Austin Brawner: What's up, everybody? Welcome to another episode of The Ecommerce Influence Podcast. My name is Austin Brawner.
Andrew Foxwell: And I'm Andrew Foxwell. Man, what a special show we have today for everybody.
Austin Brawner: Very, very excited about this show. This is a guest we've wanted to bring on for a long, long time. Yeah, we're finally happy to pull everything together to make it happen.
Andrew Foxwell: Yeah. Well, as somebody that is a follower of Tuft & Needle, and somebody that actually has slept on a Tuft & Needle mattress over two years, I owe my sleep and I owe a lot of the kind of knowledge on big picture, and even small tactical strategic stuff that they did to Tuft & Needle. I'm excited to get into the weeds here today with our guest, JT Marino.
Austin Brawner: Yeah. It's a really funny, also, connection, too, to how this episode came together. My wife was actually posting on Instagram talking about ... Well, she's always usually talking about health, but she interviewed me, and I was talking a little bit about The Ecommerce Influence Podcast. Somebody who was following her was actually the PR person for JT and listened to some episodes and was like, "Oh, I need to get JT on this show." That's how it all came connected from my wife, just a random Instagram post about a month ago. Yeah. It's hilarious the episode turned into a deep dive into all things, culture, Tuft & Needle, into thought process between scaling, why they bootstrapped, why it was so important to them to bootstrap the business. There's a lot of wisdom that JT drops throughout this episode. I think everyone is gonna get a lot out of it, especially people who are in the mix of scaling a business right now.
Andrew Foxwell: Yeah, I completely agree. There's a ton of gems here. I think I took three pages of notes off of this. Without further ado, let's go ahead and welcome him to the show.
JT Marino: Thanks for having me.
Andrew Foxwell: Hey, man, really excited to have you here. We have wanted to have you on the show for quite some time. I'm really, really excited that we were able to connect and actually come in here and chat. We've given our guests a little bit of a background on you, just kind of an overview, but why don't you take 30 seconds, or a minute, or so and just talk about yourself personally and give us an overview of kind of where you're at right now in the business.
JT Marino: Sure. Personally, it's a little bit of a loaded question. I don't know. I'm a very curious person and I always have the hobby of the year. I'm always doing something. I get bored really quick. It's probably something I have in common with a lot of other entrepreneurs, but kind of going back, out of grade school, I studied computer science and mathematics and got into software engineering, and then design and then product development, and helped several startups and companies build their software products and their engineering design teams, and then it just sort of came to a point where my best friend and I just decided that we've built enough other people's businesses and products, that we wanted to do one of our own.
So, yeah, just sort of jack of all trades a bit with a couple of skillsets that's important if you're gonna bootstrap and start a company, which really helped us out between the two of us. So, yeah. I would say right now, I'm the Chief Strategy Officer of the largest mattress company in the world. Six years ago, I was an entrepreneur with the goal to disrupt an industry, and before that, just loving Silicon Valley and the fast-paced nature of it, building products and software development design, and all that.
Austin Brawner: Awesome. Well, I wanted to start off with a question that I'm kind of fascinated by, 'cause I was doing a lot of research about you, preparing for this interview, reading about the brand, the company, about your guys' origin story, and then read about you and your business partner, Daehee. You guys are both visible on the website. You guys have been building the business together for a long time. You mentioned he is your best friend.
How did you guys meet? How did you guys decide to work together? Because anybody who has been in business for a while knows that often times, friends don't make the best business partners. How did you guys meet, and how did you guys decide to work together?
JT Marino: Oh, and I totally agree with that. I mean, there's definitely edge cases, which I would say that we're definitely an edge case with that, but you know they say don't move in with your best friend. It's tough. You want to have boundaries if you want to really protect the relationship, but I think we're a really unique pair.
The way that we met, I was at Penn State. I went through school kind of a different way where I would negotiate with professors to develop my own curriculum around something I was building. If it was an engineering class, I'd find something to make that would contribute to whatever it was that it was, building back to the hobby comment, whatever it was I was really fascinated with. I'd say about 80% of my classes were that way. One of these classes was this hybrid course between the College of Engineering and the School of Business at Penn State. The professor, because it was such a hybrid course and it was catered to my project, my class was in her office. It was almost over office hours.
In one of my sessions, she had recommended that I join the entrepreneurship club at school. That's something that I don't normally do. I don't really belong to clubs. I'm not very good at networking. I'm extremely introverted, but she was really adamant that I go, and so I worked myself up and got excited about it. "Okay, I'm gonna meet a lot of other entrepreneurs, find some camaraderie. I'll be able to share what I'm learning. I can learn from them."
I went to a meetup and was surprised that there were several hundred students. There were presentations and a lot of energy and activity, but I quickly realized by the end of that meetup that I couldn't find anybody that was actually building anything. It was more of talking about the ideas and what they wanted to build one day, which, to me, it was a little frustrating. It wasn't what I was expecting.
The next session I had with her, I had brought that up and said I didn't plan to go back. She asked me how it went. I said that nobody was really building anything, and that's what I was looking for, were other makers. She said, "Well, funny you should say that. I have another student who said the exact same thing. Maybe the two of you should meet." And so, it was a couple of days later I met Daehee. It was almost right from the get-go we were talking like we had known each other all along. Almost every day since we met, on campus, we would meetup. We were almost attached at the hip. He would work on his business. I'd be working on my product. We were trading knowledge. I was teaching him programming. He was teaching me marketing. That's sort of how our friendship came together.
Zoom forward a few years, we ended up at a startup together in Palo Alto and pretty much doing the same thing. I would be building the product, and he would be developing the marketing materials and partnerships. We just decided that we wanted to split and do something of our own, but the way our personalities work is, he's very much more operational. It's sort of a cross, but at the same time, he really understands a customer's mindset. He's a great writer, and he really understands how to communicate well, but also understands economics, and the finances, and all of that. Me, on my side, it's more on the marketing side. It's a lot of story-telling, but then on the product side is building and making teams. So, yeah. It was a good matchup for us. His Myers–Briggs is the same as my wife. We are really a good fit, but yeah.
