Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com. It is, of course, home of the ambitious upstart. It’s a place where I’ve interviewed entrepreneurs about how they built their businesses and we talk about the challenges, we talk about what they did to find their first customers. We talk about how they grew. We really get into. It’s like a biography of a business.
And often what we see are entrepreneurs who find this deep pain that a customer has, sometimes their own, and they solve that pain and they solve it and they actually–I guess you don’t solve pain, do you, Jeff? They find a solution for the problem that causes the pain and they just keep improving that solution over and over. That’s what we’ve got here today, an entrepreneur who did just that.
His name is Jeff Booth. He is the founder of BuildDirect. It’s a platform that simplifies finding and delivering products to consumers. Let me be a little more specific. Some of the things you can find on there are–let me see here, according to Wikipedia, tile, decking, flooring, building materials, the heavy hard stuff that you definitely would be able to carry out of a store, they find a way to get it to your home and they’ve built an incredible business doing it.
This interview by sponsored by two great companies that I’ll tell you more about later. This first is the software that we used to schedule this call. It’s called Acuity Scheduling. And the second is the company that will teach you or someone you know how to be an incredible developer. They’re called Hack Reactor. I’ll tell you more about them later. But first, Jeff, welcome.
Jeff: Thanks for having me.
Andrew: Good to have you on here. We talked before the interview–actually, before we get into what the business is, I’ve got to ask you the kind of question I could never ask you over dinner. What kind of revenues are you guys doing?
Jeff: Good try. We’re not saying. But there are a lot of places on the web that try to find out what that is. So, I can say they’re largely right in a range. It’s over $100 million and probably under $200 million.
Andrew: Between $100 million and $200 million. At some point recently you hit $150 million. Is that fair to say?
Jeff: Again, I’m not going to comment.
Andrew: I thought you told that to our producer. All right. Let’s get into how you found this business. It’s an enormous company. It goes back to you being an entrepreneur, being entrepreneurial. In fact, you got into real estate. You decided you were going to go 100% commission. This was long before you got to BuildDirect. I just want to get to know the way you think as an entrepreneur. Why did you get into real estate and why did you decide to go the commission route?
Jeff: So, probably because I thought I could. I thought it would be–I was probably over-confident. I thought I knew better. I wanted to control my own destiny.
Andrew: Better than who?
Jeff: At the time in real estate, you could go to an agency, which would give you kind of a soft landing and train you how to be a real estate agent. And they would take 60% of what you made for the privilege of giving you that soft landing. Or you could go and rent a desk and go it on your own. The choice was pretty easy for me. I rented a desk and went on my own.
Andrew: And you had to get people to actually buy real estate from you. How old were you at the time?
Jeff: 19, 20 years old.
Andrew: I’m not sure I’m ready to talk real estate let alone buy real estate from someone who’s that age and that new. That was the issue that you had. So, I was really inspired by this. You started working the phone book. What did you do?
Jeff: So, in that time, I didn’t know. I was probably full of bravado. I thought I could do this. I had exactly three months to live. Normally a closing takes at least three months.
Andrew: What do you mean you had three months to live?
Jeff: My parents–because I actually dropped out of university to go into real estate, they were not happy with it. They said, “Okay, you want to make it on your own? Go make it on your own. Go find a place to live.” I had about three months. I had a supportive family. I probably could have gone back home if I needed to. But you don’t want to.
So, I show up at work the first day. I have a desk. I have no idea what to do. None of my friends are ready to buy real estate or sell real estate. I look like I’m wearing my dad’s suit. I don’t know where to start. So, I open the phone book and I start making phone calls. When you open the phone book, you also don’t know if somebody owns a house or doesn’t own a house, so you just start asking questions. I probably over the course of months, I made tens of thousands of calls just asking t hem that question.
Andrew: Was it just the process of opening up the phone book literally, making a phone call, crossing the name out, making another, crossing the name out?
Jeff: Yeah. I almost thought about this. I worked backwards and I said, “How many calls do I have to make to get to the other side? I made it almost a game that maybe I make $10 a call for every no. So, I’m actually getting somewhere. The truth is I was learning how to do something by doing something. The phone book approach was a terrible approach. There were better approaches. I was trying everything. The phone book approach was one way I was trying. In retrospect, it was a really bad way to…
Andrew: Like you said, many of the people have no interest in buying homes.
Jeff: It’s not very targeted.
Andrew: No, not at all. What’s the most effective thing that you did? You eventually did sell a home. That persistence paid off.
Jeff: One of the things, you could look at expired listings. There was this listing. So, I tried expired listings. So, at the end of the day, after phoning all day. I would go knock on doors of listings that couldn’t sell, the under-loved homes that couldn’t sell. In one of those areas, it was just a really bad area of town.
I knocked on the door and the guy approach me and the owner of the home came to the door. He almost laughed at me. I said who I was and that I wanted to sell this home. He’d had it listed by three of the top realtors. He actually said to me this. He said, “What do you think you could do for me that they haven’t done for me? What do you have?” I’m 19 years old, maybe 20 years old at the time.” I said, “I have one thing that they don’t have.”
Jeff: “Time. You would be my only listing and I would commit everything to make this a success.” So, I positioned it in a way–and it was true and it was a success. And then he told friends and some neighbors. It just started to turn in to be a really great profession.
