A Product Market Fit Show | Startup Podcast for Founders
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?
00:25:06 · Pablo Srugo, Mark
[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? [00:25:10] S1: I think so. Let's zoom out and think about if this was a "bigger business." You'd have a marketing leader, you have an operations leader, and they may get together strategically at best, once a quarter, but realistically, probably once a year, to actually sit down and be like, "What the hell's going on?" You hope that that operations leader would've pulled insight from his movers or her movers, and you hope that the marketing leader would've been talking to CS and understanding the conversion funnel and how customers dropped off, to be able to marry the two things together. That doesn't happen, unfortunately. People aren't that entrepreneurial in major corporations such that, unless they're incentivized in the right way, or they're groomed or hired and conditioned to be that way, certainly in a storage company, probably not the pedigree that you would expect, not for anything to do with the storage company or the brand, but they often outsource marketing, and their operations as you come to us. We were doing it differently, and we had the benefit of having the tightest feedback loop possible. I was CS, marketing, and operations. [00:26:14] S0: Even still at that time?
00:26:15 · Mark
[00:26:15] S1: Even still at that time, even in 2018, yeah, up until mid-2018, and even later, I would still hop in a truck every now and then, and still do today to stay close to the business. It's a fundamental principle that I believe, and I can touch on that in a sec. We had a zero feedback loop and it's what I strive to maintain today. That's why I dumpster-dive different areas of the business to pull out insights. Every time I zoom into the company, I'll leave with a month's worth of insights of things that we can do better for our customers. At the time, it was just very rapid, very rapid iterations. To go from $0 moving fees to $1 to $1.50. It allowed us to resource our moves in a better way. We didn't have to have really big time windows to optimize our routes. We could have really tight time windows because we made enough revenue from that. That insight would probably have taken a year to go back to the ops leader and marketing leader of a bigger company, and then they might iterate and have a plan for the next year hopefully, or maybe not. That, I think is a very special thing in small companies. I think a lot of the time, people try to specialize early team members quickly. Actually, I'm in favor of, try to be as general as possible for as long as possible because yeah, sure you might lose the production on the Model T if someone's doing an end-to-end as a custom build, but that's what they did before they had enough volume to production line it, and then they started to do okay, you do the chassis, you do the steering column, you do the tires, you do the doors, fine. Holding out as long as possible will let you cross-functionally share more insights, and not cross-function in terms of department heads, but department functions. Then you've got way more seasoned leaders that know more about the business so that you can grow faster when you need to start specializing.