How to Bootstrap Your Way to $250,000,000/year with JT Marino of Tuft & Needle

Courtland Allen 8s

What's up, everybody? This is Courtland from IndieHackers.com and you are listening to the IndieHackers Podcast. On this show I talk to the founders of profitable Internet businesses and I try to get a sense of what it's like to be in their shoes.

How did they get to where they are today? How do they make decisions both at their companies and in their personal lives? And what makes their businesses tick?

Today I'm talkin to JT Marino. One of the two co-founders behind Tuft and Needle. JT thanks so much for coming on the show. How's it going?

JT Marino 33s

Thanks for having me.

Courtland Allen 34s

Tuft and Needle is a direct-to-consumer mattress company and I hope it's not too cliché to say that you guys have disrupted the mattress industry. You and your co-founder Daehee started the company back in 2012.

You grew it to over $100 million dollars in revenue and under five years, and I'm sure that's even higher today and somehow you did all of this without raising any money at all from investors. Did I get all of that right?

JT Marino 55s

That's right. Yep.

Courtland Allen 57s

So your background is in software engineering. You got a degree in computer science and you and your co-founder actually met while the two of you were working at a tech startup in Silicon Valley.

How does one go from software engineer to mattress tycoon?

JT Marino 1m 11s

Yeah, it's a little bit strange and that's definitely part of the story. We actually met in college and we were in school. I was studying computer science and mathematics and Daehee was in the information science and cybersecurity college of IST. We basically hit it off, recognized that our personalities are a really good match. We worked side-by-side on our projects outside of school. In a matter of a few years ended up back together after we graduated at a start-up in Palo Alto and in the time span in between we had our hands in several other startups. We were essentially building the next app as many other companies were in Silicon Valley, at a company and decided that, we wanted to change it up and start something of our own.

What we did was we outlined some criteria. What that company should be like because we hadn't yet discovered what that idea would be. But we wrote out the rules of what the idea was and how the company would be built, that we need to abide by. And one of the top of the list items was to build a company that solves a real problem.

So we knew we had to search for a problem first before we started mashing up ideas or pulling inspiration from other companies. The second item on that list was to start our company fully bootstrapped. All of our previous experience had been a part of companies that have raised a lot of capital and we've definitely gotten to see a lot of the negatives and downsides of that. Not saying that raising capital is a bad thing, it just wasn't something that we wanted to really do with this new business.

So with that as a starting point, we both spent a few weeks doing retrospectives on our own lives, searching for that problem. And we built basically a list of problems and concepts and one of the items that we kept going back to was shopping for a mattress, which is strange. If you really look at everything we've ever built it was always digital.

We definitely have some experience. I definitely have some experience in design and product development digitally but jumping into something as weird as a mattress was so odd that it kept catching our eye.

We essentially took that as the starting point and we took a legal pad and we wrote at the top the hate list. We wrote down everything that we hated about shopping for a mattress and everything that we hated about a mattress itself.

If I were to tell you the story and it would take probably another hour, of my entire nightmarish campaign for finding a good mattress when I was really starting my career. You would understand that there were definitely a lot of pains and our theory was if I had all these pains and Daehee he had similar pains when he went shopping for one that maybe other people do too.

So really using this hate list as our weapon and it wasn't rocket science, it was from the perspective of, if we were to build a mattress company from scratch using everything that we know about customer experience and having a tight feedback loop and product development and design and all of those things that we've really learned from the tech industry and were to build a company from scratch - what would it be like?

Drawing a line down the center and writing on the on the other end just what we would do instead, for each of those items it essentially became our feature set.

What we then did was we reduced it to what would be the MVP, to just be really one or two steps forward from the status quo or raising the bar of the industry and then we built a single-page website. We used the photo stock image of a mattress. We took those features and wrote those out as our value proposition. We installed a credit card form which happened to be Stripe and we launched that website.

Daehee started an advertising campaign on Google and then within the first 15 minutes we had an attempt to purchase this product that had not yet existed, but we didn't end up capturing the funds. We set it up so it wouldn't it wouldn't fully process but there was our cue that we were on the something and then we shut our site down. We quit our jobs and we got working on starting Tuft & Needle.

That was in June of 2012 and through the summer is when we were prototyping, figuring out the supply chain, figuring out really how to start a physical product company. How the industry worked, building out the website and the brand.

Then officially launching in October 2012 and that was funded with essentially just a few thousand dollars from each of us. Quitting our jobs we had to really rely on our savings to pay the bills, also pay the rent, buy food. Plus we had to put some money into opening a business account and firing up a few advertisements and that's what we did.

Then from October 2012, it took us about two months, or actually I would say about four months to really get to ramen profitable. So we were able to just barely pay our bills, the minimum required to live and really that was our sprint with a fire at our ass to get going.

Courtland Allen 6m 48s

Okay. So this is cool. What does the math look like behind how you reach ramen profitability selling mattresses when you started off by only investing a few thousand dollars each?

JT Marino 6m 58s

Yeah, so we both did essentially an audit of our expenses, rent, electric, all that stuff. What would be the cheapest amount of food we could buy to stay alive. We looked at each other's minimums and then we went with the greater one. Ever since we've always paid ourselves the same and only increased our pay as we knew it wouldn't impact the company's growth or success.

So for essentially the first two and half years we kept ourselves that low of pay, hiring many people and only raised ourselves when we knew it wouldn't have any impact on the company's growth or trajectory. Then when we officially started we knew we had about four months each to float ourselves.

That was essentially our runway. You talk about runway with raising capital, our runway was our was our savings accounts and we had four months to figure it out. In the nick of time, it was about the end of the third month we saw that we were able to cross that line and finally pay ourselves.

Courtland Allen 8m 3s

Were you guys bootstrapping this from San Francisco or from Silicon Valley and having to pay rent in the Bay area?

JT Marino 8m 10s

Yes, I was in Palo Alto at the time and how expensive that is. So when we did that test with the single page site, I was sitting in Coupa Cafe, just off University Avenue in Palo Alto and Daehee was in Phoenix. And when we officially launched Tuft & Needle, I at that point had relocated to his apartment.

I was married so that was interesting, going to a remote relationship for almost nine months, which was definitely a challenge. As well as sleeping on Daehee's floor with my wife staying back in Palo Alto.

Courtland Allen 8m 50s

You guys strike me as having been extremely organized, extremely forward-thinking. Well-prepared and committed to your startup in the early days, where there's a lot of people sort of just throw caution to the wind.

Who are your role models? And where were you learning to do things like put up a fake landing page to see if people would buy? Where were you learning to do things like forecast out your runway and make sure that you could survive to ramen profitability?

JT Marino 9m 12s

To be honest, neither of us have role models or mentors. In the early days I had always been seeking that Kung Fu master that would take me to the top of the mountain in Tibet and train me and I would come down as a champion to fight. I've always looked for that master and I still have never found that person and I think that's a unicorn and it doesn't exist.

What we've done was just reading everything from all the top magazines to a lot of the top business books. To be honest I'm fully burnt out on reading business books. I feel like I've read the majority of the good ones. I've had to switch to fiction to kind of repair my dislike of reading. I've always loved reading but I'm kind of burnt out.

Friends and family, even our parents were great advisors, and it was really driven by that. You hear entrepreneurs are really big risk takers and that's what it takes. I don't agree with that and I don't think that that's always the case. Daehee and I, yes we take risks but we take very calculated risks.

So as an example, rather than coming up with an idea, pitching an investor, raising capital, building a team, getting an office, building your product over the course of a few months to a year and then launching to find out it doesn't work. We were thinking how could we do this in a week and save ourselves some time?

What's the cheapest, fastest way we can just test it so we know somebody is willing to pay us, who doesn't know us. And that's what we were dead set on. That's the approach we really take in with everything and especially when you have to fund your growth with your profits. We started with, I think it was a total of $6000.