Andrew: That is what makes someone who’s 19 such a good person to actually work with. I was kidding earlier about not wanting to work with someone who’s 19 in real estate, but that kind of determination makes you love working with anyone. What did you do in that time? What did you do to actually sell this guy’s house when no one was able to?
Jeff: I held it open every weekend. I dropped fliers around the neighborhood, if anybody had a friend–I did a whole bunch of things, some things that would never work. I advertised. Again, the whole time while I was doing that, I would say I was honing my craft in how to do that job better over and over again. So, it did ultimately sell. I don’t want to say that it was all me as well. He also priced it right. So, other realtors, they were just taking listings and they wouldn’t be honest with the person on what price it had to be to sell. I was honest with him. I said, “Here’s what it has to be.”
Andrew: So, you now have your first sale, which leads to more and more sales. You eventually came across this guy or this family that just needed to buy in your neighborhood. What was the urgency that they had?
Jeff: So, in fact, in that not desirable area that I actually built really good real estate business in that area. Friends were telling each other about me, neighbors, etc. So, there was a young family who I actually sold their house there. They intended to buy in the neighborhood I was living in. This is kind of fast forward six years after I had started real estate.
So, I was quite successful in real estate and I’d already bought a house in one of the best neighborhoods. I had a young family that wanted to go to the school that was in the neighborhood I was in. So, I had sold their house almost on a promise that, “Don’t worry. When you’re ready, there will be a house in your budget in this neighborhood.”
Then it came time and there was a house, but it was way too small for them. I was still remember the evening, being outside that house and they’re at the car after they’d done the showing and they said, “Okay, let’s put the offer in.” It wasn’t the right house for them. It was in the right neighborhood but it wasn’t the right place for them because it was way too small. I was living in that neighborhood with friends. So, I said, “Listen, why don’t you go home. Think about it overnight. It’s not going anywhere tonight. If you really want to do it, we’ll do it in the morning,” knowing I was going to go home and tell my roommates I’m selling the house.
Andrew: Meaning you knew you were going to sell which house?
Jeff: In that moment, I was going to sell my house to them.
Andrew: To them. And you had roommates who were now going to have to get pushed out of the place. Okay.
Jeff: Exactly. I had to tell them that and, “Don’t worry. We’ll find something else.” So, the next morning, I did exactly that. In fact, I probably sold that house–at the time it was a big deal. I sold it $30,000 under what it would sell for at the time when houses were around $200,000-$220,000. So, it was a big deal.
I asked them–what I did that night is I called up a friend who was a builder and I said, “If I paid you, would you teach my how to build my own house?” In fact, that’s how I came in. So, it’s actually doing something for somebody else that actually started my building company. So, I built my own house and that’s what started–
Andrew: And that’s where you started to see some of the problems that eventually led to this business, to BuildDirect.
Andrew: Give me an example. What’s one problem that you came across?
Jeff: So, if you think about every single end buyer, and I’ll tell you more specifically the problems–every single end buyer goes through this particular end patter when they think about building. It’s not something that we actually think about that we love to think about all the time. We think about it when we’re in an event.
Jeff: It’s a pretty predictable pattern. We get excited about what the future is going to look like. It’s typically around what the future is going to look like with our futures in the house. And then anxious, who can we trust to deliver this future and then disillusionment as it feels like our pocket was picked the whole time.
Jeff: And then acceptance on that’s just the way the building industry works. You know how fast you’re nodding, it’s actually telling us how big that pain is. If the pain could be solved by somebody in the market today, it would have already been solved. So, I was a builder and I really, really cared about my customers, not in a soft way, really had empathy for what they were going through.
So, I was part of the–there are a lot of really good people in that industry. It’s just the channel is so broken that they can’t do the job well enough to meet the customer demand. So, that’s really what formed the idea. I felt like I was compelled to solve it.
Andrew: The first place I moved into was a place that I bought. I remember having to both build it out because it was destroyed, basically, before I moved in and then furnish it. That whole process was at first so exciting–my own place. I get to actually buy everything brand new and then remake it.
And then it was the little things that I still remember are standing at the store waiting to talk to someone who’s never going to talk to me. If they ever, ever talk even near me or through me, it’s in this condescending way that doesn’t let me understand what they even have. It’s such a bad experience, such a bad experience.
Jeff: There’s so much asymmetry of information. You’re designed to know nothing and that’s how margins are protected. It made no sense.
Andrew: So, what’s one example for you? I know for me it was cabinet doors in the kitchen. I needed to pick the right ones and I couldn’t get to talk to someone and that just really bugged me. That’s one of the places where I said, “I’m done with this whole process,” but I couldn’t because I had to move into it.
Jeff: So, I was a builder. What a builder is a general contractor at that time is you’re the person that orchestrates the delivery timeline to somebody and so you’re embedded on top of that mess. So, you can get people to listen to you, but it doesn’t mean that things are going to come on time and everything else.
Andrew: I see. So, I would be hiring someone like you. You’d give me a date. I’d go, “Great. I now know where my life is going. I know when I can move in. I know what my…”
Jeff: And then I couldn’t deliver you that date or it costs way more.
Andrew: And then I hate you and I feel like you cheated me.
