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Here’s your program.
Andrew: Hey, everyone. It’s Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. And most entrepreneurs that I feature here on Mixergy build software-based companies. But what if you wanted to build a business that manufactures and sells products, you know, stuff you can touch. How would you even go about doing that?
Well, to help you learn the process, I invited Benjamin Rubin, co-founder of Zeo. Zeo is a device which helps users analyze and improve their sleep. It consists of a lightweight wireless headband, a bedside display that looks like an alarm clock, and a set of online analytical tools. I want to find out how he went from idea to product to sales. Ben, welcome to Mixergy. It’s good to see you here.
Ben: Thank you. Glad to be here.
Andrew: I want to understand how this works in the real world. Do you have an example of one of your customers or users and what it’s done for them?
Ben: Sure. I’ll give you a really cool example. Team RadioShack, which is Lance Armstrong’s bicycling team, has been using Zeo to track their sleep for the last year. So what they do is I’ll show you the product in a moment. They use this lightweight headband to track their sleep at night, and then they use it essentially as a recovery meter.
So in biking you’re super concerned about your training, and then you’re super concerned about your recovery so that you can train again. And sleep is one of those keys to recovery that it’s really hard to get a grasp on because it’s hard to see how well they sleep, what was my quality of sleep, how’s my restorative sleep.
What they do is we give you what’s called a ZQ score in the morning. It’s a single number that represents your REM sleep, your deep sleep and your total sleep time. They’ll take that, and if that’s not high enough, the rider won’t get the same workout regime the next day. They’ll sort of take him down in intensity. What they find this does is it allows them to much more quickly recover.
Andrew: Wow. That’s impressive that you’re able to get a group of people who are so concerned about their body to use Zeo. What about an average person? What about someone like me? I’ve gotten into the habit the last couple of weeks where I sleep later and later, and I wake up later and later and I hit snooze much longer than I should. And so, that gets me started at work later, and it also gets me started at work a little groggier than I should be. What does Zeo do for someone like me?
Ben: Let me show you the product while we’re chatting about it.
Andrew: Let’s do it.
Ben: For the average person, Zeo is basically your in-home sleep lab and an in-home sleep coach. It really does both the tracking side, which helps you get a handle on your sleep, but it also gives you advice and guidance to help you improve.
Zeo starts with this lightweight headband, and I’ll go into maybe a little bit more of the sensors later. But from a simple use perspective, you put the headband on at night, and we are actually going to track your brain waves. The brain is actually where our sleep comes from, so we’re tracking actual brain waves, the muscle tone, and some eye movements. Then, in the morning you see on the Zeo bedside display, I’ll get this real close.
Andrew: You guys are calling it the bedside display. In my mind when I see it on your website, I just think of it as an alarm clock. It looks just like an alarm clock with a bigger display on it.
Ben: Right. And that was some branding right there, right? So, we didn’t want to be just the alarm clock, the Zeo Alarm Clock. Suddenly, you’re comparing yourself to . . . I buy alarm clocks for $20. I use my iPhone as an alarm clock, like I’m not going to pay $200 for an alarm clock. We’d rather the comparison be with a sleep lab with sort of a real scientific piece of equipment. So, we call it a bedside display.
Andrew: Gotcha. All right. I like that.
Ben: And what you get on the bedside display, you can see down here are really your sleep graph for the night. So, the top line here is wake. So, started awake, fell asleep, went into deep sleep and then sort of oscillated back and forth through REM and deep sleep. We also give you that single number ZQ, in this case, I think that’s a 68. I’m reading that upside down and backwards.
And then, you can page through and see the rest of your sleep quality numbers. We give you how many times you woke up. There’s a little percentage over the course of the night so it shows you exactly how much deep sleep, how much REM sleep. And for the average person, deep sleep is important for bodily restoration. If you exercise, your deep sleep will go up. If you’re sick, it’ll go down.
REM is quite important for memory consolidation and just sort of general mental well-being, so that happens towards the end of the night. And Zeo really gets you a measure of when all of these things are happening in your body.
Andrew: Okay. I’m a data geek. You give me numbers about my body, about my life. I’ll look at it and try to analyze it and try to improve it all day long. But bottom line, how does it improve my life to have all this data, considering the problem that I have, that I think is a pretty common problem?
Ben: Yeah. So, the bedside display is just the start. That gives you data, and data can be empowering. It is empowering, but that’s not enough. People don’t really know what to do about their sleep. So, what we paired Zeo with is the physical product is paired with an online site. That’s MySleep.myZeo.com, and on the online approach we get first of all lots more data and analytics. Second, we ask you to journal factors about your life. So, tell us how much caffeine you had. Tell us what your stress level was before bed, and we’ll start connecting cause and effect, and we’ll show you here’s how deep sleep is affected by light in your bedroom. Here’s how caffeine is impacting your REM sleep.
And then the last and probably the most important piece is that we offer what we call The Seven Steps to Sleep Fitness coaching program. So, the coaching program takes what we know about your sleep and what we know about you because you’ve told us some about your life and how your sleep is impacted. Then we give you really individual coaching programs that walk you through everything from changes to your bedroom environment. So, your pillows, your mattresses, changes in what you consume before bed. When should you cut off caffeine? Alcohol, how many glasses will really start affecting you all the way up to things like your bed partner. Is your bed partner’s snoring getting in your way? Here’s some things you can do about that.
Andrew: You’re not going to do anything that helps me go to sleep sooner or find the ideal time to wake up or any of that. You’re just analyzing it and then coaching me through this solution. This isn’t the box that solves it.
Ben: Right. There’s nothing you put on your head and boom, zap, you fall asleep, at least not yet. The idea is that there are literally hundreds of things that could be wrong with your sleep, and we allow you to sort of navigate the path to finding which one’s right for you.
Andrew: Okay. So, this is not a replacement for an alarm clock but maybe a replacement for a sleep clinic, which I know a lot of people have gone to and it analyzed their sleep and helps them wake up better.