I mean, there's definitely been ups and downs, but for the most part, we've been able to keep our friendship strong and our perspective. We talk about this, we go on retreats together at least once a year, that our relationship is the golden goose and the company is the golden egg. I would sacrifice this whole company to maintain and to keep my relationship with him healthy and strong. That's just always how we've viewed it and really caring about the relationship, and understanding that when there is a problem, that you gotta work it out and confront it.
Andrew Foxwell: I think that's just good advice on partnerships, generally. In terms of working on the relationship, I think that's fantastic. Getting into the business story a little bit, you start this company because you decided ... Austin and I have done a lot of research for this interview. You decided, hey, we're gonna start our own thing, and we believe that it can do well. You, very consciously, grew the business and scaled the business.
The one big thing, I think, among many that you're known for is that you didn't take any outside investments. Obviously, that was a very conscious choice. Can you describe sort of the moment and the why behind not doing that? Your company is doing well. You're growing it. You're looking at this and saying, "You know what? We want to continue to do what we're doing at this point early in the business."
JT Marino: Sure. Yeah. The way we built the business, it was very methodical and very considered with the decisions we were making, which I believe sometimes that works well, especially if the principles that you've outlined from day one are mostly right and sort of fits with the market and your hypothesis, but we were at a company that ... Most of our experience with the companies we had worked with before Tuft & Needle had been heavily funded, but the one that we were at just prior had an enormous amount of seed funding, like enormous, far more than what you would typically see with startups, and even today, the averages are high, much higher than they were 10 years ago. This was definitely an outlier. We got to see, and I think because it was so far to one extreme of so much funding, the downsides of capital and early investment, there's pros and there's cons. There were a lot of things we didn't like.
As an example, there wasn't a product market fit from day one. It was more of ... This is really what I saw a lot of in Silicon Valley. It's not all this way, but it is all over the place where you have entrepreneurs who ... They want to build a company. They have big dreams, and they're searching for an idea and they come up with an idea. A lot of times, it's a little bit of this company. It's a little bit of that company and sort of a mashup. It's a this for that, but it's not tested. It's this concept.
Then what you do, you go and you build your pitch stacks, and then you go and see if you can get other people excited, and then see if you can get some investors excited, and then you get your capital. Then you build your team. Then you build your product. Then so many months or a year later, then you launch it to really find out if your hypothesis was right. That was the situation we were in at this one, and when it launched, it wasn't right and it wasn't a fit. It didn't really solve a need, but at the same time, you have all this capital, so no problem. Let's pivot.
Then we pivoted to the next best idea. Then we pivoted again. For me, it's frustrating because when you spend so much time and energy working these crazy hours, sprinting to get that new release out, and then you launch it and it's like we did it. We're gonna hit jackpot now. Then you launch it, and then it's a dud, and you just throw it all out. Then it's, okay, what's the next thing? It gets sort of tiresome and it leads to burnout, and on the other hand, you're spending a lot of money on marketing, trying to prime the pump and get that flywheel going or maybe doing PR exercises or hiring a lot of people that maybe you don't need yet. It's not very pragmatic. Going through and learning engineering principles and first principles, and solving the problem that's immediately at hand, it was very different than the way that you would typically design and develop a product from my background.
I mean, this is a nutshell. There was a lot more to it. I have a bit of PTSD, but when we decided we sort of had had it, and before we had lost a lot of faith in how the business was being operated and we were just spinning our wheels, that maybe we should take a different approach, and there's just no way we're gonna convince the company to do it, so maybe we should just break away and start it ourselves.
And so when we're thinking about that, okay, so we're gonna start a company on our own ... I remember this very clearly. We were walking to The Willows Market in Palo Alto one night, and we did that a lot. We would just talk. We had decided, before we become toxic here, we need to break away and do something. I said to Daehee, "What if we just left and started our own business we built in our way?" He's like, "All right, let's do it." There was no hesitation. It was like, we fist-bumped, and that was that.
We're like, "Okay, so what are we gonna do?" Before we started searching for an idea, we started having this retrospective of all the things that we had learned and the pains that we had with seeing how companies were built from scratch, and we sort of laid out a couple of principles. One of those was, we didn't want to take any funding. We wanted to be able to find product-market fit before we took on capital because our idea was, we would find ... Okay.
Before I get into that, the second was, we wanted to start with a problem. You can read about this. Paul Graham talks about this, is solving a pain that you've had, building a product for yourself. That's very much the way we wanted to go about it. What is the pain that we've personally experienced? If we have experienced that, if I've experienced it and he has, then there's probably other people who have, too. If we could solve that, then maybe there would be a market for it, and so that's how we started.
We had a few other principles, like little check boxes, we wanted to check as far as how we would go about starting it, but no funding because we didn't want to artificially inflate the success of the business too early. We wanted to find that traction first, which, one, can give you more leverage when you're pitching and going to raise capital, but two, you really know that you're on to something because if you don't have the capital to buy your customers, it's like without the training wheels, you know if you're gonna fall or not.
We spent some time thinking about some of the pains that we've had. One of those on the list was shopping for a mattress, which, it is so boring and archaic and weird. I mean, now it's not, but then, it was. We kept going back to it because it was the weirdest one on the list. It had nothing to do with software. That was one of the few other problems that we had outlined.
So, yeah. That's really the reason was we didn't want to take on capital because we wanted to build the company. We wanted it to find traction on its own before we took capital on, and also, we didn't want to build it and sacrifice certain qualities, like let's say, as an example, culture, for the sake of growth. We wanted to build a company that we could work for for the rest of our lives.
Here's a couple of other principles. We didn't want to optimize for an exit. We didn't want to decide we're gonna IPO it. We're going to sell it. We didn't want to optimize for ... We wanted to just build a good business.
Another principle was, we ... Okay, we talked culture. We talked exit. We wanted to be able to pay ourselves what we were currently making, which wasn't much, but we wanted financial freedom. That was another. We wanted to go after something big. If you think about that if our minimum was just to pay our paychecks, but our maximum was disrupt something big, then we were hoping for the best, but planning for the worst in a sense.