Andrew: Right. And my wife might hate me for not guiding you better and not being tougher on you, right? That’s the situation we’re talking about.
Jeff: That’s it. That’s exactly it. In one particularly challenging event, I actually had to put a family up in a hotel and furniture in storage because the product didn’t arrive in time and it delayed their whole schedule. And they hated me.
Andrew: So, you had to put them up in a hotel.
Jeff: I didn’t have to. I could have just–
Andrew: But you chose to. In addition, they also didn’t like you.
Jeff: Probably in the end they know that wasn’t my fault, but that doesn’t make me feel any better.
Andrew: What was it that was so delayed?
Jeff: In that case it was flooring.
Andrew: Flooring. So, let me ask you this, when I went through this process, I said, “It isn’t me. I am not meant for this. I’m not meant to go to all these home superstores. I’m not meant to deal with all these contractors. I’m not meant to fight these fires. It’s my fault. There are other people who are living okay.” And then I moved on. You didn’t think it was you. You thought it was the industry, right? How did you notice that this was a bigger issue than you making mistakes, Jeff?
Jeff: Because of what you just said. It wasn’t just me. It was everybody.
Andrew: How did you know it? Did you have conversations with other people who were saying?
Jeff: Because every single person that I built a home for had that feeling.
Andrew: What I mean is then maybe you’re just a bad home builder.
Jeff: Not fear of me, fear of the process.
Andrew: They just walked in knowing the process was…
Jeff: Every single friend, “You know what you’re in for?” So, it wasn’t fear of me necessarily. I was actually probably the other way. I was getting business because people trusted what I said, but fear of the whole process. I think one of our values in the company is empathy. Empathy is not sympathy. Empathy is actually walking a mile in your customer’s shoes, how they would feel in the same situation. When you actually project how you would feel in the same situation to a whole bunch of customers, you’re able to see the pain pretty clearly.
Andrew: Okay. I could see that. All right. Before we go on to then what you did about that pain and how you turned it into a business, I have to talk about my sponsor real quick. I’ve got a brand new sponsor. Jeff, this is a company called Reactor Core. Do you know Matt Mullenweg, the founder of WordPress?
Jeff: Oh yeah.
Andrew: You know him?
Jeff: I don’t know him personally.
Andrew: But you know about him. He was one of the first people who did not just one interview but a couple of interviews. He was like a really good guy that I got to know a little bit through Mixergy. I remember one of the first questions I asked him is, “Where did you get the guts to go start a whole new company when you just moved to a brand new city? Why did you have the guts?” And he said, “I’m a developer. If this whole thing doesn’t work out, I can go and get a job anywhere.”
That kind of bulletproof attitude is what allowed him to start his company, but the knowledge is also what allowed him to make WordPress into one of the best pieces of software out there. I think something like one out of five, one out of four sites now is built on WordPress. I don’t know the actual number, but it’s just huge because of the confidence and because of his ability to code.
So, that brings to me to Reactor Core, which owns Hack Reactor and a bunch of other schools that teach people how to code. What is amazing about these people is that they spend hours really–it’s like I was going to say boot camp but I feel like boot camp is easy compared to this. I asked them how long they spent training people.
It’s a 12-week program. We’re not talking about one of these go into the site whenever you feel like it and learn at your own pace. This is 12 weeks, 6 days a week they teach people from 9:00 a.m. to midnight and you’re learning to code, you’re doing projects. As grueling as it sounds, people love it. The reason I know they love it is I doubted that enthusiasm when I heard about it.
So, I went and talked to actual people who had gone through the program, including one guy that I just happened to meet on BART here in San Francisco. I said, “What’s the experience like?” He said, “It’s very intense.” I said, “I heard it’s like a cult.” He said, “It’s really like a cult. You get really inculcated into this group.” But he talked about how much loved it and he was actually wearing a t-shirt from the company.
That’s the way you want to learn how to code–really intensely, really fast. We’re talking about 12 weeks and you become a top developer. Anyone who’s listening to me who’s ever thought about coding has got to go check this out. I’m going to give you the URL for this place. It’s called Reactor Core. You go to ReactorCore.com. They own multiple schools, including Hack Reactor that’s right here in San Francisco. They train some of the best people.
They’re considered the Harvard of coding boot camps. They also have other schools throughout the country. In addition, they have one that’s remote where you get the same level of intensity nonstop. You’re not just working on your own pace. We’re talking about working at their pace. So, if you can’t make it here to San Francisco or to LA or to Oakland or to Austin or New York or wherever else they have these schools, you could it online and get the same level of intensity.
All you have to do is go to ReactorCore.com. And if you sign up or if you actually just fill out an application, please email me, Andrew@Mixergy.com. I will introduce you to developers who have gone through it so you can talk to them before you fully get into the program. Afterwards, if I can help out with your career, I’d be happy to. I really believe so strongly in them, I wish I invested, but since I can’t, I can just promote them, ReactorCore.com, really great place.
All right. So, Jeff, now that you have this idea, you see it’s a pain. You validated it by understanding that everyone understands how much or at least everyone around you understood how much of a pain it was that they started to warn you about it. It’s time to actually create a business out of this. Do I understand this right, that the first thing you said you needed to do was raise money to get this off the ground?
