In this episode, Ajay will be speaking with Nick, an entrepreneur from New York. Ajay has answered questions from Nick and discuss why startups should celebrate failing quickly and cheaply and how it leads to success.
Nick Ondrako is an entrepreneur from New York that loves building businesses. In 2014, Nick launched an online bedding company called FOHM on Kickstarter, selling the most technologically advanced pillow ever to hit the market. They changed the name to HIBR in 2015, and after 14 months in development launched the most comfortable mattress in February 2016.
Ajay: Hello, this is Ajay Prasad and welcome to the Founders Corner Podcast. With me today I have Nick Ondrako. Nick is the founder of an ecommerce startup called HIBR, a lifestyle bedding company selling pillows and mattresses directly to the consumer. How are you today, Nick?
Nick: I’m doing well, Ajay. Thanks for having me.
Ajay: Fantastic. So please tell us a little bit about your business and its successes.
Nick: Sure. So, a few years ago, about two and a half years ago, myself and a business partner of mine, Eric Arbay, started a lifestyle bedding company called HIBR. We sell mattresses and pillows directly to the consumer online through the bed in a box model, which basically bypasses the retail stores and all the markups that they have, and all the hassles that come with that. We ship right to your door, give a 100-night guarantee, and do free returns. It’s been a pretty good ride so far, two and a half years in.
Ajay: Your model is obviously similar to Casper, which a lot of people know about.
Nick: A lot of people know them. Casper raised a lot of money and they spend a lot of money on marketing, so a lot of people know them.
Ajay: But it’s a similar model, right?
Nick: It’s a similar model, yes; you can order direct and you bypass the stores.
Ajay: How is the traction? Are you seeing a lot of success? How is the business doing?
Nick: Business is doing really well. When we launched, we launched with a pillow initially and we actually launched on Kickstarter under the name FOHM, F-O-H-M. We had a little legal trouble with a company called Brookstone; they thought that our name was too similar to a product they sold called FUHM. They basically sent us a nice, polite letter; we decided we didn’t want to incur all the legal fees so we consulted with all the legal people and decided it was best to change the name to HIBR.
Honestly, it worked out for the best; I kind of like the name HIBR better than FOHM, anyway. We’ve been doing pillows. We’ve got a lot of great reviews for our pillows. Layered Tech did an unbelievable article on us; they just loved it. That served to springboard us into the public space and helped to drive sales and made it a lot easier.
Then we launched the mattress last year and have really been able to focus on our current customers just through content strategies to be able to do sales. So yes, things have been going well.
Ajay: Congratulations. That’s a great thing to hear. Let’s go into some specific questions you have.
Nick: Sure. This is an entrepreneur-based question, and a very personal question. I have a tough time saying no. To avoid burnout and losing opportunities, how do you recommend the entrepreneurs that are out there who are trying to make it, how do you recommend they say no a lot, so they don’t overload their plate but also not missing opportunities by saying no?
Ajay: When you are saying no, are you talking about new product or new opportunities? Is that what you mean?
Nick: Just any opportunities. The example I’ll give is I do a lot of volunteering. I also still consult with my first business, which is a digital marketing agency. I still have my hand in that a little bit. Basically when your plate starts getting really full with other things, whether it’s new products or just stuff outside the business, how do you judge, what do you do to judge how full your plate is so you don’t lose business opportunities and not keep your plate too empty?
Ajay: I have a similar situation. Like you, I have a few businesses and there are certain businesses where I have a big focus. What I do, and I think it should work for you, is really set the priorities very clearly in terms of where your focus is going to be. To give you an idea, I have one business that kind of runs on its own; it’s on autopilot and I have three people managing it. In my schedule, every week I have 30 minutes for that business, and that’s what it is. The people who are working for me know that’s what it is.