Just a little bit of context, we had just enough money in our savings, 'cause we both had a little bit of savings to pay our bills and basically be able to quit our jobs to last us about six months from the time that we started this. Actually, it was a few months after that. I would say maybe about seven months. We had some time to find something, and get it started, and get it profitable. We had that fire under our asses to sprint to something.
Anyway, I don't know if that's what you're looking for, but that was our perspective.
Austin Brawner: No, 100%.
Andrew Foxwell: Absolutely.
Austin Brawner: It's really interesting, I mean, to have those principles. Usually, those things are things people put in a way later, not at the beginning. I think that's also a problem with some businesses when you've got an idea and don't know the principles behind it.
When did you guys know that you had product market fit? Did you guys start it in Silicon Valley, or did you move to Phoenix to start the business? Then within that, when did you feel like you kind of had the product market fit that you were looking for?
JT Marino: Okay. We decided we were gonna quit our jobs in ... It was, like, May of 2012. June is when we launched the Tuft & Needle experiment. We've picked a couple of items on the list of problems. Then, what we did was we took a legal pad, and we took a page per problem, and we wrote a top hate list. For the mattress, we took the hate list for the mattress and we wrote down everything we hated about shopping for a mattress. He's experienced this, too. I've experienced it, definitely. Then, also, everything we hated about mattresses, so the product and also the way you shop for it lying down the center. Then on the right side, for each one of those, what we would do, instead, if we were gonna fix it.
Then we took that, basically the fixes, and we reduced it to is the minimum quantity of those, that if we were to solve those ... We're just using our intuition, that maybe somebody would be willing to buy from a company they've never heard of, one, and two, buy a mattress online. We took that short list of fixes, and then we sprinted on it. It took about two days. We built a website. It was just a throwaway. We put a photo stock image of a mattress at the top, and then we took those fixes, and we rewrote them into the benefits and features, and basically, the value proposition.
Then at the bottom, we had a credit card form. We hooked up the form so that you could type in your credit card and hit process, but it wouldn't actually take your money. I've heard this, that if you ask your friends if an idea is a good idea, they want to tell you it's good, even if they don't think so. If you ask a random person on the street, it's better, but it's not still as good as if you can actually tell somebody what it is you offer, and they actually hand you some money. That's why we wanted to have the credit card form.
If you think about this, the approach was, what is the problem? Okay, let's break that down, and then what are the things that if we fix those, it would be just enough that somebody would try you out? Because if it's too much scope, then you may never even get to launch, and then let's build an artificial thing and see if we can convince somebody to give us money. Then if somebody does, then we've passed the test. Now, maybe there's definitely something here. That's what we did. We launched this site.
I was sitting in Coupa Cafe downtown, and Daehee wasn't with me, but I was sitting. It was like 8:00 PM. The cafe was buzzing, and I'm just typing on my computer at one of the little tables by the window. I sent him a text and I said, "Okay, the site is up." Then a couple of minutes later, he's like, "Okay, the ad is up." He took out a Google Ad. I'm getting a phone call from him about 15 minutes later. I answer it. He's screaming over the phone. I can't really hear what he's saying. I'm like, "What are you saying? What are you saying?" Then he finally said, "We just made a sale."
I snapped up the chair behind me and almost flew ... I mean, it flew behind me. I put my hands up in the air and I yelled, "Jackpot," so loud and awkward. The cafe froze. Everyone was staring at me. My eyes were super wide. I'm making eye contact, looking around with my mouth open, and I see some people nodding and smiling like they knew exactly what just happened, and so that was the pass of the test.
We immediately shut the site down, and we decided this was the one that we were gonna build, and that's when we got started. That was in June of 2012, and so over the summer was when we were diving into, "okay, well, how do you make a mattress? What are the components? How should we think about product development? Who makes them? What's the manufacturing process?"
It was the discovery phase, and then it was the actual going to the factory phase and convincing someone to engage with us. Then October of 2012 was when we officially launched tuftandneedle.com, which later is renamed tn.com. Yeah, that's when we got going.
Andrew Foxwell: First of all, that'll be a great moment in the Tuft & Needle movie, is whoever plays you sitting in the coffee shop. This is like, "Jackpot!" That's gonna be a big moment.
JT Marino: I don't know if the mattress industry is sexy enough to make a movie about, but ...
Andrew Foxwell: Hey, man. You never know. You never know.
JT Marino: Maybe.
Andrew Foxwell: I think it's interesting enough to do that, but I think one thing that I do want you to go into a little bit further is ... I love that first story about the first sale off of a Google Ad. I think that's awesome, but the one thing I loved that you talked about very early on, and clearly, your engineering background had a big part in this of you traveling up and down the East Coast, and the West Coast, it sounded like, talking to different people that nobody wanted to give you the time of day, basically.
It reminds me of Daniel from Kind snacks, doing the same thing. He had a briefcase full of Kind bars that he went into all these places and was like, "Do you need Kind bars in your law office," type thing. You did that, and not only did you find, eventually, someone. It sounded like a smaller manufacturer that wanted to work with you, but you were there for the whole ... You were very intimately involved, which sounds like, obviously, was a big part of your principles early on of making sure everything was very methodical, but you were embedded.
Can you talk a little bit about how important you feel that was to your growth, in terms of your philosophy on product development? 'Cause I feel like a lot of people now, a lot of ecommerce business owners, don't do that to that degree, not even close. Right? It's like, okay, where can we get this manufacturer? It's not something that's really thought about as cohesively and as clearly as you did. Can you kind of talk about your philosophy with that?
JT Marino: Yeah. Well, we had no choice, but to do it ourselves, because we didn't have the money to hire anybody. It was out of necessity, we had to actually do the legwork. I can tell you one of the benefits is ... Well, let me use another example. If you're an engineer and then you become, let's say, a CTO, and there's different types of CTOs. There's CTOs that got there from the business world as a business person and project manager, and then there's the ones that started as an engineer. The engineers can call bullshit.