Jeff: Before we raised money, we actually funded it ourselves. So, I literally after coming to this conclusion with the cofounder and saying this is what we wanted to do, I sold my building company. I said to everybody that I would never do real estate or building again.
Andrew: Ever? Wow.
Jeff: I said no fallback plan, this had to work. And then we went about iterating and seeing what it would look like. So, we talked to a lot of different manufacturers as we were hiring developers. It seemed to make a lot of sense. Then after we realized it made a bunch of sense, we also at the same time were having a bunch of family and friends. People who I built houses for or have done real estate for in the past were asking what are you doing now, I’d love to invest, so we raised money.
Andrew: $8 million?
Jeff: The first batch was $500,000 that was over-subscribed and we raised $1.5 million. And then over a period of about six years, we raised $8 million.
Andrew: I see.
Jeff: That was over a period of six years through the dotcom crisis, through a mess of stuff we raised that.
Andrew: You said that you started having conversations. What did you learn in those conversations that strengthened your resolve to build this business?
Jeff: So, as I peeled the onion back, what ended up happening is I went to some of the people that I bought building products from. I asked them if they would like a plan to get more directly to the buyers. Then I realized, “Where’s your facility, manufacturing facility?” And, “Okay, we actually don’t make the products. Somebody else makes it and we hold it here.”
Then I went from those people to the people who they told me made it. They said, “No. We don’t make it. Somebody else makes it.” So, as you peel back the onion skin, you realize, “Wow, everything we buy in the channel is blocked in this channel and the channel controls our experience, what we see.”
So, there’s this massive block and there’s tons of capacity, tons of things that we don’t see that never make it through that channel because here’s the way the channel works. We are going to manufacture something on the other side of the ocean and then some merchant is going to tell us what they think is going to sell and then we stuff the channel, 2,200 stores or 45,000 stores, stuff the channel to wait for buyers to drive to the store to see if they like it to send a signal back.
Jeff: It’s no wonder that that whole block provides so much pain because it’s terribly inefficient. So, we knew that solving it was a different challenge, but we realized how it would never work. It’s designed to produce the outcome that we see every day.
Andrew: This is 1999.
Andrew: Around the time when Amazon was seen as the superhero in online commerce. Did you model after them at all or were they totally irrelevant because sending books is so much easier than sending home supplies?
Jeff: So, we modeled after them at first and then we realized there was no FedEx or UPS for building supplies. Why I say that is Amazon sits on top of an infrastructure that is largely dependent on underweight goods. If you think about how many steps–so, production used to be really close to supply. We used to buy local. Then what happened is labor rates went down all of the world and then channels got longer and longer.
To be able to bypass that channel, we had to create a UPS or FedEx of heavy weight before we could start. Otherwise if you had to use the people in the channel, if you built on top of the existing channel, what we thought is you didn’t have to, you could create a quick ecommerce company by building on top of everyone else. But what we thought that would do is provide more pain faster.
Andrew: Why would that provide more pain faster to build on top?
Jeff: The channel was the problem?
Andrew: I see. You have to get away from all these different middle men.
Jeff: The different middle men. The channel was actually the problem that it was impossible to listen to the data. Somebody had to choose what the product sitting in the store was and then it got embedded and that choice kept on. I use this example all the time internally on Sony, BMG, Universal and the music industry 20 years ago. All artists went to them and all of us consumers of music went to them and realized we only liked a narrow slice of music.
You could put as much big data on a flawed hypothesis that they’re better choosers than we are and it will just reinforce itself. It wasn’t until iTunes allowed everybody to play on that platform, both us and any artist that we could see we actually like a wider variety of music. As a result of that, we choose the artists that are successful rather than labels.
Andrew: Were you able to get the suppliers to actually sell to you considering that you had nothing but an idea at the time?
Jeff: So, yes. We had longer lead times. What we did is actually the customers paid us in advance. And then the suppliers shipped through our platform.
Andrew: I see.
Jeff: Then we paid the suppliers when it was still [inaudible 00:27:33].
Andrew: I mentioned you started the company in 1999. I saw at one point what your website looked like in the year 2000 and it basically said coming soon.
Jeff: So, we started in ’99. We raised money from family and friends and then realized there is no infrastructure. So, our logistics technology failed he first three times because there was no carrier like FedEx for heavy weight.
So, we actually had to create that from the ground up. So, it turned out we weren’t just solving building supplies. We were solving heavyweight logistics at the same time. We didn’t know that going in. I often talk about–this quote I use here, have a dream so big that the only way to achieve that dream is to become the person who can. That tells the journey. I had no idea what this looked like or what we were going to hit along the way.
The best companies do something–when you impact people, when it’s about helping someone else and you actually find a way to help somebody else faster, your business expands as a result of that. So, everything was about that for us. So, we didn’t know it was harder than I can ever say.
Andrew: So, Jeff, when you initially had to find a way to get building supplies to a customer without using FedEx, without using UPS, without using the US Postal Service, what’s the first thing that you did to get the heavy supplies to a customer?
So, that’s why I say it was so hard during that time. This was ’99 and we know what happened in 2000, the dotcom crash. We thought we’d turn it on in 2000 because we underestimated what it took in the logistics to be able to deliver things. So, we’d turn it on in 2000 because we underestimated what it took in the logistics to be able to deliver things.
