SaaS Interviews with CEOs, Startups, Founders
1166 He Invented Mattress in a Box 20 years ago But Casper Out-Marketed Him
03 Oct 2018
Chapter 1: What is the background of Luxie and its unique product offering?
Pull back intensity a little bit to enjoy the ride coming from David. Again, really, you know, riding on the back of this craze, which is kind of, you know, mattress in a box happening. He's doing well, right? Luxus Sleep, great technology. They really pioneered a lot of this stuff with mattresses and boxes to hospitals almost 20 years ago. They'll do $5 million in revenue this year.
That's selling between 1,000 and 5,000 mattresses. 50% e-commerce, 50% offline. Margins on an $800 queen bed, the Luxie one they sell, less than $400 of that is dedicated to manufacturing. They manage then down to the bottom, bottom line. So net, net 5% to 7% there. Hoping to scale, hoping to grow, looking to potentially raise capital. You can check them out on startengine.com.
This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn. Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines.
Chapter 2: How did Luxie navigate the competitive mattress market?
We went from a couple of hundred thousand dollars to 2.7 million. I had no money when I started the company. It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers. With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest-growing business show on iTunes.
I'm your host, Nathan Latka, and here's today's episode. Hello, everyone. My guest today is David Farley. He is the CEO and founder of a company called Luxie. The URL is luxiesleep.com. Competing in a hyper-competitive space, but he's integrating old and new approaches. We're going to jump in. David, are you ready to take us to the top?
Chapter 3: What revenue goals does Luxie aim to achieve this year?
I'll give it a try. All right. Tell us about Luxie. What are you guys doing? How do you make money? Well, making money is a challenge, you know, but I think the answer to that is perseverance and being as smart as we can possibly be in the space that we're in where things are changing as rapidly as they are. No one knows what this product is, right? So at least maybe not.
Tell us what the product does. Well, we're involved in the online bed-in-the-box mattress segment. There's a lot of competition in that segment, and there are leaders that are way larger than most of the folks that are in the pack. I would say that we're in the middle of the pack. We've got an interesting profile in that the product's unique and that we've had ā
a lot of years of manufacturing experiences relates to products like this and bed in the box is really not a new idea. We were doing it for healthcare 30 years ago, but what do you mean by that? Doing it for healthcare? Uh, I, my background or the company's background is in the healthcare field. Our,
expertise is the fabrication of urethane foam and manufacturing of products that are like orthopedic soft goods and so forth. We also eventually became the manufacturers of some hospital or healthcare mattress products that we put in compressed format for distribution to the acute care hospitals around the country almost 25 years ago. I see.
So you were shipping beds and boxes to hospitals 20 years ago. Yeah, quite a long time. So why the heck do these guys like Casper and Purple, how did they get so much market share so quick? Well, the strategy was perfect. The planning, the pre-launch, the capital commitment was all done wisely by these folks that have done such a great job of blowing up the segment.
You know, the betting industry is a $15 billion industry, and right now about 20% of it. is in what I'll call the segment that's offline, either startups or other startups.
uh circumstances where consumers are buying products today buying mattresses today that they haven't even seen or felt or sat on let alone slept on and uh so the segment uh was maybe six percent four years ago so there's been a couple billion dollars worth of transformation that's taken place and about half of that's been done by the five companies that are leading the uh the segment so to name a few i got casper purple who else
Well, Casper, Purple, Tuft & Needle would be ā Nectar is in that group.
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Chapter 4: How does Luxie's e-commerce strategy compare to traditional retail?
SAF is number three. By order of sales volume, it's Casper, Purple, SAF, and then Tuft & Needle and Nectar round out the top five. I see. Those five out of 150 are doing better than 50% of the transformation volume. And give me a general sense of where you're at. So last 12 months, total sales. About 5 million. Okay. How many mattresses is that? Well, it's a couple thousand. A couple thousand.
Okay. Between 1,000 and 5,000? Yes. Okay. And how have you driven most of those sales? Well, we've been managing our online retail site. for the better part of two and a half years now. So most of the business has emanated from that site.