You can't take big risks. You want to take big, giant steps and take a big stance in your marketing and all that but you have to sort of be careful. So we've always really tested some of our big, riskier ideas before we really invested in them. We never really make any bet-the-house kind of moves.

Courtland Allen 11m 15s

On that note, what made the two of you decide to start your own business in the first place? Because most of the software engineers I know, especially in the tech industry are perfectly happy to keep working at their normal jobs.

JT Marino 11m 26s

I think that's a very loaded question and the answer would also be really loaded. There's a lot of aspects to it. It was really driven emotionally. We were at a company that was a caricature of startups. The reason why Silicon Valley on HBO is so funny to me personally is because a lot of what's happening was really happening in our company that we were at.

I'm just going to be honest, there's a lot of similar stories I heard at other startups as well. I was very inspired and excited, ever since I was a kid, my dad telling me stories of Steve Jobs versus Bill Gates. This is back when I was a middle school, I'd always wanted to move to Silicon Valley and get my hands into building something that really mattered.

I finally got there and there definitely is a lot of innovation, there definitely is a lot of great things happening, but at the same time for every great thing happening and every great innovation, it feels like there's like hundreds of other companies that are just small iterations. Like why are you spending all this brain power on this? What about these other problems? It really led to a burnout. The 80 hour weeks, sleeping under the table, just cranking non-stop on something that you kind of wonder "Does this thing that I'm building really really matter? Is this a problem that really needs to be fixed?".

That's why I would suspect that we were so open to the idea of jumping out of the software industry but taking everything that we've learned and applying it to in our particular case the mattress industry. Something that's so archaic, the bar being so low. It really gave us a serious advantage as we started.

Courtland Allen 13m 15s

That's funny you mention that because I spent a few years as a contract web developer for a lot of tech startups. And the pitch to hire me always involved some degree of selling me on the vision, but it never quite worked because the vision was like "We're revolutionising task management". Or "We're building the Twitter clone of the future". It's like, is this really something anyone can get inspired to work on?

JT Marino 13m 38s

Right, that's exactly it. That's the feeling that I've had brewing inside of me and that doubt every time I would hear a pitch, every time I would hear the next startup name. I've essentially gotten burned out on this startup culture is really what it amounted to and so did Daehee.

So I remember the walk very specifically. We took a walk to the Willow Market as I did a lot of nights and throughout the week at night and we went on this walk and we were just commiserating, inventing and realized that we had to do something. Something had to change and I just said "Hey man, what if we just started our own thing and we did it our way and we built the company we've always wanted to work for?". And it didn't even take an instant, he's like, "Let's do it". And it's like wow, that was easy, okay.

So, how are we gonna do it? What do we gonna start? We started framing out. We didn't know what it would be but at the very least we knew it would have to abide by this set of rules. And that's back to that list of rules I was talking about. Number one being start with a problem that was something that we had personally experienced.

Courtland Allen 14m 48s

A lot of people start off by putting together these checklists. When they include all of the requirements that their business has to meet. I think that helps them eliminate bad ideas that would end up violating these rules, but it doesn't necessarily make them much better at coming up with an original idea that would match the checklist.

How many ideas did you guys have to go through? And how many ideas did you consider and throw away before you land it on the idea for what would become Tuft and Needle?

JT Marino 15m 12s

We had about 20 on that list and we narrowed it down to 4. I've not really told this part of the story but we actually built 3 of them.

Tuft & Needle, it hadn't yet been named as Tuft & Needle at the time was one of those 4. Another was actually taking off, it was sort of going viral. The Reddit community embraced it and was really the fuel behind that particular growth but we weren't sure how we were going to get to profitability without raising capital within our constraints of the four months of time that we had.

Unfortunately there was a recent acquisition announced actually today or yesterday, it was a company that was very, very similar to what we had started back then. Another one we made a sale and then another one really was going to be a long-term B2B contract situation and we were constrained. I think I think one of the great things about having constraints is it forces you to make decisions. It also forces you to innovate.

As an example when we started this company we only had a few thousand dollars. So, how do you get a supplier, a manufacturer that would require a PO? How do you fund the initial inventory that then you would sell to the customer? That came down to negotiation. So we negotiated terms as far as when we would have to pay for the for the product that would be shipped. We're collecting the money on the outset so you have negative working capital.

Essentially our customers purchases were funding their actual products that would be shipped to them. Because we wouldn't have to pay for them, based on the terms, until 30 to 45 days later. So that was an example of how we had to figure it out. You would typically set up a relationship with some of these manufacturers by putting that cash up front and we weren't able to do that.

We didn't want to have debt either. And to this day we have still remained bootstrapped and profitable and on track to do between $275 and $300 million in revenue this year.

Courtland Allen 17m 30s

Geez!

JT Marino 17m 32s

We just had these constraints. They're great because it helps you narrow your decisions and it also forces you to overcome some of these really tough challenges because you have to beat your head against the wall to figure out how to get around them.

Courtland Allen 17m 44s

So let's talk about these early days because I think coming from the background you two had I can't imagine was particularly obvious how to get a mattress company off the ground.

What were some of the other challenges that you had to overcome and some of the constraints you have to deal with that forced you to think creatively?

JT Marino 18m 0s

Yeah, that would really depend on what phase we were in. So let me just start with a couple of big challenges for the phases leading up to our launch. Firstly was, how do you make a mattress? And this all started, this pain and this problem with me, it was about a year prior, buying a big-name mattress that I'm not going to name, everybody would really know it.

I looked at it and I took scissors and I cut the fabric. Then it took essentially a wood saw and I started cutting it open. I'm cutting my mattress open in my bedroom and splitting it open and I'm like, all right, what are all these components? And then I had to figure out what they were, like the fabric. What is this fabric? It's not the stuff that my jeans are made of or my shirts are made and then I'd later find out what that was.

The second was, all right, who makes these parts? Who can assemble and manufacture these things? Then figuring out and identifying all of the manufacturers and really the supply chain across the U.S. I couldn't really find much online, I found one company. Now they all have websites because they see this new emerging digital mattress movement that Tuft & Needle really catalyzed and they all want to be discovered.

At the time it was really all on paper, so I found one manufacturer. I called and spoke to the salesman and I just berated him with questions. What is this fabric? What is this for? Why is it built like this? I started to essentially reverse engineer how these things were made and what were the key factors and what mattress is providing.

So it distilled down to pressure relief, support, cooling. Essentially your manufacturing supply chain and your cost of goods. The next step was finding a manufacturer. I rented a car and I just drove. They wouldn't take my calls. I had to literally drive to them. I drove around the country, up and down the East Coast and West Coast and no one really wanted to talk to me because they didn't know who we were.

This industry is like one of the weirdest Industries I've ever seen and they don't talk to anybody they're not familiar with. If they hung up on me they were still on the list. I'd drive to them and I'd literally walk in their door and see if I can talk to someone on the manufacturing floor or in the office to see if I can get a meeting. It came down to a small mom-and-pop shop that was willing to take the chance on us. Then from there they really bought into the vision that we wanted to revolutionize the mattress industry and fix it.

The big fix that we were dead set on, we say to disrupt the mattress industry as our goal but really the heart of it is making a mattress company that was customer centric. So all of our decisions go back to the customer. Is this the best thing for the customer?

Are we making improvements to the product, to the service, to the website, to the information, to the customer service, all those aspects. And that's really the difference in what we started here and why we are growing so fast in the face of these giant incumbents who don't really know what to do.

So from that point, on the floor of the small mom-and-pop shop manufacturer I was developing a relationship with them. I essentially lived out of my car. They didn't know that and I was walking in every day and they carved out a little space on the factory floor and started showing me the materials.

I'm thinking about pressure relief and support and trying to understand which materials are best for what and developing the one prototype which was essentially what we launched with out of the gate.

