You hear it all the time, “build a product that solves your own problem.”
That’s exactly what JT Marino and Daehee Park, both software engineers, did when they quit their jobs to create mattress company Tuft & Needle, seeding it with $3000 from each each of them.
They didn’t take venture money because they wanted to build the company for the long term and borrowed the money they needed to grow.
“The reason why we turned them down all those times is because we figured it would change the way we operate as a company.”
Instead, Marino, 30, and Park, 27, took out a $500,000 loan, at a rate of 10%, from Bond Street, one of the new breed of alternative lenders, in order to keep control of the company and continue doing things their own way.
They built the business online — no showrooms and no salespeople.
No hassles returning a mattress you hate. And, perhaps most important, no gimmicks on prices, which range from $350 for a twin to $750 for a king.
They’ve considered other products, even developed a few, but with no investors to force them to expand, they are focusing on the mattress business.
Is it paying off? Absolutely, so no problem meeting their loan payments.
By its first year in business, Tuft & Needle had reached $1 million in revenues. And then it just kept growing, hitting $9 million in 2014, then $42 million in 2015. This year, Marino and Park expect revenues to reach between $125 million and $225 million, a three- to five-fold increase over last year. And, yes, it’s profitable.
However, recognizing that not everyone, especially older buyers, are comfortable buying a mattress online, they are opening their first retail store at 637 King Street in San Francisco (where else?) — first and possibly last.
“It could very well be our first and last store, or it could be the first of many,” Marino says.
That’s the priceless reward for bootstrapping.
Call your own shots, experiment as you choose and stay true to your values.
The true test is whether the appetite is sustainable.
Sustainable isn’t just a matter of price; share prices will always go up and down — that’s the nature of the beast.
It’s not even about profitable.
Sustainable means a business model that generates enough revenue to function, grow and innovate without requiring new/outside infusions of cash — like Amazon.
Richard Branson started talking about “doing good by doing well” years ago and multinationals across the globe are finally getting on board.
Not because they suddenly grew a social conscience, but because it pays.
CSR or Corporate Social Responsibility has gone global, with companies across the spectrum.
But increasingly, it is what investors, customers, employees and other stakeholders have come to expect and demand. Millennials — industry’s new and future customers — cast a particularly keen eye on companies’ commitment to social impact.
Microsoft, Disney, Gap, JP Morgan Chase, Mattel, Coke, Pepsi, India’s Tata Group and Suzlon Energy, Chinese battery maker BYD, Brazil’s Natura Cosmeticos.
“The better CSR programs, either in emerging multinationals or developed-country multinationals … are not just philanthropy, they’re strategic.”
Internally CSR attracts customers and investors, can be used as a recruiting tool and beefs up retention.
And keep in mind that corporate social responsibility isn’t just for big, wealthy companies. SMB and even solopreneurs are in a position to make a difference, especially in their own local community.
Read the article for ideas.
Look around for a project that excites you and all your stakeholders.
1. Raising money at high valuations is equivalent to a successful business
2. Going public is a way for founders to cash out and ease up on intensity
His thoughts echo what Salesforce CEO Marc Benioff said at the Fortune Global Forum.
“They are being drawn in by these venture capitalists and private equity to take these huge amounts of money at these huge valuations. They cash out early, they buy these penthouses in the sky and then all of a sudden they’re trapped. They can’t go public because their last valuation would be higher than their public valuation.”
And Benihof sees value in an IPO that has nothing to do with losing intensity.
“Public markets are great for CEOs. You have to answer to the public market. You have to listen. You have to pay attention.”
Plank also offers a solution for cheap capital to fund growth.
“I think that the cheapest capital in the world is probably sitting in your inventory racks or the product you are trying to sell because, No. 1, it doesn’t require a board seat and doesn’t have an opinion to weigh in on what you are trying to do with your business. So use that as your capital. Go sell what you have, and go raise money.”
Granted, it’s a mundane solution, with no glitz and is unlikely to garner headlines in techland, but it works.
Kind of like getting your medical or law degree without student loans.
Money is only part of what you want from an investor.
Active interest, mentoring and contacts are what your investors should bring.
These are especially important with early-stage investors.
Just as important is a synergy between your values and the values of your initial investors, since values are what underlie your startup’s culture.
For example, if your values include a focus fairness, diversity and social give-back a la Salesforce and your investor’s values are strictly focused on minimizing costs to increase profits the relationship will be rocky, to say the least.