However, we've made a shift, and the shift occurred just at the first of this year where we've reached back to some more traditional distribution that we're familiar with from our past life, if you will, and we're taking to them in a very cooperative way
some of the tools that we are using online and making them available to retailers in an effort to develop our own retail distribution network amongst the, let's say, the medium and the smaller sized retailers across the traditional brick and mortar bedding specialty shops. But OK, so what percent right now, last 12 months of the five million, how much has come through e-commerce?
Yeah, right now we're about 50-50. We're running about half and half. Okay, 50% e-commerce. And give me a sense of, I want to put this on a timeline and talk about how you're funding this. So when did you launch the company officially? Well, the company... The mattress portion. The current project was launched just the first of this year. Oh, wow.
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Chapter 5: What challenges does Luxie face with customer acquisition costs?
Okay, so fairly new then. Yes. We've been in product market research for the last couple of years, and the company's been longstanding. It's a 27-year-old company. Yeah, but I just want to talk about when I go to Luxysleep.com and I see the Luxy One, right? This product you're saying you just started selling January 1st, 2018? Yes. Uh, that's, that's true.
We've just started selling the Luxie product in that format currently this year. I see. And you've done 5 million so far this year in sales. We're projecting five for the end of the year. For the end of the year. Okay. Very good. And how are, so how are people finding the website? How are you getting traffic?
Well, it's a little bit of advertising, and Facebook and Google are the primary go-tos, and we've got a lot of great affiliates. I would say that we've found that the advertising, the cost of acquisition is becoming very, very difficult to manage, and so a lot more work is being done. Do you mean unprofitable? It's getting more competitive? Oh my gosh, yes.
The cost of advertising in this segment with the leaders at the volume, at the run rates that they're at. You understand we're at a $5 million run rate and the leaders are at a $500 million run rate. What did Casper do the last 12 months? They did. They're they're they're approaching the 500 million dollar run rate as best we can tell. Interesting.
OK, I want to understand more about kind of like the structure on like one of these queens. So let's just dial in the 799, the Luxie one mattress, the queen size.
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Chapter 6: How does Luxie plan to raise capital and grow?
That's what you charge 799 on that. Let's just call it 800. What do you spend actually manufacture this thing? Say that again. What do you spend to actually manufacture the 800 dollar queen size Luxie one? Something less than 50% of that number will be true for manufacturing costs across the board. Okay. Our gross margins on manufacturing are running in the high 50% range.
Okay, so less than $400 to build that $800 queen mattress. And then typically per sale, what are you paying out to like affiliates or other customer acquisition costs? A couple hundred bucks. Okay. Which cost of acquisition today for all of our products averaged across all of the items. So what do you like to take into the bottom line? On an $800 mattress, how much will you make?
Well, we're trying to make net-net profit after everything in the 5% to 7% range. Okay, and are you hitting that so far this year? Yes, we actually are, but we're not moving our volume up. We're hanging tight. with keeping it very controlled, if you will, and very easy to overspend on marketing. Very easy. Yeah. This is tough, though.
I mean, you know, David, when I'm looking at this, so, I mean, if you ate 800 bucks for the queen, let's say you managed to a 5% net net, right? I mean, that's 40 bucks that you're making bottom line on an $800 sale.
And then, you know, if you sold between one and five thousand mattresses, let's assume best case scenario, you've sold five thousand mattresses times 40 bucks per mattress at the bottom line. That's 200 grand net net to the bottom line. You know, this year, if you do that five million in sales now, is that before or after salaries for your team? Oh, no, that's net net. That's after everything.
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Chapter 7: What is Luxie's profit margin on their mattresses?
OK, that's after everything. OK, very good. That makes more sense. And where will you spend that money? Where will you reinvest in the company to pay out dividends to a rev share across the team? What do you do? Well, the emphasis right now is on partnering with traditional brick and mortar, which requires quite a bit of capital, actually.
Open retail stores, you need to get in with point of purchase materials and so forth. You need to man a team that's there for. not only closing the transaction, but also supporting in terms of training and so forth. And so for the next 12 months or so, our focus is really on bringing on the traditional retailer to give them the benefit of what we've accomplished at this point.