Anyways those are a couple of the pains, which was figuring out how are these made? What are the components? Who are the manufacturers? Then finding one that was willing to work with us. You see the website and the design, all that wasn't issue for us to start. That was really in our wheelhouse. So really I had to apply a lot of the engineering mindset going back to first principles.

What is the problem that a mattress solves? And then what are my available materials and what are the available options for me? Then developing that single prototype. I wasn't too concerned about how successful or great it was going to be out the door because we were essentially zero. We were small.We just want to get our first few customers and start getting feedback. So I'd say that that was really our biggest challenge.

The other one I would say was time was working against us. We had to move fast. And especially I'm used to pushing changes to a software stack and delivering in production multiple times a day. Tight feedback loops with the customer and whatever problems, bugs or pains just launch, launch, launch all day long.

The cycle for a physical product, you are at the mercy of your supply chain. So if a factory person that you're working with isn't available, they're going to make some changes and then get back to you next week. Then they're going to ship it and then you have feedback. That was killing us. So that's why working hand-in-hand on the factory floor was really how we zipped forward in time.

Otherwise, we would have run out and we would have burned through our personal cash. I would say those were really those initial problems we had. Then the whole next phase was our first year, which I would say is 2013. Which was a whole other chapter of challenges.

Courtland Allen 23m 38s

Let's talk about some of these challenges, specifically how you found your first customers. I asked some people from the IndieHackers forum if they had any questions for you. And one Thomas Gorczynski, who actually owns a Tuft & Needle mattress wants to know exactly how you found your first 100 paying customers or you earliest paying customers.

JT Marino 23m 57s

So it wasn't any one thing. I don't really believe in silver bullets. I believe in the sum of all things, it was a lot avenues. So it started with family, friends, some Google ads - the few that did work and we had to figure that out. Another was online communities. Going out and saying "hey, I just started this company, here's the purpose. What do you think? What's your feedback?".

Not going and trying to pose as a sham. I'm not posing as a normal user and trying to sell under the hood to you with a link. It was actually just being straight-forward. I just launched this company, here's why we started. What do you think about it? And actually that worked. People were giving feedback. We were taking it. We were listening, iterating on it and we were actually starting to get customers from that.

Reddit was a huge, huge source for us. Reddit was one of the key sources for new customers and it was really feedback driven on how we did that. That was holding us over as we were just starting to figure out some of the digital marketing on that side. About a year later, about the end of 2013 we wrote a post on Hacker News saying how we wanted to show and share some of our learnings. How we essentially bootstrapped to the number one mattress on Amazon.

That really was the catalyst on triggering an enormous amount of growth because one of the readers happened to be a journalist for Forbes, actually it was Fortune. When he wrote that article, that's really what started the national press and the discovery of us. That's when we started getting a flood of venture capital reaching out.

Really we were prepared for that opportunity that presented itself but in the meantime, we were scraping it together, starting this small cycle of customer feedback, which was driving sales through these forums and family and friends.

Courtland Allen 26m 1s

So many questions, I want to ask you about everything you just said. Let me start with a quick one. I hear a lot about early distribution channels for startups being Reddit and Hacker News and other online communities. Product Hunt, the tech press like TechCrunch.

Are there any other channels that you can remember that were particularly effective for you guys in the early days?

JT Marino 26m 19s

It was Google advertising, that was a big one for us. It's available to you, you can spend a small amount of money. That's how we ran our test. Google is still a key partner for us and we collaborate with them on their platform. So I would say that's definitely one that you can use a small amount of money to test the hypothesis. But if you can figure out how to get your value proposition, which is going to be based on your pricing, your features and being able to communicate those very well and if that matches with the serious problem customers have.

See we didn't have to worry about product market fit so much because we were starting with a key problem that we experienced and that other people also happen to have. So it's really aligning the features, benefits and pricing. The fact that that problem was already there and communicating how it solves that because it's a very counter-intuitive to sell a mattress online. At that time it was, it was crazy and it seems like a step backwards.

So you're taking a step backwards, your customers couldn't see the product, they had essentially bet. And it was a step backwards in the sense of our company brand. That's a whole other area I can run with is that we had to learn what brand actually was and how important it is.

Courtland Allen 27m 41s

Yeah, this is something I wanted to talk to you about because buying mattress is a huge psychological hurdle to get over. I mean, it's expensive, it's a rare purchase, it's physically big. Moving it into your house is inconvenient.

Like it's not something you want to get wrong and so I think people must be pretty hesitant to buy a mattress online that they haven't touched or seen or felt and it's got to be a hard sell to make.

JT Marino 28m 1s

So you would expect that launching & selling a mattress online would be a regression. It would be a step backwards in the face of brands that people aren't familiar with and a product that's very intimate and has a tactile need for people to experience before they buy it. It's a big ticket item as well. So we had a lot of things working against us, but the thing that was working in our favor was the fact that mattress stores were so bad.

You have to walk into the store which seems like you're going back to 1980 or 1985 and you're looking at a room that's dropped ceiling, carpet, posters on the wall and a salesman is trying to sell you. And you know they are trying to sell you. So it's difficult to trust them and then you have to figure out which one you like and you can't really know. I mean I'm telling you even after all my experience, I have evidence of this. You can't know if a mattress is going to work for you until you've slept on it.

So laying on a mattress for a couple of minutes and of course you don't want to get into your fetal position or your weird position that you get into when you sleep with a mattress person standing over you, breathing on you. Even though it was a step backwards going online because you can't experience it, you don't know who we are. It actually was two steps forward because it was removing a lot of the pain points that people had. That's what we had going for us really in the beginning.

So tying that back to nailing your value proposition, the key features, your pricing and communicating the benefits very well. And matching that to an important problem that some segments of people have out there. It really set us up to be able to figure out how to advertise on Google pretty quick.

It really set us up as far as getting the ball rolling with customers and there's something to be said and for us it was really critical, about calling your customers and being honest with them. Telling them you're a new company and asking them for their genuine feedback. What did we do good? What do we not do good on? They're talking to the founder of the company and they know it. When you say something and then follow up to tell them how you made an improvement and thanking them for it. Maybe even sending them a new product or giving them a little discount for the pain that they had. It goes miles and those people even when they've had pains will turn around and they'll tell ten people.

Since the beginning we had to get a lot of things right, it was no one thing. We had to get service right, policy, features, delivery. We had so much stuff that was just wrong and not good that we had to sprint on. We always viewed that criticism and negative feedback, the one stars or the low NPS scores, customer satisfaction. Those are the gems. Those are the things that you take and you can feed that into your product roadmap as the very next thing to fix because if you can fix it for those you're going to fix it for your future customers.

Developing that relationship with your early customers and asking them. When a customer is delighted with you. Hey, we're new, we don't have a lot of funding. Anything you can do to spread the word would be really really helpful. That actually works. If they really care about what you're doing and you really solved the problem for them, it'll work. That's been a competitive advantage.

Several years later we had our first competitor launch and they were essentially a look-alike almost exactly like our model. We had this disadvantage of not having capital. Not being able to acquire and buy our customers and be able to go into the red to capture market we had to grow profitably so we've had to really lean on our customer word of mouth and virality to help keep our cost of advertising low.

Still today, if you look at the numbers and I mean, they're not public but there is some stuff you can find. Our cost of advertising compared to some our direct competitors that have launched later is almost half. And we're profitable and we're leading them in unit volume. We're not talked about very much because we're not so much in the press and the VC journalist echo chamber. We don't really get to gain those benefits but we're still growing like fire in the face of very serious competitors who are very very heavily funded.

Part of that is getting so many of these aspects right and people being really bought in on what you're doing and knowing that you're genuine about solving this problem, As a founder, people ask "What's your exit strategy? What's your plan to liquidity?". We never had a plan. There was never a plan and it wasn't until a few years later when people started to ask, because we've given equity to team members, that we really started to think about that.