Ben: Right. If you have a medical issue, you end up going to a sleep lab because they really have equipment to be able to solve that. But there are millions of people who just aren’t getting the sleep that they want to get, and it’s really a wellness issue. For those people, Zeo is a consumer product that can help them.
Andrew: Okay. And it’s a consumer product that people can . . . I promise this, guys, this won’t be a commercial. I just want to understand the product before we get into how he built the product. Where do we get this? It’s not just an online store. It’s not just something you’re selling out of your garage. You’ve got this in stores, like what, like where?
Ben: Yeah. What you actually get is the headband which has got these physical sensors. So, we’ll talk about how we built this. This is a really fascinating piece of technology. This is really where the innovation is. Prior to Zeo, the only way to measure sleep was literally in a lab, 20 electrodes on your head, and that’s how you got sleep stage. Now, we can do sleep stage in the home.
Andrew: Where do they get it? I think it’s being sold at . . .
Ben: We’re at Brookstone. That’s our first big retailer. We’re at BestBuy.com. We’re on Amazon.com, and then myZeo.com as well.
Andrew: Okay. All right. Cool. Now, we understand the product. I want to know how you built it, starting with where did this idea come from?
Ben: Sure. So, the idea came really in college. We were juniors in college. We were at Brown, and we heard, if you wake up at the right time in your sleep phase, you’re going to feel more refreshed. It’s interesting. I’ll sort of tell you the story and how we evolved, but I’ve had 50 to 100 entrepreneur sort of type people come to me and say, “Oh my God, I had that idea while I was in college. I started doing it, and I’m so glad that you got a product out and I love it.”
It’s really hard to take the initial concept and actually follow through with hardware all the way to a real product. So, we started with this, really just this alarm clock concept, and then we started bringing people together.
Andrew: Okay. So, you had the idea for an alarm clock concept. Why didn’t you say to yourself, “You know what? Screw it. All these guys are making money on the Internet, building websites. Why don’t we just come up with a website-based idea instead of building a product?” Why did you decide that a product was the solution?
Ben: You know, there’s something cool about having something physical. There’s something visceral about “I made this thing.” I can pick it up. I can throw it at someone. It hurts them if I throw it at them. People go into a store. They shake a box. They buy it. There’s just a lot of power to have that as an entrepreneur.
When we looked at the market and we saw this big need for first, the alarm, and then later, for sleep, and I’ll sort of explain how that transition occurred, we said, “We’ve got to make a physical product.” You just can’t do this any other way.
Andrew: Cool is great. And I do understand when you actually get to see something that you’ve made, it fills you with pride. But this is a business. It’s a well funded business. We’ll get into the funding behind the business, too. So, you have to go beyond cool. How does having a physical product help you in a way that just being a website wouldn’t?
Ben: Well, in this case you can’t read your brain waves from a website, at least, not yet.
Andrew: Oh, I see. So, in this case there is no web-based solution. Sometimes, you have to create a product.
Ben: Right.
Andrew: A physical product.
Ben: There’s just no way to actually measure brain waves using a website, using an iPhone. You need some sort of hardware interface, and then the question comes, well, so you had to build this thing, the sensor, but what about the bedside display? Reality is people love their alarm clocks. Despite the fact that I didn’t want to call it an alarm clock, it’s a great freaking alarm clock in addition to being a sleep lab in your bedroom. So, it ends up being both, and that ends up sort of adding to the value.
Andrew: Okay. Part of what I was driving at with that question was it was a kind of lead-in question to something that we talked about in the pre-interview, which is you get a moat. As Warren Buffett said is you want a business that you can protect. The fact that it’s hard to create a product and it’s expensive to create one and not everyone does it means that your competition isn’t going to be able to jump in as easily as if you were just a website and I could sit here and develop a competing site.
Ben: But you don’t build hardware for that reason. That’s a benefit of having built the hardware.
Andrew: I see.
Ben: Believe me, if I could have done this with just software and had the same effect to the consumer, day in and day out, I would have done it because hardware has many disadvantages as well.
Andrew: Okay. Like what?
Ben: The list is long, but I think the major one comes down to capital and the capital requirements that you need for a good hardware business. Let me sort of explain where that comes from. To build good hardware, first of all there’s a huge upfront engineering cost. You need electrical engineers. You need mechanical engineers. You need industrial designers, and unlike version one of a website, hardware’s got to work the first time you ship it.
If you look at tech startups today, Internet startups, mobile startups, you can pretty much put out a version one that barely functions but sort of hints at it, and people give you a pass. They use it for free. They get hooked. You iterate, you iterate, you iterate, you iterate until finally you’ve got a product you can be proud of.
In the world of hardware, it’s different. You actually have to build a product that you can sell and people will pay real money for and they’ll get huge value from it. They won’t have it crash. They won’t have it not perform its function. So, that means instead of this much engineering effort, you need that much to get it to a relatively mature state, and that costs a lot of money. It also costs a lot of time, and in the startup world when you’re carrying overhead, that costs money too. So, those are some of the reasons.
You also get physical tools involved. This needed quite a bit of tooling. It was well into six, almost into seven figures. Wait a minute. Seven figures would be a million dollars. It was nowhere near that. Sorry. It was well into five, almost six figures for tooling up this product. So, it ends up being real capital that you have to put in over a long period of time to get hardware working, to get it boxed, to get it shipped.
You’ve got a minimum order quantity that you’ve got to put through with the manufacturer. So, what ends up being, hey, we can launch this Internet startup for $50,000 or maybe $250,000 of angel, we needed two rounds of venture capital to launch our product. And that was just the hard reality of we’re going to do it right. We’re going to build a great product, and we’re going to get it out.
Andrew: How much did you guys raise total?
Ben: We had raised $14 million before launching the product, and that was across two rounds. And then, we just raised a third venture round. I can’t disclose the investors yet, but that’s a $12 million round.
Andrew: So, the total is . . .
Ben: $26 million total.
