SaaS Interviews with CEOs, Startups, Founders
Will $80M Mattress King Launch Subscription Next?
08 Apr 2021
Chapter 1: What surprising pre-order numbers did Eight Sleep achieve?
Did that surprise you? Were you expecting 1.5 million pre-orders?
No. And the units then kept coming even after. So we saw something like 8,000 units in pre-orders. It was massive. Bigger than probably what we could handle at the time.
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My guest today is Matteo Franceschetti. He's the co-founder of a company called Eight Sleep, originally called Luna. They are not just a mattress company like you might expect. They're actually a sleep technology company and really maybe a performance optimization company is maybe what the future looks like. We're going to dive into all of it today. It comes from a legal background before us.
Cool Factor went way up and it got into D2C. Let's jump in. Matteo, you ready to take us to the top? Yeah, absolutely. Thank you for having me. Super excited. Those $600 an hour legal fees, those must have been hard to give up to jump into a mattress brand.
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Chapter 2: How did Matteo Franceschetti transition from law to entrepreneurship?
And I want to ask your question on if you were launching a DTC brand today, how you might edit this checklist. So some key moments between you have listed between 4 a.m. on launch day and noon on launch day. You go live on Indiegogo. So is that still the one to go on today, DTC? You then also do a bunch of press embargoes. Is traditional press still working today? Thunderclap, you used.
You also then sent your email campaign out to, I guess, your pre-launch list. You also decided to launch on Product Hunt. on the same day and got about 835 upvotes on that. And then you also had a feature on Uncreate going up the same day. So would you follow the same sort of launch today if you're launching a DTC brand?
No, that is actually an awesome question. Obviously, I wouldn't do any of that stuff. Probably Product Hunt is still there. None of the rest. We will have a completely different strategy today.
Give me a high level. First four hours on launch day, DTC brand launching today. Product Hunt, what else?
Actually, I would start three, six months before you start building the community, you start engaging them on what you're doing. Right now, I think the big difference that you see with media and the relationship between tech and media, it's you want to build your own community, which is what we are doing today on Twitter.
So start six months before, build that community, you launch and the community will convert.
Mm-hmm.
And so, um, you're, you're now realizing this is important in trying to build community sort of backwards. Now you've got, uh, how many people, 18,600 followers on, on, on eight sleep. Is this where really where you're trying to host your community is hold solely on Twitter.
Yeah, that is the number one platform. And then obviously, we have an email list of over 100,000 people and other platforms.
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Chapter 3: What unique approach does Eight Sleep take towards sleep technology?
We just didn't have the money to build it at the beginning until when Cosla Ventures with Kithra Boys came in and they led our round.
That was the $14 million round in 2018? Yeah. And so how were you funding before that between 2015 and 2018, all from pre-sales?
No, so we did a seed round and a series A. The seed round was immediately after Y Combinator. So after Demo Day, we were able to raise around $6 million. Then there was an A for like 10. And then I think, if I remember correctly, I go by memory, but then KV, because LaVenture came in with another 10 or 12. And then we raised from Founders Fund a year and a half later.
So just round that out in the story, how much from Founders Fund?
I mean, the run from funders fund was 20 or 25, I think 25. And so the total, the total is 70 million where we have raised more or less.
Yep. When we look at your funding history and we'll go back and get more of the backstory here, but once you're on the VC track, especially in the DDC space, you sort of want to see a raise happening every 18 months or so. Otherwise sort of red flags start to go up. Like did they try and raise and they couldn't, or they didn't get the evaluation they wanted. Your last raise was back in 2019.
So nothing in 2020, nothing I know of right now leaking to the press. Are you raising right now?
There is nothing public, but I can tell you that people that love what we are doing are supporting us also financially.
Let's go back and talk about pre-Koshel coming in in 2018. You had this mattress topper priced at $399. You also did have a mattress for $999. Your mattress, at least the queen size today, is listed at $2,845. So significant pricing in your testing between the two products. Why start at $999 and how do you get up to $3,800 today?
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Chapter 4: How did the co-founders determine equity splits in their startup?
So just work with the best you pay what you have to pay. And you pay a premium for the greatest foam. The good thing is because we are so data driven, we found a partner who has machines where we can measure every different type of foam, the different type of compression. So we have data on thousands of different types of mattresses that we have been testing.
But it's not just us guessing what should be the right firmness. We have tested and we have had data. And then all our team is focused on the machine learning, AI, and hardware technology.
So looking at the website today, $2,845 price point on the Queen. That is your cheapest option, right? I hate saying cheapest. It's not cheap. But that's your cheapest option in terms of dollars, right?
Yes or no. Meaning we have two fun factors. One is the mattress. One is the cover, right? So what you're saying is the mattress. So if you want the full 360 degree solution, yes, that is the entry level. But then we sell the cover only. So you don't want to change your mattress. You just want to buy the technology and make your mattress smarter.
At that point, we sell the accessory and I think it starts around 1500.
Okay, and the queen at 2845. I mean, you talked about your margin profile being much better today. I mean, what can you produce that for? What's your cost of goods sold on that?
Yeah, we don't disclose that. Obviously, we try to find the balance between what can help us build a solid business because at the end of the day, our customers, they want us here in 10 years and also being fair with our customers.
Cool. I won't push you harder there other than to say you just said sort of best-in-class margin would be above 60%. A 60% margin on 2845 would mean cost of goods sold somewhere around under $1,100. So you can take $1,700 into your CAC, podcast marketing, engineering, salary expenses, everything else down to the bottom line. Is that a fair statement?
Yeah, it's a fair statement. Obviously, you know, if you're a customer, you see what is the difference, the challenges are always the CAC, right? So you need to account for that.
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Chapter 5: What strategies did Eight Sleep use for their initial product launch?
Yeah. So one of the things we wanted to do was to, I always hate when I, when I travel and go in hotels and there is the noise, there is the AC that, that now makes noise and the experience of it all of non-sleep experience sucks. And so I always wanted to say, okay, can we reinvent that as well? And so we just took a space in an hotel here.
We redesigned the room inside to make it perfect for sleep. We launched this initiative on Twitter and the room got booked for the first three months, which is all that we allowed, like in 24 hours. And the first person to stay there was Austin Allred, the CEO and founder of Lambda School. He was there for a week and then he tweeted that he slept almost two acts more than what he's used to do.
And then we have plenty of people going. The interesting thing is there is a bunch of people going there just to test the product before buying. So for us, it's great also from a sales perspective.
More than anything, we want to help these people improve their sleep. From a cost perspective, why is this more efficient than you see in these old strip malls? Maybe not even old ones, even sometimes some nice ones. Casper and Purple opening up physical locations to drop in and sort of lay on a mattress for a minute or two and then come up. It sounds like people can actually live there.
They're living with the mattress for a week. Why is it a better model than a strip mall model?
Yeah, I mean, A couple of things. First is different. If you do what everyone else did, you get what everyone else gets. And so we are contrarian in this company and we want to do things differently. Second, I think you lying over a mattress for a couple of minutes will not tell you much.
In particular, in a product like ours, where temperature really changes during the night and delivers this huge benefit. So sleep on it for one night or a couple of nights. and then you decide if you want to pull the trigger.
Makes sense. Is there a play moving forward? I imagine it's very obvious to most people that get bad sleep, that wake up the next morning and they're tired and they can't function. They can really feel it. It's clear they need a better mattress and they need better technology.
But then there's a big chunk of people that get enough sleep where they don't feel bad the next day, but they're also not operating at 100% optimized performance. How do you reach that cohort that's not feeling the pain, but you know you can improve their life?
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