I would tell you that when you start a company, this is never funny but let me just use this as an example, we wanted to solve a problem. That's always been our mission. Of course we would want to be rewarded for it and to make money someday but if you were to order those in priority. Is number one growing this thing, flipping it, selling it or IPOing or is it fixing the problem?

I can tell you and the majority of my team, you wouldn't even need to prep them. You just walk in here randomly and start asking them. You'll see the number one objective for me and my co-founder and this team is to solve this problem and to cross the finish line. The second is reward.

That's always been a source of passion and eagerness to break through some of the challenges that we face and take things to the next level and to battle in this field with a competitor. Customers feel it and they help you get there. They know you're the real deal and that's really helped in our virality and keeping our advertising cost low.

One of the ways that we've really communicated those things and that authenticity is in our writing. So we have a Medium channel, several of our articles have gone viral. We don't write often but when we do, we put a lot of energy behind it and we share. Even on our website and if you were to talk to our customer service team through email or if you were to buy, you get that feeling. Customers see that authenticity and they know you're in it, they know you're the real deal and that's just really helped keep the flywheel going.

Courtland Allen 34m 51s

You guys have written quite a lot on your blog. I was checking it out before this episode and I was pretty surprised to find out that you've written some posts that are sort of a behind-the-scenes at your company. You've got one called how to grow from $6000 to $250 million dollars, in addition to the post that you've written about the philosophy behind your mattresses and what differentiates you from your competitors.

In the early days you guys were tiny. You're trying to take on these huge mattress companies and you are trying to sell, really this no-name mattress to people online. If I put myself in the position of somebody on Reddit considering buying a mattress from you guys, there's no way I'm gonna pull the trigger. So what messaging did you eventually settle on and which strategy did you use that convinced people to take a chance on you and buy your mattresses online?

JT Marino 35m 33s

Well, that's going to be a brand question. I don't necessarily think this is a big challenge for a digital startup but especially for a physical product the customer behavior is a little bit different. If you have a name that people don't know, you need to lean on something else and that's going to be credibility markers. You've been mentioned in this press or you've become a thought leader in your writing.

Another aspect is reviews and that's the whole reason that we launched our product on the Amazon. We never actually thought anybody would really buy mattresses on Amazon later to find out they really do. We were selling our product on Amazon and started asking our customers to write reviews there. That was essentially one of those key sources of credibility, we would send people to Amazon to go and read about it and the more reviews we got the more credible we became and eventually we became the the number one rated mattress on Amazon and one of the top sellers.

We dominate that market, even in the face of a lot of these other companies, we still dominate that channel and it really is a testament to getting that product right and the service right and being authentic. In the early times we had to be able to point to reviews. We had to be able to point to our story and who we were and why we were and credibility markers as far as press, thought leadership. It was a lot of things that kind of added together.

Of course, we had to focus on a few because you can't do it all, you don't want to lose focus. So it really was writing the thought leadership piece every few months and then listening on Amazon for those reviews. Developing a nice tight feedback loop with our customers. We still have a 35% response rate from all of our customers to our survey as far as their satisfaction and why they liked or disliked the service. That's led to us having the lowest, if not one of the lowest return rate in the entire industry, which is below 5% return rate for a mattress.

Now it's a lot easier, as you get bigger it actually gets easier if you're satisfying your customers because people start to recognize your name. I can wear my Tuft & Needle shirt in New York or San Francisco, L.A., Austin and people will stop me and ask if if I work there. Now brand awareness is happening. We don't need to focus so much on these different aspects of credibility building because people now have your name in their head and they've heard it or they know somebody who has one.

Courtland Allen 38m 11s

You mentioned that you and your co-founder read lot of business books. I also tend to read a lot of business books and one book that I finished I think late last year, it's called The Everything Store. It's about Jeff Bezos and Amazon and really the entire history of the company. They sort of portrayed Bezos as being particularly ruthless when dealing with partners and competitors.

So I'm curious how you think about your relationship with Amazon today. In the early days the reviews on Amazon helped you build your brand, but now that you guys are much bigger are there any risks in dealing with Amazon that you're careful to mitigate?

JT Marino 38m 44s

I think the way to really evaluate risks is to look at what your partner's incentives are. Our incentives don't fully align with Amazon. They do partly but not fully. Amazon's goal is to grow their own markets on their platform. I would suspect that they want all the top brands and all emerging brands to be within their platform and help grow that channel and also to have a nice balance between all of those brands as well. Then as those markets mature it will be most likely more and more difficult for that particular market.

Let's just say furniture or narrow it down to mattresses. As time goes on, as they're competing with the Walmarts and the other big box stores like Target etc. It's always been a very big concern for us. If we were to have too much of our volume going through Amazon then what about our direct channel? What about our ability to get a feedback loop with our customers? Or show our customers who we really are and how great we really are.

It really started with what is the amount of risk that we're willing to take if, let's just say hypothetically Amazon was 50% to 75% of our business. Amazon at any time can decide to not sell your product. We obviously want to make sure that our product is always good and we have a good relationship there, but you still never know. We had done an analysis on it and decided well, it may make sense to have a couple of other channels to balance Amazon just in case that went away.

Another aspect is just keeping our direct channel very strong. What value can we provide on our own website and in our retail stores that maybe isn't even worth the time of Amazon and that some customers would really prefer to have. Some customers really prefer Amazon, some customers prefer going direct and there are these particular services and value-adds that you can add.

Here's an example, you can go into Best Buy and you can buy an iPod, you can buy an Apple product, but why would a person go into Best Buy to buy that product but still yet go into an Apple store? That's because there's particular values that the Apple Store brings that maybe isn't really worth Best Buy's time but is really important to that particular customer.

If you think about it, they've got a really great line up of merchandise on the wall. They've curated all kinds of toys and gadgets and accessories that are always ever-changing and a lot of times best-in-class. That's something new and interesting. You're in the mall you want to just pop in and see what's there. Another value is you have the Genius Bar. There's someone there that's dedicated to fix your product, people that are there to train you and teach you. You get to see the full product line up.

There's a lot of benefits to going direct to to Apple's channels and that's how we've always viewed it as well as that we need to provide specific values and continue to push the bar and the envelope with our direct channel and that's going to be one way to help keep balance. It really is in Amazon's best interests too because this is the channel that we really figure out and do our R&D and our iteration which would trickle to products that would end up on their platform. Figuring out what is that balance as far as wholesale distribution channels that you're really willing to take on as a risk. What happens if they go away? Would you be able to survive? Do you track your P&L separately from from your wholesale channels and distribution channels.

If they all went away can you survive? We do these exercises and we track them very regularly just in case. Then also our customers want to find these products in other channels as well. They'll tell you. If you listen to them they're going to say, "I just wish I could find your product here or there". And that just goes into a backlog of new channels for our Head of BD to go and capture.

Just like, customers are asking for new products they're also asking for new ways to find your product. They're asking for new ways to pay for your product. I don't know how far you want me to go with this but we just had to evaluate those risks and they certainly are risks.

Courtland Allen 45m 52s

You guys are located outside of Silicon Valley. You're an e-commerce selling mattresses and yet somehow you feel like a tech company and I don't know if it's because you've got a snazzy website, you're hiring developers or you're doing content marketing, but you feel like a tech company. Is that intentional?

JT Marino 43m 7s

Oh well, Daehee and I are tech guys. We are engineers and product developers and designers. So we built our company that way. It's awesome because a lot of people in this company, everyone from supply chain to customer experience who had never worked in Silicon Valley, they all know what a Scrum is.They all know what Agile development is. It's awesome because I essentially took all those concepts and applied it to everything else.

So we have Agile development when it comes to supply chain and customer service tools that we have in the back-end and even customer-service policies. We treat everything like a product, everything's tied to a feedback loop. Everything that we do is for someone else, for our engineering team their customer maybe the customer experience team, it might be the supply chain team. It might even be the the finance team or a factory and they're building the tools for those customers and they have feedback loops and we treat everything the same. All the way back to even the mattress itself or the pillow or the sheets and all of that.