Andrew: $26 million. That’s what I thought. All right. I’ve got different numbers here from our conversation, but now I see what you mean. Wow. I don’t see then why. Shouldn’t this interview be all about telling my audience, guys, if you have an idea for a hardware or a hard device that you want to create, forget it? Go to software instead.
Ben: You have to have a lot of perseverance. It’s time. It’s money, and it’s also a risk. Just like we’re sitting here saying, wow, we wish this could be software, you have no idea how many venture capitalists I’ve sat in front of who said, “Wow, if this was a software or a service business, we’d love it. But we don’t touch consumer electronics with a ten foot pole.” They’ve gotten burned many times because it’s a hard thing to execute and to really reach market penetration on.
If you can do it with software, do it with software. There’s no reason to hang yourself up on hardware. But if what you’ve got, the value comes from that physical product that sits in a box in the store, you’re just going to have a longer road. But when you get there, there aren’t going to be that many people contending with you. A software startup, you could have a competitor in a garage create a competitive product in a matter of months.
This product took millions of dollars and many years. Competition, we see them coming from a mile away, and there are 10X fewer competitors or more than if you were in an Internet startup on a similar hot idea.
Andrew: Gotcha. Okay. So, now I see where the idea came from. You guys were students at Brown. How long did it take you to take the first step, the first business step on this idea?
Ben: Well, I’d say it took us two and a half years, really, just to iron out the technology. This is really sort of new stuff. We’re using dry electrodes. We’re using a neural net to actually train the algorithm to measure your sleep. So we were engineering students. We were just sort of banging on the technology while we were in school and then for about a year afterwards. So, two and a half years of super low capital, just working on the technology, although the entire time I was saying to my internal team, “Oh, we’re going to launch is six months.”
It was never the case. We really needed all that capital launch, but I was optimistic. Now thankfully, what I didn’t do was go tell customers that we were going to be out there in six months because they would have gotten pissed at us. So, two and a half . . .
Andrew: The video just froze up, but that’s all right. We’ll keep it going, and hopefully we’ll be able to reconnect. If not, we’ll stop the call, and there we go. I thought we lost you. We did lose the call for a bit. Did I get you back, Ben?
Ben: Yeah, I’m back. I didn’t lose it on this side.
Andrew: Oh, okay. Good. So, I lost it just as you were starting to say that you thought it would be six months and it ended up being longer. Thankfully, you didn’t tell customers that it would be as short as you expected.
Ben: So, start at the six months or after that?
Andrew: Actually, you know what? Why did you think it would take six months? What did you expect to have done in six months?
Ben: It was really youthful naivete. I thought, wow, we have this prototype. It sort of worked once in the lab. I should be able to call a manufacturer in a few months, get this thing working in production. The reality is there’s just a much longer path to doing that and a lot more capital than I ever expected.
Andrew: I see.
Ben: To be honest, our advisors were telling us, “No, you’re not going to have it in six months. It’s going to be a year and a half.” And I just said, “Well, I’m listening but not really. I still think I can do it in six months.”
Andrew: And the prototype, how did you build the prototype?
Ben: It was literally . . . so, it was an Adidas headband that we bought at Foot Locker, and one of my engineers learned to sew. He’s sort of your typical nerdy software engineer, so sewing is not up his line of work. But he was sitting there sewing these huge electrode pads onto this original headband, and then we plugged that into a computer, and that was sort of our initial-like, hey, the thing sort of works. We can get the right signals. We can wake someone up, etc.
Andrew: You’re sending it into a computer and then just measuring their sleep also and also waking them up?
Ben: Yeah. So, what we did was we took that little prototype, which looked like a little Frankenstein monster, and then we put 20 electrodes on someone’s head which is the gold standard way of measuring sleep and ran it for a night, woke him up in the morning. And then built the algorithms to actually look at that and say, hey, we’re getting a similar signal on that one forehead dry sensor that we would to that full 20 electrode system. And we could do something with that. So, that was sort of the first Frankenstein prototype.
Andrew: Gotcha. Okay. All right. So then, you have your prototype. We’re all going to have if we’re going to build a physical product, some kind of prototype. We have to have it manufactured. How do you get yours manufactured?
Ben: Yeah. So, I called up our, at that time, advisor, now board member, Colin Angle, who’s the CEO of iRobot. He was our advisor initially. We just started cold calling entrepreneurs in the area who built real products, physical products because there were tons of software guys to get advice from. I cold called Colin, and he said, “Come on up. We’ll chat.” Long story short, he became an angel investor who became a board member.
When we decided it’s time to go manufacture this thing, we called up Colin and said, “Can you hook us up with your guys in Asia?” He did that. Then I spent the next 8 to 10 months on a plane back and forth to China, probably more like a year and a half, bringing this thing from prototype into, “Hey, we can make as many of these as we have customers for.”
Andrew: Did you say that you cold called and got the founder of iRobot which makes the Roomba that I love in my house, leader in robotic technology . . . you just cold called him and said I need an advisor and he said sure?
Ben: Yeah. We cold called him about five or six times before we got through. So, we got to know his secretary. We knew her name. We knew her cat’s name, and we just kept on calling and saying like, “Hey, if Colin has a minute,” and eventually I remember I was in the car with one of my co-founders on the way back from another meeting. And I said, “Might as well call Colin now. It probably won’t work.” I called him and, boom, he was on the phone. I got five minutes with him to convince him that he should meet with us, and then I got an hour to convince him that we were worth investing some time in. And he just kept on giving, and he’s been a wonderful contributor the whole way. We couldn’t have done it without him.
Andrew: But he just happened to pick up his office phone when you called.
Ben: No, his secretary put us through because we had been persistent, and she sort of liked us. She was like, “All right, fine. You can talk to Colin.”
Andrew: I don’t want to divert too far, but I’m always fascinated by this, by people who are persistent but not annoying. How did you get to be persistent good instead of persistent bad? What were you doing?