Of course if there’s an emergency, and that’s life; nothing happens as planned, but generally speaking it works for me because the people know that if it’s not urgent, they wait. They will typically wait until every Thursday when I have these 30 minutes dedicated to it, and that helps. So this is one thing I will tell you, especially since you also have multiple businesses and volunteering and everything. You have to prioritize. Everyone has a different way of prioritizing.
A lot of people have their daily schedule totally packed. It works for a lot of people; it doesn’t work for me. Actually on my calendar I have a lot of what I call white space, where really I don't have anything and I can choose to spend the time as I wish. I’m saying 20, 25 percent which is very unusual for someone who has three businesses. But broadly speaking, I know that this time on these days I am just going to focus on that business. That’s how I manage to do it, and everyone has a different way.
But you have to set priorities and then you say this is going to be my focus. The reason I’m saying focus, that doesn’t mean that if today is your mattress business you can’t do anything on your digital marketing. Of course, that’s your focus but if there is an emergency and someone calls, you take the phone or talk to the person about it.
That’s my suggestion; the more you can prioritize. And when I’m saying prioritize, just write it down. Like I said, I am so anal that I have days where, for example, on Thursdays, I have 30 minutes and that’s what I’m going to spend. I also block time that just says “eternal project.” All it means is I am not going to think about any customer; it is just going to be my own thing. Sometimes I have to do some research, I go on Google to see what’s happening. Because I have three, four businesses; I give myself that flexibility and say today which business I am going to look into internally.
Again, the more you plan so you know what time you will focus on what; you can give whatever X days, or one day where you say for two hours I am just going to focus on the issues with my volunteer work. That way, you have the discipline. For me, for example if something pops up that is not my focus and is not urgent, I will add it to the calendar on the focus days for that particular business and say this is the issue.
So it’s not like when I say okay, today is my transcription day – I do own a transcription business – it’s not like I’m saying because it’s transcription business, what do I do? Generally speaking, if something comes up during the week and it’s not urgent, I just add it to the calendar; that’s the discussion. So I go and I say okay, these are the six or ten things I need to handle on that. Again, it’s just organizing.
I started my career in corporate life where you have no option but to organize. The moment you move up to a certain level, which I was very lucky to do very early in my career, you just learn to organize. And then it’s just a habit, Nick. Once you get into the habit, it will become very natural.
Nick: I do something very similar. I block off mornings and afternoons for each business and other things I want to do. So you do kind of rely on scheduling; you just don’t do it on an hourly basis. You’re doing it more on a day-to-day business.
Ajay: Exactly right. Because you have multiple businesses, there are times when unfortunately, no matter how good your team is, you are still the leader. What I do is I just block a certain day or time and say I’m just going to focus on the issues with this business. And by the way, I also spend 30 minutes a day, which I block; that’s when I go over the emails of the other business, because you don’t want to be totally out of it.
And email, as you know, once you start to own several businesses, email is a big thing. If you start to look at email every time it comes in, that will suck up your time. So how you manage your email is equally as important.
Nick: Okay, I appreciate it. Switching gears quite a bit here, this is a much broader question but hopefully the audience will find some value in this. I hate to throw a number on the top three or five or whatever it is, but if you’re going out looking or you’re about to receive funding, what are the first actions you recommend for a small team, basically making a transition from the small team you might have to actually raising a bit of money and you’re on to a Series A or whatnot; what are the first actions you recommend taking?
Ajay: I have been in the VC world also, not as a VC which I do now; I do some angel investing. But I have worked for funded companies. I basically bootstrapped all my businesses. The first thing I always say is when you are getting funding, you should have a real, very clear-cut idea of why you are getting this funding. Obviously, when you are getting funding either you’re paying interest or you’re giving your equity to someone else. So knowing that is very important; why you are getting funding.
Personally, I like to spend most of my resources, because I’m self funding, on marketing and understanding the customer needs. So the most important aspect of course of any business is marketing and innovation, as some real famous business person said a long time back – I can't remember his name – a long time back I read and it has just stuck to me.