So from the root, we've always wanted to start the company the way we wanted to finish it. And knowing that the more people that come in, the paths that you walk down, the decisions you make early days are really going to set it up for the later days because you're going to bring on leaders and you want to have proven that these methods work so that they're adopted and the leaders accept them. Or maybe even future investors and that was one of the reasons we decided to bootstrap.

We wanted to build a company in a very specific way and prove that it could work before we would potentially bring on an investor or potentially go public and have all these additional outside stakeholders. In our core we are a product company through a tech company lens, taking what Silicon Valley has really innovated and we've kept building the whole company that way.

Courtland Allen 45m 3s

So I know you guys have done a lot of iteration on your products themselves to make your mattresses the best that they can be but I wonder how much generation you've done with your growth and your marketing strategies. You mentioned using Amazon as a channel for experimentation.

What are some strategies you've used to attract new customers that ended up not working out? And how do you know when to continue pursuing a strategy that's not doing as well as you'd hoped and when to call it quits and move on to something else?

JT Marino 45m 26s

Yeah, that's a great question, there's a lot of those. Let me see. Let me narrow it down to something that didn't work, but then we figured out. So retail is one of those and we were warned about going that way. They call it clicks to bricks. Going from a digital native brand to actually being in the experiential world. Going to the tactile world and opening a brick-and-mortar store.

Some of the variables and the advisors I've had on retail are insane. I'm not going to name drop or anything but I've had a lot of really really great advisors from people who have figured out retail, from some of these digitally native brands. Some of the biggest brands in the world actually advise on retail, but the culmination of all the advice and a lot of the advice from different people was conflicting. It was you don't know if it's going to work or not. You just have to do it.

So that's what we did and it started with opening a store in our office. And if I were to describe this to you it was in a really bad part of Phoenix in the strangest location, it was in the warehouse district in downtown. It was sort of a ghost town part of the area. Up a rickety staircase that we had and that we have since moved out of and we took one of the front offices which was right inside the door and we converted it into what we thought like maybe would be a prototype of a retail store for mattresses.

What we did was we just listed our retail store on Yelp and Google and we didn't even put it on our website. The first week nobody came, second week, we had one and then the third week we had two and then zoom forward about six months. At 11 a.m on a Saturday you would literally see a line of people standing on the staircase and you walk in and there would be roughly anywhere between 50 to 150 people standing in our office, all around us while we're jamming away working on the computers. They're waiting to try this one mattress, which then expanded to five display areas in our office and we knew.

Our attorneys were yelling at us because of the staircase and all that but there was definitely a need and this was definitely serving a need for our customers. The question always was, can we get the unit economics to work? Because if you look at our mattress, in a lot of cases it's a half to a third, even a tenth of the price of some mattresses out there and can you actually get it to work with all the overhead and a staff and paying your lease and all that. Let alone just the focus loss that you would have in setting up and putting a lot of focus towards figuring out a retail store.

So it was working in our office, we weren't sure if we had the unit economics right. It gets very difficult to measure success of a retail store when somebody can just walk out and buy online. If you try to collect their email when they walk in, they use a different email online. Their husband or wife might use their email or it's very difficult to attribute sales. So we hadn't even figured out how we could even measure if it would be successful but we knew something was there because we saw the volume. You could literally drive to the next 10 mattress stores within the region and they would be empty but yet we have 100 standing in our store getting upset because they have to wait.

Our next move was to open a store in San Francisco and we signed a short-term lease, which has then expired and we intend to re-open a store there. We now have five other locations, not in San Francisco but around the U.S. I mean we made a lot of mistakes, but that's what we were told. We were probably going to need to open three to five stores before we even actually figure out how to measure if it's working and if it was worth our time. And figure out the the staffing model, to figure out how to negotiate leases and how much square footage you needed. These are all questions, we just had no clue what was the right way of doing any of that.

So we had to just guess and we guessed and we decided we earmark some cash and decided that if this thing totally bombs we are fine. Are we in the red or are we fine? And that's when we knew it was okay, we would be fine if it totally bombed, that we could pull the trigger and sign a lease on San Francisco and do a build out.

Then there's construction and all that which is a whole other nightmare, until you really figure out that process but I would say that in our retail store we proved that there was demand. For San Francisco we had not figured out how to attribute sales and measure success and it was very expensive. When we opened our Scottsdale store that's when we finally figured it out. We took a lot of the learnings from San Francisco, baked those into our Scottsdale store here in Arizona and the store's on fire.

Now we are just sprinting to open as many stories as we possibly can, especially next year. We have a few more coming this year. I think we just announced Kansas City and there's another city I'm not sure if we have or not. We have Seattle already open. Anyways, that was definitely one of those things where we weren't sure. Another one would be out-of-home marketing, it's also a very difficult way of advertising that no one has really seen to be able to attribute sales, profit and success to in the face of digital advertising blending with it. I would say the first time we ran it we got one billboard and then we were told, well you're not going to measure anything, so then we got 200 billboards. Those are a couple of examples.

Courtland Allen 51m 7s

You guys didn't raise any money at all and yet you've been able to grow your businesses revenue as fast as most successful venture backed companies are able to grow. You started off buying and then selling mattresses to people basically on Reddit and today you're doing expensive things like taking up billboard ads across the country and opening retail stores.

How do you grow that quickly when you're limited to only being able to spend what you've made in profit?

JT Marino 51m 30s

Really, it's casting bets and staying focused. I would say from that third month when we finally figured out how we could - in a minimal way, advertise and really lean on our customers and rely on them to help spread the word to expand it. Having a lot of ideas, there's so many things that at this point we know what to do. We just have to wait until we have the resources for and that's between cash and overhead and we have to stay lean as well.

So it was really balancing our budgets and there was a point in time where we realized we need to get our finances in check. We had to hire a bookkeeper and then later on a CFO. Thank God because that was right when we needed to bring him on and we started doing forecasts and plans and all that. But really we would always earmark some percentage of our budget towards testing new channels, without sacrificing really the speed of growth in the channels that we know are working.

We generally measure as a percentage of revenue, how much we are willing to market with, what that budget is, then take a percentage of that and then delegate that towards potential new channels. That's money that we're willing to throw away for the sake of experimentation in the hope of finding a new method of advertising, one of those was billboards and radio and television. It took us about two and half years of experimentation to finally figure it out. Another dynamic is just debates within the company, there are people that are more risk-averse than others and want to sort of give up. And this is where founder power matters and just really pushing forward without putting too much of a risk on your growth and profitability and your main channels, to keep going, keep going, don't give up on it and divert the money too soon. I also believe there are other channels that we've tried that we gave up on too early that we need to get back to. I think that we didn't give them enough time to really figure it out.

So I think to answer your question it comes back to staying mainly focused on what is working and riding that until it really starts to slow down and in the meantime be incubating with a percentage of that spend some new concepts and new ideas in the hopes of finding something new. So that when this primary growth channel, let's say Google AdWords reaches the top of that S curve and starts to round you're going to need an innovation or a breakthrough to kick it back into gear. Or you're going to need one of these new incubated channels sort of pick up the slack and then fix that S curve and hopefully you found something new.

Maybe it's YouTube. Maybe it's Facebook. Well one thing I can tell you is when you've got just a couple of people doing that, marketing. You don't want to spread them across like five or six things too soon. You want them to be fully dedicated on what's working and use those profits to then bring somebody on to do that experimentation. That's sort of a mindset and a discipline, setting budgets and abiding by them. A key strategic meeting you do every month as founders or some subset of your group, is to look at the P&L and the percentage of all of your line items. Deciding if you're going to move some money from this line item to that line item.

For us it always seems to be profit. Do we want to go a little bit leaner to move some of those percentages to marketing and that's part of the strategy and that's where we've used a lot of advising, a lot of guess-and-check. So that's really like the key activity I would say and how you drive a lot of those decisions.

