A Product Market Fit Show | Startup Podcast for Founders
00:17:20 · Pablo Srugo, Mark
[00:17:20] S0: They talk about how you have to be close to your customers and it's examples like this that bring out what that really means. Small data is so important in those early days. Obviously, as a founder, you hope you're not the one doing the deliveries, you're not the one doing customer support, but in the beginning, it's critical that you do because you get these little tiny nuggets that have such outsized impact. [00:17:43] S1: One of the things that we learned was that people wanted to book their logistics in storage whenever they wanted and on their schedule. We had a wide range of demo, young families, single people, our oldest client was 94 years old. I had to convince her to give me her credit card over the phone, and she was like, "This is a scam." I'm like, "No, it's not, here's a link to the Toronto Star. Click it and you can read about us." She's like, "Oh, okay. I know the Toronto Star, and you're in it so that probably is legit enough." I remember taking a call at 2:00 AM. We use Grasshopper as our 1-800 line, and it's the cheap, again, having a 1-800 versus a 416 or 647 number totally changed the game because it made you look bigger. We hired this British voice actor to do our intro because it sounded nice and sophisticated. We did little things like that that dressed up the experience, and of course, it was available 24/7. I was the guy that was answering the call. At 2:00 AM, I get this call, and I'm groggy. [00:18:46] S0: Is that normal? You get calls in the middle of the night and you just pick it up?
00:18:51 · Mark
[00:18:51] S1: If my phone rang, I would pick it up whenever because it could have been a sale. I was like, we want to be available for the customer. They're like, "This must be a big company. They're answering the phone at all hours of the day." I would always be available and have a notebook to take down orders, or have my computer with me so I could pop it open and hotspot, and then book the order, and that customer ended up booking at like 2:30 after I had told them about us and what we're doing and that sort of thing. I would never tell them who I was. There was multiple Marks in the business. There was a Mark in the office and a Mark on the road. I remember just going through crazy, crazy stories where this one Russian lady that we went to was trying to convince Mark the mover that Mark in the office agreed to free storage for a certain amount of time. I'm like, I don't think he did, but let me go call him. I'll have him call you. I would go to the van, I would say, "Hey, Mark, I need you to call." I would wait five minutes because there has to be an interaction between the Marks. Then Mark from the office would call the client, and then obviously, Mark from the office, he needs to call Mark from the van back, and then Mark from the van would go back and talk to the client and be like, "Hey, did that clear things up?" Little things like that to just make sure that we were always punching above our weight class just from a look and feel perspective was important. Look, experiences like that and being on the ground, I would not trade it for the world. We were doing moving and driving for the first year of the business, and our investors eventually were like, "What the hell are you doing? Hire people and start to grow." We were growing, we had filled up a ton of space.
00:20:12 · Pablo Srugo, Mark
[00:20:12] S0: How much did you grow, that first year you hit 20,000 I think in a month or so, where were you a year later? [00:20:19] S1: Our first year, we did a couple hundred thousand in revenue. The next year, we did 1.6 million. It was like an 8x, and it has grown considerably since then. We're fortunate to be doing over nine figures of revenue now. [00:20:35] S0: I'm just curious, were the margins a challenge back then? What kind of margins were you looking at, and did investors care?
00:20:42 · Mark
[00:20:42] S1: Margins were actually really good. I really liked data. I really like playing around with the look and feel of things. Tying the analytics behind marketing to this bootleg Photoshop instance that I had, to change our copy and our visual look, to drive conversions and A/B test things, anyone can get into that pretty easily. The tools are pretty straightforward. We were able to get our customer acquisition cost down considerably to what the lifetime value was. That made our marketing cost, which traditionally is the biggest thing for a D2C business or a consumer business, really low. Then logistically, we had very good margins on storage because we were selling by the piece, but we could co-mingle them in our warehouse. It was really, really high margin once we had the product in our warehouse. That's why we offered free moving initially. We just wanted to be frictionless. Move your stuff into storage for free and we'll bring it back to you. We wanted just people to convert. Over time though, I think about a year and a half in, we started to hire a lot more movers. We had a lot more trucks. I was like, we really should recuperate more of this cost and try to cost recover. We said, what's a nice easy, approachable price? We said, let's just try charging a dollar per minute per mover while on-site at the customer home. This way, they're not paying for travel time or gas or truck fees or insurance. Just a dollar per minute per mover while on-site. Sounded simple enough. We're like, great. No one batted an eyelash at it. That line of business started to generate tens of thousands of dollars a week, a month, et cetera. We scaled it up, and because there was no pushback to me, Mark the CS guy, or Mark the mover, when we did that, we said, okay, why don't we try to increase the rate one more time? We said $2 a minute is probably too high per person, it'll be $120 an hour. Let's go halfway, let's go $1.50. Totally like FMA. We got a little bit of pushback but we were able to sell against it and demonstrate that it was still valuable. It was at that moment that we knew that we had reached a place where the market would clear, it was a good equilibrium price, and because consumers were happy with it in the end and they should feel like they're paying for a premium service. We knew that we had a good price point.
00:22:53 · Mark, Pablo Srugo
That was the first evolution of our pricing, I would say a big pivot in how we started to generate revenue. That line ended up growing to be in the teens of percent of our overall revenue on a consistent basis. As we got up into like 400,000 a month, 500,000 a month plus, back when we were Second Closet, that was pretty meaningful. It was a big revenue driver. [00:23:20] S0: That was how you increased the pricing I think on the moving side. Then how did you price for the actual storage side of it? [00:23:28] S1: As we got more noticed and people were talking about us at their dinner table and amongst the friend groups, we did this massive TTC campaign that garnered like 300 million impressions purportedly. That thrust us into some spots on TV, and this, that, the other. The mainstream consumer storage customers started to come to us, but they're used to buying space. They're like, "How the hell am I supposed to tell you how many items I have? Then you're going to price it per piece, $6 for this box, and $29 for that sofa, and $18 for my mattress. What the heck? That's way too complicated." [00:24:04] S0: That was born out of the students, which kind of knew like, "Okay, I'm in a little dorm, I've got three boxes."
00:24:04 · Pablo Srugo, Mark
[00:24:04] S0: That was born out of the students, which kind of knew like, "Okay, I'm in a little dorm, I've got three boxes." [00:24:09] S1: Three boxes, a mini fridge, and a mattress, take it away. That was approachable. Then we said, okay, shit, we need to start to pivot because now, we're in this next tier of customer and if we're going to price discriminate, we should cater to people that store more stuff, they might store longer, they're going to be more expensive, or more valuable clients to us, and obviously, have a more expensive storage bill. We said, we're going to have an item plan, which is classic, pay by the item for just what you need, and we're going to have a space plan, storing a lot, this is your solution. Now, we have this extra dimension of consultative sales talk. We introduced space plans, 5 x 5s up to 10 x 30s. That was the next S-curve that we rode from a customer acquisition perspective, and we were able to start to pull people away from self-storage, and that was big. Then we started filling up warehouse that were hundreds of thousands of square feet at that point. [00:25:06] S0: Are these customers that you think, before, they actually could have been buyers, they just weren't buyers because of this space thing?