Ben: A lot of it is just your tone of voice and the sort of questions you ask. Usually you’re not going to get shut down hard if you call someone and ask for advice. If you do, okay, that might be the end of it, but most people will sort of give you a soft, “Maybe later, Colin’s not around right now.” So, we just made friends with her. We got her on the phone, and we said, “Oh, we’re so happy that you guys are doing well. This physical product that you built, the Roomba, is great. We’re actually students at Brown. We’ve done this cool project.” Every time we called, it was not like, “Don’t call here again, no solicitation.” It was like, “Colin’s not in right now. I’ll give him a message.” And then, we’d say things like, “Would you mind if we call back in a few weeks to check in?” And she said, “No, sure, no problem. Go ahead.” Just keep doing that and eventually you get into the people you want to get to.
Andrew: And this was over how long?
Ben: Probably a month to really get in. Persistence was just the key. I remember one of our key science advisors actually has a similar story. Chuck Czeisler is like number one or two guy in sleep in the world. I had his cell phone number, and he was never pissed when I called him, but he was always busy.
But I figured out that if I called him at 7 a.m. he was in the car on the way to work, and he would give me five minutes. He was in the car. He had nothing else to do, so I woke up. This was in my college student days. So, instead of waking up at 11:00, I woke up at 7:00 and I called Chuck. And I said, “Hey, Chuck, can you give me advice? Just five minutes.” And now, he is leading in [inaudible 24:12]. So, persistence.
Later in your life, when you have connections, you can use those. But when you’re young and you’re just getting started, just be genuine and be persistent, and you’ll get help from the people who are out there.
Andrew: All right. So, now I would imagine in my head, and I’m not naive, not young but I imagine in my head the founder of Roomba is introducing me to the people who make the Roomba, who manufacture the Roomba. I’ve got this product. I know how it’s built. I know what needs to go into it. I’ll take it to them. They’ll deal with it, and now I can focus on the rest of my business, more or less. I wouldn’t expect it to take over a year.
What was the first interaction with them when you showed them the product? What happened?
Ben: Well, so this is in China. I don’t speak Mandarin. I don’t speak Cantonese. So, I show up in Hong Kong, and we have a meeting with this big manufacturer. It starts with this big factory tour, and so they’re sort of walking you around their factory, 20,000 workers, lines of product coming off from big companies that could crush you like a little bug.
You’re basically at that point trying to sell them on the value of this small startup. You’re saying, like this market is going to be huge. The area of measuring things on your body is going to be huge. This is not the only startup. This is not the only company that is going to be doing these sorts of things. You guys need to take a risk, need to take a chance and work with us so that you can build competence in that area.
There’s also a huge communication barrier there. They spoke English. They spoke English well, but they were born and raised in Hong Kong and Shanghai. I was the white guy from Boston. At that time, I was 22 years old, 23 years old. So, I was also super young, and in Asia having some gray hair actually really helps. So, it was a challenge to really get these guys excited. But once they were in, we started working together and it’s been a great relationship.
Andrew: How long did it take for them to say, yeah, all right, we take them seriously enough to work with them?
Ben: To be honest, they took Colin’s word for it. If I just showed up there, it would be a much harder sell. Because Colin was involved and he said, “These guys are for real, they’re doing good stuff,” they were willing to take a chance. We started almost immediately after having met with them and a few other manufacturers to that.
Andrew: Okay. All right. So, this isn’t like a photocopy. You can’t just take in the original and say, “Print me a few dozen copies and then we’ll work it from there.” How do you go from something that you create to something that they could produce?
Ben: I used to think it was like photocopy. Well, I have one here. It’s a prototype. It’s easy. The problem is to get repeatability and cost down and all the things that you need to manufacture a product. You need to go through another round of mechanical engineering and electrical engineering.
So, as an example, we did our first drop test on the product. We took this, and we dropped it, boom, and the thing broke. We were trying to comply with standards, and the thing was breaking. And there was glass on the floor, and it was like, “Shit. What do we do?” And so, another round of engineering took place where we hardened up the front plate, and we added some more plastic here, more plastic there. So, that’s an example.
Part of the reason it also took so long is that we kept on changing our minds. So, instead of being like, here’s exactly what we want, just like any startup, we occasionally heard new information from a customer. We heard new information from someone who wanted to sell this thing for us. Either we didn’t have the discipline or we didn’t have the ability at that point to really lock things down, so it ended up taking longer because we hadn’t quite figured it all out yet. So, the first round of manufacturing was definitely a challenge.
Andrew: Can you give me an example of something that you added in there you just shouldn’t have that diverted attention?
Ben: So, this one we should have added in. We added in an SD card, and before it never had this. So, it was just the headband and the bedside display, and we sort of had grand plans to maybe add something else some day. One of our board members said, “You have to put a way to get that product up to the web in the first version. Otherwise, you’re going to fail.” And he was right.
We were absolutely right to put that in, but it was last minute. It was like, “Hey, we need this SD card.” Tools had to be modified. The engineering had to be done last minute. I’m trying to look for an example of something that we shouldn’t have done. They don’t come to mind as easily because I’ve sort of tuned them out of my consciousness.
Andrew: Okay. All right. So, you’re adjusting. You’re changing your mind. They’re building it out. How long does all that take? Is that the full year, or does it take a little bit less time to get the final product that they’re ready to reproduce?
Ben: If you were to do it really well, you walk in there with your specs. You have a prototype. You know exactly what it does. The changes are going to be minimal. You probably go soup to nuts in six months. That would be like lightning speed.
Even part procurement sometimes takes three months on some of these parts. We had parts that were 90 day lead time. So, six months is like, okay, final engineering is like a month of that and then it’s procurement, manufacturing line set-up, gets the parts in, build the thing, Q/A and ship it. So, that is sort of blazing speed.
Your average consumer electronics project, and if you look at a big company like an Acer or a Sony, they’re probably on 9-month, maybe a 12-month development cycle. And when you’re a startup and things are a little less sure and it hasn’t been done before, that’s when you start creeping into 18-month development time cycles.
There’s always this little part of you that’s like, “Let’s just release this thing now, whether it’s ready or not.” And that, generally, isn’t the right move because you end up seeing other companies make these mistakes, You end up with unsatisfied customers, bad press, and you are probably better off waiting those extra six months and getting things right.