Courtland Allen 55m 29s

That's great advice on multiple levels. You're talking about this S curve and how it levels off over time and mapping that on to your marketing and growth channels as a startup, which will eventually start to see diminishing returns. And I think, how do you navigate that? That's one issue but for a lot of early stage founders just hearing that this S curve exists is useful information because I think the most common mistaken belief is that there is no such thing as diminishing returns. You just find the marketing channel for your product and you start pouring resources into it and you sit back and you watch all the customers or the revenue come in and it just lasts that way forever. But the reality is that as you grow you start to saturate these marketing channels, they end up becoming less effective over time and you really got to find some way to break through that ceiling or you've got to move on to a different channel and obviously it's not easy to decide which one of those two is the right option.

JT Marino 56m 19s

Yeah, I mean if you're getting traction on one channel and for every dollar you put in and you get some number of dollars back, you want to be careful about starting to spread those dollars to something else that is an unknown. And at the same time you also have to think about mindshare. If I have somebody fully dedicated on the channel and then they have to pick up another channel. Are they thinking as deeply about the one that you know works. Are they really taking it to its fullest potential?

For something that's so important, this is an example we keep going back to because it's a good one. It's a good one to talk about as I think a lot of people are familiar with it, it's Google AdWords. Do I want my person fully focused on Google AdWords, thinking about how to make a breakthrough or how to compete on that channel, from the time they wake up to the time they go to bed versus spreading their mind share across several other channels, especially in a market that is very very competitive. The mattress industry is ruthless and became even more ruthless as we had new entrants. And new local companies that were heavily funded that can just raise your CPA's just by throwing more money at it and have the freedom to go in the red and we don't. That's sort of how we always viewed it.

Courtland Allen 57m 38s

So let's talk about that for a second. You mentioned earlier that you guys lean a lot on virality and word-of-mouth growth to keep your cost of customer acquisition low. How do you do that in a way that your competitors can't? And can you just walk us through how you look at your competitors and maybe how that's changed over the lifetime of your business.

JT Marino 57m 56s

So our focus has always been the customer. And I'm very cautious about the team thinking about competition too much. So the general rule here is to stay focused on ourselves and where we're going but to keep an eye on what's happening, because you can learn a lot of things from competition. At the same time if a competitor announces, “hey, we're going to launch this thing or we're going to go over there.”. It doesn't mean it's going to work and also their game is totally different. If we were to take some of our funded competitors into account they can play the game totally different than we can. We're competing but we're playing two different sports. Being fully dedicated to the customer and our one key metric or one metric to measure as a company as a whole is NPS. Which isn't a perfect way to measure, I would say most ways of measurement always has its pros and its cons, but it's good enough and NPS is a way of measuring customer satisfaction.

Our goal was always to get to the level of the greats. The household name brands that are most loved and the greater market and I'm sure you can name them. Our target was always a 75 NPS and I can say as of this morning we were 76. We will bounce between 80 and down to 72 but generally around 75, 76. So we've got there and it is essentially it's correlated to word of mouth and it's correlated to virality.

One of the best ways of marketing is having a friend tell you to get something and that's what we've really had to lean on. If we go into a new market that we know have a lot of customers and we put up advertisements and people start talking about them, when they say that to their friends or family or around the table at Thanksgiving. If someone at that table has one and they're really happy they're going to say "oh trust me, get it.". Versus "uh, it's okay." or "bad experience, I'm telling you, you're making a mistake.".

What is happening there? That's one of the ways to reduce our costs because if we have to fully rely on our advertising to convince somebody to take a chance on us, that's expensive, versus if we were to go out and advertise and then those people are hearing their friends talking and they're here telling you about this company that they know. And they can even tell you this company's founding story and why they exist and what's special about them, that's even better, that's back to brand.

That's been a competitive advantage that we've had and why we've been able to keep our cost of advertising low. On the on the other side is also creativity. So if you look at how we advertise, we're not this lifestyle, fall in and blend in with other with other companies.

Here's another an example that speaks to a question you asked of something that we did that was a mistake. We did this really expensive video shoot, for a television commercial and I think it cost something like half a million dollars. The output of that was a single commercial and it was polished, it's beautiful. We ran this commercial and we just didn't get much response and as I'm watching it and I see it running on TV, I realize it looks like every other commercial on TV. Next to all these big brands, it's really cool, awesome that we have a commercial like them but it just looks like them all. It doesn't really stand out.

Then what we did was we took an approach of actually being a little bit polarizing or taking our content and advertising, our messaging in a way that really stops you in your tracks. With our billboards which originally started with lifestyle imagery, okay, that's cool, it's a sexy photo, the product looks really cool and some clever line. What we did was we went up with these black billboards and all it said in white text was "Mattress Stores Are Greedy, Learn the truth, TN.com".

That billboard was on fire because people were taking pictures, posting it on Reddit saying like "Tuft & Needle, savage!" and there are people that hate it and people that love it and in the meantime they're talking about our company. Our television commercials, we have one that's silent. We have a commercial that's upside down, people think we've made a mistake. We're about to launch some new advertisements, which I'd love to share afterwards that are unlike anything you've seen. They look like they were made by some college kids, with no budget, like almost Blair Witch Project status.

Commercials that really stand out, that's another aspect to keeping your advertising low is is developing content that speaks to your customer, stops them in their tracks. They're like, wait, what was that? And they like turn and look. You've got to catch their attention and then the next part is you've got to get them the rest of the story so it's your hook and then you tell them who you are. You go to TN.com or you go to TuftandNeedle.com. TN.com directs to our homepage and it puts a video as the hero of it. You go to TuftandNeedle.com you get a different experience, that video tells the other half and completes that narrative and now you know who we are and why we are.

And that's also been extremely relevant because if you're battling on AdWords and all you've got is this one line, piece of text and you finally figure one out but then your competition realizes it and then they start using the same line. It's so difficult for customers and causes so much cognitive dissonance. One of the key problems we were solving for the customers when we started was paradox of choice. Not knowing how to shop and what's good, what's bad and just general confusion and that's what, a lot of times, happens.

So you have to constantly be thinking outside the box on advertising methods and ways and tricks of catching someone's attention and getting out of the noise. That also was helpful in keeping our costs low as opposed to just throwing some money to some outside agency and saying make us a viral commercial and then they come back with something that looks like everyone else.

Courtland Allen 1h 4m 10s

You mentioned earlier that part of bootstrapping is that you just have these phases where your strategies and your plans have to wait for your revenue to catch up because that's really all you've got. I mean you have no other way to fund these experiments but it sounds like what you're saying now is that you're somehow using this limitation to your advantage, which is fascinating. Is it that the constraints that you're under force you to be more creative and do things that your competitors won't do?

What's stopping them from approaching TV commercials and billboards the same way that you are? And how do you outpace them when they have this additional advantage that they can afford to go into the red, whereas you can't?

JT Marino 1h 4m 50s

That's exactly it, being bootstrapped means that you have to really focus on what works or making something work because if it doesn't you have to stop. Let's say work we with the agency, if we if we raise a lot of capital our objective would be to grow grow grow, grow as the number one priority. Like I said, our number one priority is to disrupt the mattress industry to be this household name sleeping brand that is the most loved. Highest NPS, highest customer satisfaction. That's our goal.

It's not to grow as fast as possible. And if we were given a lot of money and our objective was to get to a certain multiple and a certain hockey stick, if you're just a set of small founders you're gonna have to go hire like crazy. You're going to have to hire a bunch of agencies and just give them money and just do it, I don't have time to work on that.

You see, when we work with an agency, we're always a little bit nervous because we're nervous that they're not going to understand what the caliber of work is and what output needs to be for this to work. We learned really quick that when you outsource something, the people that you're outsourcing that work to don't care about your objective as much as you do. And when you work with an agency, whether it's PR or an advertising agency, your branding or even developers or something like that. We don't really do that because we built an engineering team but let's just say that you have to think about the strategy.