An engineer, if you were to say, "We need to refactor something," they understand the value of refactoring. They understand the need for writing good code, but they also understand there's a time and place for it because now they're merging it with business, and speed, and getting a project launched. There's a benefit to being able to understand it, and so I can tell you that by being ingrained from the beginning through all of these processes and different parts of the business that are required, you really understand how it all works. You can understand the supply chain side, and the fabric, and the foam, and the logistics, and the shipping, but you also understand the marketing, and the branding, and the customer, and the feedback. You can pull it all together in your mind.
That's one of the things that as we've grown, a lot of our team members really don't have the full context, so they don't really see how everything is connected. It's made it really easy for us to make decisions, as leaders within the business, that takes into account the impact of all of these different parts of the business. When you make a decision, you understand how it ripples through and impacts the supply chain, but how it also impacts the customer.
I think that there is a huge benefit for a founder to have an intimate understanding of how it all works. As the business grows, you definitely become more distant to it, but you still have a fundamental understanding of how it works so that you can have those conversations and you understand what your team members are saying to you. It wasn't so much a principle to start all ourselves and set it up all ourselves. It was really a requirement, but I can tell you that I'm glad it happened that way.
Austin Brawner: JT, as you continue to kind of ... I want to fast forward a little bit because I know people are gonna be really interested in the moment, the time, the tipping point when you were able to move from, "okay, we have a product that the people will buy" to "now we have a product that is selling like crazy." How do we continue to scale up and grow from there? At what point, I guess revenue-wise, did you feel like you were at a point where you had your product dialed in, and your role turned into kind of like, let's grow this thing faster and faster? Maybe you didn't even feel that way, but my question is kind of, when did it change from trying to figure out the product to let's move on this thing and push it and grow it as fast as we can?
JT Marino: When we launched in October of 2012, just being Daehee and I, what happened was, the sales jumped, I mean, from zero to just enough to be able to pay ourselves. It's funny how certain decisions are so hard to make, like how much should you pay yourself? You have to anchor to something. I remember having several phone calls with Silicon Valley founders, but also other seasoned business professionals, just like how do we pay ourselves? I had one advisor say, "Well, you pay yourself the least amount possible, and you'll only pay yourself more when it won't impact the growth and the goal of the business."
Originally, it jumped to just ... I mean, if you think about it, this is a high ticket item, so you didn't really have to sell that many mattresses in a month to be able to pay yourself at all. Within about ... It was around four months, we were able to pay ourselves Ramen profitable. When I say Ramen profitable, I literally mean that. We were eating Ramen noodles, and paying our rent and our bills, and we cut all other expenses, and we kept ourselves like that for almost a year. If you were to look at the curve, the curve jumped within about four months to a level. It was almost a million run rate within about four months. It's not a lot of mattresses if you do the math, $600 mattress, but also consider where this is a tangible good margin, so it costs a good ... Take half of that out, marketing expense, take that out, then you don't end up with much in the end. We held pretty steadily at that level for almost nine months.
That would be what I would refer to as the pit of sorrow. They talk about the pit of sorrow. That was our first year because we couldn't really see it was growing, which conveniently gave us a lot of time to do stuff. If you don't have the capital to really invest in marketing, and marketing leading to growth and being able to do more projects, you don't have the money to really do much, hire people or grow it, it gave us a lot of time to really perfect the product and figure out the supply chain, set up our books and get some process together.
It started with an email. Well, it started with a phone call. I would call every customer and ask them what they thought about it, what do they like, what do they not like. We would get returns. We would ask, "Why are you returning it?" Then that all just went into the backlog, which I was really focused on the product. I would, then, go back to the design, go to the factory. We would make some iterations and try to reduce the number of complaints, reduce the return rate.
Our return rate was getting lower and lower, and satisfaction was climbing, but I would say that we were ready to scale probably mid-2013, but we really weren't scaling. It wasn't until the end of 2013 when we started to blow up. We were ready to scale to take the next step, I would say, about six months in, six to nine months in, where the product was good enough. The policies were good enough, but it was literally just Daehee and I, and then we hired our brothers to do customer support.
By the end of 2013, we wrote ... This wasn't the only catalyst, but there were a couple of other things that all happened at the same time. We wrote this blog post on Hacker News, and it was a show HN post, and it was how we bootstrapped to the number one rated mattress on Amazon. That post went to the top of Hacker News, and it stayed there for almost three days, which doesn't happen often anymore. One of the readers was Miguel Huft, who was a journalist, who then wrote an article after that. This is also when the VC started to discover us. He wrote an article that said, "Meet the Warby Parker of mattresses, Tuft & Needle," and then it was like boom. All of this organic traffic started coming to the site. People started buying.
If that article hit into 2012, so right after we launched, we wouldn't have had the stuff in place. I don't think customers would've been as communicative and almost salespeople to their friends. I'm talking virality through word of mouth if that article hit earlier, but we had gotten just enough stuff done that our net promoter score, which measures customer satisfaction, was high enough that our average customer was telling their friends about it. Into 2013, when we wrote that and then that article hit, that's when our growth started to explode, which, then we switched to hiring because we couldn't keep up with the volume of work.
Andrew Foxwell: I think focusing early on, you kind of touched on it, putting people at the center of the business, writing that article. You had mentioned previously, the community ... Well, I mean, following up with people that are purchasing. What did you think? What did you like? What didn't you like? It sounded like Reddit was a big part of your early marketing, as well. It sounds like as time has gone on, billboards and TV have been a surprise for you in terms of marketing.
Can you talk about the channels for you that have really, really helped grow the business over time? I mean, PR, and clearly, your customer satisfaction is ... I mean, customer satisfaction is the number one growth tool that you have. We have Tuft & Needle. We've had our mattress for two years because I had a friend, who I trust a lot, say, "Hey, you should get this."
JT Marino: Awesome. Thank you.
Andrew Foxwell: What else have you ... Yeah, hey, sleep great, so no complaints. What other channels, in terms of marketing, have been, for you, a motivator or really, really move the needle?