As you focus on marketing, your product innovation automatically will – you will get the ideas for innovation because part of marketing is of course listening to the consumers and hearing what they are saying about your product and how you innovate. Almost all my businesses are not even close to what they were when they were started. Because as you move into the business, all of a sudden you start to see a need and you pivot, you make changes, you add features, and you take out features, whatever.
The first thing is make sure you know why you are getting money, otherwise it is so easy to invest. I will tell you when I was in a dot com company, and I went there very late; it was a well-funded company that I went to help. They had already blown 80 percent of their fund, $50 million and most of the money, in my mind, they blew on the nice, shiny objects; having a really nice office with an ocean view. Then having this massive infrastructure that could support 1 million customers when they had zero customers.
It is very easy to blow your money on business. When you are bootstrapped, the best part is you don’t waste money because you don’t have money to waste. You spend it on something that is absolutely critical. If you’re thinking about funding, going after the next round, just be very clear in your mind why you need those funds. If you are saying most of the fund will be used to grow your customer base, I think that is the best usage of funds, which is marketing to acquire more customers. As long as you know you can acquire a customer for X dollars but you are getting X delta, at that point raising funds makes a lot of sense to me.
The second best thing I can think of for you to spend on is the product innovation that you need. No matter what your product is, you have to keep on innovating throughout the life of the product. For the business, you have to always keep on innovating. So marketing and innovation, those are the best uses for money in my mind. Then everything else is overhead. The more you control overhead, the better off you are. Other than marketing and innovation, I look at everything else as overhead.
Nick: You’re right on the nose; that’s exactly what we’ve been focusing on. And that’s the debate on how much we’re taking, and obviously giving up a bigger share of the company the more you give away, or the more you take in. On that marketing and innovation note, should people be investing, especially smaller businesses that maybe haven’t done a Series A; focus maybe the little advertising budget they do have, focus on smaller markets?
Ajay: You have to optimize your marketing budget, whatever it is. I always say that the narrower a target, the better your return on marketing is going to be. So depending on your budget, only you know your customer base so make it as narrow as possible so where you are getting the most return. Then don’t expand that until you have exhausted that segment. It’s a matter of segmenting your market first, and you say this is where I’m getting the best result. You don’t want to even look at another segment until you know you have maxed it; now you own the segment. Then you go after the next one.
You can almost look at the advertising and very often tell that this company has gotten a lot of funding from VCs because when you see advertising that is totally unfocused, talking about brands and building brands when the company is forming, it is a total waste of money. My suggestion always is narrow your target as much as you can, and then make sure that you just go and dominate it. You are “the” company for that segment, and then grow it.
I’ll give you an interesting example of a massive company right now, which is Facebook, and I am sure you have heard they started with just a network of social media for Harvard. Then they expanded to Ivies, and then they opened it up to students; any university students. There was a time on Facebook that in order to join, you had to have a dot edu email to join. And then at some point, they just opened it up.
They did a very good job going after a very small market, completely owning that market, and then opening it up to bigger and bigger markets. I’m sure it was planned; these things don’t happen accidentally. That’s the reason they are so successful. So if you can do that, pick up the smallest market and just own it, and then expand it and build around it.
Nick: So you’re talking about not necessarily talking about the branding element but basically focus on getting sales.
Ajay: Yes. Brand happens. When you have a great product and you have the customers using it, and you know why they are using it, you will see that the brand will happen. And the brand happens around the “why.” There are three components of business: you have the why, how, and what. What is your end product, obviously; how do you get there; but why is the reason you went into the business? And that is your branding. I recently reread this book I suggest everyone should read, it’s the Nike story.
Nick: Shoe Dog, right?
Ajay: Yes, Shoe Dog.
Nick: I read that.
Ajay: Have you read that book?
Nick: I read that last year, yes.