If you're going to work with a PR firm, they're not going to come up with all the greatest ideas, you have to. That was hard for us because we weren't necessarily creative in that way, so we had to learn to become creative in that way. We have to come up with the ideas for them to pitch. They'll come up with stuff but it's not necessarily going to be relevant to your customers or to the market or as relevant as something you could come up with because you have that context. You know who those customers are. So we learned you can't just hire an agency, say PR and just expect that they're going to come up with all the greatest hits.

You have to come up with a lot of that direction yourself and that was something that was tough for us to swallow. You have to put a lot of energy towards thinking through and being creative in those ways. I think that's an example of something that I think of as a competitive advantage. It's also a challenge, it's a pro and a con. Our competitors don't really have to put that much energy towards it because their primary objective is revenue and not profit. You could have a kind of crappy television commercial and then sign a national ESPN campaign and just blanket everything and it doesn't have a return or is it creating market awareness? Their primary objective is to buy customers as fast as possible and get awareness as fast as possible. For us, we want to grow as fast as we can but we need to grow profitably and sustainably.

Another thing that it has taught us is how to become creative because I would say this team, especially early days wasn't as creative in the way that we needed, we had to learn it. Or hire the talent that we knew really truly was, truly understood how to do these things. It's also taught us how to build a healthy business. Back to an example I used earlier which is, how to manage budgets, how to build a hiring plan and be very careful about who you bring in. It's a very expensive move to bring someone in that is not a good fit. We just had to move a little bit slower and be a little bit more methodical. We've had to be very considered with most of our decisions. Honestly, I would say we're very paranoid. We like to take risks, but they're very, test-driven, methodical and we're paranoid that we're going to just screw up with everything so we collect as much information as we can. Get as much advising as we can before we take each step and then that's developed into experience and know-how and the ability to then attract talent that can take things to the next level.

Courtland Allen 1h 9m 1s

Yeah, I love that. Your disadvantages as a bootstrapped company forced you to be paranoid in a way that actually gives you an edge over the competition. And it's sort of something that's in your DNA that they're not going to be able to replicate just because they don't have the same fire under their ass that you do. A lot of bootstrapped founders have trouble in the early days at least, with hiring. That's very difficult to hire the top people in any given field when you're bootstrapping and you're trying to be conservative with money.

How did you guys handle hiring early on? And what were some of the first things that started to break that convinced you that you needed to hire more people in the first place?

JT Marino 1h 9m 36s

Daehee, my co-founder and I were really lucky because between the two of us we had the competencies to do almost everything. So we had the competency to build a website, do the design. To build the product and do the service and do the finances, we were able to really do a lot of that. Wear all those hats, carry the full burden on our shoulders. That's an advantage that we had that I know a lot of startups may struggle with. That aside it was extremely difficult to hire, extremely. That was one of the reasons why we decided to incorporate in Phoenix because when we were first starting no one wanted to join a mattress company, no one.

It was like the dumbest idea they had ever heard of, I mean, it's not in the tech industry. And in Silicon Valley it just seemed like everyone I was talking to and trying to convince to join was either at a big company with golden handcuffs or they were a founder in their own company. So you have to convince them to leave those things and then change their lifestyle and take this bet. It was just really tough and then on top of it, the cost of living there and the expectations of compensation were astronomical and that was also a huge limiter.

That's why Phoenix really worked well because Phoenix has a huge talent pool of tech and design and a lot of those key talents that are tough to find in cities other than San Francisco, the Silicon Valley region, LA and New York. It has a lot of great talent like Austin and Vegas. These cities, I don't think they're really second-class citizens, but they're not as well known. They really aren't as much but Phoenix is one of the top 10 sources of talent that goes into Silicon Valley so we have first dibs on them and the cost of living is so much lower that we can actually pay them comparably better and it's like far lower total cost for us. So it was really great.

Our first office was in a transmission shop of all places. I still can't figure out or remember how we found that. We were working out of the automotive transmission shop that had a front office that had Wi-Fi, clean floors and we just put some tables in and it worked. The cost of that was something like a few hundred dollars a month versus a tiny little office in Palo Alto might have been $5,000 to $10,000 a month. There was just no way we could have done it.

Moving to Phoenix was definitely helpful for recruiting. Another thing I've learned is as you become successful and as you build, especially as a product company, I'm sure digitally as well. As you become more well-known it gets easier. Honestly I bet all the talent we would ever need to hire for the rest of the history of this company is somewhere in our customer base and as a fan. I would say about 30% of all of our talent now started as a customer.

You have traction, you have growth and you get press and it gets easier. As you get bigger things get easier, which has been honestly great. A lot of the challenges we had early like hiring isn't a challenge anymore. So as you grow it gets easier to recruit. People see it's working or now they've heard of you. Now all of a sudden mattresses make sense and now it's a sexy industry to be a part of.

The second is getting the first few key talent, they're like a magnet. So an example is we have a badass architecture team and there's a whole reason why we have them and it gives us another competitive advantage. That first architect was really hard to get to join. Once they do and if they are doing really great work, what happens is other architects see the work that they've done and then they buy into your purpose and they want to be a part of it. It's easier to have them join.

Just like with engineers and designers, if you have a crappy software developer as your first hire and then if you hire some more crappy developers. If you're going to bring in like a powerhouse or a 10x'er or do they want to work with those people? Do they feel like they're going to be learning from them? Or are they going to be the one teaching?

Bringing in that talent as soon as you can then helps get the flywheel started because if you bring on, I'm going to take it to an extreme, let's say you were to hire a very famous software developer. That right there is going to draw in developers because they want to work with them. It's really getting that brand awareness, getting that press, building that page, your website and that story. Something that people want to be a part of, then proving that it's working and then getting those first key people, which is going to be super hard.

That's going to be the founders jobs in the early days. That's what really then gets the flywheel started. You have to hold yourself over and hope to get lucky when you start out and be okay with a lot of people saying no. Now if I look at it, we get something like a few dozen software developers applying daily and if I go back to year one, no one was applying and I had to convince them. It's like pulling teeth to get somebody to join.

The way I did it, the way I first got the first developer to join was I had to get in front of them. Sell them on the vision, show them it's starting to kind of work. It was in a coffee shop and I opened my computer, I open the terminal and then I switched my computer around. I show them the code. I'm like look, look I built an eCommerce site from scratch, but look at some of this automation I've got going on here. That's what got them excited, it was, "oh you haven't done this yet", or "you haven't done that yet and I would like to", that was really the hook for them.

Really posing the possibilities of what they could learn or really what they can get their hands on and knowing that thing that they're going to build is going to have a direct impact or correlation to the growth and success of the business that they would have some equity in, was really how we got a lot of our first key talents in the different teams that we have.

Courtland Allen 1h 16m 10s

What is the future of Tuft & Needle look like? What do you envision happening 10 or 20 years down the road?

JT Marino 1h 16m 16s

In 10 or 20 years, I'm a little bit of a visionary and so what I would tell you is, you probably think I'm crazy. Let me just go to five years. So in five years our objective is to disrupt the mattress industry and to define what that means with some context because different people would assume that means different things. We view it as, the mattress industry as a whole, generally companies have not put customers up the forefront at the center. They don't care about them as stakeholder number one in the decisions that they're making.

That really goes back to how this industry has organically developed over time. The brand sell to the stores, the stores sell to people. The people in the stores are salesman and they're incentivized by commission. Getting that customer to buy no matter what and I'll never see that customer again because I'm not going to have this job in 6 months, it's just a hold over until I get my next job. Even those stores aren't developing product, so they don't have a direct feedback loop to the customers and they don't have the ability to delight their customers and iterate on their feedback.

