A Product Market Fit Show | Startup Podcast for Founders
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?
00:09:11 · Pablo Srugo, Alex Back
[00:09:11] S1: Where did you get the money to do TV ads? [00:09:13] S0: There was a lot of hustle here. He knew the TV guy for – wasn't spectrum, but what was it? Time warner at the time. He was like, "Hey, Dennis, we have this new business. What can we do? How can we get this going?" He's like, well. He's like, I know this guy. You can do a little commercial and we'll put you in. We'll just choose one demographic like West Hollywood. In that place it's actually affordable to have a few ads. Let's see how they perform. The key was the hustle was in that. He's like, yeah, I got something good for you though. There's something called Autofill where there's a time slot that wasn't filled yet. We'll slot your commercial in. My best anecdote about this is we got into the Super Bowl pre-game, the pre-game show leading up to the Super Bowl. We're like, what? We had our crappy commercial that we made in my buddy's apartment showing on this. [00:10:07] S1: Oh my God! They still charge you but just some reduced rate or how does that work? [00:10:11] S0: Each play paid our normal rate of 80 cents a spot or something. I don't remember what it was, but we didn't spend a lot of money on marketing. I'm not saying it was successful, it's just more of a good story of how we found these weird ways of growing that were not the conventional like advertising ROI focused route. [00:10:33] S1: By the way, what did you use to build? I mean we're talking 2010. This is when Toby from Shopify was selling snowboards on online? What did you use to build that website?
00:10:33 · Pablo Srugo, Alex Back
[00:10:33] S1: By the way, what did you use to build? I mean we're talking 2010. This is when Toby from Shopify was selling snowboards on online? What did you use to build that website? [00:10:43] S0: We ended up being a major early adopter of Shopify. That was a huge part of us being able to grow our business with all the players that emerged around that ecosystem. Prior to that, we first started on a Magento website and we had a local LA house build it for us. Probably spend, I don't know, 30 or 40 grand just getting it going. We had some bells and whistles to it that we really were proud of. We had this package builder application where you could bundle products together and it was like a living room package and choose your sofa, we give you four couches and you can choose which one you want and then you go to the rugs. This is something you see on websites every day but back in 2011, this is not a big thing. We got a lot of attention for that. [00:11:31] S1: Do you remember your first sale? [00:11:34] S0: Yeah, I do. I remember when we went live. We pressed a button and went live and then we didn't get a sale for a day or two. Then our first sale I think it was a friend of a friend, someone we knew. It wasn't like a random at first. That would've been unbelievable. Yeah, somebody bought a bed and then we're like, okay, this is us. Oh wait, oh, we have to get the bed now to give to the person. Okay, who's doing that? It wasn't that ragtag. [00:12:02] S1: Did you do dropshipping or were you actually in charge of the logistics?
00:12:02 · Pablo Srugo, Alex Back
[00:12:02] S1: Did you do dropshipping or were you actually in charge of the logistics? [00:12:05] S0: Yeah, so dropshipping in the furniture industry at that time was very different than it is now. Right now all the manufacturers, definitely all the major ones, are set up for dropshipping situation. Their packaging is ready to be drop shipped. They're used to shipping companies, like 20 different shipping companies coming to their distribution facility to pick up. Used to be that they would be in charge. They would have one – if you need us to ship to you, we're going to use R+L carriers and we'll charge you the freight to give you your whole furniture order to your warehouse to sell in your store. For us though we had to wait and massage things. Some retailers were able to ship direct, but most of them we needed to have them send to our warehouse. We had to have a warehouse and we had one here in the San Fernando Valley in LA basically just like a roll up and the stuff would come in and we would deliver it locally. We had a zip code gate. First it was Los Angeles only and we did that for about two or three years just working in LA. [00:13:16] S1: Did you have to hold inventory or were you able to at least time that properly?
00:13:16 · Pablo Srugo, Alex Back
[00:13:16] S1: Did you have to hold inventory or were you able to at least time that properly? [00:13:20] S0: We were able to time it properly so that we were always stayed cash positive. We would take a hundred percent customer deposit at the time of order placement and someone would buy a dining table for $1,000. We would then buy it from the manufacturer for 500 plus whatever the shipping charge was to get it to our warehouse. Then we had to pay for delivery. There was some decent margin in this, but it took a lot of operational hustle for every single order at that time for years. [00:13:51] S1: I'm just thinking. I mean between the website, between the warehouse, how much money did you and your co-founder have to put into this just to get it started? [00:13:58] S0: I think it was $125,000 total. My friend and his dad were the initial 50,000 and then we raised from another friend of my partner's another 75. That's it. I say raise. I mean basically it was like, is he lending it to us? We brought him into the deal and luckily he made out a head. I mean he got a nice return on his investment. Yeah, that was it. It was just basically a friends and family cobbling together what we could. Luckily we were always a cash positive business, so we never needed money. After a couple of years in business we were able to pay ourselves too. It was like, okay, let's just – we were in a stable position. We can grow from there.
00:13:58 · Alex Back, Pablo Srugo
[00:13:58] S0: I think it was $125,000 total. My friend and his dad were the initial 50,000 and then we raised from another friend of my partner's another 75. That's it. I say raise. I mean basically it was like, is he lending it to us? We brought him into the deal and luckily he made out a head. I mean he got a nice return on his investment. Yeah, that was it. It was just basically a friends and family cobbling together what we could. Luckily we were always a cash positive business, so we never needed money. After a couple of years in business we were able to pay ourselves too. It was like, okay, let's just – we were in a stable position. We can grow from there. [00:14:44] S1: I mean, the hardest part I would say of any business is getting customers. You get this first sale to a friend of a friend. I'm curious if you just think back to those days as you grew to that first million or so in revenue, what were some of the things? I'm curious to hear the anecdotes from back then because I always find they're interesting. There's always crazy things you got to do to just make it happen. How did you get that first million or so in revenue? What were some of the experiments that you tried to really get customers? What worked? What didn't?