JT Marino: Well, it depends on the phase of the company. It also, just for context, for people who hear this, it also was heavily dependent on our limitations. We didn't have the capital to advertise because if we did, customer satisfaction may not have been nearly as important, and that goes back to another pain point that I see with heavily funded startups is, the customer satisfaction isn't as important. The word of mouth isn't as important because you can buy your customers. We had to rely on our customers to spread the word. In order for you to have them do that, you have to blow their minds. There's not just one way to blow their ... Unless your product has some breakthrough innovation that really blows their mind, you have to get everything right. You have to get your price right, your marketing right, your shipping time right, how your product performs. It's like the sum of all things. That's why we were so heavily dependent on customer feedback, getting it right.
What that did was it segued into this virality of word of mouth, which starts small. It's like a seed. If you have 10 customers and X percent of them tell their friends, and then after when they're in market for a mattress and they buy, and some percentage tells their friends, and so it sort of starts small. Then it gets bigger, of course, as your customer base gets bigger, but in that timeframe, as we were perfecting and without the dollars to really advertise, we were trying to get our name out there.
Now, also for context, being bootstrapped and not having to raise capital, it's not as flashy of a story. PR was something we did not have. We had to get the word out, ourselves, so posting on ... At that time, it was Facebook and having our friends post when we would do something. It was going and asking for feedback on subReddits that we knew that if we were very transparent, we're just a couple guys, co-founders, trying to solve this problem, and we need your feedback. Even if you don't buy it, what do you think?
That actually led to a lot of customers, as well, in wanting to support some founders who really have a genuine interest to solve a problem and a need. So, yeah. The forums were really good for us. When I say relative, at that time, even just one sale here and there made a big difference. The gems were the people that were actually giving you raw feedback. Even if they were assholes as they did it, we still absorbed all of those criticisms. That's what we did.
Then, as we started to grow, then your percentage of your revenue, and then your percentage of net income, and all of that, everything starts to scale up, and now we can start to spend a little bit more on marketing, and then it really switched to digital marketing. As I've found, you kind of cap out. You tap it. You tap out Google Ads. You tap out display. Then eventually, you tap out Facebook. Then you're left with, okay, what's next? Well, what about television, billboard, radio? This is a new world, so it was very difficult to measure, but that's something that took us a little while, but we eventually figured it out.
Now, we do advertise very heavily. We're really good at it. We still have to be. We go from a bootstrap business to then merging with Serta Simmons, the largest mattress company, who is private equity owned, and EBITA being very important, so it actually was a perfect match as far as how we operated because we pinch every penny. We want to make sure every penny has a return. It's just everything becomes a very considered decision, but as far as marketing, it was heavily dependent on limitations early on in our business, continued to be constrained because we had to be profitable or we would be dead, and then as we saw traction, we had to be very heavy on analysis and measurement with our digital marketing, and then later, we were able to take those bets without 'aha marketing.'
Andrew Foxwell: I'm just gonna follow-up on that. Talking about attribution because you're talking about the measurement. You said last year at a Recode event, that you kind of figured out or decided on your model for attribution and how all things work together. This is obviously the biggest question, of course, in digital marketing in a lot of cases, but can you talk about what some of that attribution looks like, or the philosophy behind it, or ... Because obviously, it's really hard to attribute sales from billboards and other things, as you said. So, I'm curious of what you've settled on that you're like, "you know what? That's really good. We feel good about kind of how this is adding up."
JT Marino: Yeah, yeah, sure. I mean, digital marketing is more straight forward, first, last touch attribution and your blended acquisition cost, also. That's definitely easier to build a model, but when you start to get to billboards and radio and television, you don't know. YouTube versus TV, you can see who is clicking it. You can see how long they're watching it. Television, you don't have that. I, personally, do not trust any of those analyses that you can pay for. I just don't believe it because I'm so used to having hard numbers or numbers that are more significant or trustworthy.
What we had to do, and it took us a while ... I remember when we ran our first billboard, we got one billboard. There's nothing you can really do. Then we realized, wait a second, we have to get a lot of billboards. We ended up getting 200 billboards in Phoenix. We had to essentially run tests between cities. We would create a subset of cities that we viewed that were lookalikes. That was between the types of people that lived there and also that were relatively around the same cost of marketing. There are some cities that have no billboards, where billboards are banned, some cities that have a lot of them. We would create these lookalike cities.
What we would do is, we would run a campaign in one, and then we would not run it in another. Then we would run a different kind of campaign in a third. Then we would run these different tests. We would use intervention analysis per city so you can just see, all right, this was the day we started it. What were the numbers? What were we forecasting for that city prior to? Then we also had a lookalike city to also come up against.
After running enough of these scenarios, and it was a serious investment, we decided that if this didn't work, we were okay essentially burning that cash in a dumpster. We knew that if we could figure it out, that the payoff would be totally worth it, but in case we didn't, we're not betting the house. We never make house-betting types of decisions. We would take different cities, and we'd run different scenarios.
Here's another example. We'd have one city that was billboard and television, another one that was billboard and radio, and then one that was just radio, one that was just TV. We found, very quickly, I mean, just like you would probably read in the books, that you need to plant the seed as far as your messaging in multiple different ways. People need to hear your message a number of different ways, not just one. We found that by using different mediums to advertise work really well together.
We also found that you can have a digital sort of coalescing with non-digital. As an example, if you're gonna advertise on a certain television station, you can figure out who watches that television station based on if they follow the news channel on Facebook. Then you can create lookalikes. Then you can use that data, then create segments on Google and other channels to then advertise to the people that would most likely have seen that ad. We started to find new techniques where the digital and the non-digital start to work together in a more targeted and more relevant way, and then we're testing cities against each other.
Then what we did was we built a model behind it so that we knew when we go into a city, it has to be like this. This is the most that we could possibly pay, and then when we go in, we start with billboards or we start with radio, or if we do radio, we're only gonna do this kind of a radio or a radio channel that has this kind of ... We built this whole model and these playbooks that we were able to consistently see results from with a positive return. That took a lot of time, and it took a lot of help from some data scientists on our team. That was actually a huge breakthrough, was getting a really good data scientist who understands the business case and can translate it, not just in, oh, this isn't statistically significant, but actually gives you a good point of view and can help your team to actually get to an answer.
It's not something I can really dive in and give you all the details. It would take too long, but that was cursory how we approached it.