So, we actually told investors and everything else, my friends, that we would turn it on in 2000. We were pre-revenue from ’99 to 2002 while we were trying to sell this technology problem to be able to fulfill goods in a way that could scale. So, for three years, two and a half years and two and a half years not just trying to solve that problem, but also trying to hold investors to raise more money to solve that problem.
Andrew: Yeah. I could imagine that many of them might be thinking, “It looks like this whole dotcom thing really didn’t work out. Are we making a mistake by drying to spend more money on this guy or invest more money in this guy?” But again, coming back to this big challenge, what’s the first thing that you did? Did you get personally in a truck and go take supplies to a customer or did you find some other person to do it?
Jeff: So, even that question tells you how ingrained you are in the existing system. What you have to do is you have to break it from the supplier standpoint and the product data standpoint. So, the suppliers are typically overseas. So, it’s coming on a truck to a container port in a container across the ocean to a rail yard or a truck on the other side, picked up and staged and going to customer. There are about five different legs in between that, all different carriers in between that. If you didn’t want to get in a truck and do that, you had to figure out how to get it from the other side of the ocean through–
Andrew: I see.
Jeff: All the way through it. So, what we did is–the truth is it failed many times while we tried to do this before we–we went to the freight brokers and the steam ship mines and everybody that was in the system today and we asked them to helps us build it. They were all biased by what they wanted. So, on the third–actually, it failed twice. On the third effort, we hired mathematicians and software engineers to take a white piece of paper and say, “What if we had all of these products in our database and they had these weights and dimensions?”
And then we had these containers and we had to then pack those containers and then we also had to cube and see the road weights of the various weight states to determine in a technology solution, do you overweight a container on the other side of the ocean and bring it around California or do you bring two containers through California? So, the customer doesn’t know it. They just see a price of the best option. You solve all that pain for them.
Andrew: I see. And so you’re paying for the–am I right in understanding this? You’re paying for the spot on the boat. You’re paying for the driver that already exists within some network, but you now need to understand how to ship through them and what it’s going to cost you.
Jeff: As a customer, you don’t want to know all that. You could care less. We underestimate what it looks like to do that whole thing and we just go to the store and back.
Jeff: It reinforces the existing channel.
Andrew: But BuildDirect has to figure that out.
Jeff: We wanted to break that whole channel. We had the figure out the entire channel from the sand up.
Andrew: How’d you know that it would be worth your while financially to do that? You’re not buying bulk, right? It’s always cheaper to buy five of the same thing in bulk ahead of time.
Jeff: So, the one thing about visionary entrepreneurs and this we could probably get to this in a different time for your audience, you’re either crazy or right and even when you don’t know. It’s such a thin line and luck is involved to take you on that side of the line. So, how did I know? I didn’t.
I believed this–if you dropped somebody from space and they knew nothing about how to get product from here to here and said, “Would you rebuild the existing system up to five touches and all this misinformation that gives us pain to the customer or would you do something different?” So, it was clear that something different could happen. If you could solve that, you could reduce the price by a long way.
Andrew: I see.
Jeff: You simplify it for customers and everything else and there had to be a business there. But the truth is you don’t know.
Andrew: I think I see it. What I’m getting is–tell me if I’ve got this right–you’re saying there is no spreadsheet that shows this math is going to work out eventually if only you could find the right carrier and the right way to pack. You just believed, you knew that this did not make sense and you might have been crazy, but you knew that you were right. You felt you were right.
I see. That makes a lot of sense. Where do you get that kind of personal confidence? I’m looking at your background. I see a little bit of it, but I don’t see this one spot. Maybe I’m looking for the Batman moment where like one crazy incident happened in your life and you become this new person.
Jeff: There isn’t.
Andrew: There isn’t. That’s just who you were?
Jeff: It’s a culmination even today. It’s a culmination of a whole bunch of learning of mostly doing wrong things, taking accountability for the wrong things and learning at each thing. If you go back to the moment of thinking real estate and phone book, it was the wrong thing, but it taught me how to do the right thing. So, it was an abundance of moving and doing something and belief that the path was right and we’ll find out the right path along the way.
Andrew: Okay. All right. Let me take a sponsorship message and then talk about what ended up happening after that. My second and final sponsor is a company called Acuity Scheduling. We use it here at Mixergy. In fact, we have so many potential guests that need to book an interview with me that it’s hard for me to say to someone, “Can I interview you on Monday at 3:00 p.m.?”
The problem with that is if I say that to more than one person and they both take the same date, we’ve got a problem. We’ve got double-booking. And if I say, “Can in interview you? What days are you available?” I have too many people coming back to me with dates and many people who are actually just not going to follow up.
So, we found this software, Acuity Scheduling, years ago. All it does is it connects into my calendar to see when I’m free and when I’m busy and then it says, “All right, Andrew, I see when you’re free. Which of these times do you actually want to do interviews?” I go into the calendar and actually paint it on the calendar, all my availability, and then I get a link that I get to give to a guest.
When I send that link to the guest, they get to see my calendar. They get to pick the times that work for them. Afterwards, they get to tell me things like what their phone numbers are, etc. It automatically goes on to my calendar. It automatically goes on to their calendar. People don’t miss the meetings because they get reminders before the interview date. It’s really, really very effective for us for booking interviews.