Andrew: If you hadn’t met Colin and didn’t have somebody who was an advisor at that level, would you be able to find a manufacturer in China to do this for you? How?
Ben: You would. You’d find a manufacturer that was one or two tiers below, so a smaller shop, less quality control. And instead of being, yeah, we’ll work with you because we think that this is going to be great, they’d be like, we need this much up front. We need this much in six months. We need this much in nine months. If you’re able to pop that capital up, you’d be able to do it. You’d be able to get it working. You’d have a little less chance of actually being able to get it out the door.
Andrew: I see. And how would you even find the manufacturers, if not for someone like Colin who works with them?
Ben: So, we sourced manufacturers in other ways, sort of through products that we thought were similar. So, we found out who manufactured the wireless mouse of this sort. I literally did some Ali Baba searching, Ali Baba is a search to connect Asian suppliers to people who need that. Did some trade shows. We found some contacts there.
The other place that we found some contacts was our industrial design firm. So, we used a firm in Providence when we were at Brown, now called Ximedica. And they were able to connect us with a couple of manufacturers to go visit. But, really, the top of the top that Colin was able to provide got us a higher level service with a better firm and less up front capital.
Andrew: The industrial design firm? That’s a step that we missed in the process. So, you’re building this yourself. You take it to an industrial design firm that makes the product that you can actually touch and give to, maybe, your mom to test.
Ben: Yes. You could do this in-house. You could do it yourself, but there are professionals who look at something like this, and they know how the buttons should be laid out and what the UI should look like and how to design it for manufacturing. So, you’re better off using a professional to help you get the usability right, to help you have that usability tie in with the mechanical engineering.
At Zeo, what we ended up doing is we were experts in the software. We were experts in sensors. We ended up doing all the electronics, because we were EEs and computer engineers to start with. But we let the industrial design firm do really a lot of the design aspect and the mechanical engineering of the product.
Andrew: What does an industrial design firm charge for something like that?
Ben: Our first quote from Ximedica was probably $300,000 and that grew up to $500,000 before we were done, done, done. That’s fairly typical. If you were to go to a good, high quality industrial design firm, they charge in the U.S. $100 to $125 an hour for their engineers, maybe higher, and it just takes a good amount of time to do it.
You could end up working with someone overseas, but then you don’t get to be able to sit in front of someone and talk through issues. So, especially on the first generation of the product, you want to be working with someone close.
Andrew: I was just reading “Super Freakonomics,” and it starts off with a story about . . . have you read the book? You’re nodding.
Ben: I’ve read “Super Nutz” not “Super Freakonomics.”
Andrew: “Super Freakonomics” starts off with a clock . . . actually, no. It’s not “Super Freakonomics.” It’s “Switch,” I think, about how to switch your habits. It starts off with the story of a clock that when it goes off it starts rolling away from the bed.
Ben: Yeah. We know actually the inventor of Clocky, Gauri Nanda.
Andrew: Clocky, so simple idea. Anyone in the audience can come up with the idea, maybe not develop it. It’s a lot simpler than something that measures brain waves and does what you do. If I had an idea like Clocky and I took it to an industrial design firm, can I say, “Take this idea, make it into a product”? Just from idea to product, they can do it for me?
Ben: Yeah, if it’s a simple enough idea like Clocky, they absolutely could.
Andrew: And what’s your sense of what it would cost to have something like that designed?
Ben: That’s probably $75,000 to $100,000.
Andrew: Okay.
Ben: And that’s soup to nuts with all the electronics, etc. for a sort of a first version. That would just be my guess.
Andrew: Okay. And the reason I’m asking you this is I want to make it relevant to people in my audience who don’t have your technical knowledge, who aren’t in school and have access to professors and resources. I want to show them how, if they had an idea, they could take it to product and then manufacture and then into stores. Do you have a sense that that’s how much he spent to get the prototype of Clocky done, $75,000?
Ben: I don’t know Gauri’s numbers particularly. But if I were to guess, yeah, I’d say that was probably $75,000 to $100,000 to design and then she hopefully . . . in fact, I know where she manufactured the product. She found a great manufacturing partner as well who probably waived the NRE. Tooling on that sort of product would still have been $20,000 or $30,000. You’ve got travel to China, etc., etc. So, I don’t think you could launch and release a Clocky-like product for less than, maybe, $200,000 or $250,000.
Andrew: Wow.
Ben: Now, with a product like Clocky and other sort of simpler products, it can be easier to get away with prototype volumes, prototype electronics. You’re not going to end up selling them at full price to real customers in-store because those people expect finished products.
So, you can always prototype something and make 500 of it and either give it away or sell it with a huge caveat on it, saying like, “This is an early adopter model. Expect it to break. If you still want to pay for it, great. You can help us design the next generation, but don’t think this is a final product.” That can be a good place to start.
Andrew: You used a couple of terms there that I wanted to define. You said NRE. What’s that?
Ben: Non-recurring engineering. It’s the bane of a hardware product. So, it’s the money that you throw at it, everything from your mechanical engineers to your electrical engineers to tooling costs before you see a dime in revenue.
Andrew: Okay. And tooling, what’s that?
Ben: So, the physical product, how do you get this plastic? There’s actually a steel mold that gets created that has a cavity that you shoot plastic into. So, you need basically a huge block of steel that they then put under a machine that carves out your design. So, that physical steel on that process is quite expensive.
Andrew: The creation of that machine and that process is tooling?
Ben: Right. What you end up with is literally a piece of steel that you couldn’t lift, with you and five of your best buddies if it’s a big enough product. The physical steel has costs and all the labor and the machinery that goes into carving out the cavity.
Andrew: Okay. All right. I resent you saying I couldn’t lift it. I’ve been working out a lot, and I have RunKeeper. I’ve been exercising, and I’m fit. I might be able to, but the average interviewer, Larry King, for sure.
Ben: Maybe you could do it. But most normal humans it’s not possible.