Austin Brawner: That's really interesting and something I haven't heard many people talk about. Mostly, I think part of it because there's not a ton of ecommerce founders that have gotten to the scale that you've gotten to and had to figure it out. Where did you go to to get that information? Did you reach out to other businesses? Did you reach out to other founders? How did you go down that path to try to even come up with the idea to solve that problem?
JT Marino: Well, yes, we did reach out to a lot of other founders and businesses, but no one could really answer us because we kept finding that nobody knew how to do it, but we saw that we had to keep growing. When you've tapped out a source, you look for other avenues to grow, but we had this itch, this bug in our ear that was like saying companies spend so much money doing this, it must work. There must be a way to make it work. Maybe we can't figure it out. At some point, we'll just give it up, and then later, we'll try it again, but we just believed that we could figure it out. There's gotta be a way to do it. We kept going down and breaking it down, how could we measure? How could we test?
I could tell you that there were a lot of times where you have team members say, "It's not gonna work. It's not gonna work. I'm telling you." Then you run a test and it doesn't work, but someone has to have a strong voice like, look, let's just try it again. Let's try it another way, and then we followed our nose and we finally figured it out, but yeah. You said that there's not a lot of ecommerce companies our size, but I'll tell you, the ones that are, I would bet that a lot of them are not profitable.
I would tell you that most of these companies aren't profitable, but what is their motivation? What does their motivation actually figure out how to make it work when they don't have to be profitable, and it's more about the PR and building value behind their stocks in order to raise more capital, and eventually flip it and leave it to somebody else to figure out, but we have to figure it out because if we lose our profits, we're gone.
Andrew Foxwell: Preach, brother. I'm with you.
JT Marino: Yeah.
Austin Brawner: I want to transition a little bit. It's not really transitioned because it's related to what you were just talking about. You mentioned it earlier when you talked about how you bootstrapped to being the number one rated mattress on Amazon.com. I did a search today, and you guys are listed as their suggest mattress. You guys are selling a lot on Amazon. Right now in our community, in the ecommerce community, there's a lot of differing opinions about Amazon.
Some people are removing their listings from Amazon. Some people are staying in it and kind of doubling down because there's incredible amounts of growth there. How did you guys decide to list on Amazon, initially? And what have you learned from your time working with Amazon about kind of how to think about the relationship between a brand and Amazon?
JT Marino: Well, when we initially listen on Amazon, it was not to sell mattresses. We didn't actually think people bought mattresses on Amazon. The reason we listed there ... I would say that up until we started this company, I didn't know anything about brand. I didn't know the value of brand. I couldn't have even defined it to you. Now I know a lot more and could define it. My definition might be different than someone else's. It's this sort of abstract concept, but I very much value brand and what it means, but I still feel like ... I mean, I'm still like an amateur.
There's so much to learn, but when you're starting a brand that no one has heard of ... And I think this is not as relevant to tech companies. I think this is more relevant to more of a tangible good and consumer goods businesses where customers are really researching between brands. You have to make a name for yourself. When somebody sees your name, they wonder, who is this? Or do other people know about this?
And so, one of the avenues that you can take to build credibility is reviews. Well, we can build a review engine on our site, no problem. We can roll it our own. We could use a review ... Some SaaS software to install it, but we were thinking about it from our perspective, when we go shopping for something, ourselves, how do we do it? Well, one of the places we go to to read reviews is Amazon. Even if we're not gonna buy it from Amazon, we go to read those reviews. That was the whole point.
We listed on Amazon because we found out, you can send your customers to Amazon to write reviews, even if they didn't buy it on Amazon, which there's a lot of controversy around that, and a lot of companies have gamed it, fake reviews and all that, but I mean, even though a lot of our reviews are unverified, they're our customers. We have an automated email that goes out to customers asking them to write a review, and it's a link to go to Amazon and write a review.
The reason we listed there was so instead of putting reviews on our own site, we would send them somewhere that they could write that review so at the very least, people were confident that it's most likely that this person writing this review has an Amazon account, so they're probably real. That's not always the case anymore because there's a lot of ways to game it, but that's why we listed on Amazon.
Then what we found out was ... Well, I can tell you, before we put it on Amazon, I was having a panic attack because for the very reason we want to put reviews over here to be more credible, it's also those reviews are out of your control. If we were to list it there, oh my God, well, what if it just becomes a one star and then we're done? People read these reviews and they don't buy from us.
We set a goal. We wanted our net promoter score, so customer satisfaction, to be at least a 65. The creator of that promoter score had reached out to and asked his advice because he advises a lot of other companies on how to use that customer satisfaction. He says, "If you hit a 65, you will most likely have a product that will be rated well." Then we're like, "Okay, let's do it." 65, we hit it. Now we're gonna put our product over there, and let's see what happens when we send customers their reviews, and they started coming in almost all five stars. It almost looked fake 'cause it was so good.
Then what happened was, our product became the highest rated product in the entire furniture category on Amazon. Well, apparently, people buy mattresses on Amazon. It's grown a lot since then, but at that time, we started getting orders through Amazon. Then it became a serious channel for us. It was a smaller subset. It was somewhere around 20% of our unit volume at the time within a matter of, I don't know, maybe three to six months, and then that market on Amazon has continued to grow. It started off for just a credibility marker, which did help build our brand, and then conveniently and serendipitously, became a nice revenue source for us. It also taught us how to work with a distributor in another platform so that we can understand the dynamics between selling direct, but also selling through a retailer.
But as far as your question about different opinions and people pulling the listings, Amazon has its goals. If your business model fits it, then you have a choice. If you're gonna go and sell there, there are people buying products like yours, most likely, on Amazon. Do you want to capture those customers for your brand, or not? And what are the sacrifices you make? We had a lot of discussions about that.
One of the things that we thought about, we basically installed a principle that we would not become dependent on Amazon. We should always be able to stand on our own, so we created two P&Ls. We had our blended P&L, but we had a P&L for the business on Amazon and one for our .com.