Ajay: As you can see, there the branding happens not because there was some genius brand guy sitting there; it was the why. They got into the business because they really believed that everyone needs an athletic shoe. Everyone has an athlete in them. Then they built on that and building shoes for athletes, but because they were so sure that everyone needs that; it’s not just for athletes, and I’m sure you read that the shoes, the logo, they spent $80.00 to create it and everyone knows it.
Again, I think the “why” you started your business ultimately is where you will get the branding. So don’t worry too much about branding in the beginning; focus on the “why.” Make sure you are very consistent with your reason for starting the business, and then obviously I always say the reason is to make money and you’re probably not going to work out in the long run. But as long as you focus on that, and focus on getting it into the hands of the customer, listening to the customer, and innovating your product; the brand will build.
It’s a much later stage where you start to talk about this is what we stand for and all of that, on the big screen. Of course on your website, you should always say what you stand for, and that’s the “why” aspect of your business, why you started it. Another thing that will happen is the “why” will help you connect with your customers, also. Because that will help you figure out your segment, the target, the customer you have; and they can relate to it because of your “why.”
Nick: I appreciate that, Ajay. What I your opinion on why are businesses today failing? Do you have a couple pitfalls that you maybe see when you’re looking at businesses or consulting with businesses? Is there a common thread or a trend that you notice? Are they losing focus, or is there anything you can pinpoint?
Ajay: I will tell you there’s one fundamental reason and one behavior, and then of course a lot of things, since you have been successful in business you know many things have to fall into place. The fundamental problem I see with a lot of startups failing is they have the wrong reason to get into the business. The reason they got into business is not right. So they got into business because so-and-so is working, so I can be No. 2 and all of that; so the “why” aspect. Businesses who don’t know why they got into business as startups have a much bigger chance to fail. Just because you don’t have a core value that is driving you.
The second reason I see companies fail, which is more behavior, is people give up very quickly; the lack of persistence. I have seen in my career as an entrepreneur in the last 13 years, people come in all excited and really believing in the business; actually the cause they want to get into business for. Then they will hit the first roadblock and give up, saying this is not for me; I am just going to go and find a job.
I tell everyone to be successful in business is very difficult. So you better love what you’re doing, why you’re doing it, and then I can almost guarantee you will hit many roadblocks and you will have many disappointments. And unless you have the persistence, it will not work.
So those are the two biggest reasons I see for failure. Everything else is almost like when people say I don't have money; those are like symptoms. The core reason for failing is they don’t know why they started the business, and the second piece is obviously like I said, even if I know why I started the business, I don't have that persistence, that stick-to-it-ness.
Nick: I’ve given that same advice when I’ve been asked that same question, so I was interested to see if you had a different perspective on it or not. I don’t want to say you almost have to like to fail, but you have to be very comfortable with failing. It’s going to happen.
Ajay: I always tell people plan on failing quickly, because then you will still have the energy and resources to try something else. So if you have to fail, fail quickly. Most of the failure that happens for the startup, it’s for a good reason. In marketing, you try something and it didn’t work. I see many people who try one thing in marketing, it fails, and they say it won’t work. Versus I always say fail cheaply, fail quickly and then you will be fine.
Nick: I like fail cheaply.
Ajay: Yes, you have to fail cheaply, otherwise you won’t have the energy to stay standing.
Nick: I also tell people it’s the evolution of business, as well. It really weeds out the weak. I don’t mean that disrespectfully but the people that stomach it, the people that are successful probably have the strongest stomachs to make it that far.
Ajay: I agree.
Nick: I appreciate the insight on that. If we have a minute, I'd love to ask you a clouds question. When you’re selling your business, and I’m not selling HYBR anytime soon, but when you’re selling your business do you have some things to avoid? Things people should avoid, or what to look for, that whole process; any tips in the whole exit strategy of the business?
Ajay: I can tell you from my personal experience because I tried to sell one of my businesses and then I backed off, about four years back. The first thing I always say is any business that you do, you should always have an exit strategy. Not because you want to sell it, but what an exit strategy does is it helps you build the right structure within the company. You cannot exit a business unless that business can run on its own. I think everyone would agree with that. So, unless the business can run without you, you cannot exit.