Andrew: Here’s what we’ve got. You worked on it internally. You then hired an industrial design firm that took you to the original prototype.
Ben: Yep.
Andrew: You went to the manufacturer in China. They worked with you until they had it right. Actually, here’s what I don’t understand. If the industrial design firm’s creating a solid prototype for you and you’re taking that prototype to China and having the manufacturer reproduce it for you, why does that take so long? I would think that the industrial design time would be longer and then the production time would be very short.
Ben: Yeah. So, what you end up with, unless the industrial designer and the manufacturer are really joined at the hip, like they work at the same company, there are production processes that your industrial designer is not going to get right for your manufacturer. So, there are other things that you just can’t know when you’re doing industrial design. You’re like, hey, if we put this much plastic here, it should survive a fall. But then, you actually make it and you drop it and it doesn’t survive a fall.
So, there are some things that it’s just sort of a disconnect between your U.S. industrial designer and your China-based supplier and some are just part of the process. And then as well, you end up changing things along the way, whether you want to or not.
Andrew: Okay. All right. So, finally, the big day comes. You’ve gone through all this, and you have the finished product start to roll off the line. How much of them do you make? Do you know how much to make, or do you just take a shot?
Ben: You never really know. What you do is you look at, hey, what have similar products done on launch of the product? So, what did Roomba do in its first three months? What did Clocky do in its first three months? And then, you sort of titrate that back to where you think your product is, based on how much it costs. Then, you do a little calculation of hey, if I needed more of these, how quickly could I get them?
Then, you put the smallest bet that you can on the hardware. So the worst thing you could do in the world is make 100,000 of these and then ship 15,000 of them. And then, you’ve got inventory for the next three years, and that’s not a situation you want to be in. You’d much rather even go into back order a little bit or have to turn off your marketing so that you don’t sell as many. You’d rather have that problem than having way too many, at least, in your early days.
When you hit retail, it’s a bit of a different story because you don’t want to get the call from retailers saying, hey, I need 2,000 more units, 5,000 more units and you’re like, I don’t have a supply. That’s when they kick you out of the store and get pissed. So, by the time you’ve graduated to retail, you better have your supply chain down pretty well.
Andrew: At what point do you go to the retailers? Yeah, at what point do you go to the retailers?
Ben: So, with this product we started direct. We started selling only through our website, and we did direct marketing online, a little bit of print, a little bit of TV. The goal really was to learn about our customer and find out how to sell the product. So, we ended up launching in June of 2009, and we went to retail a year later. So, we were in Brookstone. We started being in Brookstone approximately September, and that’s our first national retailer.
It took us about a year to make that jump, and that was really by choice. We could have gone after retail with the product launch, but it would have been a little bit harder to control, and your messaging and your positioning is harder to modify when you’re in that situation.
Andrew: What did you learn about your customers in that year that you were selling and interacting with them directly?
Ben: It’s hard to underestimate how much we learned or, I’m sorry, overestimate it. We learned a lot about pricing. We started this product at $399, and that was with the whole thing together. We quickly realized that we needed to split off the coaching software. So, you still get, with the physical product, a lot of the online data analytics, but the actual coaching we’re going to charge separately for that.
So, we realized that a couple of months in, we said, not everyone wants the coaching. Let’s charge for that separately. So, the product price came down, and the coaching price went up. We learned something about subscription. We started thinking like, hey, there’s going to be a nice subscription business here. People are going to subscribe to Sleep Data. I still think it’s part of the model, but we learned that most people probably want to pay up front in the hardware and have access then to most of the functionality and then, maybe, there’s another tier above that that some people go for.
We learned a lot about the customers that were coming in the door. We designed this for people who were having a challenge sleeping. They wanted to get more out of their sleep because they were having trouble. We really didn’t take into account people like Team RadioShack. So, when we got the call, hey, we want to use this with all the riders on the team for the Tour de France, we were like, awesome. I never thought that call would have come.
And now, we get a lot of athletes are into this because they see the value of it. People start coming out of the woodwork to use your product that you wouldn’t have expected. Another interesting fact, we thought this product would shift female, because if you look at sleep problems, sleep problems shift female. Our early adopters actually shift male, and that’s partially an early adopter curve. This is a little techie, a little higher priced.
In the long, long term, I still think this is going to be a lot more women buying it, but in the short term it was actually more men. So, you learn just a lot about your customers that otherwise you can’t learn unless you launch. I’m also glad that we waited until the product was ready to launch, so we didn’t face a firestorm of criticism of, hey, this thing isn’t ready.
Andrew: What about the way that you talk about the product, the way that you market it? What did you learn in that year that you were doing it all on your own about how to position the product and sell it?
Ben: So, a couple things. The concept of the Zeo Personal Sleep Coach, that’s what we went out with. That’s still the name of the product. We’re continuing to learn that might not be the best moniker for it. If you look at the reviews of Zeo, the Wall Street Journal, the “Today Show,” anyone who’s reviewed it, the words Zeo Personal Sleep Coach doesn’t come up very often. It’s the Zeo Sleep Monitor or the Zeo Sleep Tracker or the Zeo Sleep Lab.
There’s something clicking there, like, just tell us what it is. So, there is a coaching component, but the physical thing that you are selling in the box is not a coach. It’s a tracker or a monitor or a little in-home sleep lab or whatever we end up calling it. So, that’s a pretty big positioning change, and that’s just one of many that you end up coming down the pipe.
Andrew: I see. In fact, yeah, I’m looking at your buy page right now, and it says Zeo Personal Sleep Coach. That’s the name of the product as you have it now. My mind didn’t register that it was called the Zeo Personal Sleep Coach. I just thought it was called the Zeo something or other. I guess, if I would have talked to you about this, I would have made up some name for it that started with Zeo and maybe included personal lab or something,
Ben: Right.
Andrew: Sleep lab. Did I read about you in Tim Ferriss’ book, “The 4-Hour Body?”
Ben: Yeah, yeah.
Andrew: I thought so.