If you’re listening to me, you’re probably not recording interviews yourself. What you might be doing is booking sales conversations with your clients or maybe you’re doing product demos or maybe you have sales team that needs to do both product demos and closed sales and you need them to talk to people on the phone. It’s inefficient it doesn’t work to actually just send people potential times. It’s much better to say, “Do you want to talk? Here’s my calendar. Pick the times that work for you.”
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I saw the numbers. You went three years with no revenue, then suddenly you hit your first monthly revenue–where is that number here in my notes? And then you grew first–actually do you remember? It seems like you do remember your first–here it is. I’ve got $20,000 first month that you produced revenue. Then $1 million the first year, then–well, you can take it from there.
Jeff: $14 million, $28 million–it was a rocket ship. The interesting thing about that rocket ship is it was all funded by customers. So, because customers were paying us in advance for goods and we were building–so, the whole time it was growing, it was getting more efficient. Shipping rates were coming down. Products were getting more competitive and word of mouth was just viral.
So, at that time, there was virtually no marketing. Think about the time there too. In 2002, what we thought about buying products. I would say today, we don’t think we can buy heavy weight products online. In 2002, it was a different world. So, it was a really fast growth cycle.
Andrew: Today we don’t think we can buy very heavy products online. In 2002, we didn’t think we could buy anything online or most people didn’t. That’s what you mean.
Andrew: I wonder how the virality works. Why would someone even tell me that they found this new site where they bought all their supplies for their home?
Jeff: I don’t want to make this an ad about BuildDirect, it’s more about your audience. But essentially what it says is our value proposition was right. Our guess on removing that pain, when we delivered product that massively exceeded expectations and we did what we said we would do, people wanted to tell people.
So, people were saving 50%, 60%, 70% on products. When you’re saving that much money and everybody says, “You’re buying from an internet company. You’re never going to get it or if you do, it’s going to be terrible.” When it arrives and it’s fantastic, better than what they ever thought it would be, they want to tell people.
Andrew: I see. I get that. I’m looking here at my notes from your conversation with our producer where you said, “It took us a while to get to revenue and then I proved everyone wrong in 2002.” It feels like you kind of used what they were saying to you as motivation, all the people who said this couldn’t be done. Am I right?
Jeff: I would say absolutely.
Andrew: Was there one person specifically who would echo in your mind?
Jeff: No. You’re in the Valley, right? A lot of your listeners would be. So, we would go through–I think about actually the number of over $1 billion went into ecommerce companies in the general building space from ’98 to 2000 and it all went away. It all evaporated. And I would go to these meetings to try to raise money and it felt like this, “Go home, little boy.” If you’re sitting across somebody, even if they don’t call you that, you know what they think.
Jeff: So, what ends up happening is it forces your conviction. It’s not that you’re not learning and everything else. I believed everybody else was doing it wrong. And the game was raise a bunch of money with a bunch of brand names to be able to tell the market what you’re doing because the credibility came from the brand names. But ironically, the brand names controlled the channel as it stood before. So, you couldn’t build it that way. That’s what I thought. So, we built it a different way.
So, when it started to take off, I probably leaned in–I think this is an entrepreneur’s dilemma. You actually gain a chip on your shoulder. The way you asked that question, I think you’re right. I think you have a chip on your shoulder because you know you’re right or you think you’re right. Then after a long period of time, you’re right. And everybody comes and tells you how great you are and how smart you are and how visionary you are and you want to believe them. That believe and that inability to take the chip off my shoulder almost caused the collapse of our company.
Andrew: What happened?
Jeff: 2008-2009. So, in the US the housing market dropped by 70% over a period of five years. We were growing right through it. We didn’t see. It wasn’t even a blip to us. It didn’t slow down our growth.
Andrew: Really? This whole thing that we see in the movie “Moneyball” where everyone was buying homes one day and then suddenly those homes were worthless and abandoned?
Jeff: But it wasn’t that that slowed our revenue. It was all of a sudden on the back of the “Moneyball” story. It was the credit crisis where the credit evaporated from the market. I will always remember the day in October that we were doing $50 million sales and the all of a sudden $18 million. It was overnight because now it didn’t matter how much money you saved people. You could save them 80%. It didn’t matter. If they didn’t have the money, they couldn’t buy. So our business just stopped. That was a really challenging time personally.
When the business stops like that and your customers are paying you in advance and then you also lose all your cash to build the business and you still have payables to suppliers. That time we probably shouldn’t have made it through that.
Andrew: Why do you say that it was the chip on your shoulder that got you into that situation? It feels like anyone would have gotten in that situation.
Jeff: I see this often in other companies now because I saw it myself as something that changed. I should have at that time massively expanded the team of critical thinkers that would challenge more than, “It’s going great. What could go wrong? How do we build around this resiliency?” I should have more people debating me, a senior management team that was debating that and I didn’t.
That’s what the chip on my shoulder caused. I wanted to believe the people–it’s funny. The same people that were almost laughing at you came and said how great you were. You wanted to believe them. So, instead of the critical thinking that you needed to make sure that your able to continue to grow at worst case event. There are going to be bumps along the road. 2008 was one of those bumps. But I think we could have managed that a lot better at–sorry, I’ve lost your audio.