So I always tell people that yes, you should always have plan to exit, and that will help you clear the org chart and the business structure. That’s scale. Because unless you can exit, you cannot scale. That’s one thing.
When you are selling your business, one thing I have learned is of course it has to be profitable because otherwise, who would buy it? I’m talking about small business. I’m not talking about obviously Facebook coming in and paying $29 billion or whatever they paid for Snapchat. I’m talking about someone who has built a successful business and wants to sell.
One thing you want to avoid is when you are selling you have to be very careful and you have to build to a certain value in order to get the best value. What I have noticed is unless your business is solid and profitable, and when I say solid, doing a couple of million dollars a year; it is very difficult to get the right value. Because at that point, you can sell it to, say, a private equity fund or a larger competitor and then you get a real value.
If your business is small, and say your business is generating half a million dollars, which is where I was when I tried to sell. Generally it will not make sense to sell it unless you cannot run it, simply because the only people who will buy that kind of business are the people who are looking for self employment, and by definition they don’t have money. So you will not get the right money. Even if you have a business that is doing half a million dollars profit, if you wanted the same cash flow you would probably need $10 million to get half a million dollars every year and going forward.
The biggest mistake people make is they will say I will sell it for a million dollars, because that’s the kind of offer you will get; $1 million, or $1.5 million and then they will say I’ll pay you $200,000 up front and I’ll pay you whatever percent of profit. The reason it never works is even if you get $1 million cash up front, you cannot generate that kind of cash flow.
I always say when you are trying to sell your business, make sure that you know you don’t need the same cash flow that the business is generating for you, because the best thing you can do is you can have success and give them equity so it generates a constant cash flow for you. So the thing to avoid is really try to sell it to someone who is looking for self employment. Because it almost never works out.
I know at least a dozen people, Nick, and that gives you an idea – I’m a pretty old guy – who had really successful businesses. One of my very good friends had a super successful market research business for 25 years. He is much older than I am, and when I met him he was already a well established business for ten, 15 years. Then about ten years back, he sold his company and he thought it was the right price, and he ended up getting just 10, 15 percent of it because if someone pays you cash, it’s fine.
But he did the same thing; he thought it was the right value and he got some money up front, and then the rest of the money was supposed to come from the profit, which never came. So don’t get into those kinds of sales agreements. If you have to sell it, sell it for cash; whatever cash you can get. The moment you try to sell your business with an ongoing payment component, unless you are selling it to your son; that’s a different story and hopefully your son will not look for a loophole to not pay you. If that happens, obviously you did something wrong raising your kid.
But that is the biggest thing. You should always try to scale your business so you can sell it to the real businesses; private equity fund or your competitor. And by the way, that’s the only way you will get the real value for the business. I can tell you there was a business that were generating $400,000 in free cash flow; the best offer I got was $1.8 million with $500,000 up front, and then something like 25 percent of the profit until the rest is paid.
And I’m thinking, what happens if you just drive this business into the ground? There’s no guarantee. Frankly, I’ve already made that much money and I still own that business, 100 percent in the next four, five years; it was five years back that I had the offer.
So just be very careful. That is where I see a lot of the small businesses get sucked in, where someone says I will pay you $2 million but guess what; $200,000 right now and $100,000 a year for whatever. Unless that is backed up by some real, solid wealth and some sort of escrow; if it is backed by your business, don’t do it.
Nick: Like I said, I thought that was something that would bring some value to the audience because it’s something that’s very difficult to find online, honestly if you’re just doing a little bit of research into it. Again, I’m not looking to do that with either of my businesses; it was just for general knowledge. You don’t get a lot of information out there for it.
