A Product Market Fit Show | Startup Podcast for Founders
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?
00:14:44 · Pablo Srugo, Alex Back
[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? [00:15:12] S0: Yeah, there were two things that were really instrumental in us really getting a healthy revenue flow going. I got to hesitate to say healthy because some of it wasn't healthy. The first thing we did was, at that point Groupon could not have been hotter. There was Groupon living social and all of these little deal sites everyone was looking at them every day. Everyone was getting Groupon's emails at that time because it was a new thing that everyone was socially participating in. The good thing was nobody was doing them for furniture. We saw an opportunity there. It was an easy pitch to them like, hey, let's do a Groupon for furniture where somebody spends $100 but they get a $250 coupon or a gift card rather to our stuff. Now we do that they were going to spend 750 to $1,000. Really we're just giving a 15 to 25% discount. Obviously we got burned on this in various ways, but we also were able to use their platform. [00:16:19] S1: Like what? [00:16:20] S0: Just the margins.
00:16:20 · Alex Back, Pablo Srugo
[00:16:20] S0: Just the margins. [00:16:22] S1: I was going to say, I mean what were your margins back then on a couch?
00:16:25 · Alex Back
[00:16:25] S0: We were working on what they call a keystone, which is 100% markup, which is a traditional furniture retail markup. That's what we knew. At that time we were operating as a local entity in Los Angeles. We were able to really use traditional financial modeling of a furniture store. The unit economics are, let's say someone bought $1,000 couch, they did the Groupon. By the way, we didn't even get the $100. We got 30 of those dollars. We are almost giving them, let's say in this case a 22% discount. We could probably support that. However, some people were doubling up the Groupons. Some people were just buying $500 items where we would actually lose money. At that time we were so bullish about it and probably irresponsible that we were just, we'll figure it out later. Let's just get as many customers as possible. I don't know that that was the wrong strategy. We really did make a name for ourselves within this world. I don't know. Just word of mouth started spreading. We provided a great product and service because we actually were good at that from the jump. People were satisfied with it; getting really good reviews on Yelp and things like that. We were able to leverage Groupon basically instead of paying for advertising as this affiliate marketing partnership, so to speak. That's one thing we did. The other thing was working with Costco. I had mentioned before my friend had run this whole operation with Southern California. Costco was a very successful partnership with all Costcos in SoCal. We got back in touch with the buyers and we were like, hey, we have this new business. They gave us a chance and it was super successful. We did a test event or two where we would go into a Costco for 10 days. We would put six couches on the floor. We would let people decide which – we would give them a choice of 10 fabrics that were approved by Costco and people would be coming in for their diapers and their pierogies and we're selling them couches on the spot, or they would come back one additional visit and they would come back after measuring their house and they would buy it. We would do 20, 30, $40,000 in a week at Costco and they take 14%. There's no other participation fee. They just want a cut. For us, there was a very little risk involved. We would just go there. We had to have this small inventory of stuff.