Andrew: Sorry. You’re saying if you didn’t have this chip on your shoulder, you would have said to yourself, “At some point, we’re going to have a really bad downturn. How do I protect myself? Let’s get ready for that.” That’s the mistake?
Jeff: Yeah. Hire a team that would push me, whether I saw it or not, that would push me to say that.
Andrew: I see.
Jeff: Without a team doing that, you don’t see it.
Andrew: I see.
Jeff: And then if you did have a team that said, “Jeff Booth, we are about to have a downturn,” what would you have done? It’s hard to answer that question now in retrospect because I know what we did in the moment. So, I’m not sure I could answer that question thinking back to that time.
Andrew: By the way, the audio that we’re hearing, that’s got to be your email system or something telling that you’ve got another meeting coming up, right?
Jeff: Yeah. It’s okay.
Andrew: You had to actually sell your home?
Jeff: Yeah. And you were mentioning pre-this interview how entrepreneurs think. I was in this point that yes, I sold my home because what we’ve done–and I don’t think the story goes like this–we actually saw what we had. We didn’t have a lot of things. The business was collapsing. What we did have was a predictive signal. I didn’t see it before.
But it turned out the forcing function of what happened in the market allowed me to see that because we had two different signals, what people wanted and where they were in relation to that from our logistics signal, we actually had a perfect predictive signal for what suppliers should bring in to North America before they brought it in.
So, we convinced suppliers in late 2008-2009 to hold inventory in our warehouses on consignment based on that predictive signal. What it meant was suppliers were giving us essentially free product that we could sell with a really short delivery time at the same cost as what we were doing with the long delivery time.
Andrew: I see. This was after 2008?
Jeff: We found that magic in the crisis of 2008.
Andrew: Got it.
Jeff: And then what ended up happening when you say sold the house, you could see more suppliers were doing this and you could see more buyers and business was starting to accelerate. But we didn’t have enough cash to make it out of it.
It was literally one of those moments where in a week, we have to give notice to all the employees and I went to my wife and I said, “We have to face that this is zero right now. It’s worth exactly zero. If we put all our money from the house into the company, it doesn’t guarantee its success. It’s not 100%.” I probably said something like it’s 70% and the reality is probably 50, but I wanted her to understand the downside of doing that to understand what we had.
Actually, out of that, if she could understand the downside of that and be okay with the downside, I felt like it was an asymmetric bet. What I really had is I had everything I wanted–family, friends, everything else. If she could understand, then we could go all in. So, we made the decision to go all in.
Actually, if I rewind that situation, I actually believe this. Even if it came out the other side six months later at zero, I think the people that stayed with me were worth more in that six month later than we were in the moment of time.
Jeff: Because people want to bet on people like that, “Okay, I’m going find a way to make this work. I’m going to take accountability to go after this.” I know what happened, the change in our team, people that came together to solve this in that period of time it was amazing. We were worth more.
Andrew: I see. You’re saying even if this whole idea that you’re betting your house on and you’re betting your business, the fact that you worked hard for those six months together as a team and stuck it out makes you more valuable as business.
Jeff: Every single investor that I’d just rolled over, they would have accepted, “2008, really hard times. It’s okay to fail.” It wasn’t okay to fail. If I fast forward after going all in and then went back to my investors and said, “Hey, we did everything we could,” and then I started a new business the next day, all of those investors would have bet on me again.
Andrew: I see. Jeff, let me ask you this. 1999, you start the company, 2008, you’re basically at zero. You’ve worked for nine years and you’re at zero. You’re now nine years later–nine hard years. We’re not talking about easy coasting years. Nine hard years later, the company is in trouble. You have to not just come up with new ideas to solve the problems, but live in a smaller house, which takes its toll on who you are, right? The surroundings you’re in inform who you believe you are at some level, don’t you think? No?
Andrew: What did you do? I can imagine at that point, I’d be too exhausted to solve it, too exhausted to be creative, feel too lacking in motivation for myself, let alone for my team. What did you do to note succumb to that?
Jeff: So, I don’t think that things are around us, that material things around us define our value. I don’t think money defines our value. I know it sounds like I’m being really firm here. What defines our value solely is our positive impact on other people.
Andrew: But when you’ve gone through all this for nine years and you’re still struggling, how do you find the wherewithal internally to motivate yourself, to motivate the team, to come up with fresh ideas like this consignment idea, to be a better entrepreneur than you were before. How do you find it? What do you to get to that? Sorry?
Andrew: So, what’s your self-reflection like that allowed you to do it? What’s the process?
Jeff: I’m constantly asking myself is there a thing I believe in? Everything that’s coming at me, just about everything is a reaction to who I am. If your business isn’t working, it’s because of something you’re doing, period. If your friends aren’t working, it’s because you’re doing something to do that. You control your time. You control everything you do.
Having that mental–it forces the change on yourself, rather than being a victim to circumstance in the market, being a victim. I see the pattern repeat everywhere. I see people say, “Well, I can’t do this because of this. I can’t do…” They’re right. They can’t because they believe somebody else controls their time.