Ben: That was wonderful for us. I got a hint from a friend who knew Tim a year ago who said, “Hey, Tim’s writing this new book.” I said, “Wow, I’ve got to get him Zeo.” And the word came back through this friend of mine, “Tim says you’re going to be in the book. He says you’re going to love it, but he’ll talk to you in a year.” I was like, sweet.
A year later, this was literally a month ago, maybe, just before the book launched, I started seeing 4-Hour Body, 4-Hour Body. I said, wait a minute, aren’t we supposed to be in that book? I’ll get in touch with Tim. So, I got in touch with Tim, and he loves Zeo. There’s a whole chapter on sleep where he basically hacks his sleep, and he does everything from different drug interventions, blue light, relaxation techniques, sleeping positions that look like this, his typical Tim Ferriss like does the stuff that no one else has the guts to do.
But what he used to track all of that was Zeo. So, he recognized the value. He wants to know his REM sleep. He wants to know his deep sleep, and he talks about the product a lot in the book. We’ve actually done quite a bit with Tim over the last few weeks as he’s been launching the book, trying to help him get some publicity. We’ve been giving away the book with Zeo purchases for the last few weeks which is cool.
We have been giving Tim some Zeos for some of his parties and some of his VIPs. So, lots of great action there. We love what Tim’s doing with the whole self-experimentation and quantified self-movement. Tim is really leading the way, and it’s great to see.
Andrew: That came about because you heard he was writing about this topic, and you just sent him one for free, and you said, let’s see if we could get him to try this out.
Ben: I think we actually . . . yeah, we sent him one for free but I don’t think that’s the one he used because I think we sent him one when we launched the product in June of 2009. But when you read his book, he says, he calls this the “Brad Feld Sleep Device.” Brad is a VC out in Boulder who is also a big Zeo user. So, our attempt to get Tim a Zeo probably failed, but what worked was he heard Brad was using a sleep device. He called Brad up and said, “Hey, do you want to use it? Go get Zeo to measure your sleep.” I think that’s how it happened. It was actually through Brad Feld and not through our own influence.
Andrew: How did you get it in Brad Feld’s hand?
Ben: Wow. I’ve known Brad for a long time. I think I was introduced to Brad by a friend of mine who was in law school out in Boulder, maybe, four years ago. And this was when we were raising, either our first venture round or our second venture round. So, I met with Brad as an investor, and he was super jazzed about the product, super excited about it and we got him an early version. So, he had a prototype. I’ve kept in touch with Brad since then. He’s been a great supporter.
Andrew: And he never invested?
Ben: No, we didn’t get that check. It’s one of the few that I wish I’d chased down a little harder, but you meet with . . .
Andrew: Why?
Ben: Because I think Brad adds a unique value, especially to this space. He gets personal tracking. He gets the direction that it’s going, and we found other great investors that get that value as well, but they are few and far between. Most people in the venture world, they don’t see this thing coming, this quantified self, this everyone is going to be tracking everything. And Brad, along with our current VCs, Trident Venture Capital and iD Soft, those guys are both investors in iRobot, they get hardware. And most VCs don’t understand hardware. They hate it.
Andrew: Yeah. I think Brad even told me he doesn’t like hardware, but then when I asked him about the GoPlug — I can’t think what it is that he invested in — what is it called?
Ben: It’s a company called PogoPlug.
Andrew: PogoPlug, right. So, he invested in that, but he said that it was mostly software, and that’s why he invested in it. I don’t see that. You’re still manufacturing a product and still getting it in stores.
Ben: It’s interesting because Zeo . . . we’re talking today mostly about the hardware, but what is the hardware of Zeo? To be honest, except for that sensor, the rest of it is just how do we best deliver software?
Andrew: I see.
Ben: If you look at the whole product, including the website and the coaching, we’re mostly delivering software. But in some cases we’re doing it using a hardware component. So, if you look at the revenue line, it’s going to mostly be hardware, but the reality is most of the work we’re doing is software.
Andrew: All right. And at some point, maybe, in the future the display device might be the iPhone or an Android or something else, in the future but right now we need this device. Okay. I have two other areas I want to cover before we finish the interview. The first is retail. How did you get into stores?
Ben: Retailers start calling you when you have a hit product, and we had a hit product.
Andrew: How did they know it was a hit product?
Ben: The Wall Street Journal launched our company. So, we very carefully managed our launch press, and Melinda Beck, who’s the health reporter at The Wall Street Journal, wrote a huge inset and had a front page teaser on Zeo. She loved it, and she talked about how she went into a sleep lab, and she compared it to Zeo and all of these really cool things.
So, boom, Wall Street Journal, we sold a bunch of units. Five months later it was on the “Today Show.” We had a five minute segment where Nancy Snyderman, who’s the health reporter for the “Today Show,” showed her sleep data, and there was a clip of the founders at Brown and talking about the product. That sort of press along with all the customers who were buying it, all the buzz that’s being created, boom, you’ve got a hit product.
Retailers see that, and they start calling you. Just because they call you doesn’t mean that they’re going to put it in the store, and it also doesn’t mean it’s going to work in the store. One of the things you have to be very careful about, if we’d taken every retailer call and said, sure we’ll ship you units, a lot of those units would have sat on store shelves.
Example, everyone uses this example, but if this was at Walmart right now, it would sit on the shelf because people don’t walk by the Zeo Personal Sleep Coach and be like, oh yeah, I need that along with the toothpaste and the razors, right? You need a retail experience that can let you actually do some merchandising, do some selling, really educated store people. That’s where you start, and then as your brand awareness builds, as the product gets more and more well known, that’s when you can start breaking into some of the bigger box retailers.
Andrew: I’m looking at the article in the Wall Street Journal right now. It’s headlined “When sleep leaves you tired.” It is a very long piece here. You got a lot of space from her. This is what launched you?
Ben: Yeah.
Andrew: This came out when you launched.