How do you know?
Smart founders do lots of due diligence and talking with founders of previously funded startups, whether they succeeded or failed.
Yes, it’s hard to say ‘no’ when the money is on the table.
But easier if you remember that while refusing funding may slow you down, taking it from the wrong person can kill you.
A Friday series exploring Startups and the people who make them go. Read allIf the Shoe Fits posts here
I found several useful/interesting reads yesterday and thought I’d share them with you.
If you’re wondering what’s hot (security) and what’s not (social and dating apps) take a look at the thoughts of Sequoia Capital’s Mike Moritz after recently listening to 146 pitches in a row.
Investing in startups is like bird-watching, (…) For venture capitalists, Moritz advises not to look at the flock, but at each individual startup. “Each one is different, and I try to find an interestingly complected bird in a flock rather than try to make an observation about an entire flock,” Moritz has said.
That said, some trends appear when the looking at the group as a whole.
Moritz is also the PayPal board member whose penny-pinching advice saved the company in 2008 and every founder should be following it now.
“That focus was instrumental in PayPal’s survival,” Roelof Botha said. “We could have been spending money willy-nilly and fallen by the wayside by accident.”
Tenacity is lauded in the startup world; the idea is that passion and never quitting are the hallmark of successful founders, but the story of François Reichelt proves that Kenny Rogers offers a more common sense approach.
“Know when to hold ’em and know when to fold ’em.”
Last are two links that provide useful tools for you.
Oleg Campbell has automated the process of hunting for someone’s corporate email with a nifty new Chrome extension built on top of Gmail. It’s called, descriptively, Name2Email.
Second is tech lawyer David Tollen’s Tech Contracts book and website, with helpful information and free forms for SaaS, software licensing, and other IT agreements.
It’s a plain-English how-to guide on IT contracts for lawyers, contract managers, salespeople, IT staffers, and executives.
A Friday series exploring Startups and the people who make them go. Read allIf the Shoe Fits posts here
Founders who can’t code are often brushed off as bringing little to the table in comparison to their often tech co-founder.
Which is really stupid, considering that the majority of moving parts in any company aren’t technical.
Steve Jobs once said, “It’s technology married with liberal arts, married with the humanities, that yields the results that make our hearts sing.”
Additionally, it’s all the items that are labeled “business” — finance, marketing, design, sales, customer service and more — that make investors write checks.
A Friday series exploring Startups and the people who make them go. Read allIf the Shoe Fits posts here
Are you one of the many founders who revel in a so-called startup culture that eschews structure and ignorantly confuse process with bureaucracy?
If so, you aren’t doing your company, your people, your investors or yourself any favors.
In a 2012 post I quoted Paul Graham, co-founder of Y Combinator, regarding the need for financial controls and frugality during good times in order to survive the bad ones.
The number of leaders, investors, academics and others who have recognized the impact culture has on success is as diverse as it is numerous — ‘culture eats strategy for lunch’ didn’t become a catchphrase by accident.
“The single largest issue that causes the most emotional heartache in a startup is people challenges. Every organization has them. If you put best HR practices into place in the earliest days and are doing the right things right, you’ll have fewer and fewer issues and blowups.”
If you want to build a successful company you need a solid base that includes a consciously designed culture based on your values, financial controls/accountability that engender frugality and best HR practices that enhance growth, while protecting the company.
According to The Information, computer security companies are being brought on to advise other companies about startups they are thinking of acquiring, and VCs are including cybersecurity experts as part of their due diligence when they look to invest in companies.
Security has been an after thought, if that; a feature that the company would get to as soon as [whatever] happened.
The déjà vu hit because that is the same attitude companies had towards quality once-upon-a-time (some still do).
After conception, architecture, design and manufacturing were done the product was sent to QC (quality control) and back up the line if there were problems.
In many cases the quality flaws were actually designed into the product or the manufacturing process itself, which made fixing them very expensive or impossible.
The same problem happens when security is the afterthought.
Any fool knows that if the wrong grade of steel is specified for a bridge or the spec is changed to facilitate speed or budgetary concerns the bridge is likely to fail sooner rather than later.
Zukerberg’s oft repeated “move fast and break it” is proving to be a deal breaker in a more ways than one.
Entrepreneurs face difficulties that are hard for most people to imagine, let alone understand. You can find anonymous help and connections that do understand at 7 cups of tea.
Crises never end.
$10 really does make a difference and you’ll never miss it,