We wanted to always be sure that if at any time, that Amazon account were to just be deleted, that we would be fine. We wouldn't have to do a layoff. We would still be solid. Then the moneys that we made through Amazon, we would use that to continue to build a great brand so that it would continue to strengthen our brand, our direct business, and the business on Amazon. So, yeah. There's definitely pros and cons. It's probably very dependent on the market, what the buyers in that particular market on Amazon, how they behave and what their goals are, and how your business model works, if you even have the margin to do it, but for us, it was very beneficial. We were able to grow faster and be more successful by being on Amazon.
Here's another thing to consider. If your goal is to be a big company and a big business, you can't do it all ... I mean, maybe you can, but it's difficult to do it all direct because let's say Costco. There are people that will only buy on Costco, and there's a large percent into the United States that will do that, or Sam's Club. If they're gonna buy a mattress, they're gonna buy a mattress there. They don't want to buy anywhere else. There are people that will only buy on Amazon. There are people that shop Amazon, shop Costco and Sam's, but will buy direct.
If you want to grow, you have to seriously consider all these other places that people want to buy their stuff, and you can't fight what the customer wants to do. You can influence it, but you really can't fight what the truth is. When it comes to online, you have to look at your market. If you look at the mattress market, 30% of the business, it's hard to measure, but it's between 20% and 30% of it is online. If you decide you're gonna be a purely online mattress business, then you can only ever grow to 20% to 30% of what the full size is, which is 17 billion. Then, you're gonna also have competitors, so you're only gonna get a smaller percentage of that. You're not gonna get the full thing.
If you want to be big, you're going to have to expand to other channels until eventually one day, online fully cannibalizes all of those other channels, but that may or may not happen, or it may not happen within the next 10 years during the time period you want to be within the company you're in.
If you look at a lot of these DTC digitally native brands, they really start to cap out around $200 to 300 million. They just slow down. You hit the law of big numbers, and those markets aren't trillion dollar markets. They're like billion to $10 billion, maybe, size markets. The percentage that's online is limited. It's a smaller percentage than the whole thing, so if you want to keep growing, you've got to expand, and you have to consider it.
So, you just have to make a choice of, what do you want to be? If you look at what household name brands are and how they work, they're everywhere. If you think of a brand that you've grown up with, they're everywhere. They're in all the stores. That's not to say the only way to become a household name brand is to be in all the channels that people shop, but that definitely is a characteristic that you'll find with brands like that.
Austin Brawner: You built a business that was so profitable, that has been profitable since, not necessarily day one, but first couple months. You guys got to a point where you're talking about growth and growing, and where you guys wanted to go. It seems like you didn't need to do anything. You guys didn't need to merge with Serta. Your business was profitable. You guys were growing. You could've continued on that path. Why did you guys decide to merge with Serta this last year?
JT Marino: Well, that's actually very relevant to the last topic. Our growth started to slow down, which makes perfect sense because we were primarily online and Amazon. So, we realized that we had to continue to expand and distribute. Our customers literally tell us this. If you listen to them, they're saying, "Where can I go and try your mattress out? I want to see it before I buy it." It's as simple as that. Even if it's an older demographic, that's a big market. At some point, the younger demographic will take over and maybe they don't care, but in the meantime, there's people still wanting to buy and go and see it. We had to decide, and I remember this conversation, I mean, it was actually literally in the room I'm sitting in with Daehee where we had to decide, do we want to keep building and keep growing? Do we want to be the number one?
Our goal, when we started, was back to those principles. We wanted to disrupt something big if we could, but if it would end up being very small just to pay the two of us and we were the only employees, that was okay. Then we'll find something else if we wanted to go bigger, but we wanted to disrupt an industry. What we found, and we had this hypothesis we further substantiated as we grew, is that the mattress industry needs to be disrupted, and it needs to change because it wasn't serving the customer. It was serving the businesses and shareholders over the customer.
Our hypothesis was, if we serve the customer and made our company customer-centric, it was a buzzword, but in other words, make products and services for the customer, and keep iterating on them to keep blowing their minds. If you did that, it would eventually become the best outcome for shareholders and the company, but if you always take care of the customer first, then theoretically, it should take care of all of the rest, the nice to have, and so we knew that for us, and as founders, we're sort of righteous founders in the sense that we want to do something that we're proud of. It's not just about an exit. It always prides in building something great that mattered first and then reward second.
We wanted to disrupt the industry by making it customer-centric, and because it was this righteous point of view, that even meant that if a competitor did it, if Tempur-Pedic, and Serta and Simmons, and Sealy, and Sleep Number, and all these big, giant brands that you hear of, if they were to all of a sudden start taking care of their customer, then it technically would define or accomplish that mission. So, we didn't necessarily say, "We want to be number one." But, we knew that if we became number one, the leader always sets the trend, and the competitors follow. We knew that if we could get to number one, it would cause this change for the customers. That was our perspective.
As we're starting to slow down in our growth ... If you look at the percentage of the market that we had, it was something like 2%. That's not nearly as big as some of the big companies. We had to keep going, but if you're this brand that not a lot of people know about, you have a small percentage, how are you gonna get into these big distributors? How do you get into Sam's Club, and Costco, and Walmart, and all these other big retailers if you're like a no name?
Well, it's like a chicken and egg problem. You're not big until you distribute. We've always had a PR issue, as well. We were always in the news. Some of our lookalike companies that launched after we did, that raised a lot of capital.
We saw that maybe we need to start opening retail stores, our own. If we can't get the big guys to carry our products, maybe we need to start opening our own because there's no other choice, and so we did. We started doing radio, television, billboards. We started opening some retail stores 'cause our customers were asking to experience our product, and then we figured out that model, that data science model so that we can measure a return. It also incorporated retail stores, and we figured out how to make it work. We decided, finally, we're gonna go and raise capital. We need $25 million, and that would be enough to accelerate to open up however many stores we felt would cover the majority of the US. We thought it was gonna be probably somewhere around 200 to 300 stores.
We go on this journey to raise capital to expand our retail stores, and then we have this opportunity to have a conversation with some of these big competitors, the companies that we had set out to disrupt and change. Serta Simmons was one of those. They're the biggest manufacturer. You have the big retailers that you can probably think of, but there's this manufacturer who is kind of at the root, and so as we're talking with them, we wanted to take the meeting, first off, just to meet them and kind of understand how they think.