It's the same thing with the brand's because the brand's customers are the retailers. The retailers just want something that'll sell. They want flash and gimmicks and whatever it'll take to get that single sale for their salesforce. So they're trying to sell to retailers and what they want. But they don't actually have the voice of their customer and their ear to that voice and don't feel accountable to the quality of their products in the technology and innovations.

Anyways that's the context. Our goal is to disrupt the mattress industry and we will know when we have done it when we become a household name brand with the highest customer satisfaction in our industry, but hopefully setting the bar for the industry's customer satisfaction. So the mattress industry isn't in the dark corner in the business news and something that people can point to and aspire to. That's really our key objective, we've certainly catalyzed the disruption. We proved the model. We went through all the hard work, late nights and testing and figuring out how to do returns and donations and all that stuff. Free trials, true warranties that really set the playbook out there for our look-alikes. They have the playbook to follow.

What is great, is that it catalyzed this movement and it's going to change the industry and the customers are going to win in the end. We catalyzed it, we have not successfully got to that household name status. Technically I guess if another company had the highest customer satisfaction and became a household name brand, we would have completed our mission indirectly through that other company.

As I see it none of our competition really has this as a priority and so we really have to do it. I see us getting there in five years. I mean we're now in several big box retailers. Some of them have been announced and some of them haven't. Between them and Amazon, we're in the right channels. Our direct website is still the majority of our volume, it is very very busy. Then even in our retail stores, we have a very aggressive retail rollout plan and it's going to take a few years to get there but we should get there in five years or less.

Courtland Allen 1h 19m 41s

So in five years you're household name. Let's hear these crazy visionary 10 and 20 year plans.

JT Marino 1h 19m 48s

I'm not going to speak to them. I'm not gonna do it. You're not gonna get it out of me.

Courtland Allen 1h 19m 53s

Are people gonna be eating Tuft & Needle mattresses. Are they gonna be building houses out of mattresses?

JT Marino 1h 19m 58s

I don't know. So here's a big difference between us and some of the bigger companies that people know. We don't view ourselves as a mattress company, we view ourselves more as a sleep company. If you listen to customers they're no just wanting a mattress. They want a pillow. They want sheets, they want bedding, they want frames and we don't want to just private label these things. We want to design them from the beginning. We want to treat those with feedback and iterate just like everything else.

Our other products are not second-class citizens. They're not just some accessories in a dark corner. They're great products that could be launched as their own independent companies in and of themselves. So our pillow should stand up and beat most of the other pillows other companies have. For sheets, we're not looking at mattress companies in comparison to how our sheets perform, we're looking at sheet companies and bedding companies.

How can we meet that bar and raise that bar? So if you were to define us as a sleep company what you can imagine some of the products that we may develop. If we did this interview a year ago, I would be telling you there's a lot of new products coming but now you can go to TN.com and see we've launched a lot of new products. From bedding to bed frames and the like, we have a lot more coming. I believe we are now leading some of these newer brands in product lineup. We will definitely start really pulling ahead later this year as far as what we offer but all of those products have the same attention to detail of customer feedback, customer satisfaction. With the whole goal of blowing away all the other products that are in the markets in those particular product segments.

Courtland Allen 1h 21m 37s

I see we're running pretty close in the end of our time here but while we're on the subject of vision, I've got to ask, what are your personal goals? And I know that most successful founders that I talk to are very aligned with their businesses mission, but at the same time you're a human being.

You've got to have your own individual goals, your own individual personal desires. So what are those and what do you hope to accomplish by running Tuft & Needle and growing it to be huge?

JT Marino 1h 22m 0s

So selfishly what my personal goals are, I used to game a lot when I was a kid. Business has become my game now so I actually have a lot of fun in business, but generally I want to be proud of my work and that's going to come from solving a problem that matters to the community.

Delighting customers, our team members, all of that stuff just pulls on the emotional strings for me. Being proud and crossing the finish line in completing and accomplishing what we set out to start, was really my primary goal. Secondly, is time. So as you grow founders have to fill the gap and take on some of the toughest challenges the company faces. Your job as a founder is also to find people that are smarter than you, better than you in those spots and hand the keys over. So my secondary goal is time, so I need time to be able to pull away and be able to think more strategically. Time to study and read and pursue my own personal interests outside of work too so that I can keep moving at a sustainable pace and not burn out.

Then I think my third is just to have fun as I go along, I'm married and Daehee has a family and kids. My parents, I convinced them to pack up when they retired, to pack up and move to Phoenix and make sure I spend time with them. So it's really to be proud of my work, to accomplish what we set out to do and to be gaining time as we go along so that I can continue my own personal development as a business person and a culture champion, a product developer and all of that as I go along.

Courtland Allen 1h 23m 48s

What's your advice for people who are on the opposite end of the spectrum from you? These brand new entrepreneurs who are just now considering starting a business. What would you tell them?

JT Marino 1h 23m 58s

Well, all I can really speak from experience is what I've done and what has worked for me, but I would say when you're sitting down and thinking about what you're going to do. Think about the problem that you're actually solving and ask yourself is it actually important? Are there other people other than yourself. Yourself is the best customer because you know if it's fixed if you're suffering or not. Start with a problem and then break it down.

What are the things I can do minimally, the fastest, to actually solve this problem in a way that would be enticing enough for somebody to take the bet on you when you're brand new and you're just starting. What you don't have, if you're going to bootstrap you don't have all the capital or the press to drum up that excitement and for those early adopters and early evangelists. Just take the plunge, just to see if it works or not.

You have to convince people and it's tough so start with that. Make sure the problem is needed and test it. How can you reduce the amount of time it would take for you to get an answer? How can you get somebody to pay you, someone you don't know to actually pay you for what you're proposing to do. If we did it in a week, now we may be an outlier that might be an exception.

How can you do it as fast as possible without wasting too much of your time? Because if it doesn't work don't you want to know about that right now? Or as soon as possible so you can get on to the next idea. So, that's probably the biggest thing, the biggest piece of advice that I wish I was told early on. Thankfully we kind of ended up there before we started but maybe it'll help you maybe it won't.

Courtland Allen 1h 25m 33s

I think developers especially need to hear that because it's so tempting as a programmer to sit down and hack on something for two months, six months, two years. Without ever really putting it out to see if it's going to work. So I think that's that's great advice.

People are going to kill me if I don't ask you this but earlier you mentioned that you've burned out on reading business books, having read most of the good ones already. What do you consider to be some of the good ones?

JT Marino 1h 25m 56s

Oh, I have no favorite book. I only have snippets from different books I like. One I like to recommend frequently is The Halo Effect and it really frames, what I got from that is the difference between reality and perception. The reality of the truth, I've always viewed is what really mattered but perception matters a lot too. The halo and how you tell your narrative, how people perceive you is such a critical factor when you start your company.

When you talk to your team, even in how you present yourself as a founder amongst your team and the outside world. This is the halo and the narrative that you're crafting. I mean that book can probably be distilled into like 5 or 10 pages, but there's some really good stories in there that really kind of set the context and the why behind it. That's definitely a good one. I'd have to think about it a little bit more because I wouldn't want to just throw books out there and set people down a path but that's one I would say for sure.

Courtland Allen 1h 26m 59s

Well listen JT, thanks so much for being on the show. I appreciate you going the distance, doing an extra long episode with me.

Is there anything else that you'd like listeners to know about what you're up to? And what Tuft & Needle is up to?

JT Marino 1h 27m 11s

I would say we covered a lot of material but I would say, , check us out TN.com, go to our about page. Check out our medium page if you want to see some of our pieces that we've written.

You guys, you're welcome to reach out to me anytime. My email is jt@tn.com if you ever have questions or want to bounce ideas.

Courtland Allen 1h 27m 33s

You got to be careful just giving your email address out like that.

I'm going to end up emailing you for advice. Anyway, thanks so much JT.

JT Marino 1h 27m 40s

Right on. Have a good one. Thank you.

Courtland Allen 1h 27m 41s

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