Ajay: There is nothing because the problem is these are small business owners, and that’s where I feel like we are on our own. You will find some brokers, and the broker’s only objective is to sell your business at the lowest price so that he can find buyers very quickly. There’s no guidance, per se. But having gone through the process myself, and frankly I was still considering doing it and luckily, I have a mentor whose wisdom is ten times more than what I have.
I just asked him this question, and literally on a napkin over lunch he wrote some numbers and said see if it makes sense for you. And it just dawned on me. He said how much money would you need? Because I had already told him this business is running on its own and it’s generating this much money. And he says, how much money do you need to have so that you can make an investment and get this kind of cash flow? And it was just an eye opener for me.
You’ll be surprised that if you have the right structure, it is much easier to replace yourself within the company so that you’re paying someone a salary and you are now more like a chairman so you are involved, but not involved. Then at the same time, you keep a big chunk of the profit that the company is generating.
Nick: Before we go, Ajay, before you kick me off, how many hours a week are you working? How many hours a day are you working balancing the work-life? I always like to ask that question.
Ajay: Frankly, I am getting better and better. There was a time when I used to work 80, 90 hours a week. Now I am down to 50. I like to keep it at around 50 hours a week, and that includes four or five hours on the weekends. That is my time. I come in and frankly, there are days when I just watch a movie on YouTube in my office, because no one is in my office and I’m on my own.
Most of the time I look at project, I do some research on Google; whatever I want to do. So even that I count as my work time because that helps me. When I am working, it is pretty intense so it helps me unwind.
Nick: But when you were building your businesses before you were the success that you are, you were putting in – you’re talking about 12, 15, 16 hour days seven days a week.
Ajay: Seven days a week, exactly. And that’s what I tell people who want to start their business; you just count on doing it. There’s no way around it. Even if someone comes in and pays a lot of money, suppose you get the funding, and if you still don’t put in those kind of hours you will fail. And the reason is when you are starting a business, it’s really tough to do everything right. Again, what we talked about; you fail quickly and fail cheaply. You will have a lot of failures and you keep on adjusting. You have to keep on fixing.
So that’s why it takes a lot of time in the beginning, because you are still trying to find your way. And as you start to find your way, things will start going downhill. It took me four years before I started to feel like I had more control over my life and my business. Because for the first four years, I was just frantic and trying to survive, really. When you’re in survival mode, you don’t think about your time, and free time, and balance and all of that. Those are luxuries for me. That is a luxury for every entrepreneur; trying to balance.
I know the younger generation – and I am much older; I am a baby boomer, but the younger generation is very focused on the work-balance thing. Personally, I don't think entrepreneurship and that balance starting from the get-go will go hand in hand. You have to sacrifice one or the other.
Nick: I agree. That’s something I tell people when they ask me that question, too. It goes back to our question about failing; what’s another reason people fail. I like to say you don’t work hard enough; you’re not putting in enough time.
Nick: I appreciate it.
Ajay: So Nick, tell me is there anything you want to share with my audience in terms of how they could reach you? Will you do anything special for my audience if they want to buy your product?
Nick: Yes, for the month of March and we’ll extend it through April just for the audience here; we’re doing a thing on our website. The promo code is “sleep month,” and March is sleep awareness month so we’re doing buy one; get one. If you buy one of our pillows, you get one free. We’ve had quite a few people take us up on that offer so far for March. It’s been a good promo to kind of get the word out and just bring awareness to try to get some sleep.
And I know entrepreneurs, at least the ones that are hustling, you don’t get as much sleep as you probably want. But I like to think that our product can help a little bit. So that’s what we’re doing. If anyone wants to reach out to me at all, you can get me on Twitter, @NickOndrako, or on Instagram @ondrako, O–N-D-R-A-K-O. I appreciate the time, Ajay.
Ajay: Fantastic. I will have your contact information and your offer in the show notes.
Nick: Awesome, thank you.
Ajay: Alright, thank you Nick. It was really good talking to you and congratulations on starting such a good business.
Nick: Thank you; I appreciate it.
Ajay: Okay, bye.
Share this podcast