Same thing at Costco. They were coming in there for diapers. It's really the promotion that gets people over the hump when buying furniture and its incredibly competitive landscape. We knew that, that worked for us. I think our first Black Friday sale where we gave 30% off and saw just that number, the percent off how much people are saving. That's what people are focused on in our industry. They want to know how much they're saving, so much more interested in that than how much they're actually spending. They just want to feel like they're getting a good deal. We basically realized there was a direct correlation between how much discount percentage we give and how much people buy. As simple as that sounds, it's not always that linear. We then figured out a way to price our products in a way that we could. Give 15% off and 20% off, and we're driven by the promotional discount percentage that would drive the business and we worked backwards from there.
00:28:13 · Pablo Srugo
[00:28:13] S1: That makes a lot of sense. Maybe let's fast forward a little bit. You're growing this business. I mean, things are generally speaking, going pretty well. At some point, you get acquired. Walk us through how that happened. Where did this acquire come from and just how long did that process take?
00:28:28 · Alex Back
[00:28:28] S0: The furniture industry, as I alluded to a number of times, is still catching up to the online wave and that's a huge part of what I'm addressing right now with my new company couch.com. We are in a position where these old school generational players were just becoming more comfortable with the online space and also saw it as an opportunity finally rather than a threat. That's on the manufacturer and retailer side. Unsurprisingly, our suitor, the one that was interested in us was a old school legacy furniture, retail, brick and mortar chain in the Midwest. They had about 30 stores, big stores. I'll name a few names of retailers that are similar just to give you. In different places in the southeast, Rooms To Go is a good one; on the west coast, Living Spaces; the northeast, Raymour & Flanigan, Bob's Discount Furniture. Big huge furniture stores like built in warehouse and huge showrooms, they're interested in moving into the online space. They were looking for opportunities. We were always, after a few years, fairly well known in the furniture space. It's a very big industry but very incestuous and everybody knows each other. We were one of the names that were getting thrown around. A few online businesses like ours had been acquired over the past few years. This was a model that other legacy furniture retail brands were looking to repeat. We got approached. I think for them they were interested in bringing in our e-commerce expertise and experience to their world and seeing if we could help catapult them into that space and also just investing in a growing business that had a lot of opportunity that they could probably use their operational infrastructure to help support. Both things ended up being very true. That's the reason we were able to grow the business so much post acquisition.
00:30:29 · Pablo Srugo, Alex Back
[00:30:29] S1: You started around 2010. When did you get acquired? What year was that? [00:30:31] S0: We started building the business in 2010. It went live in 2011, got acquired in 2018, so that conversation started in 2017. We were in business for about five or six years I guess. I mean, it felt like an eternity, but theoretically, I mean we grew pretty fast. My partner and I, we were making nice livings. Everything was going really well. Our business was growing. We had a bunch of employees and then this company came to us and asked us if we would be interested. [00:31:04] S1: Walk me through the emotions, especially the last few weeks before you actually get this deal closed because the reality starting a business and especially I think a bootstrap business where at some point you're paying yourself a decent salary, but you're always mining cash flow. Every now and then there's an entrepreneur who wants to build a business that they can run forever. I would say 99% it's about building a business and at some point selling it and then doing another. When you get here, I mean it's a huge event. What was that like? What did that feel like, those first weeks right before it and then when the thing actually happened and closed?