What we found was, this company recognizes it's being disrupted and wants to change. When I asked them, the CEO, "what do you want to be in five years?" He described exactly what we wanted to be in five years. He wanted to be like Tuft & Needle in the sense of a customer-centric brand that customers love that really service them well.
What do we want to be? Well, we're already that, but we have the brand affinity and the brand loyalty. We don't have the brand awareness. We want to be as big as them. We want to distribute. We're at this point where we're trying to figure out how to get into these distributors and expand because they're capping out online. It's just the market is not big enough anymore, and this company already has that, but it wants to be like us.
That's where this idea that if we were to put the companies together, and if we could go in ... It's sort of like raiding the ship, like pirates and change them from the inside, then we could cause this disruption much faster. We can change it to being customer-centric. That was the idea. Tuft & Needle could instantly unlock distribution across the nation in the biggest distributors, but we can also change Serta and Simmons and all of those brands to being like Tuft & Needle, and we can accomplish that mission of being a leader instantly and then making it customer-centric, and now the customer wins because all of the other competitors will have no choice but to ship in two days, free trials, best in class products that last a long time, and incredible customer support, great price. All of that, all the competitors will have no choice but to match it. It was a way to accelerate us to our mission in an expedited fashion. Then for them, it was expediting to becoming this new model that is customer-driven so that they could immortalize their brands and be able to be relevant to a future day.
Andrew Foxwell: Absolutely, love that story. It makes a ton of sense. I guess I'm curious hearing that now, is wondering ... You're the chief strategy officer now and wondering, where do you think the mattress industry is going? It's incredibly competitive. It seems very cutthroat. I think sort of people are trying to outdo each other to some degree, and I wonder your take on that looking forward.
JT Marino: I think what's gonna happen is, you're gonna see ... Well, the customer journey is changing. Customers, they don't go and ... Well, this is constrained to this market. When customers go shopping for a product like a mattress, they don't go to the store first. What they do is they decide they want a mattress. The first thing to do is they grab their phone and then they do a search. I think that's how most of us shop, anyway. That's how I shop. Then you decide if you're gonna get on your laptop. Then you decide if you're gonna go to a store.
You start with your research, especially for a high ticket item. If you don't match that process, if you're not there right at the starting point, then you're opening up this white space for someone else to be there. Whoever is there, it's just like you hear in the Microsofts and Apples in the old days, it was a challenge to build the platform and the gateway to get as close to the customer as possible. It was the operating system, and then it was the browser, and now it's the mobile devices.
Again, the closer you are to the customer, you're the starting point and you have the control. I mean, you want to get close to the customer to when they start their journey. I believe what will happen is, you're gonna see, at least within the mattress industry, and I would expect all other markets, far, lightning speed ahead of us, but you're gonna see the brands getting closer to the customer, listening to them and developing products for them. Those are the companies I believe will win. That is really what our current mission is, is within just the short time window is to transform sort of Simmons as a whole to being like Tuft & Needle, and scaling Tuft & Needle through distributors, not sacrificing any of our principles and just taking our great products and getting them closer to the customer and creating a lot of convenience. What's gonna happen in the future is you're gonna see mattress companies looking more like companies that we love and adore in other markets.
Austin Brawner: JT, this has been really, really interesting. We want to be super respectful of your time, and we've already gone, I think, maybe a little bit longer than we had said, but it's been fantastic and really interesting. The last kind of question to wrap this thing up is, it's kind of a two-part question.
First, what's next for you in this role? If anything, what is ... Well, I wrote something down at the beginning that I have to ask you, which is, what is your hobby? You said every year, you had a hobby or an activity, and you didn't tell us what it was. That's my first question, and the second thing is, what's next for you over the next year as you kind of progress and change in this role?
JT Marino: Well, last year was motorcycles. I bought a vintage ... It was a Honda CB750. It was a '77, had only 4,500 miles on it, and I didn't know anything about motorcycles. I never rode one, so I went through the training courses, figured out what model I wanted and rebuilt it, and now that's the bike I ride.
This year, I've really gotten into mycology and mushroom cultivation. I don't like to just go in the surface. I've dived pretty deep, all the way to figuring out how to transfer and inoculate spores on the agar and how to make agar dishes, how to isolate monocultures and then making spawn grain, all the different types of ways you make spawn grain, and your different sub straits, and how do you grow them in the garden, and what are the different types of gourmet mushrooms you can cook with? That's my current hobby right now, which is super nerdy, and it's not something people really relate to, but I'm having a ton of fun with it, and I've read tons of books on it and all of that.
But as far as what's next for me, honestly, right now, I am just so engrossed with this transformation. Going through a merger is a lot of work. You've got two cultures colliding. There's a lot to change at Serta Simmons, and there's a lot to be done within Tuft & Needle. Tuft & Needle is really SSB Phoenix now, and so my job is to help define the strategy and the steps, and to be able to teach and articulate that to the teams, and then the next phase is really to support the teams to build them and help with the process, and guide it as it goes along and makes these changes. You'll really start to see here pretty soon the fruits of a lot of the work for the last six months post-merger, but that's what I'm focused on, is really transforming the business to making it a modern day badass mattress company, a brand that you would really come to love and adore, and be one of the most-loved brands in the world. That's what I'm focused on now.
Austin Brawner: Awesome, man. It's really, really awesome. It's a pleasure chatting with you. Are you on Twitter? Where would you direct somebody if they were interested in kind of learning more about what you're doing, the best place to direct somebody who is listening?
JT Marino: I am on Twitter, John Marino. I don't really use it much. I don't use social media very much. My email is JT@tn.com. Like I said, I'm fairly introverted, so most of the communication I do is through stuff like this or speaking at conferences, but yeah, feel free to reach out any time.
Austin Brawner: Awesome. JT, thank you so much.
Andrew Foxwell: Thank you.
Austin Brawner: It's really been a lot of fun.
JT Marino: Right on. Thanks for having me.
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