Ben: So, four weeks before we knew we were launching the product, we said launch date June 9th. We’re going to go after these five people. And it was Melinda Beck, someone at The Wall Street Journal, and a few other people. We’re going to give an exclusive to someone in TV, someone in magazine, and someone in daily print. Then, we very carefully managed those relationships.
So, we went down to New York to meet with Melinda. She came up to Boston. We had numerous phone conversations. We were looking at her data. It was really harrowing because she could have said anything she wanted, right? She could have said, you know, this new product came out and it sucked, and that would have been a real problem for us. So, we very carefully managed that first launch article.
Three or four weeks later, we got David Pogue to write about it in The New York Times, “Today Show,” Wired Magazine, it just kept rolling. And we had just this really impressive launch, and that’s kept up to a large extent, even in the last month. Tim Ferriss’ book has been huge for us. We’re in InStyle Magazine. There are a number of other hits that are upcoming because this is still a hot new product.
Andrew: This is a PR firm that’s doing all this for you guys. Why is your PR firm effective? Why are you able to stand out? What are you guys doing differently?
Ben: I think PR is about telling interesting stores, at least, from my perspective. What we’re doing is we’re finding interesting stories to tell, and the first interesting story was a pretty simple one, right? This new product, boom, that’s your story. But that’s not a story any more. It’s not a new product any more. That was a year and a half ago. So, now what’s the new story? The new story is Team RadioShack was using the product to do X. The new story is Tim Ferriss was using Zeo to do X. I’ll give you another example. This isn’t press per se, but we create amazing content that generates eyeballs and gets people involved with the company and with the brand.
So, if you search for “sleep is awesome”, if you’re on Google, you’ll see the first link that will come up is an infographic that we created with a guy named Julian who wrote a book called “Trust Agents.” And it’s basically an ode to sleep, like, here’s why you should sleep. Here are the reasons why if you don’t, you’re going to die. It’s funny. It’s irreverent. It’s graphical, and that thing got retweeted by Alyssa Milano and Tony Robbins and Tim Ferriss and it just went wild because it was such engaging content.
Andrew: I see. You said Chris Brogan who wrote “Trust Agents” put this together?
Ben: Along with Julian Smith, his co-author.
Andrew: Okay. I’m looking now. The first hit was for “sleep is awesome,” the infographic on the next web which has a lot of Google juice.
Ben: The third link down will be Julian Smith’s website.
Andrew: Gotcha. Okay. And this is an infographic that you created?
Ben: Yeah. We worked with Julian, and we said, “Here are some really awesome sleep stats.” He sort of put his spin on it and said, hey, guys, there’s a little graph in the middle that shows here’s people sleep, or here is good sleep or here’s most of us. Here’s WTF Land. So, that got people talking. They’re like, “I’m in the WTF Land. How do I improve my sleep? Do I even need to?” It just started the conversation.
One of the directions we’re going now, we’re calling in concept the Sleep Hub. The Sleep Hub is the place to go online if you want to learn about sleep. Any question that you have on sleep, whether you just got your new sleep apnea machine or you want to run a better marathon, we’re going to answer your sleep questions on the Sleep Hub. And we’re going to answer it with this sort of amazing content, with an awesome community surrounding it, and with really good guidance and coaching. The whole thing is based around Zeo data and sleep data in general. So, creating content is another way of generating awesome PR.
Andrew: I see that your video for some reason froze on us. How about we try this? What else do I have? There it is. It’s back. Okay. Good. Sometimes, stalling works. Let me see if I can hear your audio.
Ben: I’m still here.
Andrew: Awesome. All right. Great. What else do I have? A bunch. I wrote here a bunch. When you said that we got a bunch of orders from that launch in The Wall Street Journal, I wanted to come back and ask you how much is a bunch?
Ben: We sold, just off that Wall Street Journal article, about 1,000 units. And then, the “Today Show,” when that hit, again, boom, 1,000 units. You can just tell the excitement level in a startup when you’ve got to put 1,000 boxes on the front door and have someone from UPS or FedEx pick it up. It’s an exciting day. You’re all there late, packing boxes. You’re doing all this last minute, great stuff. That just jazzes you up when you can do that much volume in a day or two. That shows the power that this product has to change people’s lives.
Andrew: So, that idea that you had as students, that you put together, that you’d gotten an advisor for, that you flew to China, God knows how many times for, that you finally had ready, you launch with The Wall Street Journal and you sell 1,000 right away. The “Today Show” helps you sell more, and from there you just keep building on and building on.
Let me ask you this. Let’s close out with this. The person who’s listening all the way to the end, there’s a good chance has an idea today or will in the future for a physical product. What’s the one piece of advice that you’d give them before they do anything else? What should they do? What should they think about?
Ben: So, this is going to sound a little counterintuitive. Hardware is good, but the one thing I would ask them to do is to think, is there any way that I cannot build hardware, because if they can avoid building hardware, you’re going to avoid millions of dollars of capital, the risk that you never get that capital, the time, the intensity, all those things. How can I do this in software?
The reality is if you’re not smart enough to think about it, someone else will be. So, think hard about does hardware add real value. Are we measuring brain waves? Does this thing need to measure your foot? Do you have to take it with you? Can you use a mobile phone? How can we get away from hardware? And if you can’t, jump in with both feet and make it happen.
Andrew: All right. Great way to leave it. Let me tell people what the website is. It’s myZeo, and it’s spelled like this. It’s M-Y-Z-E-O.com, myZeo.com where they can go, look at the pictures of what we’ve been talking about, buy the product, and give me feedback on their sleep and what they think of the product. Ben, thanks for doing the interview.
Ben: Yeah. Appreciate it. Thank you.
Andrew: And let me also quickly thank Jason from RunKeeper for putting this interview together. I needed an interview, and I needed something different, and Jason hooked me up with you. You and I never would have met if not for him. I appreciate it.
Ben: We’re going to do an integration with RunKeeper fairly shortly. So, stay tuned.
Andrew: Ah, so that’s how you know him. Cool. All right. Thanks, Jason. Thank you all for watching. Come back, give me feedback and go check out myZeo.com. Bye.
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