I choose not to live a life like that. I choose to live that I’m in control of my time and therefore the life that I create. Everything is a choice. So, when it’s a choice and when you ask that question, you’re assuming that it’s negative. You’re assuming it’s, “How do you do this?”
Andrew: The negative part meaning going into a small rental after you have a bigger house that you own.
Jeff: When it’s a choice and you’re doing it, it’s completely free. The downside falls away and you’re doing it because you want to do it, period.
Andrew: I see. That makes it easier, a lot easier. It makes it almost motivating.
Jeff: If you didn’t do it that way, if you carried the baggage in, you couldn’t be creative enough to get out. Actually, that’s why I wanted for my wife and I to understand–I wanted to know what it would look like at zero if I still had–by the way, this is true, if there was one piece of her questioning me that would come from that, what it would look at zero, I wouldn’t have done it.
Andrew: I see.
Jeff: I wouldn’t have taken the risk. So, now think about what it told me about her. She didn’t care about the money. She believed in me 100%. If it all went to zero, we had everything anyway. So, imagine what that does to your motivation.
Jeff: All the energy just goes into the positive part to make it work.
Andrew: And you don’t spend too much time thinking about how you screwed up before. Okay. So, you got the business back on track. You grew it and then you ended up with another problem which led to your latest product. The problem was that you couldn’t keep enough inventory.
Andrew: So, now you’re taking inventory from your suppliers, paying on consignment. So, when you can’t keep the inventory, when you have an inventory problem, how did you solve it?
Jeff: So, what it looked like–we had a Net Promoter Score of 75. We have a Net Promoter Score of 75. What that means is customers tell everybody. We couldn’t keep up to the demand. So, we were out of stock about 50% of the time on different products customers wanted. I liken it to having 12 black cars on Uber and asking them to drive faster. We couldn’t solve that. We tried a whole bunch of different ways.
Again, you get to these crossroads and you think the problem is everybody else. You think if we just work harder, if we hire more people to tell suppliers more, how can that look? We tried a whole bunch of different ways to solve that and it didn’t work. We couldn’t get the inventory problem solved and we couldn’t increase the number of products on our marketplace, at least substantially.
So, we decided to look at the problem differently. We said, “What if we looked at it as we were a user of a system we were going to create for the industry. What would that look like?” So, we took all this technology we developed and we said, “Let’s give it away and let suppliers come on for nothing. We’ll give them the data back to tell them what to do and where to put products.” It’s early still, but it’s been wildly successful.
Andrew: So, they can sell on your platform and it comes directly from their factors and they don’t need to hire the mathematician that you did to figure out how to get it all over to the customer.
Jeff: They want to, they could use their own logistics, most of them choose to use our logistics because there’s so much scale there. Our goods travel over six million miles a month. So, if you think about how much scale we have on our logistics–most companies, because there’s so much power there and efficiency there, they choose to use our logistics services to do that job.
Andrew: What do you do for marketing, to build up to such a–I was actually looking at SimilarWeb to get a sense of where your traffic was coming from. You have a ton of traffic. I just can’t tell what you’re doing to drive it all to your sites. All I find are little sites where I can’t even find what those little sites are doing to send you traffic.
Jeff: So, in the whole time where we couldn’t keep up to demand, we actually turned down all the traffic. We do have a ton of traffic. I think over two and a half million shoppers a month and growing. A lot of it is direct and repeat and some is SEO. We have content. A small part is paid. We’ve actually taken a lot of the marketing dollars out of this.
Andrew: What’s the biggest marketing channel for you?
Jeff: I don’t have that data right now. It used to be Google. I don’t know if it still is.
Andrew: Okay. Yeah. I was looking for one thing that I could look at and say, “Aha, that’s the thing that works for them.” I haven’t been able to find it. I do see that you buy ads on Google, like, “Hardwood floors at $2.39 per square foot,” seems like the kind of ad you have. I’m not seeing anything that’s specific that’s bringing in all this traffic.
Well, this is an incredible success story. You’ve got over $100 million for a guy that nearly went out of business I feel like at least twice, if not way more.
Andrew: And the business is continuing to grow. It’s BuildDirect.com for anyone who wants to check it out. Like me, you’re also a big fan of “How to Win Friends and Influence People,” one of your favorite books.
Jeff: Love it. Yeah. One of the first ones I read.
Andrew: Yeah. I highly recommend it. All right. Thank you so much for doing this interview.
Jeff: Thank you very much. This was great.
Andrew: And for dealing with all the tech issues that we had just to get started here.
Jeff: No problem at all.
Andrew: Cool. Thank you all for being a part of it. Remember, my two sponsors are if you need to schedule an appointment with someone and you’re not getting enough people scheduling appointments with you, it’s not you. It’s not the way you’ve written your emails. It’s because you don’t make it easy for people. Make it easy for them. Go to AcuityScheduling.com/Mixergy. And if you want to become a killer developer, really, no matter where you are, no matter how far back you’re starting, go to ReactorCore.com–Hack Reactor is one of their properties–ReactorCore.com is where you want to go to start off.
Thank you all for being a part of Mixergy. And because I didn’t do this before, for Joe–Joe, thanks for editing. And Jeff, thanks for sticking with me.
Jeff: it was great, Andrew. Thanks very much.
Andrew: Thank you. Bye.