You know, most of the traditional retailers, I'm calling them the retail group that's being left behind. Here's the trick for what our market strategy really is for the next 12 months. We can't offer those retailers or not having easy access to the top brands. The top brands were tied up in much bigger deals with much bigger retailers.
And on the other hand, most of the smaller competitors of ours have turned to Amazon for distribution. So we come to a retailer clean of that with an opportunity to share in a cooperative way what we're up to online and providing with the kind of support that they find, you know, it's pretty difficult for small chain retailers to launch and be effective in digital marketing.
They've all got websites, but they're all really not doing much in real terms of digital marketing. And David, have you bootstrapped this or raised capital? No, we bootstrapped the whole thing. Hey, are you going to SaaS stock in a couple of days? Remember, it starts on the 15th and 16th and it's in Dublin and it's a beautiful location.
So I'm speaking on day one, which will be October 16th on the growth stage where I'm doing a live version of this podcast right on stage. I'll grill the founder. It's going to be a nice surprise who it is. You guys are going to enjoy it. We're gonna do it live on stage.
And then on day two, which will be October 17th, I'm giving the State of SaaS keynote where I'm presenting ARR data from over a thousand private B2B SaaS companies.
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Chapter 8: What insights can be gained from Luxie's business model and future plans?
That's at 2.20 on day two on the scale stage, the main stage. I really hope to see you guys there. If you're a longtime listener of the show, make sure you email me beforehand. I'm doing something very special after the event. I want to make sure you get an invite. There'll be a lot of people there you want to meet, but I am doing and I'm being very careful about curating it.
So send me an email real quick. Do it right now if you think you're going to come. That's email it to Nathan at Nathan Latka dot com and put SaaS stock in the title. Again, Nathan at Nathan Latka dot com. I hope to see you guys there. If you haven't got a ticket yet, you can get one at SaaS stock dot com. S A A S T O C K dot com. All right. I'll see you guys there.
Now you're raising capital right now. You're listed on start engine dot com. Walk me through what you're doing here. Well, really what we're doing is kind of a first exercise in putting this story together. And we were fascinated with equity crowdfunding as a concept. And so we've given that a bit of a spin. We're looking forward for another 30 days or so to finishing up that effort.
However, we're currently in some conversations with other private equity organizations very much A round type of participants because I think we've really got a great idea and we seem to have a pretty good audience at the present time. So I expect that we're going to be raising additional capital. We need to. We've got the opportunity to grow quite rapidly.
We're not meeting any resistance in the field, if you will. So David, just to be clear, anyone listening right now could go to StartEngine.com and invest to support the brand. And what are they actually getting? So right now you have 35 investors. They've put up $26,550. If someone listening right now goes and clicks invest, the minimum is $250 it looks like. What do they get for that?
Well, they get shares of micro security in the company. So it's real. If they put in 250 bucks as a minimum, they actually get shares in the company. Yeah, this is crowdfunding. It's a SEC regulated transaction. It's a security. That's the result of it. And if you want to get a little deeper into it, go to go to StartEngine and take a look at the offering memorandum.
You'll see that it's all in line with. formal equity raise. Yeah, no, it's great. And you also have perks invest 1000 bucks and receive a $200 discount on your next Luxie mattress. I love how you've kind of built up this incentive structure. I hope it I hope it closes out nicely for you. Welcome to the private equity firms. What kind of valuations are they offering you?
What kind of deal would you get? Well, that's all to be determined. We're in the middle of that negotiation right now, which was really sparked because of the exposure that we got from the start engine campaign. How is a mattress company with 5% to 7% net net margins? How is it valued typically? It's valued on the basis of maybe three or four times revenue. Top line? Top line. Oh, wow. Okay.
I mean, that's pretty sick. Even though you're only bringing 5% to 7% to the bottom line? Yes. Okay. Interesting. So you're saying that's not again, you're you're thinking more in terms of multiples of the margin, the gross margin. No, no, no. I'm talking net net margin after salaries, after sales expenses, everything. Mm hmm. Yeah. No, no. I'm talking net net bottom line right before taxes.
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